SPECIAL REPORT OFFICE OF CURRENT INTELLIGENCE LIMITED BLOC ACTIVITY FORESEEN IN WORLD OIL MARKET

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A004000080003-9
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 19, 2016
• Sequence Number: 3
• Content Type: REPORT

Release 2006/09128 :CIA-RDP79-00927A004000080003-9
10 May 1963
OCI No. 0279/63B
Copy No .
SPECIAL REPORT
(JFFICE OF RESEARCH AND REPORTS
LIMITED BLOC ACTIVITY FORESEEN IN WORLD OIL MARKET
CENTRAL INTELLIGENCE AGENCY
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XO May 1963
LIMITED BLOC ACTIVITY FORESEEN IN WORLD OIL MARKET
The USSR's production of crude oil is not likely
to expand fast enough in the next few years to meet
its own growing demands and those of its satellites
and at the same time provide any significant increase
in exports to the free world. Moscow could, for
political purposes as in Cuba, meet a sizable additional
export demand, but only by restricting domestic
consumption or cutting back existing trade contracts.
It might, however, make deliveries to gain a mayor
share of some markets where total demand is relatively
small, and it has some flexibility in its sales to
more than 20 nonbloc importers whose annual pur-
chases now total less than 500,000 tons apiece.
Oil Production and
Avai a ity or Export
The USSR produced 186 mil-
lion tons of crude oil in 1962,
about half as much as the US.
Production in each of the first
four years of the Seven-Year
Plan period (1959-65) has ex-
ceeded the plan by a few per-
centage points, and this pat-
tern is expected to continue,
with production in 1965 now
forecast to be 250 million tons.
Investment in the industry is
?lagging, and targets for the
construction of oil pipelines
and other distribution facili-
ties have not been met.
Soviet bloc exports of oil
to nonbloc countries had grown
at an average rate of 33 per-
cent per year from 1955 through
1961. However, when Soviet do-
mestic consumption sharply in-
creased in 1962, bloc exports
grew by only 4 percent to a
total of 32 million tons, worth
an estimated $400 million. It
is expected that any increases
SOVIET OIL: DISTf21BUT(ON
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over the next three years will
not be much above the 1962 rate
and that about 38 million tons
will probably be available for
export tc nonbloc countries in
1965.
Most of the oil available
for export this year appears to
have been committed already.
Moscow set an export target of
only 850,000 tons of oil for
this year in its trade agreement
with Brazil--a country seeking
to expand trade with the bloc.
This would amount to 8.5 percent
of anticipated Brazilian oil im-
ports. In negotiations with
Turkey in late March this year,
Moscow reportedly turned down a
relatively small sale because the
USSR was "fully committed."
Soviet oil available for
export to nonbloc countries is
expected to increase slowly,
perhaps by 6 million tons in
the next three years. Sales to
the free world by Rumania, the
only satellite oil exporter of
any consequence, are not ex-
pected to increase and will prob-
ably remain at about 4 million
tons. .During the same period,
world requirements for-oil are
expected to grow rapidly, so
that the Soviet bloc share of
the total free world market will
fall from about 4 percent at
the present time to less than
3 percent.
Sales Outside the Bloc
The pattern of Soviet oil
sales appears to be determined
SOVIET BLOC OIL EXPORTS TO NON-BLOC COUNTRIES
(Million Metric Tons) 38.0
by the fact that oil is the
USSR's largest earner of the
foreign exchange needed to pay
for imports of machinery embody-
ing advanced technology. As a
result, most sales have been
made to the major oil-consuming
countries in Western Europe.
International ail companies
often portray Soviet sales as.a
disrupting influence in the mar-
ket. Experience with Soviet
participation has indicated, how-
ever, that Moscow is usually
more interested in securing a
firm position in an expanding
market than in destroying exist-
ing marketing systems. As has
been the case when the USSR
first entered other export mar-
kets--e.g., tin or aluminum--it
began by offering a product
meeting international standards
at an attractive price. Large
variances from posted Persian
Gulf oil prices, both by the
USSR and international oil com-
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SOVIET.BLOC EXPORTS
TO NON-BLOC COUNTRIES, ]962
NDUSTRIAL COUNT
(Million Metric Tons)
RIES UNDERD
ITALY
7.2
CUBA
WEST GERMANY
3.0
EGYPT
FINLAND
2.9
GREECE
JAPAN
2.B
OTHERS
SWEDEN
2.3
FRANCE
1.2
AUSTRIA
.9
BENELUK
,7
OTHERS
2.9
4.5
1.4
.9
1.3
panies, make exact price com-
parisons difficult.
It appears that Soviet
prices to West European consumers
now are established to secure
maximum foreign exchange earn-
ings. An important exchange
in oil negotiations is the
USSR's ability to tie sales to
specific Soviet purchases of
goods and to tailor payment
terms as the situation requires.
The impact and potential
leverage of bloc oil sales vary
widely in individual countries.
At the present time, the bloc
i.s the sole source of oil for
Cuba and is the major supplier
to Finland and Iceland. In
Greece, Egypt, Austria, Italy,
and Yugoslavia, the bloc sup-
plies a substantial share of
the market. However, enough
free-world oil and transport
would be available for these
markets to minimize the effect
of any Soviet attempt to wield
political influence by withhold-
ing oil. In each of these coun-
tries except Italy, which is de-
veloping an independent oil
(moire than 15% of local demand)
CUBA
100
FINLAND
99
ICELAND
b2
GREECE
34
EGYPT
28
AUSTRIA
25
1 TAL Y
22
YUGOSLAVIA
22
SYRIA
17
SWEDEN
17
CEYLON
16
SECRET
capability, the total market is
relatively small.
Bloc oil shipments to the
underdeveloped countries are,
in most cases, to those nations
which are partially nationaliz-
ing their domestic petroleum
industries and in which the
government participates directly
in the oil trade. The appeal of
Soviet oil to some underdeveloped
countries is enhanced by its
usefulness as a means to pressure
the international oil companies.
For example, Ceylon, which con-
sumes ane million tons of oil
per year, is using the threat
of increased purchases from the
bloc as a bargaining lever in
acrimonious negotiations con-
cerning use of oil distribution.
facilities owned by Western oil
SOVIET BLOC SHARE
OF 1962 MARKET
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companies. The universality
of the use of oil and the
relative ease of substituting
Soviet for Western oil also have
made it particularly suitable
for promoting trade with the
underdeveloped countries.
Total consumption in many
of these countries is so limited
that the USSR, with a small
quantity of oil, can secure a
large share of the market. Ini-
tial Soviet penetration in these
countries was made possible to
a large extent by the rigid
policies of free world oil
companies in the mid-1950s.
The USSR, not having been as-
sociated with the oil industry
in the underdeveloped countries
prior to 1955, was helped in
entering these markets by the
efforts of the new governments
to gain control of oil facil-
ities in their countries here-
tofore operated by Western
companies.
In 1962, 16 underdeveloped
countries, not including
Cuba, received 2.5 million tons
of oil, only 8 percent of bloc
exports to the free world but
ranging from 3 to 62 percent of
local requirements. These de-
liveries, often in insignificant
quantities, are nevertheless
considered by free world oil
companies serious inroads in
markets developed for their po-
tential.
While Soviet oil sales are
primarily economically moti-
vated, important foreign policy
considerations could warrant de-
liveries. Shipments of about 4.5
million tons to fulfill all
Cuban annual requirements not
only tied up a large share of
the Soviet tanker fleet but ap-
parently were made at the ex-
pense of Soviet domestic con-
sumption. At the time these de-
liveries were begun there were
reports of shortages in the USSR,
and oil conservation programs
were put into effect there.
prospects for Expanded Exports
With only a limited quantity
of additional oil available for
export and with current sales
pressing close to availability,
Moscow probably will be very
selective in any new offers to
the nonbloc world. It is most
likely to expand sales to
existing commercial markets
in Western Europe, which pay
in hard currencies. Furthermore,
sensitive to charges concerning
its reliability as a supplier,
Moscow undoubtedly would wish
to continue selling to those
Western industrial countries
which now take over 70 percent
of bloc oil exports.
Responsibility to meet
Cuban needs will probably con-
tinue to account for nearly 12
percent of bloc exports. A rel-
atively small amount of oil will
be available for delivery to
underdeveloped countries to take
advantage of unforeseen economic
or political opportunities which
may present themselves. (CON-
FIDENTIAL)
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