Cuban cigar prices set to rise if U.S. embargo ends, experts say

The global prices of Cuban cigars – the Island nation’s most famous export – could be set to rise after thawing ties between the U.S. and its communist neighbor, experts say.

Since the 1960s, when Washington slapped a strict embargo on Havana, then ruled by the Soviet-aligned, cigar-smoking Fidel Castro, Cuba’s luxurious hand-rolled cigars have been elevated to an almost mythical status.

Infographic: What you might not know about Cuban cigars

(Design by Farwa Rizwan/ Al Arabiya News)

Despite being exported to the rest of the world, U.S. citizens would commonly find their precious box of Habanos destroyed in front of them by a zealous customs agent.

But to the delight of Americans sentenced to a long future of puffing what many see as substandard stogies from the Dominican Republic, Honduras, or Nicaragua, Cuba’s coveted cigars are suddenly available – albeit in tiny quantities.

A worker selects cigars at the H. Upmann cigar factory, where people can take tours as part of the 15th annual Cigar Festival, in Havana, Cuba. (AP)

By an order from the White House late last year, U.S. visitors to the island - situated less than 150 kilometers off the coast of Florida - can legally bring back up to $100 worth of Cuban tobacco and alcohol for personal use.

Yet as most cigar lovers know, $100 is a small figure when buying costly Cubans. Travelers to Cuba can typically expect to pay $250 for a single box of 25 quality smokes.

Meanwhile, a box of the top-of-the-market Cohiba cigars - Castro’s favorite brand before he quit in the 1980s for health reasons – can fetch over $400.

While boasting multiple brands, Cuba’s cigar industry is state-owned. Habanos S.A., which controls their worldwide distribution in a joint venture with the UK-based Imperial Tobacco, generated sales of $439 million last year, Reuters reported - without direct access to the U.S. market.

Close, but no cigar

And until the embargo is fully lifted – with the by-no-means-certain approval of a Republican-controlled congress – sales of Cuban cigars cannot yet “explode,” a company executive said earlier this year.

When and if the embargo ends, Cuban cigar lovers around the globe will have to start puffing more gently, as increasing demand from the world’s biggest market will likely rise prices.

“When the embargo is dropped, I would expect Cuban cigar prices to rise, as demand will certainly increase,” said David Savona, the executive editor of the U.S.-based Cigar Aficionado magazine.

The price of Cubans could also be stoked further by increasing global demand.

In 2013, Imperial Tobacco noted that demand in emerging luxury markets, the Middle East, China, Russia, and Brazil, were “becoming increasingly important” to its business – and that Cuban cigars were in the center of its growth strategy.

Win-win

With Habanos S.A. expecting to grab a 70 percent share of the U.S market, proportionate to the share it enjoys in the rest of the world, could it pose a threat to other non-Cuban producers?

No, according to Savona. “This is a win-win situation for all makers of cigars,” he told Al Arabiya News.

A man lights a cigar in a cigar club shop in Havana, Cuba, Friday, Dec. 19, 2014. (AP)

“When people think about Cuba, they think about cigars, so more attention given to Cuba inevitably means more attention to cigars.”

Although a “big spike” in Cuban cigar sales would be inevitable immediately after the embargo lifts, “ultimately it should be beneficial to all cigar makers,” Savona added.

Reduced to ashes

However, the prospect of rising global prices from the eager U.S. market could give rise to another, less tangible threat: the possibility of their long-held mystique reduced to ashes.

“[The lifting of the embargo] will take the shine off Cuban cigars,” said Matteo Speranza, a Canada-based cigar enthusiast who runs the Cuban Cigars, Culture & Lifestyle blog. “I'll even go as far as saying they will not be liked by everyone.”

Cuban cigars could leave a bitter taste in the mouths of U.S. consumers due to their widely-differing tastes – and penchant for lower-cost smokes.

“Americans have acquired a certain palette,” said Speranza.

While a fan of Cuban cigars, Speranza believes that the quality of the legendary smokes has declined in recent years – a view apparently supported by Cigar Aficionado, which has only three Cuban entries on its list of the top 25 cigars in the world.

“The quality of the construction isn't as good as the non-Cuban, most cigar smokers know that it has come to this in the last few years,” he said.