A Russian tanker tests the limits of Trump’s Cuba squeeze

A Russian tanker carrying 730,000 barrels of oil is expected to dock in the northern Cuban port of Matanzas on Monday, bringing some brief relief to the fuel-starved island as its economy comes to a grinding halt.

President Trump’s decision to allow the one-time shipment of Urals crude aboard the Anatoly Kolodkin to reach the island effectively breaks a two-month blockade that has led to widespread fuel shortages and increased power outages across the country.

Trump, who had previously threatened to impose tariffs on countries that continue to supply the communist island with fuel, on Sunday said he had “no problem” with it. “They have to survive,” he said about Cuba, which he has repeatedly cast as the next target in his efforts to uproot hostile governments in the region.

The move doesn’t mark a policy change and the Trump administration is deciding on a case-by-case basis, White House officials say. “Cuba’s nonfunctional economy cannot be fixed unless they undergo dramatic political and leadership change,” White House press secretary Karoline Leavitt said on Monday.

The Trump administration’s decision to allow the Russian tanker to reach Cuba comes as conditions on the island could be unraveling faster than Washington expected as it remains consumed by the war with Iran, said current and former officials and people involved in the talks between the two countries. It also follows a nascent U.S. effort to steer fuel and other commercial lifelines to Cuba’s small private sector while bypassing the state.

The tanker’s arrival muddled the administration’s message and raised questions about the possibility of further fuel shipments. Mexican President Claudia Sheinbaum said on Monday that Mexico would work to renew oil shipments to Cuba. Those shipments were halted in late January after Trump threatened to slap punitive tariffs on any country delivering fuel to Cuba.

“Mexico has every right to send fuel for humanitarian or commercial reasons,” she said, adding that private companies have approached Mexico’s state oil company to sell fuel to the Cuban private sector.

Cuba’s fuel crisis has emptied the streets of cities and towns as public transportation has largely shut down. Universities have sent students home, and hospitals have postponed all but urgent operations. The island’s fragile and badly maintained power grid, a relic from Soviet times, has sustained two nationwide collapses on top of the daily rotating blackouts, which sometimes last for more than 20 hours at a time.

The relief brought by the Russian tanker will be small and will take weeks to reach the places where it is needed most, said Jorge Piñón, an expert on Cuban energy at the University of Texas. The crude must be refined and then the oil products shipped to priority areas, a process that Piñón estimates will take upward of 30 days. It is but a momentary respite for the hard-pressed island. “I don’t see a second tanker on the horizon,” Piñón said.

The tanker’s arrival has also exposed the snags in the Trump administration’s emerging plans to erode the state’s grip on what remains of Cuba’s economy by steering fuel and other commercial lifelines to the island’s small private sector. Trump’s strategy is focused on squeezing the regime’s revenue streams while bolstering the private sector, according to State officials.

In late February, the U.S. Treasury announced that it would allow some American companies licensed to sell fuel to Cuba for the private sector or humanitarian use as long as it was kept from regime-controlled entities. A week later, U.S. officials clarified that it would only apply to shipments that kept the financial transactions outside of the regime-controlled Cuban banking sector that would funnel money to the state.

But a standoff over two stainless-steel fuel tanks for the U.S. Embassy in Havana threatens to derail a larger effort to expand private-fuel flows into Cuba. The shipment was stranded for weeks at the port of Mariel, raising the prospect that the U.S. would have to reduce staff at the embassy, a 1950s modernist glass tower which sits astride Havana’s famed Malecon seaside promenade.

In a diplomatic note, Cuba’s foreign ministry told the U.S. Embassy its request for diesel was “shameless” given that the U.S. blockade was causing enormous harm to the Cuban people and the island’s economy. As of late Monday, the embassy’s fuel had yet to be delivered, said people familiar with the issue.

U.S. officials have “received assurances from the Cuban regime that they will honor their obligations under the Vienna Convention to allow the U.S. Embassy in Havana to make timely diplomatic shipments,” a State Department official said.

The situation is so dire that Cuba lacks the fuel it needs for the shipyard cranes used to unload containers of food at Mariel, and lack of fuel for public transportation prevents shipyard workers from getting to work, said a person knowledgeable about the port’s operations.

The impasse over the fuel shipment, first reported by The Washington Post, came after Cuba made significant concessions by allowing private fuel imports, effectively breaking the longstanding state monopoly, says Matthew Aho, a Miami-based adviser at law firm Akerman LLP. Cuban officials have indicated that they are willing to go further than they have in the past—including giving long-term leases for storage tanks for U.S. companies, allowing the companies to retain title to the fuel, oversight of fuel sales and making payments offshore rather than routing funds through Cuban banks, Aho said.

The process opens the door to something akin to a partial privatization of the domestic-fuel market, said Rick Herrero, director of the Washington-based Cuba Study Group, a policy and advocacy organization.

If the U.S. and Cuban governments greenlight the proposed agreement, Aho said a U.S. supplier, Miami-based fuel trading company Vanguard Energy, is ready to bring in 200,000 barrels of diesel fuel and gasoline a month, an important but still insufficient amount of much needed fuel destined to support Cuba’s small but key private sector. Vanguard Energy has also applied for a U.S. license that would allow it to supply foreign embassies in Havana, which now must acquire fuel from the Cuban government, as well as humanitarian organizations, and a separate license that would authorize diesel-fuel exports to Cuba’s battered public hospital system, Aho said.

Earlier this month, Cuban Deputy Prime Minister Oscar Pérez-Oliva Fraga said Havana will allow Cubans living abroad to invest in and own businesses on the island—a proposal that was immediately rejected by many in the politically powerful Cuban-American exile community.

Trump officials have framed the private fuel sales as a test and expressed distrust that they won’t be diverted to the government.

Secretary of State Marco Rubio said licenses to these companies would be canceled “if we catch the private sector playing games.”

He also made it clear it isn’t a solution. “The private sector in Cuba is quite small. It exists, but it’s small, and certainly in and of itself, does not have the capacity to deal with the scale and scope of the challenges they’re facing,” he told reporters on a trip to St. Kitts for a regional summit, where he met with Cuban officials on the sidelines. “That alone will not solve Cuba’s very dramatic problems.”

Write to José de Córdoba at jose.decordoba@wsj.com and Vera Bergengruen at vera.bergengruen@wsj.com