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The politics of Soviet oil
The politics of Soviet oil
Ellen L. Stein
Recent reports confirm that Soviet oil production continues to fall well below official target levels. There is a real possibility that during the 1980s the Soviet bloc may shift from being a leading oil exporter to a net oil importer. Such a shift is likely to focus Soviet interest on the Persian Gulf area, which is the only source of oil likely to meet its needs. In this article it is argued that current Soviet energy production problems could be solved by the import of US technology. It is not therefore in the USA's best longterm interests to embargo sales of oil and gas extraction technology to the USSR. Rather, the author suggests, such exports should be encouraged so that Soviet domestic energy production can be expanded and the political repercussions of an energy shortfall in the USSR avoided, The author is a Senior Research Associate, Transportation and Economic Research Associates (TERA) Inc, Suite 8 8 8 , 1901 N Fort M e y e r Drive, Arlington, VA 2 2 2 0 9 , USA. The Western World strongly denounced the Soviet action as blatant aggression to subjugate yet another Soviet puppet regime. President Carter called the intervention a 'grave threat to peace' and warned Soviet leader Brezhnev of serious US countermoves if the USSR did not withdraw immediately. The recall of US Ambassador Thomas J. Watson from Moscow was followed by more coercive measures. An immediate embargo of grain shipments and high technology exports to the USSR was announced. c o n t i n u e d on p 2 0 4
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The tensions which arose after the Soviet intervention in Afghanistan at the end of 1979 continue to influence perceptions of Soviet intentions regarding the oil rich Persian Gulf. ~ Growing Soviet presence in the Persian Gulf region has sparked fresh controversy as to the true motives behind the intervention. Some analysts believe that the USSR felt compelled to secure Moslem territories on its southern flank to protect the Marxist regime it had installed. Others view Soviet naval deployments in the Sea of Japan and Soviet Southeast Asian policies as the seminal efforts in a plan to encircle China. A third school of thought explains the action as a manifestation of the Soviet historic aim to gain access to warm water ports on the Indian Ocean. Another possibility is that the USSR, now confronted with growing problems in its energy sector, is mounting a campaign to secure Persian Gulf oil supplies. Soviet intervention in key oil producing countries could take several forms, including military as well as financial assistance} Increased Soviet pressure along these lines raises the possibility of a shift in OPEC oil trade in favour of Soviet interests, with a concomitant reduction in oil available to the West. Since more than 50% of the non-communist world's oil supplies are transported through the Straits of Hormuz, they are strategically vital to Western economic survival. The possibility of increased Soviet influence in these sea lanes carries serious implications for US national security. The most critical problem is the extreme vulnerability of Persian Gulf oil to supply interruption. The Iranian revolution has demonstrated the extent to which political instability and accompanying threats to oil production can affect the international market. In the aftermath of the Iranian oil cut-off, consumer nations witnessed soaring oil prices, wild gyrations in the spot market, and the attendant scramble for alternative supplies. Events in Iran had an even deeper destabilizing effect because the West lost a most vital Persian Gulf ally. The Shah's regime was the pro-Western political and military anchor, one of the key pillars of the Nixon doctrine designated to insure political and military stability in the Persian Gulf. In the aftermath of the Shah's downfall, as US-Iranian relations crumbled, it was clear that US national interests - the securing of energy supplies from the Persian G u l f - were critically exposed. While US-Iranian ties were deteriorating, there appeared to be increased Soviet interest in the Arabian peninsula, Afghanistan and the Horn of Africa. But events elsewhere were suddenly eclipsed by Russian activities in Afghanistan, which were increasingly perceived
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in the West as the beginning of a Soviet drive to control Persian Gulf oil. Soviet interest in the Persian Gulf may also reflect the likelihood that the USSR will look increasingly towards the area's oil to meet its own energy needs. For the USA and its Western allies, a Soviet move into Persian Gulf oil trade could be a source of problems. Can the USA take steps to minimize the Soviet need for Persian Gulf oil? Would it be in the USA's interest to do so? These questions raise a series of ancillary considerations.
High technology embargo
continued from p 203 The issuance of export licences by the Commerce Department was suspended, and US companies were notified to cease transacting with the USSR. Moreover, the SALT II negotiations fell victim to the deepest schism in USA-USSR relations since the Cold War. ZThe continued infusion of military personnel and advisers to North and South Yemen and Syria could perpetuate the region's political instability. By offering military assistance, the USSR could win acceptance in countries such as Iraq and South Yemen, where the political leadership is weak, Soviet influence could be enhanced by providing financial support for any number of political regimes in these countries. The recent decision by Saudi Arabia to allow the USSR to use Saudi air space indicates their disinclination to side solidly with the USA, and may well be a harbinger of a more intense Soviet interest in Saudi Arabia, both politically and militarily.
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Does foreign technology, particularly US oil and gas production and transmission equipment, have a significant impact on Soviet capability to boost production? Could it make a critical difference in the USSR position in the 1980s? Assuming that it would, will a technology embargo prompt the USSR to reassess its Middle East strategy, or will it serve to reinforce its current initiatives? Are trade embargo policies consistent with the goals of the USA's N A T O allies and Japan, countries whose national security objectives are promoted via stable trade relationships with Moscow? Are there energy related technologies that should be exempted from the embargo because they lack direct military applicability? Will a continued export licence ban jeopardize the potential for US companies to re-establish their business ties with the USSR? In sum, is an embargo of high technology oil equipment in the best interest of the USA, or should a policy of assisting the USSR in developing its energy resources be reinstituted? The immediate reaction to such a suggestion is, why should the USA help the USSR to solve its energy problems when oil will make it an even richer and more dangerous rival? However, in terms of protecting US interests, there are several benefits to the West which could be derived from Soviet energy independence. Soviet petroleum independence would reduce the competition for world supplies, thereby reducing price pressures and volatility in the spot market. Greater volumes of Soviet oil would have a dampening effect on the power of OPEC oil as a political and economic tool in international relations. Enhanced Soviet production would also decrease Soviet incentives to campaign for oil in the Gulf producer states, and perhaps lessen the danger of increased political instability in the area. On the other hand, there are also disadvantages in providing the USSR with the technology to boost its oil production. The greater economic strength resulting from increases in hard currency earnings from oil exports could lead to expansion of the Soviet military and economic sectors. Western European countries which depend on the USSR for raw materials would be assured of future oil and gas supplies, thereby reinforcing their economic reliance on the USSR and increasing their vulnerability to economic and political pressures. Direct Soviet linkages to eastern Europe, Cuba, Mongolia and Vietnam and indirect ties to pro-Soviet regimes in the Middle East and Africa would be strengthened by continued energy and economic support. Soviet capability to project its political, economic and military power by proxy in new areas of strategic interest could be enhanced. Furthermore, a more self-sufficient USSR could be seen by
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The politics of Soviet oil
the West as more of a threat in the advent of a great power confrontation.
Soviet petroleum reserves
a Eastern Europe and Cuba, Mongolia, and Vietnam, countries to whom oil is exported. 4The CIA figure is roughly comparable to US proved reserves. See CIA, Prospects for Soviet Oil Production, ER77-10270, US Government Printing Office, Washington, DC, April 1977 and Petrostudies, Soviet Proved Oil Reserves 1946-1980, Petrostudies, Sweden.
In order to evaluate the likely benefits and risks associated with US energy technology transfer to the USSR, a thorough examination of the Soviet energy quandary is required. Petroleum is one of the USSR's most valuable commodities. Oil exports have traditionally provided the USSR with a large share of its hard currency earnings. Soviet petroleum exports, surpassed by only Saudi Arabia and Iraq, accounted for over 50% of its hard currency earnings and 28% of all export earnings in 1977. A decline in oil production would cause serious economic problems in terms of hard currency revenues, Soviet purchasing power for foreign technology, and Soviet relations with the Council for Mutual Economic Assistance (CMEA) countries. 3 The extent of Soviet petroleum deposits is a carefully guarded secret. Proved economically recoverable reserves are believed to be in the range of 60 billion (10 9) bbl, or a 15 year supply using the 1977 production rate. Estimates have varied from the pessimistic CIA figure of 30-35 billion bbl to recent data released by the Swedish firm Petrostudies claiming proved reserves in the 150 billion bbl range. 4 During 1978 the Soviets changed the focus of their crude drilling operations from the declining Urals-Volga region to western Siberia. The emphasis on western Siberia continues, for it has accounted for all new growth in Soviet oil output since 1975. No large Siberian fields have been discovered since 1973, and pressure to develop this resource potential is mounting. At the same time, the development and production problems are growing. Concentration on western Siberia involves several risks. Working under taxing geophysical conditions such as subzero temperatures and permafrost is expensive and time consuming. Labour shortages are frequent due to the difficulty of recruiting skilled workers who are willing to travel long distances and live in the forbidding Siberian climate. Some argue that the USSR must discover a giant oilfield every two years to sustain production through the 1980s and 1990s. To achieve its goals, exploration and prospecting in new resource areas must be increased. Yet the Soviets continue to concentrate on additional development of existing fields. The utilization of inefficient operating methods which fail to maximize productive capacity has exacerbated the problem of insufficient exploration. Turbo-drills are used for over 80% of Soviet drilling even though they are limited to small depths and cannot operate in soft ground. The Siberian region's deep marshlands expose the limits of the turbo-drills. By comparison, US drillers use rotary drills, a faster and more flexible method which requires stronger steel components than the Soviets can provide for their equipment. Another impediment to western Siberian production is the use of water flooding as a secondary recovery technique. Attempts to force more oil up from deeper levels are resulting in damage to the reservoirs. Moreover, the water mixes with the oil, which necessitates a shift from conventional oil lifting equipment to high capacity, semisubmersible pumps capable of handling the greater volumes. Semisubmersible pumps, which are more sophisticated than those routinely used in the USSR, are usually imported.
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Oil production and exports As one assesses the technical problems, it becomes clear that the Soviets lack the proper equipment necessary to achieve their official near-term oil production targets. In November 1979, the Soviet leadership announced a reduction in targets for oil production for 1980. The petroleum target was revised from the 12.4-12.8 million bbl/day range down to 12.1 million bbl/day. Previously in 1979, the USSR had lowered its 12.2 million bbl/day target to I 1.86 million bbl/day and its average production in 1979 was around 11.7 million bbl/day. Soviet concern with production deficiencies was so great that a high level bureaucratic commission was organized to resolve the growing energy problems. Soviet crude exports amounted to roughly 3.2 million bbl/day in 1978, of which 1.8 million bbl/day went to communist countries, and 1.4 million bbl/day to the non-communist world. During the 1980s, Soviet crude exports to eastern Europe are expected to drop below the 1979 level of 1.5 million bbl/day. Exports to western Europe, including France, Italy, Finland, West Germany and Sweden, are anticipated to fall below the 1978-79 level of 1.3-1.5 million bbl/day. CMEA countries receive Soviet oil at a lower cost than world market prices. Furthermore, Cuba, Vietnam, and Mongolia are granted even lower prices than those at the CMEA discount rate because of their strategic importance to Moscow. Exports to these three developing countries, which amount to 200000-300000 bbl/day, comprise a significant share of the flow to communist nations. The CMEA nations, which purchase discounted Soviet oil using transferable roubles, would encounter serious economic troubles if forced to use limited hard currency reserves to buy large volumes of OPEC crude at world prices. The maintenance of the Soviet-CMEA oil supply network is an important economic linkage in preserving communist unity.
Natural gas reserves While official Soviet petroleum reserve statistics have never been publicized, the USSR estimates its natural gas reserves at 990 x 101Eft 3, perhaps the world's largest. At the current output rate of 14.1 x 10~2ft3/year, this provides the USSR with a 70 year supply. Growth in natural gas production is expected to be maintained at 6%/year into the mid-1980s. The USSR estimates that its annual production will be 15.4 x 101Eft 3 in 1980, 21.2 x 101Eft 3 in 1985, and 24.4 x 1012ft 3 by 1990. These targets appear to be attainable, given the consistency in natural gas production figures to date. In the natural gas sector, production is again centred on western Siberia, particularly the Tyumen Oblast. The Tyumen region contains over two-thirds of Soviet gas reserves and by the mid-1980s, it is expected to account for most increases in output. By 1985, it is probable that 50% of the USSR's hydrocarbon exports will be in the form of natural gas, compared to 14% (on an energy equivalent basis) in 1977. By 1990, natural gas could surpass oil as the greatest source of domestically produced energy, and provide a significant source of foreign exchange for the USSR. The major markets for Soviet natural gas exports are eastern and western Europe, where barter and exchange agreements have been in existence since the 1960s when the pipeline industry began to develop.
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Soviet gas is often prepaid for by the Europeans with pipeline parts and skilled labour for major Soviet transmission projects. The vast Orenburg pipeline, which stretches 1 700 miles from the Orenburg gas field in the Tyumen Oblast to the Czechoslovakian border, is a prime example of such arrangements. About 12000 eastern European workers participated in construction work, a valuable contribution to the Orenburg project. By 1990, natural gas exports to western Europe are expected to reach 900 billion ft 3. Commitments of roughly 400 billion ft 3 to eastern Europe will provide the CMEA countries with a significant portion of their total supply. The Soviet net export goal for 1980 is 1.4 x 1012 ft 3 which would represent an increase to roughly $1 billion in natural gas hard currency earnings from the 1975 level of $200 million, when net exports were 250 billion ft3. In the past, natural gas imports from Iran and Afghanistan have been used to offset exports from the northern producing regions. Before the Iranian Revolution, the USSR was importing roughly 353 billion ft3/year from Iran and 106 billion ft3/year from Afghanistan. Recently, the Iranian oil minister announced an 80% curtailment of natural gas exports to the USSR. The Iranians intend to raise the price from 76¢ per thousand ft 3 to $3.80 per thousand ft 3. Thus, there will be less Iranian gas for consumption in the southwestern USSR, necessitating the diversion of some of the valuable Siberian gas from European markets. 5 The USSR is second to the Netherlands as the leading exporter of natural gas. Western markets are very important, particularly in view of the technological assistance received from western Europe in exchange for its gas. Moreover, the political and economic relations with West Germany and France, which are fostered by trade in natural gas, serve as an important element in European stability.
Production problems and an imminent shortfall
5The IGAT II pipeline has been cancelled and the IGAT I a r r a n g e m e n t is under renegotiation. The USSR and Iran have been unable to reach an agreement. It appears that the Iranian price of b e t w e e n $ 3 . 5 0 and $ 4 . 0 0 per thousand ft 3 is unacceptable to the USSR.
The technical difficulties in the gas industry which have caused bottlenecks include lack of adequate compressor stations, pipeline parts and gas storage facilities. Production targets have been met, but not without tremendous waste and inefficiency. In 1977, 700 billion ft 3 of associated gas was flared, half of this loss occurring in western Siberia. The collection and transmission costs of Siberian gas are high, and storage capacity is inadequate. There is therefore a striking need to improve the infrastructure of the gas industry. Difficult logistical problems have slowed the growth of both oil and gas production. The lack of road construction has paralysed the mobilization of drilling units and equipment between sites. Railways are heavily burdened, especially in the Siberian winter months when they serve as the sole transport mode to the isolated areas inaccessible by road. Soviet manufacturing industry has failed to keep pace with the demand for the more sophisticated equipment required in western Siberia. Equipment in short supply ranges from basic seismic geophones, cables and digital processing units to compressor station parts and rigs. The Dresser Industries drill bit plant, which was constructed in 1979 to manufacture higher quality bits, was a largescale project aimed at improving Soviet manufacturing capability. Equipment supplied by the USA for Soviet oil and gas production
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has ranged from special tape used in pipeline construction to the most advanced types of drilling rigs, including submersible rigs scheduled for deep offshore operations in the Caspian Sea. The exact nature and magnitude of the US contribution is hard to determine. In the early 1970s, the US Export-Import Bank authorized loans amounting to $469 million for equipment sales by US companies. However, the issuance of licences was curtailed by the passage of the 1974 Jackson-Vanik Amendment which tied future US exports of machinery and technology to alteration of Soviet emigration policies. Despite trade restrictions, transfer of US energy technology began to expand in the late 1970s. Since 1976, the volume of Soviet orders has risen significantly, with a concomitant shift towards turn-key projects. The rising level of Soviet purchases has been instigated by the USSR, which recognizes that US and Western technology is essential if it is to increase its oil and gas production. The effect of an embargo on the export of US energy technology to the USSR would be most significant in the long term. A prolonged embargo would exacerbate production and transmission problems and diminish Soviet energy output later in the decade. 6 The impending shortfall in Soviet oil supplies might occur sooner and be more acute, and the chances of averting a permanent decline in production would be minimal. A decline in Soviet oil production from 12.0 million bbl/day to 10.0 million bbl/day could necessitate the elimination of the 1.3 million bbl/day flowing to non-communist countries and half of the 1.4 million bbl/day exports to eastern Europe. The absence of hard currency gains from trade with the West would have a devastating effect on the Soviet economy. The interruption of flows to eastern Europe would jeopardize a Soviet power base maintained in part through commitments to supply a major share of energy requirements.
Supplies from the Persian Gulf
e This is a particularly frightening prospect in view of the dismal outlook for both US and world energy supplies in the late 1980s.
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To avert the serious ramifications of a 2 million bbl/day production loss, the USSR would have to tap external production sources. An increase in demand for non-Soviet supplies of 2 million bbl/day would provide the impetus for further OPEC price rises. The emergence of the USSR as an oil importer on a sustained basis would certainly destabilize world oil markets. The possibility of a downturn in domestic oil production has prompted the USSR to search for more oil supplies from the Persian Gulf. By providing technical assistance and credit to developing countries, the USSR is establishing a foothold in the petroleum industries of the Gulf States. In Iraq, for example, the USSR has supplied engineering and oil extraction equipment in exchange for Iraqi crude. The USSR receives about 0.1 million bbl/day from Iraq, whose average crude output was recently boosted to 3.7 million bbl/day. Soviet aid has also been supplied to Syria, Algeria, India, Afghanistan and Iran for their prospecting and exploratory ventures. Recently the USSR has made moves to strengthen energy ties with various developing countries. In February 1980 the Soviets pledged to supply India with significant volumes of kerosene and diesel fuel, in addition to previously agreed sales of crude oil. An even more serious
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The politics of Soviet oil effort was reflected in Soviet overtures to the Kuwaiti oil minister to arrange the purchase of OPEC oil. It has been reported in Czechoslovakia that the Eastern bloc had to purchase 1 million bbl/day in 1979 from OPEC countries, and that it was expected to consume an additional 0.6 million bbl/day in 1980 which might not be covered by Soviet exports. Therefore, both the USSR and its allies have a growing vested interest in purchasing OPEC oil/ Soviet economic and technical assistance in the Persian Gulf states portends an increase in their political leverage and influence in that oil producing region. The fact that the USSR has often provided support for developing countries even when its own technological foundation needs improvement, indicates the strategic importance of these countries to Moscow. The USSR hopes to foster strong economic and political ties with a host of nations whose logistical support could facilitate future Soviet moves or pressure in the oil rich Gulf. The USSR is willing to extend its technical assistance to others at the expense of increasing its own oil producing capacity. With the intervention in Afghanistan, Soviet pressures in the Gulf region are more significant than ever before. With the prospect of an alleviation of Soviet energy problems an extremely remote one, Soviet interest in the area can be expected to continue. Future energy transactions between the USSR and Gulf producers can be expected. While Soviet military strategy is not yet fully discernible, there is a threshold beyond which further incursions in the area will not be tolerated by the USA. The proximity of Soviet troops in Afghanistan to the Iranian oilfields and the Straits of Hormuz has brought this issue dramatically to the fore.
Evaluating the energy technology embargo The inextricable linkage between US national security and the security of Persian Gulf oil flows necessitates coherent policies which will enhance the area's stability. The Soviet perception of their future energy needs set against anticipated problems with domestic supplies will influence their policies regarding the Gulf region. There is no question that Soviet decisions will affect the region's security. Thus, to the extent that US energy technology embargo decisions alter Soviet perceptions of their future requirements for external energy sources, these decisions affect US national security. Viewed in this light, is the imposition of an energy technology embargo a reasonable policy?
~To date, only Iran, Iraq and Kuwait have acknowledged a willingness to deliver oil to the USSR.
High technology and political leverage The current US policy of using high technology as an economic and political lever on the USSR has met with scepticism in the international business community. The general belief is that the Soviets can acquire oil and gas extraction equipment from other sources, including subsidiaries of multinationals and state-owned foreign corporations. Moreover, many US businessmen view the Soviet market as a potentially lucrative one, easily capturable by the French, British, West Germans and Japanese. They also fear that closing the trade channels will entail the loss of a critical diplomatic tool. The western Europeans and Japanese have traditionally sought to establish economic ties with the USSR. Exports of high technology
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items from Germany and Japan to the USSR exceed US shipments. Japan supplies the USSR with the largest quantities of oil refining equipment, and West Germany is the leader for exports of large diameter pipe and pipeline parts. To the British, French, West Germans and Japanese, the sale of high technology goods to the USSR is strictly a business proposition. The NA TO pipe embargo The difference in approaches to East-West technology transfer among OECD members is exemplified by reaction to the 1962-63 NATO pipe embargo. The USA called for an embargo of European exports of large diameter pipe for the Soviet Friendship crude oil pipeline. Once the order was passed in NATO, the USA persuaded the West Germans to cancel several signed arrangements for pipe exports to the USSR. However, US efforts did not prevail over other countries. European scepticism regarding US export control actions caused serious friction in the alliance. Italy, the UK and Japan did supply the necessary pipe to the USSR, with the British ignoring the NATO directive entirely. The results of this US effort to prevent strategic goods from reaching the USSR must be viewed critically. First, the USSR was able to secure pipe imports from alternative sources of supply. Second, the USSR benefitted indirectly through encouragement to hasten development of a domestic pipemaking industry. Third, the embargo delayed completion of the Friendship pipeline by only one year. A troubling ramification of the NATO pipeline case was the scepticism aroused amongst US allies, which still lingers today. The Europeans questioned whether the true US concern was with the use of steel pipe by the Soviet military sector. They suspected that the actual motivation was the concern of US oil companies that the USSR might eventually dump lower priced oil on the western European market. The European view The European response to the high technology export ban manifests the unilateral stance from which US allies view these matters. The Europeans charge that the USA has overreacted to Russian activities in Afghanistan by terminating high technology exports. The most recent policy directives from France, West Germany, and Japan clearly demonstrate their unwillingness to contract relationships with Moscow after years of carefully developing economic ties. US allies agree that certain exported technologies have direct military applications for the Eastern bloc and should be embargoed. European criticism of the embargo is concerned only with those technologies which have an indirect bearing on communist military and strategic capabilities. The Europeans believe that the export of these goods strengthens political relations with Moscow without concomitant jeopardy to national security, and therefore should not be banned. Both France and West Germany recognize the necessity of preserving economic and political links with the Eastern bloc and have continued to trade openly with the USSR. Soviet natural gas deliveries are critical to West Germany, which is heavily dependent on oil and gas imports. Trade between the two countries, which
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The politics of Soviet oil totalled almost $5 billion in 1979, is beneficial to both. France's carefully nurtured relationship with the USSR resulted in $14 billion of trade between 1975 and 1979. The French are expected to win a $300 million order for two Caspian Sea oil platform yards, and possibly a $200 million contract for equipment to develop Siberian fields. French bids for Soviet contracts in other fields have been highly competitive. The ineffectiveness o f an energy technology embargo Since the end of 1979, there has been virtually no business between US and Soviet companies. It is conceivable that US-Soviet trade relations have been irreparably damaged. Clearly, the opportunity for the USA to regain its supremacy in the Soviet technological marketplace is falling victim to OECD efforts to make inroads. While only about 4% of US world trade in 1978 was with the East, the true political significance of US-Soviet trade is far greater than this figure would suggest. In addressing the issue of whether an embargo of energy technology is an acceptable lever against Soviet aggression, it must be recognized that it is feasible to trade without sacrificing efforts to curb the expansion of Soviet military power. The requisite technology for enhancing Soviet energy productivity generally does not have direct military application. Alternative equipment is being offered by willing OECD exporters, negating any possibility of utilizing trade policy to force the USSR to divert funds to internal development of energy technology. Thus, it cannot be reasoned that US exports are enabling the USSR to support a level of budgetary expenditures for military purposes that could not otherwise be maintained. Given the falsehood of this argument, and the likelihood that sustained Soviet energy productivity will offer a disincentive to further economic and military inroads by the USSR in the Gulf region, the advantages of an energy technology embargo become illusory. This is particularly true in view of the ability of Soviet energy exports to relieve their recipients of further dependence on OPEC supplies. The need to generate hard currency to finance the necessary technology imports for western Siberia development will encourage continuation of current export policies.
Conclusions The development of the infrastructure is an important factor affecting Soviet oil and gas production. This requires improved coordination among government ministries. Increases in oil exploration, development and production levels cannot be anticipated in the absence of infrastructure improvements unless the appropriate technology is imported. The wholesale alteration of the Soviet infrastructure which is necessary would be such a long-term venture that importation offers the only feasible means of addressing Soviet energy problems before they become the world's energy problems. It is important to reinstitute a policy of providing the USSR with oil and gas technology. The first reason is that US technology can unquestionably make a critical difference in the Soviet energy position in the 1980s. Sophisticated US drilling rigs, pipeline parts, and seismic equipment could supplement exports from western Europe and Japan, especially for use in western Siberia, where foreign technology would
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have a significant impact on Soviet production capability. Therefore, exports of technology from the USA could limit, and perhaps reverse, the deterioration in the Soviet energy position. A second, related, issue is whether a technology embargo will force the USSR to reevaluate its Middle East strategy, or will it reinforce its current initiatives? A review of the status of the Afghan crisis provides a ready answer. Soviet presence in Afghanistan continues, amidst reports of further build-up of troop strength and growing signs of an imminent offensive. The technology embargo has failed in its objective to force the USSR out of Afghanistan. If the USSR ultimately withdraws, it will not be in response to the embargo. In fact, the boycott has reinforced Soviet initiatives by making a graceful withdrawal an impossibility. Furthermore, the absence of any sign of retrenchment has further obscured Soviet motives in Afghanistan and now Iran. In sum, the US trade embargo has proved to be an ineffective policy tool. Apart from the issue of whether the trade embargo policies further US interests is the question of their consistency with the national security objectives of its western European allies and Japan. From their perspective, current US policy is a step in the wrong direction; a step they are unwilling to follow. France, Germany, and Japan accuse the USA of unnecessarily sacrificing the economic and long-term political benefits of East-West trade for short-term political goals. They maintain that the myopic nature of this approach, in conjunction with the demise of SALT II, may lead to an erosion in the strategic balance of power. It is clear to the Europeans and Japanese that there are energyrelated technologies that should be exempted from the embargo because they lack direct military applicability. This view is shared by US businessmen who emphasize the potential damage to their overall trade relations with the USSR if the US share of the Soviet technology market is lost. Finally, US national security is contingent upon the security of global oil supplies. The success or failure of US efforts to protect Persian Gulf oil supplies hinges on many economic, political and military policy decisions. Some of these decisions will, of necessity, relate to the USSR because stable oil flows require an energy-strong USSR. An embargo of high technology items to the USSR should not include those technologies whose transfer serves US strategic selfinterests. By reinstituting an energy technology transfer policy, the USA would enhance the possibility of averting worldwide energy conflict, in which the USSR would play a central role. In the absence of a policy reversal regarding Soviet trade, the USA is increasing the likelihood of the conflict it is seeking to avert. The USA's objective of curtailing Soviet expansion in the Persian Gulf could best be achieved by reinstating an energy technology transfer policy. A general boycott of exports to the USSR could be maintained, but energy-related technologies not having a direct bearing on Soviet military capabilities should be exempt. In this way the USA would be supporting the growth of Soviet energy production. This policy makes eminent sense in view of the USA's interest in preserving the security of Persian Gulf oil supplies.
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Ellen L. Stein
Recent reports confirm that Soviet oil production continues to fall well below official target levels. There is a real possibility that during the 1980s the Soviet bloc may shift from being a leading oil exporter to a net oil importer. Such a shift is likely to focus Soviet interest on the Persian Gulf area, which is the only source of oil likely to meet its needs. In this article it is argued that current Soviet energy production problems could be solved by the import of US technology. It is not therefore in the USA's best longterm interests to embargo sales of oil and gas extraction technology to the USSR. Rather, the author suggests, such exports should be encouraged so that Soviet domestic energy production can be expanded and the political repercussions of an energy shortfall in the USSR avoided, The author is a Senior Research Associate, Transportation and Economic Research Associates (TERA) Inc, Suite 8 8 8 , 1901 N Fort M e y e r Drive, Arlington, VA 2 2 2 0 9 , USA. The Western World strongly denounced the Soviet action as blatant aggression to subjugate yet another Soviet puppet regime. President Carter called the intervention a 'grave threat to peace' and warned Soviet leader Brezhnev of serious US countermoves if the USSR did not withdraw immediately. The recall of US Ambassador Thomas J. Watson from Moscow was followed by more coercive measures. An immediate embargo of grain shipments and high technology exports to the USSR was announced. c o n t i n u e d on p 2 0 4
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The tensions which arose after the Soviet intervention in Afghanistan at the end of 1979 continue to influence perceptions of Soviet intentions regarding the oil rich Persian Gulf. ~ Growing Soviet presence in the Persian Gulf region has sparked fresh controversy as to the true motives behind the intervention. Some analysts believe that the USSR felt compelled to secure Moslem territories on its southern flank to protect the Marxist regime it had installed. Others view Soviet naval deployments in the Sea of Japan and Soviet Southeast Asian policies as the seminal efforts in a plan to encircle China. A third school of thought explains the action as a manifestation of the Soviet historic aim to gain access to warm water ports on the Indian Ocean. Another possibility is that the USSR, now confronted with growing problems in its energy sector, is mounting a campaign to secure Persian Gulf oil supplies. Soviet intervention in key oil producing countries could take several forms, including military as well as financial assistance} Increased Soviet pressure along these lines raises the possibility of a shift in OPEC oil trade in favour of Soviet interests, with a concomitant reduction in oil available to the West. Since more than 50% of the non-communist world's oil supplies are transported through the Straits of Hormuz, they are strategically vital to Western economic survival. The possibility of increased Soviet influence in these sea lanes carries serious implications for US national security. The most critical problem is the extreme vulnerability of Persian Gulf oil to supply interruption. The Iranian revolution has demonstrated the extent to which political instability and accompanying threats to oil production can affect the international market. In the aftermath of the Iranian oil cut-off, consumer nations witnessed soaring oil prices, wild gyrations in the spot market, and the attendant scramble for alternative supplies. Events in Iran had an even deeper destabilizing effect because the West lost a most vital Persian Gulf ally. The Shah's regime was the pro-Western political and military anchor, one of the key pillars of the Nixon doctrine designated to insure political and military stability in the Persian Gulf. In the aftermath of the Shah's downfall, as US-Iranian relations crumbled, it was clear that US national interests - the securing of energy supplies from the Persian G u l f - were critically exposed. While US-Iranian ties were deteriorating, there appeared to be increased Soviet interest in the Arabian peninsula, Afghanistan and the Horn of Africa. But events elsewhere were suddenly eclipsed by Russian activities in Afghanistan, which were increasingly perceived
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in the West as the beginning of a Soviet drive to control Persian Gulf oil. Soviet interest in the Persian Gulf may also reflect the likelihood that the USSR will look increasingly towards the area's oil to meet its own energy needs. For the USA and its Western allies, a Soviet move into Persian Gulf oil trade could be a source of problems. Can the USA take steps to minimize the Soviet need for Persian Gulf oil? Would it be in the USA's interest to do so? These questions raise a series of ancillary considerations.
High technology embargo
continued from p 203 The issuance of export licences by the Commerce Department was suspended, and US companies were notified to cease transacting with the USSR. Moreover, the SALT II negotiations fell victim to the deepest schism in USA-USSR relations since the Cold War. ZThe continued infusion of military personnel and advisers to North and South Yemen and Syria could perpetuate the region's political instability. By offering military assistance, the USSR could win acceptance in countries such as Iraq and South Yemen, where the political leadership is weak, Soviet influence could be enhanced by providing financial support for any number of political regimes in these countries. The recent decision by Saudi Arabia to allow the USSR to use Saudi air space indicates their disinclination to side solidly with the USA, and may well be a harbinger of a more intense Soviet interest in Saudi Arabia, both politically and militarily.
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Does foreign technology, particularly US oil and gas production and transmission equipment, have a significant impact on Soviet capability to boost production? Could it make a critical difference in the USSR position in the 1980s? Assuming that it would, will a technology embargo prompt the USSR to reassess its Middle East strategy, or will it serve to reinforce its current initiatives? Are trade embargo policies consistent with the goals of the USA's N A T O allies and Japan, countries whose national security objectives are promoted via stable trade relationships with Moscow? Are there energy related technologies that should be exempted from the embargo because they lack direct military applicability? Will a continued export licence ban jeopardize the potential for US companies to re-establish their business ties with the USSR? In sum, is an embargo of high technology oil equipment in the best interest of the USA, or should a policy of assisting the USSR in developing its energy resources be reinstituted? The immediate reaction to such a suggestion is, why should the USA help the USSR to solve its energy problems when oil will make it an even richer and more dangerous rival? However, in terms of protecting US interests, there are several benefits to the West which could be derived from Soviet energy independence. Soviet petroleum independence would reduce the competition for world supplies, thereby reducing price pressures and volatility in the spot market. Greater volumes of Soviet oil would have a dampening effect on the power of OPEC oil as a political and economic tool in international relations. Enhanced Soviet production would also decrease Soviet incentives to campaign for oil in the Gulf producer states, and perhaps lessen the danger of increased political instability in the area. On the other hand, there are also disadvantages in providing the USSR with the technology to boost its oil production. The greater economic strength resulting from increases in hard currency earnings from oil exports could lead to expansion of the Soviet military and economic sectors. Western European countries which depend on the USSR for raw materials would be assured of future oil and gas supplies, thereby reinforcing their economic reliance on the USSR and increasing their vulnerability to economic and political pressures. Direct Soviet linkages to eastern Europe, Cuba, Mongolia and Vietnam and indirect ties to pro-Soviet regimes in the Middle East and Africa would be strengthened by continued energy and economic support. Soviet capability to project its political, economic and military power by proxy in new areas of strategic interest could be enhanced. Furthermore, a more self-sufficient USSR could be seen by
ENERGY POLICY September 1980
The politics of Soviet oil
the West as more of a threat in the advent of a great power confrontation.
Soviet petroleum reserves
a Eastern Europe and Cuba, Mongolia, and Vietnam, countries to whom oil is exported. 4The CIA figure is roughly comparable to US proved reserves. See CIA, Prospects for Soviet Oil Production, ER77-10270, US Government Printing Office, Washington, DC, April 1977 and Petrostudies, Soviet Proved Oil Reserves 1946-1980, Petrostudies, Sweden.
In order to evaluate the likely benefits and risks associated with US energy technology transfer to the USSR, a thorough examination of the Soviet energy quandary is required. Petroleum is one of the USSR's most valuable commodities. Oil exports have traditionally provided the USSR with a large share of its hard currency earnings. Soviet petroleum exports, surpassed by only Saudi Arabia and Iraq, accounted for over 50% of its hard currency earnings and 28% of all export earnings in 1977. A decline in oil production would cause serious economic problems in terms of hard currency revenues, Soviet purchasing power for foreign technology, and Soviet relations with the Council for Mutual Economic Assistance (CMEA) countries. 3 The extent of Soviet petroleum deposits is a carefully guarded secret. Proved economically recoverable reserves are believed to be in the range of 60 billion (10 9) bbl, or a 15 year supply using the 1977 production rate. Estimates have varied from the pessimistic CIA figure of 30-35 billion bbl to recent data released by the Swedish firm Petrostudies claiming proved reserves in the 150 billion bbl range. 4 During 1978 the Soviets changed the focus of their crude drilling operations from the declining Urals-Volga region to western Siberia. The emphasis on western Siberia continues, for it has accounted for all new growth in Soviet oil output since 1975. No large Siberian fields have been discovered since 1973, and pressure to develop this resource potential is mounting. At the same time, the development and production problems are growing. Concentration on western Siberia involves several risks. Working under taxing geophysical conditions such as subzero temperatures and permafrost is expensive and time consuming. Labour shortages are frequent due to the difficulty of recruiting skilled workers who are willing to travel long distances and live in the forbidding Siberian climate. Some argue that the USSR must discover a giant oilfield every two years to sustain production through the 1980s and 1990s. To achieve its goals, exploration and prospecting in new resource areas must be increased. Yet the Soviets continue to concentrate on additional development of existing fields. The utilization of inefficient operating methods which fail to maximize productive capacity has exacerbated the problem of insufficient exploration. Turbo-drills are used for over 80% of Soviet drilling even though they are limited to small depths and cannot operate in soft ground. The Siberian region's deep marshlands expose the limits of the turbo-drills. By comparison, US drillers use rotary drills, a faster and more flexible method which requires stronger steel components than the Soviets can provide for their equipment. Another impediment to western Siberian production is the use of water flooding as a secondary recovery technique. Attempts to force more oil up from deeper levels are resulting in damage to the reservoirs. Moreover, the water mixes with the oil, which necessitates a shift from conventional oil lifting equipment to high capacity, semisubmersible pumps capable of handling the greater volumes. Semisubmersible pumps, which are more sophisticated than those routinely used in the USSR, are usually imported.
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Oil production and exports As one assesses the technical problems, it becomes clear that the Soviets lack the proper equipment necessary to achieve their official near-term oil production targets. In November 1979, the Soviet leadership announced a reduction in targets for oil production for 1980. The petroleum target was revised from the 12.4-12.8 million bbl/day range down to 12.1 million bbl/day. Previously in 1979, the USSR had lowered its 12.2 million bbl/day target to I 1.86 million bbl/day and its average production in 1979 was around 11.7 million bbl/day. Soviet concern with production deficiencies was so great that a high level bureaucratic commission was organized to resolve the growing energy problems. Soviet crude exports amounted to roughly 3.2 million bbl/day in 1978, of which 1.8 million bbl/day went to communist countries, and 1.4 million bbl/day to the non-communist world. During the 1980s, Soviet crude exports to eastern Europe are expected to drop below the 1979 level of 1.5 million bbl/day. Exports to western Europe, including France, Italy, Finland, West Germany and Sweden, are anticipated to fall below the 1978-79 level of 1.3-1.5 million bbl/day. CMEA countries receive Soviet oil at a lower cost than world market prices. Furthermore, Cuba, Vietnam, and Mongolia are granted even lower prices than those at the CMEA discount rate because of their strategic importance to Moscow. Exports to these three developing countries, which amount to 200000-300000 bbl/day, comprise a significant share of the flow to communist nations. The CMEA nations, which purchase discounted Soviet oil using transferable roubles, would encounter serious economic troubles if forced to use limited hard currency reserves to buy large volumes of OPEC crude at world prices. The maintenance of the Soviet-CMEA oil supply network is an important economic linkage in preserving communist unity.
Natural gas reserves While official Soviet petroleum reserve statistics have never been publicized, the USSR estimates its natural gas reserves at 990 x 101Eft 3, perhaps the world's largest. At the current output rate of 14.1 x 10~2ft3/year, this provides the USSR with a 70 year supply. Growth in natural gas production is expected to be maintained at 6%/year into the mid-1980s. The USSR estimates that its annual production will be 15.4 x 101Eft 3 in 1980, 21.2 x 101Eft 3 in 1985, and 24.4 x 1012ft 3 by 1990. These targets appear to be attainable, given the consistency in natural gas production figures to date. In the natural gas sector, production is again centred on western Siberia, particularly the Tyumen Oblast. The Tyumen region contains over two-thirds of Soviet gas reserves and by the mid-1980s, it is expected to account for most increases in output. By 1985, it is probable that 50% of the USSR's hydrocarbon exports will be in the form of natural gas, compared to 14% (on an energy equivalent basis) in 1977. By 1990, natural gas could surpass oil as the greatest source of domestically produced energy, and provide a significant source of foreign exchange for the USSR. The major markets for Soviet natural gas exports are eastern and western Europe, where barter and exchange agreements have been in existence since the 1960s when the pipeline industry began to develop.
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The politics of Soviet oil
Soviet gas is often prepaid for by the Europeans with pipeline parts and skilled labour for major Soviet transmission projects. The vast Orenburg pipeline, which stretches 1 700 miles from the Orenburg gas field in the Tyumen Oblast to the Czechoslovakian border, is a prime example of such arrangements. About 12000 eastern European workers participated in construction work, a valuable contribution to the Orenburg project. By 1990, natural gas exports to western Europe are expected to reach 900 billion ft 3. Commitments of roughly 400 billion ft 3 to eastern Europe will provide the CMEA countries with a significant portion of their total supply. The Soviet net export goal for 1980 is 1.4 x 1012 ft 3 which would represent an increase to roughly $1 billion in natural gas hard currency earnings from the 1975 level of $200 million, when net exports were 250 billion ft3. In the past, natural gas imports from Iran and Afghanistan have been used to offset exports from the northern producing regions. Before the Iranian Revolution, the USSR was importing roughly 353 billion ft3/year from Iran and 106 billion ft3/year from Afghanistan. Recently, the Iranian oil minister announced an 80% curtailment of natural gas exports to the USSR. The Iranians intend to raise the price from 76¢ per thousand ft 3 to $3.80 per thousand ft 3. Thus, there will be less Iranian gas for consumption in the southwestern USSR, necessitating the diversion of some of the valuable Siberian gas from European markets. 5 The USSR is second to the Netherlands as the leading exporter of natural gas. Western markets are very important, particularly in view of the technological assistance received from western Europe in exchange for its gas. Moreover, the political and economic relations with West Germany and France, which are fostered by trade in natural gas, serve as an important element in European stability.
Production problems and an imminent shortfall
5The IGAT II pipeline has been cancelled and the IGAT I a r r a n g e m e n t is under renegotiation. The USSR and Iran have been unable to reach an agreement. It appears that the Iranian price of b e t w e e n $ 3 . 5 0 and $ 4 . 0 0 per thousand ft 3 is unacceptable to the USSR.
The technical difficulties in the gas industry which have caused bottlenecks include lack of adequate compressor stations, pipeline parts and gas storage facilities. Production targets have been met, but not without tremendous waste and inefficiency. In 1977, 700 billion ft 3 of associated gas was flared, half of this loss occurring in western Siberia. The collection and transmission costs of Siberian gas are high, and storage capacity is inadequate. There is therefore a striking need to improve the infrastructure of the gas industry. Difficult logistical problems have slowed the growth of both oil and gas production. The lack of road construction has paralysed the mobilization of drilling units and equipment between sites. Railways are heavily burdened, especially in the Siberian winter months when they serve as the sole transport mode to the isolated areas inaccessible by road. Soviet manufacturing industry has failed to keep pace with the demand for the more sophisticated equipment required in western Siberia. Equipment in short supply ranges from basic seismic geophones, cables and digital processing units to compressor station parts and rigs. The Dresser Industries drill bit plant, which was constructed in 1979 to manufacture higher quality bits, was a largescale project aimed at improving Soviet manufacturing capability. Equipment supplied by the USA for Soviet oil and gas production
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The pofitics of Soviet oil
has ranged from special tape used in pipeline construction to the most advanced types of drilling rigs, including submersible rigs scheduled for deep offshore operations in the Caspian Sea. The exact nature and magnitude of the US contribution is hard to determine. In the early 1970s, the US Export-Import Bank authorized loans amounting to $469 million for equipment sales by US companies. However, the issuance of licences was curtailed by the passage of the 1974 Jackson-Vanik Amendment which tied future US exports of machinery and technology to alteration of Soviet emigration policies. Despite trade restrictions, transfer of US energy technology began to expand in the late 1970s. Since 1976, the volume of Soviet orders has risen significantly, with a concomitant shift towards turn-key projects. The rising level of Soviet purchases has been instigated by the USSR, which recognizes that US and Western technology is essential if it is to increase its oil and gas production. The effect of an embargo on the export of US energy technology to the USSR would be most significant in the long term. A prolonged embargo would exacerbate production and transmission problems and diminish Soviet energy output later in the decade. 6 The impending shortfall in Soviet oil supplies might occur sooner and be more acute, and the chances of averting a permanent decline in production would be minimal. A decline in Soviet oil production from 12.0 million bbl/day to 10.0 million bbl/day could necessitate the elimination of the 1.3 million bbl/day flowing to non-communist countries and half of the 1.4 million bbl/day exports to eastern Europe. The absence of hard currency gains from trade with the West would have a devastating effect on the Soviet economy. The interruption of flows to eastern Europe would jeopardize a Soviet power base maintained in part through commitments to supply a major share of energy requirements.
Supplies from the Persian Gulf
e This is a particularly frightening prospect in view of the dismal outlook for both US and world energy supplies in the late 1980s.
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To avert the serious ramifications of a 2 million bbl/day production loss, the USSR would have to tap external production sources. An increase in demand for non-Soviet supplies of 2 million bbl/day would provide the impetus for further OPEC price rises. The emergence of the USSR as an oil importer on a sustained basis would certainly destabilize world oil markets. The possibility of a downturn in domestic oil production has prompted the USSR to search for more oil supplies from the Persian Gulf. By providing technical assistance and credit to developing countries, the USSR is establishing a foothold in the petroleum industries of the Gulf States. In Iraq, for example, the USSR has supplied engineering and oil extraction equipment in exchange for Iraqi crude. The USSR receives about 0.1 million bbl/day from Iraq, whose average crude output was recently boosted to 3.7 million bbl/day. Soviet aid has also been supplied to Syria, Algeria, India, Afghanistan and Iran for their prospecting and exploratory ventures. Recently the USSR has made moves to strengthen energy ties with various developing countries. In February 1980 the Soviets pledged to supply India with significant volumes of kerosene and diesel fuel, in addition to previously agreed sales of crude oil. An even more serious
ENERGY POLICY September 1980
The politics of Soviet oil effort was reflected in Soviet overtures to the Kuwaiti oil minister to arrange the purchase of OPEC oil. It has been reported in Czechoslovakia that the Eastern bloc had to purchase 1 million bbl/day in 1979 from OPEC countries, and that it was expected to consume an additional 0.6 million bbl/day in 1980 which might not be covered by Soviet exports. Therefore, both the USSR and its allies have a growing vested interest in purchasing OPEC oil/ Soviet economic and technical assistance in the Persian Gulf states portends an increase in their political leverage and influence in that oil producing region. The fact that the USSR has often provided support for developing countries even when its own technological foundation needs improvement, indicates the strategic importance of these countries to Moscow. The USSR hopes to foster strong economic and political ties with a host of nations whose logistical support could facilitate future Soviet moves or pressure in the oil rich Gulf. The USSR is willing to extend its technical assistance to others at the expense of increasing its own oil producing capacity. With the intervention in Afghanistan, Soviet pressures in the Gulf region are more significant than ever before. With the prospect of an alleviation of Soviet energy problems an extremely remote one, Soviet interest in the area can be expected to continue. Future energy transactions between the USSR and Gulf producers can be expected. While Soviet military strategy is not yet fully discernible, there is a threshold beyond which further incursions in the area will not be tolerated by the USA. The proximity of Soviet troops in Afghanistan to the Iranian oilfields and the Straits of Hormuz has brought this issue dramatically to the fore.
Evaluating the energy technology embargo The inextricable linkage between US national security and the security of Persian Gulf oil flows necessitates coherent policies which will enhance the area's stability. The Soviet perception of their future energy needs set against anticipated problems with domestic supplies will influence their policies regarding the Gulf region. There is no question that Soviet decisions will affect the region's security. Thus, to the extent that US energy technology embargo decisions alter Soviet perceptions of their future requirements for external energy sources, these decisions affect US national security. Viewed in this light, is the imposition of an energy technology embargo a reasonable policy?
~To date, only Iran, Iraq and Kuwait have acknowledged a willingness to deliver oil to the USSR.
High technology and political leverage The current US policy of using high technology as an economic and political lever on the USSR has met with scepticism in the international business community. The general belief is that the Soviets can acquire oil and gas extraction equipment from other sources, including subsidiaries of multinationals and state-owned foreign corporations. Moreover, many US businessmen view the Soviet market as a potentially lucrative one, easily capturable by the French, British, West Germans and Japanese. They also fear that closing the trade channels will entail the loss of a critical diplomatic tool. The western Europeans and Japanese have traditionally sought to establish economic ties with the USSR. Exports of high technology
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The politics of Soviet oil
items from Germany and Japan to the USSR exceed US shipments. Japan supplies the USSR with the largest quantities of oil refining equipment, and West Germany is the leader for exports of large diameter pipe and pipeline parts. To the British, French, West Germans and Japanese, the sale of high technology goods to the USSR is strictly a business proposition. The NA TO pipe embargo The difference in approaches to East-West technology transfer among OECD members is exemplified by reaction to the 1962-63 NATO pipe embargo. The USA called for an embargo of European exports of large diameter pipe for the Soviet Friendship crude oil pipeline. Once the order was passed in NATO, the USA persuaded the West Germans to cancel several signed arrangements for pipe exports to the USSR. However, US efforts did not prevail over other countries. European scepticism regarding US export control actions caused serious friction in the alliance. Italy, the UK and Japan did supply the necessary pipe to the USSR, with the British ignoring the NATO directive entirely. The results of this US effort to prevent strategic goods from reaching the USSR must be viewed critically. First, the USSR was able to secure pipe imports from alternative sources of supply. Second, the USSR benefitted indirectly through encouragement to hasten development of a domestic pipemaking industry. Third, the embargo delayed completion of the Friendship pipeline by only one year. A troubling ramification of the NATO pipeline case was the scepticism aroused amongst US allies, which still lingers today. The Europeans questioned whether the true US concern was with the use of steel pipe by the Soviet military sector. They suspected that the actual motivation was the concern of US oil companies that the USSR might eventually dump lower priced oil on the western European market. The European view The European response to the high technology export ban manifests the unilateral stance from which US allies view these matters. The Europeans charge that the USA has overreacted to Russian activities in Afghanistan by terminating high technology exports. The most recent policy directives from France, West Germany, and Japan clearly demonstrate their unwillingness to contract relationships with Moscow after years of carefully developing economic ties. US allies agree that certain exported technologies have direct military applications for the Eastern bloc and should be embargoed. European criticism of the embargo is concerned only with those technologies which have an indirect bearing on communist military and strategic capabilities. The Europeans believe that the export of these goods strengthens political relations with Moscow without concomitant jeopardy to national security, and therefore should not be banned. Both France and West Germany recognize the necessity of preserving economic and political links with the Eastern bloc and have continued to trade openly with the USSR. Soviet natural gas deliveries are critical to West Germany, which is heavily dependent on oil and gas imports. Trade between the two countries, which
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The politics of Soviet oil totalled almost $5 billion in 1979, is beneficial to both. France's carefully nurtured relationship with the USSR resulted in $14 billion of trade between 1975 and 1979. The French are expected to win a $300 million order for two Caspian Sea oil platform yards, and possibly a $200 million contract for equipment to develop Siberian fields. French bids for Soviet contracts in other fields have been highly competitive. The ineffectiveness o f an energy technology embargo Since the end of 1979, there has been virtually no business between US and Soviet companies. It is conceivable that US-Soviet trade relations have been irreparably damaged. Clearly, the opportunity for the USA to regain its supremacy in the Soviet technological marketplace is falling victim to OECD efforts to make inroads. While only about 4% of US world trade in 1978 was with the East, the true political significance of US-Soviet trade is far greater than this figure would suggest. In addressing the issue of whether an embargo of energy technology is an acceptable lever against Soviet aggression, it must be recognized that it is feasible to trade without sacrificing efforts to curb the expansion of Soviet military power. The requisite technology for enhancing Soviet energy productivity generally does not have direct military application. Alternative equipment is being offered by willing OECD exporters, negating any possibility of utilizing trade policy to force the USSR to divert funds to internal development of energy technology. Thus, it cannot be reasoned that US exports are enabling the USSR to support a level of budgetary expenditures for military purposes that could not otherwise be maintained. Given the falsehood of this argument, and the likelihood that sustained Soviet energy productivity will offer a disincentive to further economic and military inroads by the USSR in the Gulf region, the advantages of an energy technology embargo become illusory. This is particularly true in view of the ability of Soviet energy exports to relieve their recipients of further dependence on OPEC supplies. The need to generate hard currency to finance the necessary technology imports for western Siberia development will encourage continuation of current export policies.
Conclusions The development of the infrastructure is an important factor affecting Soviet oil and gas production. This requires improved coordination among government ministries. Increases in oil exploration, development and production levels cannot be anticipated in the absence of infrastructure improvements unless the appropriate technology is imported. The wholesale alteration of the Soviet infrastructure which is necessary would be such a long-term venture that importation offers the only feasible means of addressing Soviet energy problems before they become the world's energy problems. It is important to reinstitute a policy of providing the USSR with oil and gas technology. The first reason is that US technology can unquestionably make a critical difference in the Soviet energy position in the 1980s. Sophisticated US drilling rigs, pipeline parts, and seismic equipment could supplement exports from western Europe and Japan, especially for use in western Siberia, where foreign technology would
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have a significant impact on Soviet production capability. Therefore, exports of technology from the USA could limit, and perhaps reverse, the deterioration in the Soviet energy position. A second, related, issue is whether a technology embargo will force the USSR to reevaluate its Middle East strategy, or will it reinforce its current initiatives? A review of the status of the Afghan crisis provides a ready answer. Soviet presence in Afghanistan continues, amidst reports of further build-up of troop strength and growing signs of an imminent offensive. The technology embargo has failed in its objective to force the USSR out of Afghanistan. If the USSR ultimately withdraws, it will not be in response to the embargo. In fact, the boycott has reinforced Soviet initiatives by making a graceful withdrawal an impossibility. Furthermore, the absence of any sign of retrenchment has further obscured Soviet motives in Afghanistan and now Iran. In sum, the US trade embargo has proved to be an ineffective policy tool. Apart from the issue of whether the trade embargo policies further US interests is the question of their consistency with the national security objectives of its western European allies and Japan. From their perspective, current US policy is a step in the wrong direction; a step they are unwilling to follow. France, Germany, and Japan accuse the USA of unnecessarily sacrificing the economic and long-term political benefits of East-West trade for short-term political goals. They maintain that the myopic nature of this approach, in conjunction with the demise of SALT II, may lead to an erosion in the strategic balance of power. It is clear to the Europeans and Japanese that there are energyrelated technologies that should be exempted from the embargo because they lack direct military applicability. This view is shared by US businessmen who emphasize the potential damage to their overall trade relations with the USSR if the US share of the Soviet technology market is lost. Finally, US national security is contingent upon the security of global oil supplies. The success or failure of US efforts to protect Persian Gulf oil supplies hinges on many economic, political and military policy decisions. Some of these decisions will, of necessity, relate to the USSR because stable oil flows require an energy-strong USSR. An embargo of high technology items to the USSR should not include those technologies whose transfer serves US strategic selfinterests. By reinstituting an energy technology transfer policy, the USA would enhance the possibility of averting worldwide energy conflict, in which the USSR would play a central role. In the absence of a policy reversal regarding Soviet trade, the USA is increasing the likelihood of the conflict it is seeking to avert. The USA's objective of curtailing Soviet expansion in the Persian Gulf could best be achieved by reinstating an energy technology transfer policy. A general boycott of exports to the USSR could be maintained, but energy-related technologies not having a direct bearing on Soviet military capabilities should be exempt. In this way the USA would be supporting the growth of Soviet energy production. This policy makes eminent sense in view of the USA's interest in preserving the security of Persian Gulf oil supplies.
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