Energy, Economics, and Foreign Policy in the Soviet Union

Energy, Economics, and Foreign Policy in the Soviet Union

Energy, Economics, and Foreign Policy in the Soviet Union

Energy, Economics, and Foreign Policy in the Soviet Union

Excerpt

The enormous energy price increases of the 1970s that led to stagnation and balance-of-payments problems for most nations brought windfall gains to the Soviet Union. As a net exporter of energy, largely of oil, the Soviet Union was well positioned to benefit from the events that shook net energy importers. The magnitude of Soviet energy reserves and the generally good Soviet record in exploiting those reserves suggested that the Soviet Union would remain a strong net exporter in the future.

In April 1977, however, the CIA predicted that Soviet oil output would peak in 1980, then begin to fall rapidly, so that the Soviet Union would soon become a net importer of energy. In the context of the then tight oil market, the switch of the Soviet Union (and the Soviet bloc) from net exporter to substantial net importer portended another round of oil price increases. Some observers worried that such a drop-off in oil production would so threaten the Soviet economy that the Soviets might be tempted to use their formidable military power to acquire by force the Middle Eastern oil they could not afford to purchase.

Today concern over a decline in Soviet oil output and the consequences for world energy markets has diminished considerably. Oil output has not declined, though it has--for some of the reasons identified by the CIA--virtually stagnated. More important, Soviet natural gas production is growing sufficiently to compensate for the slow growth in oil output. Indeed the current concern of Western countries is that an energy-abundant Soviet Union will flood Western Europe with natural gas, driving out most competitors and capturing the bulk of the market.

These shifting assessments of Soviet energy prospects teach two important lessons. First, it is necessary to view energy as a whole--oil, gas, coal, and unconventional sources--instead of simply focusing on one or another form of energy. The outlook for Soviet oil production can . . .

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