Cuba is reaching ‘breaking point’ as fuel shortage worsens. What to know

Cuba faces deepening economic distress after airlines including Air Canada suspended flights amid a reported fuel shortage tied to reduced oil shipments from Venezuela and threats of U.S. tariffs; the government says U.S. sanctions cost the country over $7.5 billion between March 2024 and February 2025. The power grid collapsed in 2024 leaving over 10 million people without electricity, prompting emergency measures—shorter workweeks, limited transport and fuel rationing—and a hit to tourism that once generated roughly $3 billion annually (Canadian visitors fell to ~754,000 last year, down 12% from the prior year and well under the 1.3 million pre-pandemic average). The developments raise downside risks to regional stability and travel-sector recovery while constraining supply chains and energy access in an already strained emerging-market economy.

Analysis

Market structure: Direct losers are Air Canada (AC.TO) and Canadian tour operators tied to Cuban resorts—expect a 5–15% near-term revenue hit to carriers with concentrated Caribbean exposure as bookings collapse and routes are cut; winners are domestic-focused carriers (U.S. airlines) and alternative Caribbean destinations that can capture displaced demand. Competitive dynamics: capacity will reallocate to Mexico/Dominican Republic leading to short-term fare volatility and pricing power for carriers with flexible fleets; tour operators with diversified footprints gain share. Cross-asset signals: AC.TO equity implied volatility should rise 30–60% from baseline; modest upward pressure on Brent/WTI (+$2–$7) if Venezuelan flows tighten further; CAD may weaken 0.5–1% on risk-off and lost tourism receipts, while travel sector credit spreads could widen 50–200bp for weaker issuers.

Risk assessment: Tail risks include a sudden Venezuelan supply cutoff or wider sanctions that push WTI +$10 within 1–3 months, and a Cuban regime collapse causing regional instability and refugee flows that would hit tourism for 6–24 months. Time horizons: immediate (days) = route suspensions and booking cancellations; short-term (weeks–months) = Q2 revenue misses and earnings revisions; long-term (quarters–years) = structural tourism shrinkage 10–30% if sanctions persist. Hidden dependencies: Canadian banks, insurers and pension funds have indirect exposure via consumer travel loans and resort REITs; hurricane season (June–Nov) is a catalyst that can compound supply-chain disruption. Key catalysts to watch: U.S. tariff enforcement dates, PDVSA export data (kb/d) and Canada travel advisories within the next 30–90 days.

Trade implications: Direct: initiate a tactical 1–2% notional short position in AC.TO or buy a 3-month put spread (10%–20% OTM) sized to risk 0.5% portfolio to profit from near-term downdraft; set stop-loss at 25% of premium. Pair trade: long Delta Air Lines (DAL) or JETS ETF (50/50 split) vs short AC.TO to capture domestic vs international exposure divergence over 3–6 months. Options: buy a 3–6 month WTI call spread (e.g., $5 width) if Venezuelan shipments fall >200 kb/d; unwind if WTI rises +$7 or after 3 months. Sector rotation: reduce weighting in Travel & Leisure and Caribbean-focused REITs by 2–4% and redeploy to domestic leisure and energy midcaps with >60% free cash flow coverage.

Contrarian angles: The market is overstating Cuba’s macro footprint—Cuba consumes <0.5% of global oil so oil shocks are possible but not certain; an AC.TO oversell >25% would create a high-probability mean-reversion entry for a 6–12 month recovery trade. Historical parallel: prior Cuba-centric crises produced 12–36 month tourism recoveries once sanctions eased, so scale into longs on confirmed diplomatic thaw (travel advisory downgrade or PDVSA flow resumption). Unintended consequence: aggressive U.S. pressure can entrench anti-U.S. sentiment and prolong sanctions, so prefer staggered position sizing and explicit exit triggers tied to policy events within 30–90 days.

Key Decisions for Investors

• Establish a tactical short position in AC.TO sized at 1–2% of portfolio notional or buy a 3-month AC.TO put spread (10–20% OTM) risking 0.5% portfolio; set option stop-loss to exit if AC.TO falls >25% or if Canada downgrades travel advisory back to 'exercise normal precautions'.
• Execute a 50/50 pair trade: long DAL (or JETS ETF) equal-weight vs short AC.TO for a 1–2% net notional exposure to capture domestic leisure resilience over 3–6 months; rebalance if DAL underperforms by >15% or AC.TO outperforms by >10%.
• Buy a 3–6 month WTI call spread (size 0.5–1% portfolio) if PDVSA export data shows a decline >200 kb/d or if U.S. announces escalation (tariffs enforced); take profits if WTI rises +$7 from entry or after 90 days.
• Reduce Travel & Leisure and Caribbean-focused tourism/REIT exposure by 2–4% and redeploy to Canadian domestic travel names and energy midcaps with FCF yield >6%; increase cash allocation to 5% to allow scale-in on policy-driven dislocations within the next 30–90 days.