VULNERABILITY OF US OIL SUPPLIES IN THE CARIBBEAN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85S00315R000300090001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 28
• Document Creation Date: December 22, 2016
• Document Release Date: February 2, 2011
• Sequence Number: 1
• Publication Date: November 1, 1984
• Content Type: REPORT

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Directorate of
Intelligence
Vulnerability of
US Oil .Supplies
in the Caribbean
A Research Paper
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Directorate of Secret
Intelligence
Vulnerability of
US Oil Supplies
in the Caribbean
Secret
G184-10201
ALA 84-10106
November 1984
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Summary
In/ormation available
as of 19 October 1984
was used in this report.
Vulnerability of
US Oil Supplies
in the Caribbean
through the Caribbean region in 1983.
The Caribbean region is vital to US energy security. Last year about
5 million barrels per day (b/d) of US petroleum consumption-about one-
third of the total-originated in or transited the region. We estimate that,
including shipments to other countries in the region, approximately 8
million b/d of oil, or one-third of the world's oil trade, came from or
vulnerable.
Two key passages, the Yucatan Channel and the Straits of Florida, handle
almost half the oil transiting the region and either passage is potentially
vulnerable to military interdiction from Cuba. Facilities that produce and
export the over 3 million b/d of oil from the area-mainly in Mexico and
Venezuela-are also highly vulnerable to attack or sabotage. Mexico is
particularly susceptible because of minimum redundancy in the petroleum
handling facilities in its major offshore oilfields. In our view, even with
several thousand US military personnel, the Panama Canal and oil pipeline
through Panama--carrying about 1.4 million b/d of oil-are also highly
the Caribbean's export refineries and transshipment terminals.
Despite the vulnerability of the facilities, we do not expect a serious
curtailment in the near future:
? The availability of alternative transportation routes through the Caribbe-
an reduces the significance of many of the area's choke points.
? Current apparent political and social stability in Mexico and Venezuela,
the region's major oil producers, decreases the potential of major supply
disruptions being caused by internal problems.
? Approximately 7 million b/d of excess oil productive capacity is outside
the Caribbean region and should be available through most of the
decade.
? Lower US oil consumption and imports, and the availability of excess
refinery capacity in the United States, greatly lessens US dependence on
involved rather than on US supplies.
United States, oil shipments could perhaps be curtailed. Although the
United States probably would be able to obtain oil from other sources,
there probably would be at least temporary supply disruptions until world
oil supplies stabilized. Beyond this, individual oil facilities or transportation
systems could become an attractive target for terrorist or insurgent groups.
The impact in these circumstances would be principally on the country
Over the longer term, if worsening economic conditions in Mexico or
Venezuela led to internal unrest or a reappraisal of relations with the
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Major Oil Suppliers
C. Caribbean Region: Oil Refining and Transshipment
1. United States: Oil Imports, 1979 and 1983
2. Caribbean Region: Oil Production and Exports, 1983
3. Economic Importance of Oil Earnings to Caribbean Producers, 1983 3
4. Caribbean Region: Primary Oil Flows
5. US Refinery Capacity
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Vulnerability of
US Oil Supplies
in the Caribbean
About 70 percent of US petroleum imports-30 per-
cent of domestic consumption~riginates in or tran-
sits the Caribbean region.' US imports transiting the
Caribbean Sea or entering the Gulf of Mexico must
pass through such potential choke points as the Straits
of Florida and Yucatan Channel, and large quantities
of Alaskan crude are shipped to refineries in the
Caribbean or eastern United States through the Ca-
nal and oil pipeline in Panama. Oil facilities in key
exporting countries in the area, such as Mexico and
Venezuela, are highly vulnerable to attack. Any hos-
tility against oil supplies in the Caribbean could hurt
the United States.
This research paper addresses the importance to the
United States of the free flow of oil through the
Caribbean region. It discusses the producers, major
facilities, and land and sea routes in the Caribbean
Basin and Gulf of Mexico that supply oil to the
United States; assesses their vulnerability to both
internal and external threats; and examines the Unit-
ed States' ability to compensate for these disruptions.
The United States receives about 40 percent of its
crude oil and petroleum product imports from the
Caribbean region, primarily from Mexico and Vene-
zuela. In turn, revenues generated by oil exports to the
United States are vital to the economies of these
countries. Unlike a number of countries in the Carib-
bean region, Mexico and Venezuela have experienced
relative political stability for some time and in recent
years generally have been free from such internal
threats as insurgency or terrorism. Both countries
' For this paper, the Caribbean region includes the Caribbean Sea,
Gulf of Mexicq, their associated littorals and sea approaches, and
maintain cordial relations with the United States-
although Mexico traditionally has been more suspi-
cious of US motives-and share extensive economic
ties to the United States in nonoil areas as well.
We doubt that these countries would intentionally
jeopardize their important oil relationship with the
United States. Nonetheless, the severity of the foreign
payments and domestic economic problems that they
are experiencing will introduce unaccustomed internal
stresses over the next few years. If the internal
political setting changed as a result, or if US policy
led to flagging financial support or rising protection-
ism, these countries might pursue more vigorously
alternate markets for oil customarily sold to the 25X1
United States. Although the possibility is remote,
Mexico City and Caracas also could cut oil shipments
in response to a US military intervention in Central
America, if it a eared to them that the action was
unjustified. 25X1
The likelihood and domestic economic impact of such
moves would depend primarily on conditions in the
world oil market, the availability of other customers,
and the level of support among other oil producers. 25X1
Because these countries must export oil to earn the
hard currency needed to support economic develop-
ment programs, however, it could be difficult for them
to develop other markets for the large volumes of oil
customarily sold to the United States. If Mexico and
Venezuela exported oil elsewhere, leaving the total
world supply largely unaffected, the United States
could continue to buy oil from other sources, although
initially there would be some disruptions.
Mexico: Trying To Diversify Its Oil Customers 25X1
Last year Mexico was the United States' main foreign
source of oil, with over 800,000 b/d of Mexican crude
and product imported-16 percent of the US total. At
the same time, the United States was the largest
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Table 1
Table 2 Thousand barrels
United States:
Caribbean Region: per day
Oil Imports, 1979 and 1983 a
Oil Production and Exports, 1983
Origin 1979 1983
Mexico a Venezuela a Trinidad and
Tobago b
Volume Percent Volume Percent
production 2,66ti 1,781 159
(1,000 (1,000
barrels barrels
Exports 1,60ti 1,475 110
per dayJ per dayJ
United States 823 ~ 416 96
Total imports n 8,456 100.0 5,051 100.0
Canada 4CI 58
TotaIOPEC 5,637 66.7 1,860 36.8
Japan 12(1 21
Saudi Arabia 1,356 16.0 337 6.7
Europe 363 325
UAE 281 3.3 30 0.6
United 8`. 26
Iran 304 3.6 48 1.0
Kingdom
Algeria 636 7.5 240 4.8
_ West Germany CI 43
Libya 658 7.8 0 0
France 8~I 20
Nigeria 1,080 12.8 302 6.0
Italy 13 95
Indonesia 420 5.0 338 6.7
Spain 16:! 21
Venezuela 690 8.2 422 8.4
Others 2(I 119
Other OPEC 212 2.5 143 2.8
Caribbean/Central 117 546 14
America
Total Non-OPEC 2,819 33.3 3,189 63.1
-
Netherlands 4(I 358
Mexico 439 5.2 826 16.4
Antilles
Canada 538 6.4 547 10.8
Cuba (I 20
United Kingdom 202 2.4 382 7.6
Other 77 168 14
Norway 75 0.9 66 1.3
South America 61 76
Netherlands Antilles 231 2.7 189 3.7
Brazil SE. 55
Trinidad and Tobago 190 2.2 96 1.9
_
Other `~ 21
The Bahamas 147 1.7 125 2.5
Israel 54 0
US Virgin Islands 431 5.1 282 S.6
Africa 0 22
Puerto Rico 92 L 1 40 0.8
Asia 17 1
Other Non-OPEC 473 5.6 636 12.6
Other 1 ] 10
Persian Gulf 2,070 24.5 439 8.7
a Official government export statistics.
Caribbean region 2,221 26.3 1,980 39.2
b Estimated.
Oil consumption 18,513 15,184
~ Includes 60,000 b/d of refined products.
a Including refined products and natural gas liquids.
b Because of rounding, components may not add to the totals shown.
Among Mexico's oil customers, only the United
States is at or near the 50-percent ceiling. Spain, its
purchaser of Mexican oil, taking over half of Mexico's
second-largest customer, received only 10 percent of
1.6 million b/d of crude oil exports in 1983. To limit
Mexico's crude exports in 1983.0
its dependence on the US market, Mexico's policy
objective since 1980 has been to sell no more than 50
Unless a significant turnaround occurs in world oil
percent of its crude exports to any country or furnish
demand, Mexico will continue to depend on the US
more than 20 percent of any country's oil imports.2
market. Still, continued US access to large quantities
' The US share of Mexico's crude oil exports in 1983 would be
slightly less than 50 percent if the $1 billion worth of crude sold to
the US strategic petroleum reserve-a sale critically needed by
Mexico to raise cash-were excluded.0
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Table 3
Economic Importance of Oil Earnings
to Caribbean Producers, 1983 a
GDP
Government
Revenues
Export
Earnings
Mexico
10
36
72
Venezuela
33
67
95
Trinidad and Tobago
36
59
91
a Petroleum sector as a share of GDP, oil revenues as a share of
government revenues, and oil exports as a share of total export
earnings.
of Mexican oil is not guaranteed. The US-Mexican oil
relationship has been strained almost since production
began in the early 1900s, and Mexico's heavy depend-
ence on the United States continues to irritate most
Mexicans. We believe any decision by Mexico City to
curtail oil exports to the United States would be taken
only under extreme circumstances because it would
hurt not only oil revenues, but other key links as well:
? About 80 percent of Mexico's nonoil exports go to
the United States, and Mexico depends heavily on
US imports, particularly capital goods and food.
? About 25 percent of Mexico's $98 billion foreign
debt is owed to US banks.
? Two-thirds of foreign direct investment in Mexico
comes from the United States.
? Salary remittances from Mexican immigrants in the
United States, either legal or illegal, help to bolster
Mexico's living standards and are a critical source
of foreign exchange.
Apart from a political decision, access to Mexican oil
also could be threatened by Mexico's strong oil
workers' union, which could seriously disrupt oil
supplies in a prolonged strike. Other problems include
lingering peasant claims to compensation for land
damaged during oil exploration and development in
the 1970s. Peasants demanding reparations blockaded
a refinery and nearly 200 wells in the southern state
of Tabasco last year. Should economic distress lead to
antigovernment violence or terrorism, oil installations
would present attractive targets for sabotage or at-
tack.'
' Appendix A describes the general vulnerabilities of the major
components that typically com rise petroleum production and
export facilities~~
Vulnerable Oil Facilities. The chief vulnerability of
petroleum facilities in Mexico is their physical con-
centration, with over 60 percent of the oil produced
offshore in the Gulf of Campeche and almost all of
the remainder coming from adjacent fields in the
provinces of Vera Cruz, Tabasco, and Chiapas. The
resurgence in Mexico's oil production since the mid-
1970s and its geographic concentration has encour-
aged Pemex-Mexico's national oil company-to use
modern technology in developing new oil and gas
fields. The facilities are highly integrated, and the
equipment is designed to take advantage of the eco-
nomics of large-scale operations. Because the system
has minimum redundancy in many areas, however, it
is vulnerable.
Last year Mexico produced 2.7 million b/d of crude
oil from approximately 3,600 wells. The bulk of this
output-almost 1.7 million b/dame from only
about 125 oil wells in the Gulf of Campeche. These
wells are supported by 20 production platforms, but
destruction or serious damage to only three key
platforms could completely halt offshore oil produc-
tion. In addition, much of the output is exported
through the oil terminal at Cayos Arcos, built on
platforms 150 km at sea, which is earmarked to
become Mexico's major export facility. Mindful of the
vulnerability of this facility, Pemex already has com-
pleted multiple large-diameter pipelines from the
offshore fields to its two onshore oil export terminals,
reducing somewhat the possibility of export disrup-
tions at the port at Cayos Arcos.
Mexico's ability to defend oil facilities against sabo-
tage or other attack is limited. Although military
units are stationed in oil-producing regions, none are
permanently assigned to oil facilities. According to a
US military officer with experience in Mexico, securi-
ty at major oil installations consists of little more than
an armed guard at the gate. Although most facilities
are fenced, none have sophisticated electronic moni-
toring devices or other technical security systems.
Secret
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Figure 1
Oil Facilities
San Luis
Potosi
Dos
Boca
1 multiple (with number
of lines)
Refinery
~r+ Fxport terminal
---~--- Fstado boundary
BELMOPAN
TEGUCIGALP*
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In recent years, Mexico City has examined ways to
improve its ability to defend the most vital oil installa-
tions. The Air Force has purchased a few fighter
aircraft to bolster air defenses. The Navy has contem-
plated updating coastal surveillance systems to protect
pressing economic difficulties, however, we believe it
will be some time before substantial investments are
made in oilfield security.
Venezuela: Close Relationship With the United States
Last year the United States imported about 600,000
b/d of Venezuelan crude oil-including indirect im-
ports of an estimated 175,000 b/d of petroleum
refined in the Netherlands Antilles-which accounted
for approximately 12 percent of US oil imports. The
US share of total Venezuelan oil exports was 40
percent, or approximately the same as the previous
year, and we believe sales will remain at about current
levels through the rest of this decade. Slack world
demand for refined products will continue to tie
Venezuelan residual fuel oil exports to the US mar-
ket, and Venezuela's increasingly heavier grades of
crude oil exports will require the more sophisticated
processing available in many US refineries. Nonethe-
less, we believe Caracas will continue attempts to
lessen its dependence on the United States for oil
sales, as well as oilfield technology and services.
We believe Venezuelan officials are unlikely to seri-
ously contemplate withholding oil exports to the Unit-
ed States. Revenues generated by US oil purchases
are vital to Venezuela, contributing about 30 percent
of that country's export earnings and over 20 percent
of government revenues. As with Mexico, in contem-
plating any reduction in oil sales to the United States,
Caracas would have to consider not only the effect on
oil revenues but also the potential impact in nonoil
areas. For example, about one-half of Venezuela's
imports-primarily capital goods~ome from the
United States.
Although the US-Venezuelan oil relationship general-
ly has been smooth in recent years, a number of issues
that have caused friction in the past could cloud
prospects for closer cooperation. The thorniest con-
tinuing irritant stems from Venezuela's 1976 nation-
alization of the petroleum industry. Claiming that
taxes were owed to the government, Caracas withheld
some funds that the oil companies-mostly US
based-expected as compensation. Despite the con-
tinuing inability to reach a settlement in the dispute,
however, relations between Venezuela's national oil
company and most major US oil companies remain
cordial.
Venezuela's position as a founding member of OPEC
also has periodically aggravated its oil relations with
the United States. Caracas has maintained a relative-
ly moderate stance within OPEC, however-particu-
larly on prices-and also did not support the 1973-74
Arab oil embargo, even temporarily increasing pro-
duction to ease pressure on world oil supplies. Should
the Strait of Hormuz be closed for an extended
period, we believe-based on public statements by
ultimately be prepared to increase its oil production.
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Other issues also could affect the stability of Venezue-
lan oil exports to the United States. For example, 25X1
Venezuela could try to link a lowering of US interest
rates or other concessions on its external debt to oil
sales, particularly if deliveries of Middle East supplies
become severely disrupted. Under the former Herrera
administration, Venezuela sought to link oil sales to
such benefits as technological assistance and in-
creased access to foreign markets
Internal instability in Venezuela at levels that would
seriously threaten US oil supplies seems unlikely in
the next few years, although Venezuela's failure to
diversify its economy could begin to challenge internal
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stability over the longer term. We expect little recov-
ery in Venezuela's economy until oil prices rise sub-
stantially-an unlikely development through at least
the late 1980s. Most Venezuelans seem to accept the
necessity for increased belt tightening to lay the basis
for sustained economic recovery. Nonetheless, soaring
unemployment and prolonged austerity could provoke
sporadic social unrest or conceivably-but less likely
because of the military's vigilance-the beginnings of
an insurgency. While we doubt that Venezuela's oil
industry would be targeted directly because Venezue-
lans consider it part of their national heritage, politi-
cal uncertainties in the country could indirectly
threaten the reliability of Venezuelan oil supplies.
Redundant Oil Facilities. Redundancy in the Vene-
zuelan oil system makes it much less vulnerable than
Mexico's. The Venezuelan oil industry was built
under the direction of 14 different oil concession-
aires--comprised of over 20 oil companies, most US
owned-each with separate crude processing systems,
from pipelines to export terminals and refineries.
Since nationalization, these operations have been con-
solidated into four producing companies under the
umbrella of the national oil company, although much
excess handling capacity still exists within the coun-
try's oil facilities. Constructed before 1970, most were
built to handle oil production volumes double the
current 1.8-million-b/d level.
Venezuela has almost 12,000 active oil wells in about
70 oilfields. All production comes from onshore
fields-including those in Lake Maracaibo-and
there are no plans to produce oil from the offshore
continental shelf. Three-fourths of Venezuelan oil
production comes from the western fields of the
Maracaibo basin, which is served by seven export
terminals with over 3.5 million b/d of total loading
capacity. In eastern Venezuela, eight major long-
distance crude oil pipelines connect the interior fields
with five export facilities. These ports have a total
capacity of over 1 million b/d of crude oil and refined
products
The most vulnerable facility in Venezuela is the
630,000-b/d refinery at Amuay, which contains over
half the country's oil refining capacity. While its loss
would deprive the economy of some supplies of lighter
refined products, particularly gasoline, the country's
seven other refineries-including 'two large export
plants-could meet most of the country's internal oil
needs, with some margin for export. Venezuela, how-
ever, would lose somf; flexibility in marketing its oil.
OPEC pricing guidelines do not apply to refined
products, which allows Caracas the latitude to lower
prices and boost product sales whf;n demand for crude
oil weakens.
Because Venezuela has not been seriously threatened
by either internal or external threats, physical securi-
ty at oil installations has had low priority.
1982 the Venezuelan Army surveyed oilfields to
determine security requirements but no improvements
have been observed, apparently because of financial
constraints and the lack of a perceived threat.
The primary significance of the Caribbean islands to
US energy security is their oil refining and transship-
ment activities.' The importance of Caribbean refiner-
ies has diminished considerably since the late 1970s,
when US consumption exceeded domestic refining
capacity and refineries in the Caribbean supplied the
balance. Because of reduced oil demand since then,
US domestic refineries now have about 2 million b/d
in excess capacity-rnore than enough to handle the
total amount refined in the islands. Nevertheless, loss
of supplies from a Caribbean refinery could be signifi-
cant if coupled with a disruption of oil flows into the
Gulf of Mexico.
As US refiners pare excess capacity, demand for
refined products from the Caribbean may revive.
Meanwhile, continued underutilization of the island
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Figure 2
Oil Facilities in Venezuela and the Southern Caribbean
Oilfield
Oil pipelines
single
s ~ multiple (with number
of lines)
Refinery
~+.. Export terminal
= Transshipment terminal
0 100 200 Kilometers
(Netherlands)
~ ~ Oranjestad
Aruba'.
Bnnla de
Ieb4~ro
lsia de
Mmgnrifa
Venezuela Orinoco
La