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How to address vulnerability at our ‘third border’

Greg Nash/Associated Press – Susan Walsh

As the United States moves to bolster its presence in the Indo-Pacific region, U.S. policymakers should not forget the vulnerability of our third border to the south: the Caribbean. The U.S. has three competitors for influence in the Caribbean small island nations which are so close to home: China, Russia and Venezuela. The new U.S.-Caribbean Partnership to Address the Climate Crisis 2030 (PACC 2030), headed by Vice President Kamala Harris, is a good start to manage these competitors, but so far these and other efforts are long on engagement and a bit shorter on resources and deliverables.

The nations of the Caribbean are heterogeneous in size, population, economic diversification and resource endowment. However, they all share a high level of dependence on heavy, high-emission fuel oil for power generation, energy insecurity due to a lack of diverse supply sources,  sharply limited resilience in their energy systems, and high electricity prices. According to the World Bank, this region has been especially vulnerable to recent fossil fuel price shocks.

However, most of the Caribbean countries are considered “middle income” by World Bank standards, with limited access to development financing. At the same time, most of these island states are weak credits for traditional private financing, with small populations and limited markets. This combination opens the door for geopolitical competitors to the U.S. to offer cheap credit or unconditional financial assistance in exchange for influence.

China is perhaps the most significant growing presence in the Caribbean. A recent House Foreign Affairs Committee report estimates that China has invested some $10 billion in six Caribbean countries since 2005. In Jamaica, for example, Chinese monies saw the construction of the North South Highway (which left Jamaica facing a $730 million debt) and other roadways. The basic pattern has repeated over and over again in the region, from Guyana to the Bahamas. All of this is before considering how China has abetted Venezuela’s Maduro government in circumventing U.S. sanctions by buying discounted Venezuelan crude oil.

Another U.S. geopolitical adversary, Russia, is a long-standing financier of Cuba. Russia has also served as both a supplier of petroleum products to Venezuela and a purchaser of its discounted crude oil. Venezuela, despite the powerless state of its economy, has revived its PetroCaribe initiative to again provide crude oil to already indebted countries. This approach enables Venezuela and others to secure geopolitical influence at a relatively low cost.

The U.S. needs to do a better job of delivering on support for the Caribbean in order to have credible influence in the region.

Four steps are worthy of consideration.

First, the U.S. should consider working with the International Monetary Fund (IMF) or one of the regional development institutions to provide a short-term fuel security assistance program. Such a proposal could ease energy insecurity concerns in the region’s most fragile economies. This could be conceived of as an emergency measure to help vulnerable communities in a developing region, with the added geopolitical advantage of helping our neighbors eschew Venezuelan influence.

Second, the U.S. could provide credit support and low interest loans at a regional scale to accelerate the transition to renewable and zero-carbon power. President Irfan Ali of Guyana recently stated that, for the CARICOM countries to meet their collective 47 percent renewable energy target by 2027, $11 billion must be invested in the region over the next decade. But the painful impacts of the global pandemic have slowed many countries’ green energy transition plans. The problems of a lack of credit support, first loss financing or an additional layer of equity participation could be filled by a bespoke regional development program which targets these “middle income” countries.

Third, the U.S. needs to take a more flexible approach to the Caribbean region’s native oil and gas resources. U.S. policymakers should recognize the role that hydrocarbons can play in regional energy security and, indeed, accelerating the region’s long-term energy transition. The Biden administration should be clear that it welcomes Guyana (and soon Suriname’s) responsible oil development as a source of non-OPEC supply and as a local revenue generator. It should also embrace Trindad & Tobago’s role as a recovering LNG supplier and manufacturer of methanol and ammonia, a pragmatic perspective evidenced by the recent decision to issue licenses for the development of a gas field which the country shares with Venezuela. The U.S. might consider ways to expand its recent bit of sanctions jujitsu by enabling more pathways for Venezuela’s gas to be accessible to Trinidad, as long as the payment for that gas is in humanitarian goods and not cash for the Maduro government.

Finally, the U.S. should take a pragmatic approach toward the deployment of small-scale LNG in the Caribbean – particularly where such facilities can be supplied by floating storage and regasification units. Such small-scale gas projects can power mobile gas-fired generators and provide immediate decarbonization benefits to nearly every country in the Caribbean at low cost. This sort of mobile technology is already in action in places like California and could be replicated and scaled in the Caribbean. Trinidad & Tobago is already pioneering a suitable small-scale LNG project that could supply such generators. Its National Gas Company (NGC) projects that its designated gas hub will be operational by 2025 and will offer its neighbors a handling capacity of up to 500,000 tonnes of natural gas a year. If Trinidad can provide supply, the U.S. could finance these mobile and small-scale generators to provide transitional, temporary power supply as renewable energies advance in the region.

Ultimately, the benefits of a robust U.S. effort to support energy transition in the Caribbean dramatically outweighs the costs. Simultaneously, the U.S. can deter external influence and rapidly accelerate decarbonization in a region of deep importance. Financing energy security at a regional scale should therefore be a key U.S. priority in these crucial months ahead of COP28.

David L. Goldwyn served as Special Envoy for International Energy under President Obama and Assistant Secretary of Energy for International Relations under President Clinton. He is the chair of the Atlantic Council’s Energy Advisory Group.

Tags American finance American influence Biden foreign policy Caribbean China Chinese influence Chinese investment Energy economics Energy policy Fossil fuels fuel oil Joe Biden Kamala Harris Liquefied natural gas LNG power generation Russia Venezuela

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