Air University Review, May-June 1971

The Soviet Need for Middle East Oil

Major Eugene S. DeNezza

Today oil is the world’s most important fuel, and it is likely to remain so for many years to come. To the modern nation-state, oil is essential in both peace and war. Only a very few countries could long live satisfactorily or fight effectively if deprived of outside sources of supply of oil.

By far the most important single source of oil is the Middle East. It produces just over one-quarter of the world’s oil and shelters underneath its soil almost two-thirds of the world’s oil reserves. If we exclude the United States and the Soviet Union, both of which presently produce as much as they need, the Middle East has an overwhelming 75 percent of the world’s reserves and 46 percent of its production. Just over half of the oil entering international trade comes from the Middle East, while another 13 percent comes from North Africa. The extent and significance of Middle East oil are clearly illustrated by the fact that in 1968 Saudi Arabia alone increased its reserves by nearly 1250 million metric tons (MMT). This is almost as much as the current hopes for the whole Alaskan north slope. The recent discoveries in Alaska caused a sensation; the Arabian finds are considered routine.

The United States has a very important interest in access to Middle East oil. In addition to U.S. investments of over $3 billion and annual revenues of $1.7 billion from these investments, the United States government recognizes that

The Middle Eastern “wells of power”. . . .supply West Europe with half of its requirements, and Japan with 90 per cent of her needs. Denial of access might well cripple important allies of the United States.¹

The industrial power closest geographically to the Middle East is, of course, the Soviet Union. The Russians have had an interest in the Middle East since the time of Peter the Great. Their objectives in the area have centered on securing warm-water ports on the Mediterranean; protecting Russia’s southern flank; and, more recently, gaining a strategic door to the Indian Ocean. Yet Soviet interest in the strategic oil of the Middle East has been discounted as an important factor in determining Soviet objectives in the area. This conclusion by many Western political analysts has been based for the last decade on the assumption that, in view of the rapid development of the Soviet oil industry and the comparatively slow increase of Soviet-bloc oil consumption, the U.S.S.R. has and will continue to have no need for outside sources of oil, such as the Middle East. That this assumption became almost axiomatic is illustrated by a statement in a 1966 survey of great-power interests in the Middle East, that “Soviet interests in the Middle East do not include an interest in oil.” ²

Seemingly bearing out this assumption is the fact that in 1968 the U.S.S.R. ranked second in the world in the production of oil, exported approximately 80 MMT of crude oil and petroleum products, and claimed over five billion metric tons of proven reserves. In addition, the Soviet Union possessed at least fifty percent more unexplored land geologically favorable for the accumulation of oil than the U.S., including Alaska. However, information underlying these statistics strongly suggests that such a conclusion is premature. For example, the growth rate of Soviet oil surplus and exports has been slowing appreciably since 1962 and even more significantly since 1965. In 1969 an article in World Oil stated:

Russian crude production—up 7% in 1968— is not expanding fast enough to match the Soviet Union’s own increasing oil needs, those of satellite countries or to provide a surplus for sale to the free world . . . the entire exportable surplus of the Soviet Union in 1970 is estimated to be 1.2 million barrels per day (60.8 MMT).³

If this prediction was accurate, then Soviet exports, which leveled off in 1969, probably dropped 25 percent in 1970. An article in Soviet Studies predicted that by 1980 “the Soviet Union might be forced to import oil, even if production of oil continued its present eight per cent a year growth.”⁴

These forecasts, coupled with the Soviet Union’s powerful position in the Middle East and recent interest in its oil, indicate that the U.S.S.R. may soon need Middle East oil to satisfy internal needs. To either affirm or refute these indications, I made a detailed analysis of the Soviet and Eastern European oil situation in the next decade, with both supply and demand predicted or compiled for 1980.* For this article, I have summarized those estimates.

*Details as to the prediction technique used, the assumptions made, and the predictions themselves are contained in my study entitled “The Soviet Union and Middle East Oil,” Air command and Staff College Research Study 70-0410, Maxwell AFB, Alabama, 1970.

demand for oil in the Soviet Union

On the basis of my study and analysis, I estimate that the oil consumption of the U.S.S.R. will increase from 266 MMT in 1970 to 600 MMT in 1980. Some recently published estimates of Soviet 1980 oil consumption are pertinent for comparison purposes:

** Wasowski considers this the minimum; it assumes 7 percent consumption growth.

All estimates are quite close to the 600 MMT estimate except for the Soviet 1966 Plan, which was out of date when published.

demand for oil in Eastern Europe

Several excellent estimates of the 1980 demand for oil in Eastern Europe have been made, and they predict consumption figures as follows:

From the rationale behind these figures, it appears that an estimate of 170 MMT for Eastern Europe’s 1980 oil needs is realistic and conservative.

Soviet oil supply, 1980

The Soviet 20-year program, published in 1960, placed the 1980 oil production goal at from 690 to 710 MMT. This was modified in 1967 to 630 MMT. Generally, most Western sources estimate that the Soviets should produce approximately what they forecast:

The qualifying remarks that accompany these estimates, however, indicate some skepticism. Tugendhat, for example, states:

These figures should be treated with reserve, for like the rest of us, the Russians do not always achieve their economic targets. Nevertheless, they are within the bounds of possibility.²¹

World Oil reports:

Russia hopes to produce from 12-12.6 million bpd (610-630 MMT) by 1980 (a more realistic estimate would be 11 million bpd [557 MMT]).²²

The major reasons for this underlying pessimism seem to be three: First, the attainment of the Soviet objective requires that approximately one-third of the target come from the new fields in western Siberia. This would require production in Siberia to rise from the current level of 20 MMT to 230-260 MMT in 1980. This is an extremely ambitious goal, considering that the oil-producing region of western Siberia is composed mainly of lowlands covered with forests and marshes. In the long winter, the temperature often remains around —50° F, and blizzards are common. In the summer, living conditions are equally uncomfortable because of mosquitoes and the hot, muggy days.

Second, Russian oil production costs are increasing, and a major shift in production to Siberia would further increase the cost. Production costs in the U.S.S.R. in 1967 averaged about fifty cents a barrel. If one-third of the production shifts to western Siberia, increased production and transportation costs could easily raise the Soviet average to one to two dollars a barrel. Note that the average cost of Middle East oil in 1967 was 15 cents a barrel. This cost situation may induce the Soviets to look elsewhere for oil, rather than attempt to meet their goal of 630 MMT in 1980.

Finally, the Soviets may have trouble meeting their target because of poor management of the oil industry. Lincoln Landis of the Center for Strategic Studies refers to “serious endemic defects in its [the U.S.S.R.’s] totalitarian and centralized industrial system,” ²³ while the New York Times attributes oil production problems to “poor resource management.” ²⁴

While these three considerations must be kept in mind, the analysts still consider a 1980 Soviet oil production estimate of about 630 MMT as realizable. Therefore, with reservations, 630 MMT constitutes our estimate of the 1980 Soviet oil supply.

Eastern Europe supply-1980

In 1968 Eastern Europe’s production of oil provided only 38 percent of its internal needs. Analysts estimate that by 1980 the percentage will get appreciably worse. Typical estimates of 1980 Eastern European (E.E.) oil production include:

*Wasowski reports that “various estimates of the level of production in 1980 range from 23 to 33 MMT a year.”

There is, as can be seen, virtual unanimity that production in 1980 will be 30 MMT.

The estimates developed can now be consolidated to form the basic data necessary for a re-evaluation of the assumption of Soviet self-sufficiency in oil.

 Thus the estimates indicate that the combined Soviet and Eastern European oil supply will not satisfy their combined consumption. The combined surplus is estimated to turn into a deficit in 1974. By 1980 the Communist countries could easily absorb oil imports of 110 MMT to satisfy internal requirements.

Satisfying the Oil Need

At the present time the Soviet Union produces about 80 MMT of oil over and above its internal needs. With this exportable surplus, the Russians are realizing two major benefits. First, the U.S.S.R. all but monopolizes East Europe’s oil supply, thereby securing significant political leverage in the area. Second, sorely needed foreign currency, raw materials, and industrial products are secured by selling some 48 MMT of petroleum and petroleum products to the free world.

However, according to the above estimates, this situation will change radically. By 1980 it will be impossible for the Soviets to either monopolize Eastern Europe’s oil supply or provide even the present amount of oil to their free world markets. Four courses of action are open to the U.S.S.R. to resolve this situation:

1. Restrict internal consumption and/or increase production significantly. The Soviet Union is presently curtailing internal consumption by utilizing uneconomical coal products, limiting automobile inventories, etc. Most experts feel that the U.S.S.R. not only cannot increase these restrictions but will also have to ease the present restrictions. To increase production above the 630 MMT estimated for 1980 would be equally difficult. As noted earlier, the ability of the U.S.S.R. to meet the present goal has generated skepticism both in the West and in Russia itself.

2. Relinquish the monopoly on Eastern Europe’s oil supply and allow the satellites to secure their own sources of supply. While this course is a possibility, most observers feel that the prospect of a course of action that would result in increased East European independence would be against Soviet policy and thus highly remote. Robert W. Hunter, of the Institute for Strategic Studies, noted:

Oil supply seems to be one control which the Soviet Union is trying to develop in order to maintain, or even increase, the interdependence of the Comecon states and so limit their economic links with the West. . . . growth in Eastern Europe’s demand for external supplies of energy is another measure of the strong incentive for the Soviet Union to find new sources of oil when her own become inadequate. In fact, present evidence of her interest in obtaining Middle East oil may be explained by the Soviet desire to play a dominating role in the East European energy markets during the next few years.²⁸

3. Discontinue sales to the free world. This alternative also appears quite remote. Oil is second only to machinery as Russia’s most important export, giving the Soviets sorely needed foreign exchange and other trade. In addition, the establishment of the free world markets required a substantial Soviet investment (capital facilities, companies, tankers, pipelines, etc., which they would be loath to lose. Recent expansion plans in Russian oil-marketing firms in England, Belgium, and West Germany even indicate that the Soviets may be expanding their free world markets. Hunter has summarized the reasons why the Soviets will not select discontinuance of sales to the West as a solution to their oil problem:

Now that these Western markets are being firmly established, along with markets (and especially the pipelines) for natural gas, there are developing considerable incentives for the Soviet Union to retain them, even if she must eventually find external sources of supply to fulfill existing contracts. When their own domestic sources of oil fall behind internal demand, there will be advantages for the Russians if they can acquire major external sources of “rouble oil” to be marketed in Western Europe for hard currencies even though the costs of exploiting these sources would also have to be paid in hard currencies. Such advantages would be similar to those enjoyed by Britain and the United States in being able to obtain “sterling” and “dollar” oil from the Middle East as a welcome source of foreign exchange.²⁹

4. Acquire outside sources of supply. This last possibility seems to be the most logical choice for the Soviets, and their recent activities strongly support a contention that they have adopted, as a policy goal, the acquisition of Middle East oil supplies. Up to the middle sixties, Soviet interest in Middle East oil was political and negative, i.e., it attacked Western oil companies and Western governments but did not itself attempt to secure any oil or oil concessions.

After 1965 the attitude of the Soviets changed. The turning point came in 1966 with the signing of a comprehensive Soviet-Iranian agreement that included payment for Soviet aid by shipments of natural gas via pipeline to the U.S.S.R. Since then the Soviets have secured permission to explore for oil in certain areas of Iran; to assist in the development of the Syrian oil fields in Jezera province; and to aid the Egyptians in developing the Servah oasis deposits near Libya. The most significant contract was concluded with Iraq in 1969. Of this deal Ruth Knowles commented: “the Soviets were able to pull an economic coup d’état.” ³⁰ Under a series of agreements, the Soviets, without obtaining any territorial concessions in Iraq, will assist the Iraqi government in putting the large and famous North Rumalia fields under production, payment for the Russian help to be in oil.

It is important to note that in all these deals the U.S.S.R. is securing Middle East oil without the expenditure of hard currency; to do so would be inconsistent with her desire to export to West Europe to acquire hard currency. Instead the Soviets are using barter agreements, service contracts, royalty payments in rubles, and even marketing assistance, to secure oil. The Middle East nations’ extensive need for products, arms, assistance, etc., should allow the Soviets to continue such agreements for the foreseeable future, to secure the required amounts of oil.

The inability of the Soviets either to restrict their future consumption significantly or increase their future production economically, coupled with their desire to continue to supply oil to both East and West European markets, requires that they secure outside sources of oil. Specifically, their past activities suggest that they will attempt to satisfy their increasing requirements with Middle East oil. The Middle East is a natural and obvious choice. Middle East oil is extremely cheap in comparison with that produced in the U.S.S.R. The territorial contiguity allows transport of oil by pipeline to the Caucasus oil complex of the U.S.S.R. quite cheaply. Upon arrival in the Soviet complex, it could be used internally or transported to Soviet European markets by the same modes presently used for Soviet oil.

A reasonable estimate of the scope of outside supply would be 200 MMT by 1980; of this, 110 MMT would be for Soviet and East European use, the remainder for resale to free world markets.

Some observers see great benefit in this Soviet need for Middle East oil, but alluding to the possibility of widespread stability as a result of Soviet interest, Jean-Jacques Berreby, in The New Middle East, noted:

These arguments are far from convincing, to say the least. The Communist countries can certainly get all the oil they need from certain countries in the Middle East and North Africa while at the same time encouraging the opposition in countries from which the West is drawing its supplies, as in Saudi Arabia and Kuwait.³¹

It would also be a mistake to envisage the Soviet need for oil as resulting in extreme policies. It should be noted that 110 to 200 MMT of oil is neither a significant enough need nor a large enough demand that the Soviets could not easily afford to procure it and the Middle East easily supply it. Therefore, to expect the Soviets, for 200 MMT of oil, to adopt a policy either of influencing the Middle East countries to nationalize their oil or of a Soviet or satellite regime take-over is unrealistic. To put the Soviet need for 200 MMT of oil in perspective, one should consider that Western Europe imported 253 MMT and Japan 132 MMT from the Persian Gulf area in 1968, to say nothing of their 1000 MMT estimated requirement by 1980. Therefore, it seems likely that the Soviets will pursue two major policy goals: the first will be to secure the required amount of oil from the Middle East by commercial means at the cheapest possible price; the second will be to insure that the required oil supply is stable and uninterrupted by local conditions. It would appear that the Soviet Middle East oil sources of supply will become an increasingly important consideration in shaping Soviet policy in the area. But it is unlikely that the Soviet need for oil will be a decisive factor in shaping the Soviet Middle East policy.

A clear-cut distinction should be made between Soviet policy directed toward securing and insuring a supply of Middle East oil to satisfy U.S.S.R. requirements and Soviet policy toward Middle East oil in general. If the Soviet Union did achieve control over Middle East oil, she could seriously hurt the economies of the United States and its allies and exclude or threaten to exclude many countries from access to their oil supplies. Much has been written lately about Europe’s emancipation from dependence on Middle East oil by discoveries in Alaska and elsewhere. It is more truthful to state that Europe can do without Middle East oil, at great expense, for only a six- to nine-month period. Therefore, it is conceivable that the U.S.S.R. may actively attempt to bring about the nationalization of oil by governments dominated by Moscow. It is even conceivable, but less likely, that the Soviets may attempt to set up satellite regimes on the East Europe model. However, if they take such actions, it will be to support a national goal over and above securing and insuring oil for their internal needs.

In any event, the Soviets do have an interest in Middle East oil, and the West can no longer afford to ignore it. Soviet interest in Middle East oil must be added to their traditional interests in the area.

Fairborne, Ohio

This article was adapted by Major DeNezza from a study accomplished as part of his academic work at Air Command and Staff College.

Notes

1. Henry N. Howard, “The U.S. in the Middle East Today,” Current History, July 1969, p. 37.

2. Lincoln Landis, “Soviet Interest in Middle East Oil,” The New Middle East, December 1968, p. 17, quoting from ‘‘Sources of Conflict in the Middle East,” Adelphi Paper No.26, March 1966, p. 3.

3. “Increasing Demands Strain Russian Exports,” World Oil, September 1969, p. 84 (hereafter referred to as “Increasing Demands”).

4. Stanislaw Wasowski, “Fuel Situation in Eastern Europe,’’ Soviet Studies, XXI, July 1969, pp. 35-53.

5. Ibid., p. 44.

6. Ibid.

7. "Forecast for the Seventies,” Oil and Gas Journal, November 10, 1969, p. 159 (hereafter referred to as ‘‘The Seventies”).

8. “Increasing Demand,” pp. 84-86.

9. “Soviet Interest in Middle East Oil,” Mizan, X, May/June 1968, pp. 79-85.

10. Christopher Tugendhat, Oil the Biggest Business (New York: G. P. Putnam’s, Sons, 1968), p. 253.

11. U.S. Department of the Interior, Minerals Yearbook, Vol IV, Area Reports: International, Washington, D.C. (hereafter referred to as Minerals Yearbook).

12. “Russia Need, New Oil Sources as Communist Demand, Increase,” World Oil, August 15, 1969, p. 139 (hereafter referred to as “Russia Needs New Oil”).

13. Wasowski, p. 41.

14. Tugendhat, p. 253.

15. “The Seventies,” p. 160.

16. “Russia Needs New Oil,” pp. 130-39.

17. Wasowaki, p. 44.

18. Tugendhat, p.245.

19. “Increasing Demand,” p. 86.

20. Minerals Yearbook, p. 805.

21. Tugendhat, pp. 245-46.

22. “Increasing Demands,” p. 86.

23. Landis, p. 19.

24. “Soviet Economy Remains Sluggish,” New York Times, January 16, 1970.

25. Wasowski, p. 43. 

26. Tugendhat, p. 253.

27. Walter Laqueur, The Struggle for the Middle East—The Soviet Union in the Mediterranean (New York: Macmillan Co., 1969), p. 131.

28. Robert E. Hunter, “The Soviet Dilemma in the Middle East, Part II: Oil and the Persian Gulf,” Adelphi Paper No. 60 (October 1969), p. 4.

29. Ibid., pp. 1-5.

30. Ruth Sheldon Knowles, “A New Soviet Thrust,” Mid East, IX (December 1969), p. 5.

31. Jean-Jacques Berreby, “Recolonisation Timetable,” Orient-Pétrole, published in English by The New Middle East, January 1970, p. 12.

Contributor

Major Eugene J. DeNezza (USNA; M.S., Massachusetts Institute of Technology; M.P.S., Auburn University) is Program Manager, Advanced Aircraft Navigation Program Office, Avionics Laboratory, AFSC. He has been a radar maintenance officer and served with USAF Security Service in Japan. Other AFSC assignments have been at Wright-Patterson AFB, Ohio, and Holloman AFB, New Mexico. Major DeNezza is a 1970 graduate of Air Command and Staff College.

Disclaimer

The conclusions and opinions expressed in this document are those of the author cultivated in the freedom of expression, academic environment of Air University. They do not reflect the official position of the U.S. Government, Department of Defense, the United States Air Force or the Air University.

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