THE SOVIET OIL SITUATION: AN EVALUATION OF CIA ANALYSES OF SOVIET OIL PRODUCTION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP81M00980R000100070088-8
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• Document Creation Date: December 19, 2016
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The Soviet Oil Situation:
An Evaluation of CIA Analyses
of Soviet Oil Production
M C} I/C
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The Soviet Oil Situation:
An Evaluation of CIA Analyses
of Soviet Oil Production
President Carter announced in a televised news conference on
April 15, 1977 that the CIA had provided him with a report show-
ing that the world energy situation was more pessimistic than
generally believed and that he was going to use that information
1/
to build up support for his forthcoming energy plan. Newsmen
who contacted the CIA on the following morning were told that
the report was classified and could not be released. That was
later amended to state that the Agency had been directed to
withhold the study until after the President's nationally
televised fireside chat on April 18 since the President was
going to quote extensively from the report at that time.
Within two weeks after President Carter's news conference,
two CIA reports were made public. The International Energy
Situation: Outlook to 1985 was released on April 18 and
Prospects for Soviet Oil Production on April 25.
On April 26 Admiral Stansfield Turner, Director of Central
Intelligence, appeared before a House Energy Subcommittee and
repeated the central findings of the International Energy
Situation study but went further in stating that those find-
ings were based on information about global energy conditions -
especially in the USSR -- which were not available to other
forecasters. He also repeated the one conclusion which would
1/ The President said the report showed that "world oil
reserves" had been overstated. Technically that was incorrect
since the CIA report did not go into the question of oil reserves.
Rather, it covered only energy production up_,to 1985. Un orb tunately,
this distinction was lost in the public coverage.
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come under increasing criticism in the future: the Soviet
Union would be a substantial net importer of oil by the
mid-1980s.
On the day following Admiral Turner's House appearance,
The New York Times editorialized that the CIA had been misused
in that the timing of the declassification of the report suggested
that it was politically motivated and that the facts had been
"cooked" to fit the President's recipe.
Senate Select Committee on Intelligence Interest
Because of the importance of these questions, the Senate
Select Committee on Intelligence decided to make an evalu-
ation of the integrity of the analytical process and an evaluation
of quality of the CIA's energy studies. The Committee addressed
the following questions:
1. Did the analytical or estimative process respond
to the Administration's preferred outcome?
2. Was the manner and style of the release of the
CIA information appropriate?
3. How was the study on future Soviet oil production
received by the public and by other petroleum analysts?
4. What is the track record of the CIA on the sub-
ject of Soviet oil?
5. On what sources of information did the CIA base
its estimate?
The first two questiones have to do faith the integrity of the
analytical process, while the remaining three are an attempt
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to address the question of the quality of intelligence. While
both of the CIA reports mentioned above directly or indirectly
addressed energy matters broader than the production of Soviet
oil, this Committee's investigation is limited to the Soviet
oil production question. '
Integrity of the Analytical Process
The CIA's Office of Economic Research (OER) has been follow-
ing Soviet oil production for many years. The prevailing estimate
for the last 10 years in the CIA, as well as in the oil industry,
has been that Soviet oil production would rise with gradual
slowing into the 1990s without any significant declines. A
published CIA study, "Soviet Long-Range Energy Forecasts,"
completed in September, 1975 reflected this position. As early
as 1970, however, some analysts within OER began to pick up some
clues from various Soviet open sources that the future of Soviet
oil production might not be as optimistic as previously believed.
These clues were mainly in the form of what appeared to be
Soviet manipulations of reporting classifications in an attempt
to enhance the appearance of growth. As a result of these clues,
some Agency analysts began talking about a rather dramatic and
immediate decline in Soviet oil production. Had there been any
confirmation of this new prediction, the CIA probably would have
accepted this more pessimistic view four years before they finally
did.
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The new prediction was not confirmed at this time, however.
Soviet production continued to rise. It was not until early 1975
that other pieces of evidence began to fit into a larger picture
which once again suggested that the Soviets were going to face
declining oil production. Among other things, it was,not until
1975 that the CIA understood the greatly increased pumping ca-
pacity made possible by the purchase of large numbers of U.S.-
made high capacity submersible pumps.
These pumps allowed the Soviets to lift more fluid from
the wells which were being flooded with water in an attempt
to force more oil out of the ground. One CIA analyst estimated
that these pumps alone could have accounted for an additional
one million barrels a day. Some examples of other new-information
which became available early in 1975 include: a Soviet failure
to meet annual drilling plans during the 1971 to 1975 period;
a rapidly increasing water flooding in some key oil fields;
data on maximum production capacity in West Siberian oil fields
which fell short of the level of oil production planned for
this region in the 1976-1980 period; indications that oil
production in Tatar ASSR, the largest producing area in the
Urals/Vogla region, would begin to fall after 1975; and the
absence of any Soviet reporting on the discovery of any large
new oil reserves, which would have been necessary to offset
the depletion of the existing reserves.
Thus, through 1975 and into 1976 there were, in effect,
two sets of analysts in OER; those who accepted the more
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traditional view that Soviet oil production would continue its
gradual growth rate, at least through 1980 with major production
problems not occurring until after 1980 and those who felt the
period of production shortages was more imminent. The Director
of OER encouraged both groups to continue their effort's as an
exercise in competitive analysis. As the two groups independently
refined their analyses through the summer and fall of 1976, it
became increasingly clearer to both groups that Soviet oil
production was going to face some serious problem years. By
the end of the year, OER accepted the notion that severe produc-
tion problems were going to occur. Differences still existed
over the approximate date the decline would begin. The study
which eventually was published in April, 1977 contained both
views as a "worst case" and a "less than worst case" projection.
President-elect Carter was made aware of the general thrust
of the Soviet oil studies through briefings by OER analysts
prior to his inauguration. A classified version of the global
energy study was made available to President Carter in April.
It was this report to which the President referred in his
April 15 press conference and it was the immediate interest
generated by this reference which brought about pressure from
the press to release the global energy paper.
The public pressure was received warmly by Admiral Turner
who had already made plans to make more CIA economic and technical
studies available to the public. At the request of Admiral Turner,
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OER declassified and released two studies which had not
originally been planned for public use: the global energy
study and the Soviet oil production study which was needed to
supportthe controversial projections made in the global study.
OER had been working towards using the Soviet oil production
information in a broader paper on the Soviet economy scheduled
for release later in the summer of 1977.
The prediction on Soviet oil production is speculative.
No one should underplay the tentative nature of any predictions
of this sort--even about U.S. oil production in the future. But
the Committee is of the view that in this particular effort, the in-
tegrity of the analytical process was not compromised in any
way. The analysts pursued their hunches and hypotheses without
any pressure to conform to any particular view.
Committee Staff has traced the origins of the new and much
more pessimistic forecast back through fall, 1976, much too early
to have been "cooked" to fit the President's recipe. The Committee
Staff could find no evidence that the integrity and independence
of the analytical process, in the case of the prediction about
Soviet oil production in the 1980s, was compromised in any way.
On the question of whether or not there were political motivations
behind the release of the CIA research, the answer is quite simple:
there were. President Carter said he was going to use this informa-
tion to build support for his energy plan. The conditions which
should govern a President's timing and publicly acknowledged use
of analytical work performed by an intelligence agency with access
to information generally not available to others for domestic politi-
cal purposes are not clear. The manner in which the President
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publicly cited the CIA information in this case at a time when
it had not yet been released to the public, however, understandably
gave rise to questions about his "use" of the intelligence.
The Senate Select Committee on Intelligence, its predecessor
committee (the Church Committee), other committees of Congress,
and many public groups have advocated greater distribution of
CIA information relating to economic and scientific matters.
This Committee believes it is proper for a President to cite V~,,,Wcl
intelligence information in support of a particular public
proposal, as long as this can be done without compromising
any sensitive sources or methods used in collecting the intel-
ligence and the information is made available to the public so
that others may guage the soundness of the argument. If an
administration chooses to cite intelligence data to support
policy choices in a public debate, it should be intelligence
which, in a general sense, can be made public. All of the
information needed to evaluate the strength of OER's conclusions
about Soviet oil production was made available to the public
by July, 1977.
The Quality of Intelligence
Evaluating the quality of the CIA predictions about Soviet
oil production is much more difficult than was determining the
integrity of the analytical process. The following section is
an attempt to evaluate the accuracy of the CIA predictions about
Soviet oil production. After summarizing the central points of
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the two CIA publications regarding Soviet oil production, there
follows a summary of early public reactions to the studies; the
results of an informal poll of twenty-five private and government
oil experts as to their reactions to the studies; subsequent CIA
statements about Soviet oil production; the CIA track,record on
Soviet oil; and the Committee's critique of the studies.
What the CIA Studies Said. The earlier of the two studies,
Prospects for Soviet Oil Production, said that because of a
variety of factors (poor production techniques, exploration
delays, development difficulties, etc.) Soviet oil production
was going to peak in the early 1980s and that the Soviets may
face difficulties in the mid-1980s meeting their own petroleum
needs. "More pessimistically," the report said, "the U.S.S.R.
itself will become an oil importer."
The CIA study acknowledged that this was a short-term
problem since Soviet energy resources were potentially very
large and could, in the long run, be adequate to meet Soviet
domestic and export needs. The adverse climatological character
of the regions in which those reserves were located, however,
would delay actual production from those regions for over ten
years, according to the study.
The second report, The International Energy Situation:
Outlook to 1985, considered Soviet oil production as a part of
global energy developments. It was this particular study's
comments on Soviet oil production which evoked the widest criticism
of the CIA studies. Building on the projected Soviet oil
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production shortage mentioned in the earlier study, this study
detailed the specific effects of that shortage and its wider
implications. "We estimate that the Soviet Union and Eastern
Europe will require a minimum of 3.5 million b/d of imported oil
by 1985. At worst, slumping production could lead to'import re-
quirements as large as 4.5 million b/d." These two sentences,
acted as a Leyden jar attracting a fairly wide range of criti-
cisms.
Public Reactions. Even before the CIA report was made
public, the Washington Post stated on April 16, 1977 that
"sources" were describing the CIA work as being based on
estimates of global trends in production and consumption
which were furnished by private oil companies. Ralph Nader,
the article said, questioned the credibility of the CIA report
and said that it all sounded like collusion between the oil-
producing countries and the oil industry to justify continuing
price rises. The first report, The International Energy
Situation: Outlook to 1985, was released on April 18 and
Prospects for Soviet Oil Production was released on April 25.
The releases did nothing to allay the public criticism.
The Washington Star carried an Associated Press story on
April 25 juxtaposing the very pessimistic conclusions of the
CIA's study with, what it believed to be, more optimistic
conclusions disputing the CIA figures from a U.N. group. This
story is typical of the kinds of problems which many have had
in trying to interpret the meaning of various oil studies.
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The U.N. group turned out to be a U.N.-sponsored conference
on the subject of future sources of energy whose main conclu-
sion was that "oil would remain the world's most important
hydrocarbon source of energy for many years to come." Rather
than disputing the CIA study, the U.N.-sponsored conference
was held nine months prior to the release of the CIA studies
and said nothing about short-term oil production in the Soviet
Union.
On April 27, The New York Times editorialized that the CIA
had been misused in that the timing of the declassification of
the reports gave evidence that their release was politically
motivated and that the facts had been "cooked" to fit the
President's recipe.
A New York Times feature story of April 28 claimed that
the "CIA's forecast of oil shortage is disputed in private
reports." The two reports mentioned were (1) a Stanford
Research Institute report issued several months prior to the
release of the CIA reports and (2) a National Economic Research
Associates of New York "appraisal" suggesting that the CIA re-
ports were much too pessimistic. In both cases, there was some
confusion between long versus short-term analysis and between
reserve versus production shortages. As the article commented,
"the issues are complicated and the approaches taken in the
various reports differ. The typical citizen or member of
Congress who is not a specialist in economics or research
analysis may find it difficult to decide which of the fore-
casts is right."
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One of the more perceptive public criticisms which appeared
in the same edition of the New York Times (April 28) was a
guest editorial written by Dr. Marshall I. Goldman, Associate
Director of the Russian Research Center at Harvard University.
Goldman wrote that "the general conclusion [of the CIA report]
is not wrong, but parts of the analysis appear to be incorrect."
He was particularly critical of two points made by the' CIA. In
0
the first place, Goldman did not believe that the Soviet Union
and Eastern Europe would become a net importer of oil since
he did not accept the Agency's projection of declining Soviet
production. Secondly, even if production failed, the Soviet
Union would not be able to obtain the hard currency necessary
to finance imports on the scale projected by the CIA studies.
Two other studies are worth mentioning. Shortly after the
publication of the two CIA studies, the Workshop on Alternative
Energy Strategies, (WAES) working under the auspices of the
Massachusetts Institute of Technology and under the direction
of Dr. Carol L. Wilson published its report, "Energy: Global
Prospects to 1985-2000." The WAES study is perhaps the only
study more pessimistic than the reports published by the CIA.
The WAES projects, at worst, a 15-20 million b/d global shortage
of oil by the year 2000. The CIA projection is to 1985 and
predicts an approximate global shortage of around 7 million b/d.
The WAES study did not make specific projections about Soviet
oil production and, hence, is not directly comparable with the
controversial CIA prediction about Soviet oil imports. Method-
ologically, both the WAES and the CIA studies project future
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energy needs as a function of general economic growth.
A Library of Congress study, released on June 26, was
headlined in The Washington Post as "disputing" the CIA's
Soviet oil forecast. The study said-that "Soviet needs and
planned commitments require it to be a modest exporter of oil
and natural gas to the hard currency Western industrialized
nations and to Eastern Europe throughout the period of the 70s
and 80s." The report went on to s'Qggest, however, that Soviet
oil production could well begin to diminish in the 1980s unless
the Russians were able to bring the Siberian fields on line.
When contacted by Committee staff, the author of the Library
of Congress study said that the newspapers had given a false
impression through its headline and description of his study.
He said that, with the exception of the 3.5 to 4.5 million b/d
import projection, he was impressed with the CIA study and that
his study generally did not dispute it.
Poll of Oil Experts. Since the CIA studies in question
were public reports, the Committee Staff contacted some two
dozen oil experts from private industry, academia, and the
government and asked them to assess the CIA studies.
Most of those polled had favorable comments to make about
the general work of the CIA's Office of Economic Research. The
two reports in question were described as timely, important, and
worthy of serious consideration but flawed by the absence of any
methodological explanations.
Those most critical of CIA's oil studies felt that OER's
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focus was too narrow and that it did not sufficiently take into
account broader questions affecting the Soviet oil future, such
as pricing, conservation, and fuel substitution.
On the projection that the Soviet Union and Eastern Europe
could be importing up to 4.5 million b/d by 1985, however, most
of those polled disagreed. Nearly everyone interviewed felt
that the Soviet Union would be ably to avoid becoming a net
importer of oil in the 1980's. Most of the experts consulted
by the SSCI believed that the totalitarian nature of the Soviet
system would more easily allow centralized diversion into other
energy sources, rigorously enforced conservation practices, and
greater control and manipulation of the economy than is possible
in a free economy. As a major New York oil consultant said,
"the Soviet Union does not have to function like a market economy
and thus it is difficult to predict how it will react to supply
and demand situations." He went on to state that "the Soviet
Union could reduce consumption very quickly if they really
wanted to through administrative decisions. It could also
move heavily into coal or gas or other areas if it needed to."
For example, an FEA analyst felt that the 3.5 to 4.5 figures
were a little too pessimistic and that they had been arrived at
by assuming a "rather direct causal relationship between economic
growth and energy needs into the future. This is a rather
standard assumption but may not always be a safe one to make."
An oil industry analyst said that "the 3.5 to 4.5 number is
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just too high of a number and is not a probable outcome." But,
he went on to say, "that is the only number in the study that
we have trouble with."
A leading academic specialist consulted by the Committee
Staff thought that the 3.5 - 4.5 figures were too high and that
the Soviet system would be able to take appropriate steps to
prevent becoming a net importer of that magnitude. On the
other hand, he believed that the CIA had performed a valuable
service in calling attention to the peaking and subsequent de-
cline of Soviet oil production. He felt, as did most of those
consulted, that if the CIA analysts had erred, they did so by
neglecting to trace the impact this decline would have on the
domestic economy as the Soviets searched for policy alternatives.
Marshall Goldman's New York Times criticism of the study
concentrated on this impact. He pointed out that an impli-
cation of the prediction that the Soviet Union will become
a net importer is that the Soviet Union would not be exporting
its present one million barrels a day. That would mean a net
impact on the world market of 4.5 to 5.5 million b/d and would,
in turn, create a serious drain on the Soviet Union's scarce
sources of hard currency. Goldman concluded that "the issue is
not whether the Soviet Union will ever run out of petroleum--
it will, but it will take much longer than the CIA says before
the Soviet Union becomes the cause of the tightened market."
An Interpretation of What the CIA Said. The CIA's International
Energy Situation: Outlook to 1985, which' contained the 3.5 to
4.5 million b/d import forecast, is an examination of the
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relationship between global oil supply and demand up to 1985. In
essence, it is a projection of global economic growth from which
is derived energy consumption. TherAgency analysts assumed
relatively constant conservation measures and did not attempt
to assess the impact of conservation or energy policy' changes.
They did consider the estimated size of non-oil energy supplies,
government exploration and developfiient policies, oil reserves,
existing contracts, and development time estimates.
The forecast that the Soviet Union and Eastern Europe will
be importing 3.5 to 4.5 million b/d by 1985 must be read in
light of the analytical technique used. In effect, the study
said that in the absence of any significant improvements in
conservation practices, in the absence of any major cutbacks
in the rates of economic growth, and in the absence of the
kinds of fairly rapidly enforced shifts in patterns of energy
consumption of which the Soviet Union may be capable -- in the
absence of these kinds of developments, the Soviet Union and
Eastern Europe will need to import 3.5 to 4.5 million b/d by
1985. In light of the analytical techniques used by the CIA
oil experts, the import projection should be read as a worst
case analysis with other variables remaining relatively constant.
If the study is to be faulted, it ought to be faulted for
its lack of clarity on that methodological point. It is not
clear, on first reading, that the conclusion about Communist
bloc oil imports in 1985 is really a tentative conclusion based
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on a number of assumptions which may not obtain in reality. In-
terviews with senior analysts in the Office of Economic Research
(OER), the office responsible for the studies, support this
observation.
Walter McDonald, former Deputy Director, OER, and Ronald
Smith, Chief, Industrial Nations Division, told committee
staff that they also agreed with t e critics who have said that
it is highly unlikely that the Soviet Union and Eastern Europe
will be importing 3.5 to 4.5 million b/d of oil by 1985. Accord-
ing to Smith, that is the amount "they would need to import if
they continued to grow at the present rate and if conservation
practices and other government policies remained relatively
constant."
McDonald told Committee Staff that he "does not believe that the
Comecon Countries will be importing that kind of oil but that
the data suggests that they will have to do so unless they make
some other major policy decisions." He said that the Soviets
"will do virtually anything to prevent them from becoming an oil
importer of that magnitude."
Both McDonald and Smith said they were well aware of the
hard currency problem. McDonald stressed that "the Soviets
cannot afford to lose that kind of hard currency in the inter-
national oil market."
Admiral Turner, in his appearance before the House Subcom-
mittee on Energy and Manpower of the Committee on Interstate and
Foreign Commerce on April 25, 1977, after stating the less
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arguable prediction that Soviet production will peak by the early
1980s, went on to state quite clearly the one point which OER
analysts told Committee Staff they wished they had not made.
"We estimate that in 1985 the USSR and Eastern Europe will
need net imports of 3.5 to 4.5 million b/d," said the, Director.
Again, there were no caveats nearby; however the sentence can
still be "explained" in such a wab as to fall short of predict-
ing that such an amount will be imported.
Additional CIA Soviet Oil Studies. Prompted in part by
the criticism that their observations about the future of
Soviet oil production were not supported by an explanation of
how their conclusions were reached, and also prompted by Admiral
Turner's desire to make open as much intelligence information as
reasonably could be done, the CIA continued to release studies
relating to the Soviet oil situation. On May 26, a draft paper
entitled "Soviet Reserves of Crude Oil," was given limited public
circulation. Parts of that paper plus additional discussions of
a wide number of Soviet oil-related issues, including Soviet
drilling and production techniques and requirements, were put
together and published in "A Discussion Paper on Soviet Petroleum
Production" for a meeting of the Advisory Committee on East-West
Trade on June 20, 1977.
The most significant aspect about the May 26 "Draft Paper"
and the June 29 "Discussion Paper" is that, while they attempt
to answer the critics' charges that the'earlier papers were
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lacking in methodological explanations by giving detailed data
and analytical techniques, at no place do they repeat the most
controversial conclusion of the earlier paper that the Soviet
Union and Eastern Europe will become net importers of oil up
to 3.5 to 4.5 million b/d by 1985.
The absence of any reiteration.of that point would seem
to suggest that the Agency had.backed off in the face of fairly
widespread lack of support throughout the oil industry and the
academic community. There was no backing off, however, from
the logic which led to the conclusion about Soviet oil produc-
tion. The "Draft" and the "Discussion Paper" make a strong case
that the Soviet oil industry is in difficulty and that petroleum
production is peaking and will be declining in the near future.
When several members of the panel who had evaluated the earlier
papers for the Committee were re-polled by Committee Staff about
the "Discussion Paper," they unanimously agreed that it provided
needed methodological and data information and noted that it had
not repeated the controversial conclusion about the Soviet bloc
becoming a net importer of oil. To a considerable degree, the
"Discussion Paper" seemed tailored to meet the objections of
the critics of the earlier papers -- it provided the "data and
analysis employed in the recent CIA study on the Soviet oil
industry" and it discussed the options available to the Soviet
Union to avoid the adverse consequences of declining oil production.
Moreover, it avoided the most controversial part of the earlier
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work by addressing itself to larger global energy concerns.
In July of 1977 the CIA published a more complete descrip-
tion of the Soviet energy situation. This study considered
energy in the context of the overall Soviet economic condition.
Soviet Economic Problems and Prospects, outlined the problems
created by a declining energy supply and complicated by a shrink-
ing labor force. It also outlined the options available to the
Soviet government.
This study did what some CIA analysts said they meant to
do from the beginning and what academic and industry critics
said was missing in the early papers. It repeated the earlier
estimate of Soviet oil production in 1985 of 8 to 10 million
b/d, but it estimated some possible effects of conservation and
fuel substitution policies on oil consumption.
According to this study, if the Soviets could reduce energy
consumption through conservation by 2.5 percent (a figure the
CIA estimates to be reasonable without explaining its derivation),
then the USSR could "cut oil consumption to 9.4 million b/d by
1985, compared with 10.1 million b/d under a business-as-usual
2/
regime. If production in 1985 turns out to be in the upper
portion of our projected range (8 million to 10 million b/d),
domestic requirements could be covered. Even then, however, the
USSR would lose its exports of oil for hard currency and would
have to cut back oil shipments to its client states in Eastern
Europe. On the other. hand, if production falls below 9 million
2/ The CIA apparently here assumes that if all of the 2.5
percent energy conservation reduction were to take its effect on
oil consumption, the result would be savings of 700,000 b/d (from
10.1 to 9.4) which is a 7 percent reduction.
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b/d in 1985, successful conservation and substitution measures
that reduced domestic demand to 9.4 million b/d would not prevent
the USSR from having to import a great deal of oil on its own
account." (p. 14)
That statement is a far cry from the 3.5 to 4.5 million
b/d statement in the earlier study. It makes clear that there
is a range of alternatives and that such things as conservation
and substitution are important variables.
Later in the study, the CIA analysts tie these production
developments to the international market.
Under any but optimistic scenarios for oil
production, and in the absence of a high priority
campaign to save oil domestically, the USSR will
shift from earning to spending hard currency in
its oil trade. The difference between selling 1
million b/d (as in 1976) and buying 2.7 million
b/d (the projection for 1985 that assumes no con-
servation efforts) is $17 billion in 1977 prices,
more than the USSR's total 1976 hard-currency
imports. (p. 22)
A footnote explains how the 2.7 million b/d import figure for
1985 was derived at:
Comprising 1.6 million b/d for reexport to Eastern
Europe and 1.1 million b/d for domestic consumption
(the difference between projected consumption of 10.1
million b/d and projected production of 9 million b/d.)
An earlier CIA study, "The International Energy Situation:
Outlook to 1985" (April 1977), estimates combined Soviet
and Eastern Europe oil imports in 1985 at 3.5 to 4.5
million b/d. This range is consistent with the base line
forecast made in this paper on the assumption that the
Soviet Union makes no special new effort to save oil.
There is a differnece in coverage, however. The earlier
estimates include Romania and Yugoslavia while those in
the current study do not because these two countries,
unlike the others in Eastern Europe, are not considered
Soviet clients for this purpose; that is, the USSR would
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not be expected to makeup their energy deficits. There
have also been some changes in the forecast about oil in
the USSR and Eastern Europe but these largely cancel out.
If Romania and Yugoslavia are included, the current base
line forecast is 3.9 million b/d or close to the midpoint
of the range in the earlier paper.
Unlike the earlier estimate, the present forecast
considers the possible impact of additional energy
savings due to new Soviet policies. With additional
savings of 2.5 percent, all in the form of oil, the
USSR and Eastern Europe would need to import 2.5 mil-
lion b/d in 1985, or 2.9 million b/d including
Romania and Yugoslavia.
In effect, the Agency did not retreat from its earlier projections
but now states with greater clarity the range of alternatives and
the assumptions on which those alternatives rest. It is unfortu-
nate that it took three months and three additional studies to
state clearly what the analysts say was intended in the first
of the studies.
CIA Track Record. It is not easy to determine the accuracy
of past CIA forecasts. For one thing, Agency analysts have not
produced an annual forecast of Soviet oil production. They have
produced a number of relevant studies which relate to this area,
but comparisons are difficult because of the absence of a standard
format or design for the display of these data. Some publications
have concentrated on Soviet oil imports, others on exports, others
on the total Soviet energy situation, and other such studies. The
varying foci of the occasional reports also gives rise to another
problem. A paper on prospects for continued Soviet petroleum ex-
ports will focus quite narrowly on that topic to the exclusion of
broader economic and political considerations. A study of Soviet
production goals for power and fuels may likewise ignore other sets
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of relevant considerations. Occasionally a broadly based study
on the Soviet economy as a whole will be produced which will
integrate information drawn from wider sources and based on more
complete consideration. An approximate track record, however,
is possible based on Agency publications back to 1970 which the
Committee Staff reviewed.
In 1970, the Agency forecast Soviet oil production for 1975
to be between 8.81 and 9.21 million b/d. Another 1970 study
predicted a single 9.01 figure for the same period. In fact,
actual Soviet oil production in 1975 was 9.81 million b/d. The
CIA forecast had been low, but for an interesting reason: the
Agency analysts had assumed that U.S. export restrictions would
remain relatively unchanged and that the Soviets would not be able
to import desperately needed Western technology, particularly sub-
mersible pumps and drill bits. As those export restrictions were
lifted, the Soviets purchased large amounts of the needed equipment
and their production was greater than the CIA forecast.
In 1971, the CIA did another forecast up to 1975 and this
time predicted Soviet oil production would be 9.81 to 10.01
million b/d, if the Soviets gained access to Western technology.
Again, actual production in 1975 was 9.82. A 1972 study made
a forecast for "the next few years" and projected Soviet oil
production would be 9.19 million b/d. In 1973, 74, 75, actual
production (according to CIA collections of Soviet statistics)
was 8.58, 9.18, and 9.8l respectively. Again., the forecast
was fairly close.
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The longer range the projection, obviously, the greater is
the probable error. In 1970 the Agency made a ten-year forecast
of 9.01 to 10.01 million b/d in 1980. Six years later, in 1976,
the Agency predicted 11.8 million b/d by 1980. Nevertheless,
there has been a tendency for OER to emphasize problems in the
Soviet oil industry.
The varying and complicated naure of the data in the CIA
oil studies makes evaluation and comparison difficult. All
of the CIA forecasts mentioned above pertain to annual oil
production. Another area of great interest is that of total
oil reserves, that is, oil in the ground. One Agency critic,
Marshall Goldman, in an unpublished study, "Some Critical
Observations About the CIA Analysis of the Need For Soviet Oil
Imports," cites CIA estimates of Soviet Oil reserves to show
that Agency forecasts have vacillated wildly and cannot be
trusted. He cites three successive CIA estimates (1975, 1976,
and 1977) of Soviet oil reserves as being 73, 36, and 30-35
billion barrels respectively, and concludes, "it is hard to see
how the CIA has suddenly arrived at the figures it now wants us
to accept." His point is that no respectable forecaster could
possibly reduce his estimates by half (from 73 to 36 billion
barrels in one year) and maintain credibility.
On this point, Goldman has apparently misread a particular
CIA study. He cites a 1975 Agency study on Soviet long-range
energy needs as estimating that the Soviet Union has a 73-
billion-barrel oil reserve. Actual Soviet oil reserves are
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difficult to ascertain for two reasons: (1) such statistics
are classified as Soviet state secrets; and (2) Soviet defini-
tions of reserves do not coincide with those used in the West.
The Soviets use six categories of oil reserves, A, B, Cl,
C2, Dl, and D2. The reserves in A and part of the B correspond
to the "proven" category used in the U.S. The rest of the B
reserves plus some of the Cl reserves correspond to.U.S.
"probable" category. However, some portions of both B and Cl
would be called "possible" by Western standards. The other
categories, C2, Dl, and D2 are inferred reserves not established
by testing. Unlike the U.S. definitions of "proved" and
"probable," Soviet definitions do not specify that the reserves
must be commercially exploitable at current prices and technology.
Since the 1975 CIA study itself does not clearly state
what Soviet oil reserves are, Goldman had to infer such a
figure. The data from which he made his inference are data about
Soviet A+B+C1 reserves but he should have applied his computations
to the A+B categories only which is the normal grouping for
calculating Soviet oil reserves. By applying either of the
two acceptable methods for computing oil reserves, one can infer
a Soviet oil reserve estimate from the 1975 study of 36.5 to
43.8 billion barrels, a range well within the realm of conven-
tional wisdom and not out of line with the CIA's later estimates.
The CIA track record for estimating Soviet oil reserves may or
may not be accurate--only time will tell--but, at least, it has
been quite consistent.
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Sources for CIA Studies. CIA analysts rely on a number of
different sources, some confidential and some open. In the latter
category, the Agency is capable of ail exhaustive reading of Soviet
oil journals. For the recent Soviet oil study, they utilized
issues of 40 different Soviet journals. Much of the early work on Soviet
oil involved the tedious searching of standard Soviet literature
for bits and pieces of information o
One National Academy of Sciences energy expert said that
he thought this was the great strength of CIA analysis. According
to him, the CIA "is the only shop in the country which has access
to such a vast number of Soviet journals and has trained personnel
and data processing techniques which can read, classify, and re-
trieve such information."
The Agency also has access to a large number of American
academic, industry, and government experts who study Soviet
energy developments. Many of these are called on as formal or
informal consultants. Additionally, there are a variety of
energy experts who occasionally travel through the Soviet
Union, some of whom are willing to pass on their impressions to
the Agency.
Moreover, as Soviet oil exploitation has become increasingly
dependent on U.S. technology, the CIA has been able to estimate
relationships between certain types of equipment purchases and
oil development. The Agency has access to all U.S. export
records since these are public records.
The CIA also has access to various kinds of sensitive
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sources of information which remain classified. Some of this
information has played a significant role in the Agency's study
of Soviet oil.
The CIA's two unclassified stu,ies, The International Energy
Situation and Prospects for Soviet Oil Production, have been
generally well received. Most of the experts consulted by the SSCI
had praise for the work of the Office of Economic Research; they
liked the over-all thrust of the two current studies about which
their opinions were sought. Several of them, however, expressed
both surprise and disbelief over the CIA estimate that the "Soviet
Union and Eastern Europe will require a minimum of 3.5 million b/d
of imported oil by 1985. At worst, slumping production could lead
to import requirements as large as 4.5 million b/d."
CIA analysts have said that if they could re-write that
particular study they would definitely change that sentence.
It lends itself to misinterpretation much too easily. It was
meant to express the Agency's belier that unless the Soviet
Union alters its energy consumption pattern, significantly
increases its conservation practices, or greatly reduces
economic growth and the oil consumption traditionally correla-
ted with that growth, there will be a shortage of 3.5 to 4.5
million b/d of oil by 1985. No one in OER believes
the Soviet Union will import oil at that magnitude.
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The later (July, 1977) study, Soviet Economic Problems and
Prospects, gave OER a chance, in fact, to rewrite the "offending"
sentence. This time they explained both a worst case and a best
case scenario. They also considered the possible effects of conserva-
tion and substitution (a 2.5 percent reduction in energy con-
sumption) as well as the effect of falling production on the-
domestic economy and international8trade. There is no explanation
of how the 2.5 percent was derived other than that it is a "highly
subjective estimate." (p. 14)
This study reports that if all energy conservation is
focused on oil consumption, then the Soviets could reduce oil
to 9.4 million b/d by 1985. If, at the same time, oil production
is on the high side of the CIA estimate (10 million b/d), then
the Soviets would have enough oil to cover domestic needs. If,
on the other hand, conservation is less successful and production
is at the lower end of the CIA estimate (8 million b/d), then
the shortfall of oil would need to be imported or, more likely,
additional and more stringent steps would be taken by Soviet
officials to prevent such an outcome.
Agency analysts have variously described the 3.5 to 4.5
import projection as a "terrible glitch" and a "simple error"
in that normal supply and demand projections of the Soviet energy
situation were made and, according to one analyst, an "unwarranted
assumption was made that any shortfall of oil automatically would
be imported."
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Given the/reputation which the Agency has among the
majority of oil experts consulted by the Committee Staff,
it is unfortunate that the caveats necessary to arrive at
the correct conclusions were not clearly expressed in-the
early studies and in the assessmentathat was made by
Admiral Turner before the House Committee.
This error is unfortunate because it detracts from the
attention which should be paid to the more fundamental and new
conclusion made in the studies relating to the prospects for
Soviet oil production and the difficult options such a develop-
ment is going to present to Soviet leaders. It does appear that
the Soviet oil industry is facing a difficult period. Recent
4/
Pravda articles seem to bear this out.
There have been a number of newspaper stories reporting in-
creasing difficulties in the Soviet oil industry. These stories
have chronicled (1) the extreme difficulties the Soviets are having
in developing oil fields in Siberia; (2) a Soviet warning to bloc
countries that they may need to develop other sources for oil; (3)
the attempt to develop Iran as an oil supplier for Eastern Europe;
(4) the Soviet announcement that 1978s oil production would be
only slightly higher than the previous year despite an earlier
stated production quota much higher; and (5) the Soviet difficulties
4/ An August 10, 1977 Pravda article was critical of those who
expected oil at every drilling. It pointed out that prospectors and
geologists in the Tyumen area had failed to fulfill last year's plan
and were "not coping with this year's targets either." [FBIS translation]
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in trying to develop oil wells with its own technology, and there-
fore its increasing reliance on Western technology.
How the Soviets deal with the oil problem could have a serious
adverse impact on the Soviet economy, the Communist bloc, and per-
haps, even the Western world. The Agency has not backed away from
this projection and most of the experts consulted by the Committee
Staff think that the Agency may be fight. No one will know for
sure, of course, until 1985.
Recommendations
The following recommendations are based upon the Committee's
evaluation of the CIA's studies on Soviet oil production. They
are focused on production and diseemination of finished intelli-
gence by the Office of Economic Research.
? The release to the public of more analyses -of o-
sc='is a good practice and should be pursued to the fullest ex-
tent consistent with the need to protect sensitive sources and
methods. The CIA must not refrain, -however, from releasing
studies because they may run counter to-the policies of a par-
ticular administration or popular wisdom. Sound, dispassionate
analyses will facilitate ability of the public to evaluate both
the analyses and the data on which report conclusions are based.
Such public reaction.as occurred in this case is healthy and
should be encouraged.
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? OER should produce annual or periodic studies of the
energy situation in the Soviet Union which include more con-
sistent displays of relevant data. This would allow easier
comparisons and would also make retrospective evaluations of
OER's predictive record easier. Where possible, regularly
produced reports might help avoid appearances of pressure to
support particular public policies. This, of course, would
not affect the frequent but unperiodic publication schedule of
OER.
e The practice of meeting with academic and industry petroleum
experts should be continued. OER met several times with such out-
side experts during the course of their production of Soviet oil
analyses and those meetings proved to be mutually enlightening.
o Finished intelligence products which are written by
highly trained specialists should be reviewed by generalists with
a more multidisciplinary view. This will enhance the likelihood
of avoiding projections of technical outcomes which may be politi-
cally unlikely.
? The White House and the Director of Central Intelligence
need to be fully sensitive to the responsibilities they bear in
preserving the integrity of the analytic process and in creating
confidence among Congress and the public that the substance and.
the circumstances surrounding the release of economic and scientific
intelligence are free from undue pressure.
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