It may sound like a harsh question. But the man is seriously ill with cancer, and he has had no public appearances in over a month. Rumors abound that he is near death…or may already be dead. As he is reported to be in Havana, some have even speculated that the Cuban government is essentially holding him hostage to secure its own future.
Love him or hate him, the authoritarian Venezuelan president has quite a few mouths to feed across Latin America, and his death could send shockwaves across the region. Let’s take a look at who is most likely to be affected…and what it might mean for the financial markets.
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At the top of the list is the Castro regime in Cuba. Cuba gets about two-thirds of its oil from Venezuela, and most is either given to the island free or via loans that everyone involved knows will never be repaid. By Wall Street Journal estimates, Venezuela accounts for 40% of Cuba’s overall trade…and Venezuelan aid and trade is worth about 22% of Cuba’s entire economy.
For all intents and purposes, Chavez is the patrón of Cuba, and the Castro regime continues to exist at his pleasure. And if Chavez dies, his radical movement will probably die with him, or at the very least it will be significantly weaker without his cult of personality.
Without Chavez’s patronage, Cuba will have to seek a lifeline elsewhere…which means it will likely have to open its economy further to foreign investment. Perhaps the best way to get exposure to an investment boom in Cuba and its neighbors would be via the shares of the Herzfeld Caribbean Basin Fund (Nasdaq:$CUBA).
It is by no means a pure play on Cuba (remember, we’re talking about a communist country here…), but it is a nice collection of companies in the tourism, banking, and consumer products companies of the Caribbean and Latin American regions that should benefit from Cuban liberalization.
The Castro brothers are not the only radical regime at risk from the demise of Chavez. Bolivia and Nicaragua both depend on Venezuelan generosity, and Syria and Iran have benefitted from political and diplomatic support. None of these are really investable themes, however, and it’s probably better that way.
One major question mark is the price of crude oil (NYSE:$USO). Venezuela has the largest oil reserves in the world—yes, even larger than Russia or Saudi Arabia—yet its annual production places it in 11th place globally. Venezuelan crude oil production has been in steady decline since Chavez took power and for obvious reasons. Professional managers were replaced with political hatchet men, and no foreign investor in their right mind would invest in the country even if Chavez allowed them.
The death of Chavez and the fall of his regime would likely mean massive foreign investment in the Venezuelan oil industry and could lead to a surge of new production…which would be incredibly bearish for the price of oil.
Alas, all of this is premature. Chavez is still alive—as far as we know—and his death will not automatically bring free trade, peace, and prosperity to his country. A far more likely outcome will be years of political infighting and…in the worst case…civil war.
In the meantime, all eyes are on Havana.