In major escalation, the US will sanction foreign companies supporting Cuba's military

In a significant step in the “tough Cuba policy” promised by Secretary of State Marco Rubio, the Trump administration will punish foreign companies that do business with military companies in Cuba as part of a maximum pressure campaign on the Communist-run island.

A source with knowledge of the executive order told the Miami Herald that the sanctions will target any company providing “direct or indirect support to companies directly or indirectly owned by the Cuban military,” effectively expanding U.S. sanctions to affect companies from third countries.

The Cuban Revolutionary Armed Forces control much of the island’s economy through a conglomerate known as GAESA, which is already under U.S. sanctions. GAESA owns several hotels, many of which are leased or administered by foreign hotel chains, plus most grocery stores, warehouses, logistics companies, gas stations and other profitable businesses.

Cuba has been under a trade and financial U.S. embargo for almost as long as the Castro brothers’ rule, but those restrictions affect entities under U.S. jurisdiction. The new regulations are known as secondary sanctions, which are designed to prevent third countries from trading with nations or entities under U.S. sanctions.

Despite the economic pain, the Cuban government has been able to circumvent the U.S. embargo and buy supplies from several countries, hold bank accounts overseas and partner with foreign companies in joint ventures. GAESA companies carry out a significant portion of that economic activity. That, in turn, will make most foreign companies doing business with Cuba a target.

The list of business interactions that could expose a foreign company to the new sanctions is vast.

For instance, the Spanish hotel chain Meliá manages 33 hotels on the island, some of which are in partnership with Gaviota, a tourism company under the GAESA umbrella. Foreign companies with businesses in the Mariel Port Special Development Zone, which falls under GAESA control, or using Mariel port facilities managed by Almacenes Universales, GAESA’s logistics and freight company, could also be sanctioned, the source said. Also targeted: foreign companies using cards issued by Banco Financiero Internacional and Fincimex, two of GAESA’s financial institutions, which are needed on the island to buy gasoline or groceries.

The measures will likely stir a diplomatic storm, as companies from several European and Western Hemisphere allies have a presence on the island. In 2023, Spain became Cuba’s second-largest trading partner, surpassed only by Cuba’s close political ally, Venezuela. China follows in third place and Russia in sixth, but the top 10 list of trading partners include several other U.S. allies like Canada, Mexico, Brazil, Germany, the Netherlands and Italy.

Investing on the island, however, has always come with risks. Last month, the Cuban government froze the bank accounts of foreign companies and imposed restrictions on the repatriation of their foreign currency earnings, citing financial hardship.

In the short term, the effect on Cuba’s economy will be significant if the few foreign companies with investments on the island leave to avoid sanctions. The country’s supply chain might suffer disruptions from foreign exporters refusing orders out of fear that they could be found supporting the military. And foreign banks, already spooked by the possibility of massive fines imposed by the U.S. Treasury Department on banks violating its sanctions policies, will be even less inclined to process transactions that might involve Cuban companies that could be later found to be controlled by the Cuban military.

Last November, Cuba’s minister of Foreign Trade and Investment, Oscar Pérez-Oliva, said there were 328 businesses with foreign capital on the island. Only 62 were businesses wholly owned by foreign companies, while 112 were joint ventures with the Cuban government. The rest, 184, were international economic association contracts, the preferred business relationship used by foreign tourism companies that administer hotels in Cuba.

Several U.S. companies, including some owned by Cuban Americans from Miami, export authorized food and medicines to Cuba that fall under embargo exemptions. Many have also received special authorizations to export other goods to the Cuban population or private enterprises. It is not entirely clear whether the new regulations would also apply to those U.S. companies. Still, to continue operating they are likely to invoke those licenses or the exemptions written into law.

The Trump administration seeks to tighten the screws on the Cuban regime at a critical juncture for the Communist-run island. With Raúl Castro turning 94 this year, a power transition seems likely. Still, it might not necessarily be a transition to democracy, as the island’s military appears to be the real decision-making power behind the scenes.

Under Raúl Castro, the military has accumulated vast economic and political power, mostly at the expense of the Cuban people. A Miami Herald investigation earlier this year found that Gaviota had stashed over $4 billion in its bank accounts out of reach for Cuba’s central government at the time the population was suffering shortages of food and medicines and enduring daily energy blackouts.

The Trump administration will also have to deal with the consequences of the new measures on the population of an island just 90 miles from Florida, already facing near failed-state living conditions. Even if the sanctions target military companies, they are likely to contribute to the deterioration of the living conditions of Cubans on the island, given GAESA’s large economic footprint and how it siphons the foreign hard currency reaching the island away from the government’s spending on social services.

If the new sanctions work as planned to restrict further the country’s ability to trade and partner with foreign companies, the Cuban government would face urgent pressure to rein in the Cuban military and return some of its business to civil entities.

However, Cuban leadership, mostly comprised of generals who have resisted reforms and clung to power for decades, might likely choose instead to continue leaning on political allies like Russia, Iran or Venezuela. Still, the latter option is no longer a guarantee for the regime’s survival since those countries are also struggling with their economic woes, and even allies like China, also under Communist rule, have all but demanded that the Cuban government to embark on substantial market reforms before they make significant investments on the island.

In 2023, Russia, China and allied countries accounted for only 16% of Cuba’s overall trade.

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