oil and the fall of the soviet union -- 6/22/21
Today's selection -- from The New Map by Daniel Yergin. The overdependence of the USSR on oil revenues and the mid-1980s collapse in oil prices meant the doom of the Soviet Union:
"Russia … is one of the Big Three of world oil production. It is the second-largest producer of natural gas (after the United States) and is still the world’s largest gas exporter. The earnings from oil and gas exports provide the financial foundation for the Russian state and Russian power -- in normal times, 40 to 50 percent of the government's budget, 55 to 60 percent of export earnings, and an estimated 30 percent of GDP. Much more than anything else, these resources make Russia a major player in the world economy.
"This geological endowment gives Russia global presence. It undergirds its economic relationship with Europe and growing bonds with China. Yet this reliance is also subject to much debate. Former finance minister and deputy prime minister Alexei Kudrin and others have argued that Russia is overly dependent on oil and natural gas, hindering the development of a more balanced and dynamic economy.
"These debates and dilemmas are not new. For a century and a half, 'Russia' -- whether the Russian Empire, the Soviet Union, or, since 1991, the Russian Federation -- has been a major player in world energy while at the same time heavily reliant on oil and then also on gas.
"Russia's oil industry emerged in the nineteenth century both in what today is Azerbaijan, on the western side of the Caspian Sea around the city of Baku and northwest of there and, to a lesser degree, in Kazakhstan, on the eastern side of the Caspian. A British visitor to Baku in the 1880s marveled at what had become the new ‘oil breadbasket of Europe.’ By 1898, Russia overtook the United States to become the world's biggest petroleum producer. But after the revolution of 1905 -- the 'dress rehearsal,' as Bolshevik leader Vladimir Lenin called it -- Russia's once-buoyant oil industry languished and declined.
"In the civil war that followed their seizure of power in 1917, the Bolsheviks faced what they called a 'fuel famine,' a daunting threat to their revolution. 'The fuel crisis must be overcome at any cost,' said Lenin. 'We desperately need oil,' and anyone who stood in the way 'we will slaughter.' To help solve their fuel famine, the Bolsheviks nationalized the oil industry.
"By the early 1920s, the Communists were in control of the entire country. Over the next several years, the oil industry recovered and once again became a player in the global market. In the mid-1930s, Joseph Stalin, Lenin's successor, launched purges that engulfed the entire country. The oil industry was not spared; the secret police claimed to have 'discovered' a 'counterrevolutionary, wrecking and spying organization' throughout the industry. Many of its leaders and workers were either sent to the gulag prison camps or summarily executed. The industry ceased being a major factor outside the Soviet Union.
"Only in the late 1950s, well after the end of the Second World War, did the Soviet Union return as an oil exporter to the global market. This was made possible by new production in the Volga-Urals region and then the discovery of vast new supplies in West Siberia. But Russia was exporting into a global market that was already oversaturated with the rising amounts of Middle East oil.
"In response to the surging volumes of Soviet oil, the international companies reduced prices in 1959 and again in 1960. Enraged at the resulting cut in their own revenues, oil-exporting countries, led by Saudi Arabia and Venezuela, came together to form a new organization, the Organization of Petroleum Exporting Countries -- OPEC.
"By the beginning of the 1970s, the Soviet Union's centrally planned economy was failing. It could not produce the goods that people wanted, and what it did produce was shoddy, except for specific sectors, mainly defense. The oil crisis of the 1970s came just in time. The dramatic increases in petroleum prices delivered a massive surge in revenues that rescued the stagnant economy and helped fund a big Soviet military buildup. But this new lease on life would prove only temporary.
"In 1985, Mikhail Gorbachev emerged as the new leader of the Soviet Union. Young and energetic, he was determined to reform the economy. But fate was against him. The next year, oil prices collapsed, delivering a terrible blow to the Soviet economy and marking the start of what Yegor Gaidar, former finance minister and acting prime minister, called 'the timeline of the collapse of the Soviet Union.'
"Oil revenues could no longer mask the failures of the centrally planned economy. 'We were planning to create a commission,' remembered Gorbachev, 'to solve the problem of women's pantyhose. Imagine a country that flies into space, launches Sputniks, creates such a defense system, and it can't solve the problem of women's pantyhose. There's no toothpaste, no soap powder, not the basic necessities of life. It was incredible and humiliating to work in such a government.'
"It got worse. Oil production began to fall rapidly. In 1989, the chairman of the Council of Ministries bemoaned, 'If there is no oil, there will be no national economy.' While several factors were converging to push the Soviet Union to its demise, the tanking of oil prices severed the financial lifeline that had kept the economy afloat."