OIL AS A POLITICAL WEAPON

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP08S01350R000601900005-7
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 3
• Document Creation Date: December 27, 2016
• Document Release Date: March 7, 2012
• Sequence Number: 5
• Publication Date: May 1, 1972
• Content Type: REPORT

Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP08SO135OR000601900005-7
Middle ast and
Maghreb Topics
ILLEGIB
May, 1972
OIL AS A POLITICAL WEAPON
Political issues surrounding world energy problems are expected
to dominate the Eight Arab Oil Congress, due to open in Algiers on May 28.
Since the seventh congress in Kuwait two years ago, the Arab oil industry
has seen two continued developments - the hard bargaining over revenues
between the international oil companies and Middle East producers, and the
further Soviet bloc technical assistance to the industry, highlighted by
the official inauguration of the Soviet-aided North Rumaila oilfield in Iraq
on April 7, attended by the Soviet Prime Minister, Alexei Kosygin. With
its increasing interest in the Arab oil industry, Moscow - which will be
represented along with Romania at the eighth congress - has been urging
the producer-States to view their oil not only as a source of financing
economic development but also as "a weapon in the struggle against
imperialism" (Moscow's Radio Peace and Progress, March 13, 1972).
The Soviet Union has long recognised the possibility of exploiting
Western dependence on Middle East oil for political ends, but its
opportunities have been limited by the fact that the relationship between
the oil companies and the Middle East governments has been seen to be
based, on the whole, on mutual interest. In recent years, however, an
increasing number of producer-countries have claimed that they are being
inadequately compensated, and the growth of financial and technical expertise
in the Arab world has put some of these countries in a position to participate
more directly in the exploitation and marketing of their resources.
Last year's negotiations with the oil companies brought a shift in
the balance of power in favour of the oil-producing States. The London
Financial Times on March 2, 1972, estimated that between 1970 and 1980,
Arab revenues from oil would grow from $4.8 thousand million to $28.3
thousand million. The Soviet Union has sought advantage from this
situation by stressing the political uses it believes the Arabs should
make of their increased revenues and more favourable position in relation
to the oil companies.
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP08SO135OR000601900005-7
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP08SO135OR000601900005-7
One means by which the Soviet Union hopes to influence the use
of the "oil weapon" against the West is by increased direct involvement
with the Arab oil industry, through aid to "progressive" oil-producing
States and through importing oil in exchange for Soviet goods. Soviet
oil experts are engaged in exploration, drilling and other operations in a
number of Arab States, but two projects have attracted particular attention
Iraq's North Rumaila field and the Boumerdes Hydrocarbons Institute in
Algeria.
Moscow Radt:o's Arabic Service on March 3 described the inauguration
of the North Rumaila field as "a turning-point in Iraqi economic history"
and claimed that Iraq could now rely "on the honest and vast assistance of
the Soviet Union". To3l S-qViet investment in the project so far is said
to he in the region of 1~8~D million. The Soviet Union has provided aid
for the construction of-a pipe-line to carry the oil to the port of Fao,
whence it will be shipped in Soviet tankers (and later by Iraqi tankers under
construction in Spain). This year, Iraq is to export 1,000,000 tons of
oil to the Soviet Union, and from 1973 this will rise to 2,000,000 tons a
year.
A high point of this collaboration has been the signature of a
Friendship Treaty during Kosygin's visit. The treaty marks a major step
in Arab-Soviet relations and has been interpreted as part of Soviet attempts
to consolidate its position in the Gulf and prevent China from taking
advantage of the "vacuum" created there by the withdrawal of British forces.
Training experts
In Algeria, the Soviet Union is involved in exploration and drilling,
and imports about 1,000,000 tons of Algerian oil a year. But its most
original contribution has been the Boumerdes Institute, which aims eventually
to train experts from all African countries for the oil and natural gas
industry. The agreement to establish the institute was signed in May, 1964,
and by November, 1966, it had a staff of 150, mostly Russians, and 2,000
students. In January, 1972, 250 Soviet teachers were at Bourmerdes and
the Soviet Union was preparing to help in extending the facilities. By
February 3, 1972, Moscow Radio boasted that more than 500 graduates of
Bourmerdes were employed in the oil industry.
The Institute's Algerian Director told a conference in October, 19.67,
that it had been decided to adopt Soviet methods of training - less thorough
than Western methods-because of Algeria's pressing need for oil technicians.
But it is not only Soviet training and technical expertise which are inferior:
the Russians are also less efficient in exploration. In drilling, they are
hampered by shortage of high-strength steel, and have to rely on turbo
rather than rotary drills. Turbo-drills are less durable and not efficient
at great depths. In addition, Communist bureaucracy sometimes causes
delays: Platt's Oilgram reported in February that the Czechoslovak-aided
Basra refinery would be finished well behind schedule because the Czechoslovak
railways were not providing enough trucks to transport supplies.
The motivating force of Soviet interest in the Arab oil industry is
political: it could hardly be based on Moscow's energy needs since
the Soviet Union, which has always aimed at economic self-sufficiency,
consistently achieves its oil production targets and is an exporter of oil
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP08SO135OR000601900005-7
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP08SO135OR000601900005-7
both to its East European allies and to world markets. Between 1955 and
1969, Soviet oil production rose from 71,000,000 tons to 329,000,000 tons
and Soviet oil exports to non-Communist countries from 4,000,000 tons
to 44,000,000 tons. By 1975, production is planned to reach 496,000,000
tons, while the Soviet Union's reserves should permit it to remain self-
sufficient in oil for the foreseeable future.
Nevertheless, it is likely that Soviet planners foresee an eventual
need for larger quantities of foreign oil, because of the rising demands
of East Europe, the growth of demand in the Soviet Union itself and the
increasing costs of exploiting remote fields within the USSR. The Soviet
Union clearly intends to remain a substantial and regular exporter of oil
to the non-Communist world, because this is its largest single earner of
convertible currency. For this reason it profits from imports of oil
from other countries which it receives in exchange for Soviet goods and
economic aid,?absorbing the shipments itself or passing them on to other
countries with which it has supply contracts.
The oil weapon
The Soviet Union probably has no wish to see a major disruption of
oil supplies in the world market, although it does have an interest in
seeing oil sold at a higher price to the West. In its propaganda
for the Arab world, it encourages producer-countries to follow the
example of Algeria, and take over an increasing share in all stages of
production and marketing from the international companies. But few
countries are at present ready to do this, and even these are likely to
find that the Soviet Union has little to offer beyond technical assistance
in exploration and production. Moreover, Algeria's nationalisation of its
oil industry was a carefully-prepared move, undertaken in stages over a
number of years: even with sufficient preparation, nationalisation could
leave producers still dependent on the international oil companies for the
"downstream" operations of refining and marketing, which are undertaken
for the most part in the industrial countries.
There is some sympathy in the Arab world for Soviet denigration of
the oil companies. But Middle East producers recognise that the use
of oil as a political weapon, as advocated by Moscow, encourages the consumers
countries to seek additional sources of supply. Already the international
oil companies are developing major fields in Alaska and the North Sea,
and in the long term the industrial countriesmay be able to meet more of
their requirements from nuclear power, natural gas and other energy sources under
their own control. Soviet natural gas seeks to take an increasing
part of the gas market, which by the end of the present decade could account
for some 15 per cent of Western Europe's energy requirements.
The future is likely to see an intensification of the trend in which
the producer-countries maintain their favourable position in relation to
the oil companies and gradually acquire increasing control over the management
of their oil industries. But one factor will remain constant: the market
for oil will continue to be chiefly in the industrialised countries of the
West and in Japan. It is with representatives of these consumers that
they will have to negotiate and find mutually acceptable solutions. It may be
in the interest of the Soviet Union to exploit potential sources of consumer
and producer countries, but it is hard to see how it can be to the advantage
of the oil producers themselves.
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP08SO135OR000601900005-7