SOVIET HYDROCARBON DEVELOPMENT IN THE THIRD WORLD

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00586R000300400004-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 26
• Document Creation Date: December 22, 2016
• Document Release Date: May 9, 2011
• Sequence Number: 4
• Publication Date: May 1, 1985
• Content Type: REPORT

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Directorate of Seeret
Intelligence
Soviet Hydrocarbon Development
in the Third World
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GI 85-10130
May 1985
Copy 4 5 2
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Directorate of Secret
Soviet Hydrocarbon Development
in the Third World
Office of
f Soviet Analysis, with a
contribution from) Office of Soviet
Analysis. Comments and queries are welcome and
may be directed to the Chief, Instability and
Insurgency Center, OGI,
25X1
25X1
Secret
GI 85-10130
May 1985
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Secret
Soviet Hydrocarbon Development
in the Third World
Key Judgments The USSR has been the major source of development aid for hydrocarbon
Information available industries in the Third World with nearly $3.4 billion in credits and grants
as of 16 April 1985 to non-Communist LDCs since the mid-1950s. Nearly $1.5 billion of this
was used in this report.
has been provided in the past five years. During this period the USSR has
added Angola, Jordan, Mozambique, and Nicaragua to its list of recipi-
ents.' We estimate that aid to Cuba and Vietnam probably has amounted
to about $1 billion more. Although Soviet aid cannot begin to match the
capital flows from Western oil companies, it has been crucial to the
development of oil and gas resources in some producing countries. Soviet
aid has underwritten the development of all crude output in Cuba,
Vietnam, and Syria, about half of production in India, and about 10
percent of production in Iraq. Afghanistan and Iran also owe their natural
gas industries to Soviet aid.
The USSR benefits economically from its hydrocarbon programs. For an
expenditure averaging about $70 million a year over the past 20 years,
Moscow has assured itself of a $150 million annual LDC market for oil
and gas equipment, earns $200-300 million annually for associated techni-
cal services, has guaranteed repayment of long-term debt from several
recipients, and has secured stable long-term supplies in one of the world's
most volatile raw materials markets.
Moscow has scored other gains through its hydrocarbon program:
? It has placed more than 5,000 advisers in petroleum industries in 15 non-
Communist LDCs and has become the major foreign presence in the
industries of Afghanistan, Ethiopia, Iraq, South Yemen, and Syria.
? It provides training in Moscow for hundreds of geologists and engineers.
As the graduates of this training achieve prominence in their own
industries, Moscow's access to these industries may increase.
? It has used hydrocarbon assistance to further its relationships with
significant regional powers in South Asia and the Middle East-
specifically, India, Iraq, and Syria.
credit agreements.
iii Secret
GI 85-10130
May 1985
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We believe the USSR will be able to maintain its presence in oil industries
where it is already established: burgeoning investment needs in other major
producing countries-such as Angola, Libya, and Iran-could provide
further opportunities over the next several years. Moscow also may find
opportunities in countries such as Jordan, Morocco, Nicaragua, and Peru
where reserves are sufficient only for domestic consumption, and where
Western firms are reluctant to become involved in exploration and
development.
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Key Judgments
The Size and Scope of the Program
The Big Five
Benefits to LDCs 7
Benefits to Moscow 9
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Figure 1
Soviet Hydrocarbon Development Agreements With the Third World
""`In'dia
Y~R1 . men) *?i%,
will N 11 '
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quay
prig Mina
M Soviet hydrocarbon agreement
* Exploration
? Oil and gas production
^ Pipelines, refining and/or storage facilities
A Coal exploration and development
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Soviet Hydrocarbon Development
in the Third World
We estimate that, since Moscow provided its first
credit to India for oil exploration equipment in 1956,
it has pledged nearly $3.4 billion to hydrocarbon
development in 25 non-Communist world developing
nations. Assistance to Communist LDCs, notably
Cuba and Vietnam, probably has amounted to about
$1 billion more. A little over $275 million has gone for
coal development; the remainder has financed oil and
gas exploration, production, and transport. Represent-
ing only 10 percent of Moscow's economic pledges to
the Third World, this program has carried economic
and political benefits that far exceed its size. Moscow
has used it to: (1) increase its equipment sales, (2)
establish an extensive presence in the oil industries of
some key producers, such as Iraq, (3) help assure
repayments in oil and gas on LDC economic and
military debt, and (4) in the case of Communist
LDCs, limit oil export obligations.
The USSR's aid to hydrocarbon industries in non-
Communist LDCs has been heavily concentrated on
oil and gas development in a few key recipient
countries. A few traditional large Middle Eastern and
South Asian recipients-Afghanistan, India, Iraq,
and Syria-have taken up nearly three-fourths of
Moscow's $3.1 billion in oil and gas assistance since
the mid-1950s. Moscow's estimated $1 billion of aid
to developing CEMA I LDCs has gone entirely to
Cuba and Vietnam.
The recent growth in the Soviet oil program has been
sustained by ties established two decades ago to major
LDC producers. In the 1950s and early 1960s, Soviet
initiatives were concentrated on marginal producers
(such as India and Syria) whose aspirations to create
national oil industries were ignored by the multi-
nationals. Oil projects generally were negotiated as
part of large credit packages designed mainly to
promote Moscow's equipment exports in the vast,
lucrative Third World market. In the first 10 years,
the USSR gained access to the oil industries of 11
LDCs who were unable to attract Western invest-
ment. By the mid-1960s, Moscow also began to
politicize its program, representing it to newly inde-
pendent countries as an effective alternative to
"plundering" by Western oil companies.
During the 1970s, Moscow perceived new uses for oil
industry aid in some recipient countries. A number of
Moscow's traditional clients-Afghanistan, Iran,
Iraq, and Syria-had run up huge debts to the USSR
for military hardware and (to a lesser extent) econom-
ic aid. Developing oil and gas resources in these
countries could help service these growing obligations.
The USSR agreed to accept payment in oil from
Soviet-developed fields from Iraq and Syria for their
economic and military debts; similar agreements with
Afghanistan and Iran called for reimbursement in
natural gas. As its own production has stagnated, the
USSR also has used oil from LDC suppliers to help
meet export contracts with Western customers and
Yugoslavia. We estimate that in 1984 the USSR
obtained about 295,000 barrels per day (b/d) of crude
oil on barter from LDCs (mainly Iraq and Libya), and
sold at least half to hard currency countries.
In the 1970s, Moscow also exploited longstanding oil
ties by concluding equipment sales and contracting
arrangements in the newly affluent LDCs willing to
pay cash. While commercial business probably has
not developed as rapidly as the Soviets would like,
Moscow has made a respectable showing on roughly a
billion dollars worth of outstanding contracts,
including:
? A $138 million contract to build oil pipelines in
Nigeria.
? A $200-300 million gas pipeline contract in Libya.
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Table I
USSR: Credits and Grants to Non-Communist
LDCs for Hydrocarbon Development, 1956-84
Total
Oil/Gas
Coal
Total
3,391.1
3,113.8
277.3
North Africa
75.9
75.9
Algeria a
70.4
70.4
..
Sub-Saharan Africa
179.2
169.2
10.0
Angola a
15.0
15.0
Ethiopia
140.3
140.3
Mozambique a
13.0
3.0
10.0
Nigeria
1.9
1.9
..
Somalia
9.0
9.0
Latin America
94.0
94.0
Argentina
43.3
43.3
..
Total
Oil/Gas
Coal
1,566.5
1,477.2
89.3
63.4
63.4
57.9
57.9
117.4
115.4
2.0
15.0
15.0
88.0
88.0
3.5
1.5
2.0
1.9
1.9
9.0
9.0
59.0
59.0
43.3
43.3
Iraq a
Jordan
North Yemen
3.5
3.5
3.5
3.5
South Yemen a
92.5
92.5
37.6
37.6
Syria
345.1
345.1
98.0
98.0
Turkey a
144.2
144.2
..
119.2
119.2
Afghanistan
420.0
420.0
363.6
363.6
Bangladesh
24.2
24.2
NA b
24.2
24.2
India
586.0
328.6
257.4
286.0
208.6
77.4
Pakistan
44.4
44.4
..
44.4
44.4
Note: A leader entry (..) indicates that no aid is known to have been
extended.
a The amount of aid extended is estimated.
b The amount of aid extended is not known.
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Table 2
USSR: Agreements To Develop LDC
Oil and Gas Industries, by Year
1961-64
251.3
1965-69
437.6
1970-75
264.3
1976
106.7
1981
1982
1983
? A $250 million gas pipeline in Algeria that is being
partially financed.
? Coal development in Iran that could be valued at
several hundred million dollars.
The commercial effort has been limited to countries
where returns are assured-hard currency in cash.
Moscow also has offered licenses for Soviet refining
and utilization processes. Two Western-oriented
LDCs-Jordan and Morocco-recently commis-
sioned Soviet studies of shale oil exploitation using
Soviet on-site burning techniques, and, according to
US Embassy sources, Brazil has bought several Soviet
coal gasification processes.
Moscow has provided nearly 85 percent of its oil
development funding to exploration and production in
non-Communist LDCs, drawing on its huge cadre of
trained geologists (figure 2). Only Ethiopia, Egypt,
India, and Turkey have Soviet-built refineries.F_
The heavy focus on oilfield development has required
large contingents of Soviet petroleum technicians to
operate and maintain equipment abroad. In 1984,
more than 5,000 technicians were employed on Soviet
oil and gas projects in the Third World.
because of narrow spe-
technicians are required for each drilling rig.
In fact, providing these oilfield services has become a
lucrative part of the Soviet program abroad. Original-
ly provided under credit at nominal rates, technical
services have become an expensive element of Soviet
oil development contracts. We estimate that the
USSR now receives about $200-300 million annually
from oil and gas industry services to LDCs.
Even though the USSR has participated in oil projects
in 25 countries, Iraq has been by far the largest
recipient. Moscow's entry into major LDC oil produc-
tion projects was helped in the 1960s by the increas-
ingly radical politics of Baghdad, which began to
press Western companies for more favorable partici-
pation and financial arrangements. The USSR was on
hand with financing, production and marketing exper-
tise, and training when Baghdad began nationalizing
Western-owned assets. It also offered a market for
Iraqi crude when traditional outlets were threatened
by Western embargoes in retaliation for Iraq's expro-
priation. Moscow's first big break into a major indus-
try came when Iraq accepted $120 million in credits
to its state oil company (INOC) in 1969, after years of
protracted negotiations with Western partners over
compensation issues.
Iraq has remained the centerpiece of Moscow's oil
development program, accounting for 40 percent of
funding provided for this purpose. The $1.2 billion
Iraqi contract in 1983 (which we estimate carries $1
billion in credits) to develop the West Qurnah oilfield
in southern Iraq was the largest of its type that the
USSR has ever secured. It culminates more than 20 25X1
years of Soviet effort to establish itself as the primary
supplier for a major oil producer. The contract repre-
sents a major achievement for Moscow in an area
where competition from the West is stiff, and where
the growth potential in the Soviet program until
recently seemed severely limited by its outmoded 25X1
technology as well as the conservative politics of many
potential clients. According to the press, the project
involves drilling 100 production wells in Qurnah field
to eventually increase Iraqi production by 300,000
b/d, bringing the Soviet contribution to about 25
percent of total Iraqi oil production.
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Gas Industry Development: Afghanistan and Iran
In connection with its search for fuel supplies, the
USSR has provided nearly $340 million to develop
natural gas industries in Afghanistan and Iran. Gas
supplies from these two countries have been con-
sumed in the Soviet southern republics, helping defer
costly new investments in the south and supporting
some Soviet gas deliveries to Western hard currency
customers. Afghanistan received aid in 1963 to ex-
ploit a Soviet find of more than 8.8 trillion cubic feet
of gas and to build a pipeline from the fields to the
Soviet border. With gas deliveries that began in 1970,
the USSR has been assured of timely repayment for a
30-year $4 billion economic and military develop-
ment program that made the USSR the most impor-
tant foreign partner for Afghanistan by the early
1970s. These deliveries, valued at about $300 million
in 1983, are still helping to underwrite the Soviet
presence in Afghanistan's economy.
Soviet development of Afghanistan's gas resources
has not been easy. The inaccessibility of the fields
and the general lack of maintenance facilities have
forced the Soviets to concentrate their efforts in the
Other large recipients include:
? India, with $330 million in assistance for oil produc-
tion and refining that provided the impetus for a
state-owned oil industry.
? Syria, whose $345 million in Soviet aid for oil
exploration and exploitation is totally responsible
for its oil industry (backed up by East European
refining facilities).
? Afghanistan, which received $420 million in Soviet
assistance before the invasion to develop a state oil
and gas industry.
? Ethiopia, with $140 million in aid to oil refining,
transport, and exploration.
Moscow's exploration in Ethiopia is one of its newest
programs. The Soviets have had little success, al-
though early in the program Ethiopia optimistically
predicted that large amounts of oil would be found
after traces were found in one of the Soviet drill holes
in the Ogaden basin. Numerous structures still are
likely to be discovered, but far more drilling will be
northern part of the country, close to the Soviet
border. Since the Soviet invasion in 1979, develop-
ments have been hampered by repeated attacks on gas
pipelines and other facilities by Afghan resistance
fighters (see figure 3). Damage to pipelines has con-
stricted the supply of natural gas to the USSR. Last
year Afghan gas exports to the Soviet Union amount-
ed to about 2 billion cubic meters, less than in 1975,
and only about half of the amount originally targeted
for sale in 1981.
Iran's credits for oil and gas development, extended
in 1966, financed a 690-mile pipeline from Iran's
southern fields to the Soviet border, permitting Teh-
ran to export gas that previously had been flared. In
its heyday, this relationship brought over 350 billion
cubic feet of gas annually to the USSR, and repre-
sented an important source of energy for border
areas. The Shah used gas as repayment for Soviet
economic and military debts, to finance technical
services, and to settle trade accounts. The Khomeini
regime discontinued gas deliveries to the Soviets in
1980.
required. Two Soviet teams are currently working at
Ogaden sites, training
Ethiopian personnel to take over future drilling opera-
tions, and conducting seismic and related exploration.
Soviet aid programs in less developed CEMA member
countries have followed roughly the same patterns as
in other areas. We believe,
Moscow's aid to Cuba and Vietnam, while strategical-
ly and politically motivated, also makes good econom-
ic sense. the cost to the
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Figure 2
USSR: 1956-83 Aid to Hydrocarbon Development
in Non-Communist LDCs, by Use
USSR of supporting Communist LDCs runs into
billions of dollars each year: helping its allies develop
oil and gas reserves for domestic use helps reduce
Moscow's support burden. The Soviets are the largest
oil supplier to these countries: crude oil and products
exports to Cuba and Vietnam reached about 275,000
b/d in 1984. Had this quantity been available for
export to hard currency nations, it would have added
about $3 billion to Soviet coffers last year.
Cuba
The Soviets have been active in the development of
the Cuban oil industry for about 20 years. With
Soviet assistance, Cuban output increased steadily
from about 500 b/d in 1961 to some 14,000 b/d in
1984. Current Soviet-Cuban exploration drilling is
concentrated along the north coast between Varadero
and Cardenas and in Santa Cruz del Norte near
Havana. Drilling is being carried out with Soviet rigs
and turbodrills operated by Soviet technicians. During
1981-82 alone, the Soviets shipped nearly $46 million
worth of rigs and other exploration equipment to
Cuba.
Table 3
USSR: Oil and Gas Industry
Technicians in
Non-Communist LDCs, 1984
Total 5,015
North Africa 905
Algeria 800
315
75
200
40
3,325
3,000
South Asia
Afghanistan
Bangladesh
455
200
5
200
50
Our analysis of the geological data indicates that the
fields discovered are quite small and have little long-
term potential because high initial flow rates are short
lived and usually decline rapidly. Nevertheless, the
prospects for additional oil discoveries (perhaps sub-
stantial ones) are good because the north Cuban basin
is large, between 60 and 90 miles wide and extending
for more than 620 miles along the coast; only a small
portion of this basin has yet been drilled.
Increasing Cuban oil production provides some direct
economic benefit to the USSR. In 1984, Cuba import-
ed about 240,000 b/d of crude oil and products, all of
it from the USSR or purchased by the Soviets in
switch deals with third countries for delivery to Cuba.
At 1984 prices, Soviet oil exports to Cuba could have
brought in about $2.5 billion had they been sold in the
West.
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Figure 3. Soviet drilling rig in
northern Afghanistan captured
by Afghan insurgents in early
Vietnam
The Soviets and Vietnamese are jointly involved in
petroleum exploration through Vietsovpetro, a cooper-
ative venture formed in 1981 after the withdrawal of
the last Western firm from the country. Since then
the Soviets have invested almost $130 million, ear-
marked for drilling programs in the Mekong and
Song-Koi deltas and construction of six offshore and
two onshore production platforms. As part of this
effort, the Soviets have accelerated construction of oil
and gas facilities in Vung Tau (figure 4). About 2,000
Soviet engineers, geologists, and technicians are work-
ing on petroleum exploration and developments in
Vietnam-one of the largest groups of Soviet oil
technicians serving abroad.
The Soviets recently announced an oil and gas discov-
ery at an offshore well 90 miles southeast of Vung
Tau. We have no information on the geological
conditions in this region and cannot estimate the
possible recoverable oil reserves in this area. We
believe that crude oil of commercial value has been
discovered by the Soviets, although
part of the oil is high in sulfur and may
be unsuitable for export. If plans to build an oil
refinery at Nha Trang are completed, however, the oil
could be suitable for domestic consumption.
Any increase in Vietnam's oil production would lessen
the export burden on the USSR. Vietnam imports
25X1
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Soviet geologists working in the LDCs are usually
highly qualified and experienced. Because the Soviet
system does not encourage mobility or crossover
work, Soviet geologists tend to become highly expert
in narrow specialties. Indeed, it is not unusual for
Soviet geologists to spend their entire careers working
on one particular oil basin or mineral deposit. As a
result, the number required to complete a task is
invariably far greater than with more broadly based
Western counterparts. The Soviets compensate for
this deficiency by training large numbers of geolo-
gists. The USSR has the world's largest cadre of
trained geologists, who number at least five times
more than those in the United States. Soviet geologi-
cal science is at least on a par with the West, and, in
some areas such as geochemistry, Soviet scientific
knowledge is far ahead, according to knowledgeable
observers.
Soviet geologists use a wide variety of petroleum
exploration techniques such as remote sensing, re-
gional and local geophysical surveys, geochemical
mapping, and well logging. Soviet technology to sup-
port these efforts generally lags behind the West,
especially in remote sensing and data processing. The
Soviets, however, are making steady progress in these
areas and their efforts have been helped by large
infusions of Western equipment and know-how.
Moreover, most of the LDCs are now only in the early
stages of petroleum exploration and Soviet technol-
ogy is quite adequate in the early phase, when the
search for oil tends to be easiest.
We estimate that 850 students from LDCs are being
trained in petroleum geology and engineering prac-
tices by the Soviets and their East European allies.
Soviet training programs involve formal academic or
technical training either in the USSR or in the home
country. Many students go to Moscow because of no
opportunity to train in the West. The USSR also
trains several hundred LDC nationals annually in the
LDCs. Soviet programs equip graduates for careers in
exploration, drilling, and oil and gas refining, as well
as in industry equipment and petroleum economics.
Soviet-educated LDC graduates acquire the basic 25X1
professional and technical skills that often enable
them to qualify for key positions in the petroleum
industry of their own countries; this gives Moscow
access to decisionmakers in the petroleum industry of
a number of LDCs such as Afghanistan, Iraq, and
Syria. This access, however, probably limits the
USSR's influence in these countries to technical
issues concerning energy development.
about 90 percent of its petroleum requirements from
the Soviets-nearly 35,000 b/d of refined products in
1983-worth about $440 million, according to Soviet
statistics.
The USSR's record on completing projects promised
under oil development agreements has been far better
than for its aid program as a whole. The USSR has
delivered $1.5 billion to oil and gas projects, more
than three-fourths of commitments made through
1982, compared to about 50 percent of other pledges.
Work is just beginning under agreements signed in
1983 and 1984, and we expect them to move rapidly
as well. Soviet aid has been crucial to the development
of oil industries in some countries with limited output
potential and has provided a useful alternative to
some major producers in shedding their dependence
on Western companies.
? In Syria, now a net oil exporter, the USSR has been
entirely responsible for installed crude capacity.
According to the Syrian press, Damascus expects oil
earnings of $1.5 billion for 1984, half of its total
export earnings.
? In India, production from Soviet-developed
fields accounts for half of Indian oil output, and
Soviet-built refineries (including India's largest at
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Mathura) satisfy more than one-third of Indian
product needs. Joint Soviet-Indian exploration has
resulted in the discovery of billions of barrels of oil
in the Bay of Bengal, although the USSR has not
participated in their exploitation.
? In Iraq, Soviet-developed production accounts for
about 10 percent of Baghdad's crude output, a
proportion that should more than double when
production from the massive West Qurnah fields
comes on stream.
? In Afghanistan and Iran, the USSR enabled these
countries to use gas that would not otherwise have
been recovered for internal consumption and to
purchase civilian and military equipment.
According to the Soviet press, LDC production from
Soviet-developed fields totals about 1.2 million b/d,
while Soviet-installed refinery capacity in LDCs has
reached about 400,000 b/d.
For many LDCs, Soviet development aid came when
Western oil companies were unwilling for political or
economic reasons to invest in these countries. For
some, such as Iraq and Libya, the USSR provided
markets for oil boycotted by the West. Oil produced
with Soviet help is wholly owned by the LDC, in
contrast to Western arrangements. Finally, according
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to the Syrian petroleum minister, Soviet technical
services are highly price competitive. Rumors in the
late 1970s that Iraq and Syria would replace Soviet
oil personnel and technology have proved unfounded.
In fact, the Iraqis have provided hard currency to the
USSR to purchase Western equipment for Soviet-
built petroleum projects to overcome technology lags,
and Moscow seems more entrenched than ever in the
oil industry of this important producer.
From the Soviet perspective, the oil and gas develop-
ment program appears to be an unqualified success.
For an average expenditure estimated at about $70
million annually over the past 20 years (often repay-
able in oil), the USSR has:
? Placed more than 5,000 advisers in petroleum indus-
tries in 15 non-Communist LDCs and became the
major foreign presence in the industries of Afghani-
stan, Ethiopia, Iraq, South Yemen, and Syria.
? Secured access to a sizable and stable source of oil:
Soviet Exports of Hydrocarbon Industry Equipment
The LDCs are the primary non-Communist market
for Soviet energy-related machinery and equipment,
taking at least 80 percent of these exports. These
deliveries also include small amounts of equipment
and materials purchased abroad that are reexported
to the LDCs to supplement Soviet-made equipment.
The incorporation of Western equipment into Soviet-
assisted projects enables Moscow to meet LDC speci-
fications for late-model technology and to secure
lucrative contracts for its own equipment and techni-
cal services.
USSR: Estimated Exports
of Hydrocarbon
Industry Equipment to LDCs
in 1984 the USSR received about 295,000 b/d of oil Pipelines 32 40 8 59 81
from Libya, Iran, Iraq, and Syria, all of it shipped
to Soviet customers abroad.
? Earned more than $2 billion annually in hard
currency from reexporting LDC oil and direct sales
to LDCs.
? Helped to insulate itself from supply disruptions
that plagued Western consumers in 1973 and
1978/79 as major producers used the oil weapon to
extract higher prices and other concessions from the
West.
? Guaranteed repayments on long-term debts from
such impoverished clients as Afghanistan and Syria,
whose financial positions might otherwise invite
default.
? Increased annual sales of oil and gas equipment to
LDCs to $150 million annually.
As with most of its other economic programs in
LDCs, Moscow has placed returns to its own economy
high on the list of major criteria for providing assis-
tance to hydrocarbon development. Moscow has re-
stricted its energy programs to what it can provide
quickly, easily, and profitably. The USSR has stayed
out of the mainstream of international efforts to help
LDCs plan conservation programs and to develop
alternative renewable energy sources to reduce depen-
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We expect Moscow to continue to try to exert its
influence in LDC hydrocarbon industries through
offers of aid and commercial development assistance
to existing recipients. The USSR has drawn up oil and
gas resource use plans for Iraq, Libya, and Syria
through the end of this century. Soviet organizations
will work hard to obtain development contracts in
these countries as new projects are developed. Other
initiatives that could enhance Moscow's presence in
LDC hydrocarbon industries include:
? Oil exploration in Nicaragua.
? Gas pipelines in Greece and Turkey.
? Feasibility studies for coal mine construction in
Peru.
? Shale oil development in Jordan and Morocco.
? A petroleum refinery in Angola.
? Offers to support Iranian drilling in the Caspian
Sea.
Many of these projects are still on the drawing board,
but we expect Moscow to make competitive offers to
finalize contracts. The USSR seems determined to
exploit opportunities in countries that cannot obtain
investment funds elsewhere, and appears willing to
offer concessionary terms to close new deals. For
example, Moscow provided its first credits to Iraq in
nearly a decade to obtain the West Qurnah contract,
even though it prefers wealthier LDCs to pay cash for
development services. Moscow may also get involved
in more turnkey projects, where it supplies consulting,
planning, production, and refining assistance in one
comprehensive package. The Iraqi contract provides
for Soviet aid to all phases of the oil industry.
We expect LDCs will continue to accept Soviet aid
when proffered, as they have in the past. With
investment needs in LDC oil and gas industries
projected at $45 billion for the 1980s, most countries
are not in a position to refuse legitimate offers of
assistance. Only Angola, among all the LDCs that we
know have received Soviet offers of oil development
assistance, has refused Moscow's help in production
and marketing, fearing disruption in the only industry
that still is performing at prerevolutionary levels.
However, even Luanda is considering the USSR's
refinery offer.
If world oil prices remain sluggish during the balance
of the 1980s, Western oil companies will be increas-
ingly reluctant to embark on expensive oil programs in
the Third World, even if prospects for discoveries are
favorable. This could provide Moscow with greater
opportunities to increase its presence in LDCs that
plan to continue oil development programs. Countries
such as Iran, India, and Pakistan seem likely candi-
dates for increased Soviet penetration.
Further, when Moscow perceives that its strategic and
foreign policy interests are served, it is willing to
accept a far lower economic payoff than Western
firms. For example, the Indian state-owned oil and
gas commission last summer canceled bidding on part
of a 1,700-kilometer gas pipeline. This unexpected
action was based on the receipt (outside the tender
process) of a Soviet offer to build the pipeline at
giveaway terms and conditions.
The Soviets could, if necessary, present a strong case
to the LDCs arguing that, largely as a result of their
own technology, they have become the world's largest
oil producer with proved reserves that rank among the
largest in the world. While Soviet technology lags that
of the West, in some cases less sophisticated Soviet
hardware could actually be well suited for some Third
World countries, especially if the objective is to
transfer ultimate control of the project to local techni-
cians as is the case in Ethiopia. Finally, the fact that
some types of Soviet equipment-drilling rigs, seismic
gear-require more manpower to operate than West-
ern gear, could well be a plus in many LDCs already
burdened with large labor surpluses.
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The USSR both sells and buys petroleum and prod-
ucts in its Third World trade, a business that had
risen dramatically to almost $6 billion by 1983.
Although much of the increase reflects rapidly rising
world prices, Moscow has nearly doubled the volume
of its oil trade with the LDCs over the last decade.
All of the Soviet purchased crude oil is resold to
third countries, allowing Moscow to reduce shipping
costs and increase its oil exports beyond domestic
production.
Some of this oil finds it way to other LDCs such as
Greece, India, Morocco, and Turkey, while petroleum
product exports come from Soviet domestic supplies.
The growth in oil exports largely reflects Moscow's
efforts to balance trade with a few countries. Since
the mid-1970s, exports of petroleum to India have
been used to stimulate bilateral trade, as India was
unwilling to accept more Soviet machinery and equip-
ment. Brazil also agreed to buy Soviet oil after
finding other Soviet products unattractive. Moscow
also uses its oil exports to support client states: about
12 percent of Soviet oil to LDCs in 1983 went to
Ethiopia and Afghanistan, and in late 1983 the
USSR began shipping oil to Nicaragua.
Before 1982, a large proportion of Moscow's oil
imports from LDCs were taken in repayment for
Soviet economic and military aid to Iraq and Syria.
USSR: Oil Trade With
Non-Communist LDCs a
Exports
Imports
Exports
Imports
1970
185
50
80
25
1975
185
150
805
550
1980
215
80
2,635
830
1981
225
100
3,005
1,105
Imports rose sharply in 1982 when the USSR agreed
to accept Libyan oil for arms. New purchases from
Iran and Iraq, together with liftings from Saudi
Arabia on Iraq's behalf, also have contributed to
higher import levels. The Saudi oil helps Iraq meet
payments due to Moscow for arms purchases.
25X1
25X1
Oil from LDCs has allowed Moscow to increase its
deliveries to Western and other customers without
drawing on its own domestic supplies. Access to this 25X1
oil has helped the USSR to boost its hard currency
export earnings from oil even though world oil prices
are depressed.
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Appendix
USSR: Credits and Grants for Hydrocarbon
Development in Non-Communist LDCs, 1956-84
Date Projects Extended Drawn Status
Extended (million US $) (million US $)
1966 Aug Trade Credit-Hydrocarbon research 3.4 3.4 C
1980 Apr Trade Credit-Expansion of petroleum and gas 5.0 b 2.5 UC
institute
1981 Mar Trade Credit-Gas pipeline 50.0 b 40.0 UC
Total 70.4 57.9
Oil refinery, Assab ($15.3 million) C
Reconstruction of oil refinery, C
Assab ($5.0 million)
Expansion of oil refinery, C
Assab ($14.5 million)
Oil pipeline, Assab-Mojo ($3.6 million) C
Oil processing plant, Mojo ($2.0 million) C
Five storage tanks ($5.0 million) C
1979 Apr Credit-Added to 1959 credit 5.0 5.0 C
1979 Sep Credit-Reconstruction and expansion
of Assab oil refinery
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USSR: Credits and Grants for Hydrocarbon
Development in Non-Communist LDCs, 1956-84 (continued)
Date
Extended
Projects
Extended Drawn
(million US $) (million US $)
Status a
USSR
1980 Nov
Credit
13.0 b
3.5
Three coal mines, Moatize ($10.0 million)
UC
Oil and gas exploration ($3.0 million)
UC
Total
13.0
3.5
USSR
1961 Jun
Credit
8.5
8.5
Bottled gas plant, Berbera ($0.5 million)
C
33 petroleum storage tanks ($8.0 million)
C
1971 Feb
Credit-Oil storage study
0.5
0.5
C
Total
9.0
9.0
USSR
1958 Oct
Credit-Petroleum equipment
28.0
28.0
C
1965 Sep
Credit-Equipment for oil industry
15.3
15.3
C
Total
43.3
43.3
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USSR: Credits and Grants for Hydrocarbon
Development in Non-Communist LDCs, 1956-84 (continued)
Date
Extended
Projects
Extended Drawn
(million US $) (million US $)
Status
USSR
1957 Jul
Credit-Oil drilling equipment
8.6
8.6
C
1958 Jan
Line of Credit
36.1
36.1
Coal tar distillation plant ($1.0 million)
C
Expansion of coke chemical plant,
Hulwan ($8.9 million)
C
Lubricating oil plant, Suez ($4.3 million)
C
Gasoline plant, Suez ($1.0 million)
C
Oil refineries, Suez and Alexandria
($3.0 million)
C
Oil desalination plant, Suez ($1.0 million)
C
Shale oil plant ($0.9 million)
C
Drilling equipment ($9.0 million)
C
Oil purification plant, Suez ($2.0 million)
C
Geophysical and exploration work
($5.0 million)
C
1964 Sep
Trade credit
23.5
23.5
Oil exploration equipment ($18.5 million)
C
Second lube oil plant, Alexandria ($5.0 million)
C
Credit-Oil exploration
26.0
26.0
C
USSR
1969 Jun
Trade Credit
54.0
45.0
Petroleum development, Halfayah
UC
Petroleum exploration ($17.9 million)
UC
1969 Jul
Trade Credit-Petroleum development
66.7
66.7
North Rumaylah ($42.6 million)
C
Ratawi and Umar
C
Oil refinery, Mosul ($30.8 million)
Pipeline, Northern Iraq
Pipeline, Baghdad-Basra ($11.1 million)
1976 May Credit-Petroleum development, Rumaylah 40.0 37.9
Water injection equipment
1983 Nov Credit-Development of West Qurnah Oilfield 1,000.0 b 10.0 S
Total 1,202.6 170.7
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USSR: Credits and Grants for Hydrocarbon
Development in Non-Communist LDCs, 1956-84 (continued)
Date
Extended
Projects
Extended Drawn
(million US $) (million US $)
Status,
USSR
1972 Nov
Credit-Oil exploration
5.0 b
5.0
C
1978 Feb
Credit-Oil development
5.0 b
5.0
C
1979 Oct
Credit-Added to 1975 credit for oil development
27.5 b
12.6
UC
1980 May
Credit-Oil exploration, Northeast
55.0
15.0
UC
Total
92.5
37.6
USSR
1957 Oct
Credit
18.9
18.9
Petroleum exploration ($17.8 million)
C
Petroleum products storage ($1.0 million)
C
Pipeline design, Karachuk-Tartus ($0.1 million)
C
1972 Feb
Credit-Petroleum development
30.0
30.0
C
1976 Jun
Credit
47.2
46.7
Petroleum development ($46.2 million)
C
Oil industry training center,
Rumaylah($1.0 million)
UC
1983 Aug
Credit-Gas treatment and transmission project
129.0
2.4
1978 Mar
Credit-Expansion of Aliaga refinery, Izmir
50.0 b
25.0
UC
1978 Oct
Credit-Oil research
70.0
70.0
C
Total
144.2
119.2
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USSR: Credits and Grants for Hydrocarbon
Development in Non-Communist LDCs, 1956-84 (continued)
Date
Extended
Projects
Extended Drawn
(million US $) (million US $)
Status a
USSR
1957 Jul
Credit-Petroleum exploration and aerial survey
15.0
15.0
C
1961 Oct
Credit
32.3
32.3
Petroleum and gas exploration and
exploitation ($25.0 million)
Gas pipeline, Shibarghan-Mazar-e-Sharif
($7.3 million)
Credit-Chemical fertilizer and gas electric
29.0
29.0
C
plants
1963 Oct
Credit-Natural gas exploitation and
38.9
38.9
C
pipeline, Shibarghan-Dushanbe
Equipment for natural gas extraction
and transportation, Shibarghan ($1.7 million)
Petroleum storage depots, Kabul, Mazar-e-
Sharif, Bagram ($6.0 million)
Oil and gas exploration ($12.3 million)
Credit 26.9 26.9
Prospecting and drilling for oil and gas in north
($20.0 million)
Expansion of Mazar-e-Sharif gas electric
and fertilizer plant ($6.9 million)
Petroleum refinery, Shibarghan ($18.0 million)
Oil extraction and pipeline from Angot deposits
($5.6 million)
Oil exploration equipment ($19.5 million)
Gas pipeline, Amu Darya ($2.3 million)
Expansion of Mazar-e-Sharif gas and
fertilizer complex ($10.0 million)
Oil storage depots, Logar, Herat,
and Ghazni ($5.0 million)
? 1973 Grant-Technical Institute for Petroleum and 4.1 4.1 C
Mining
1975 Jan Credit for Seven-Year Plan 87.0 87.0
Gas pipeline, Jeraqduq ($6.5 million)
Gas collection and desulfurization
plant, Jeraqduq ($56.0 million)
Oil and gas drilling equipment for 1981 ($9.5
million)
Fuel storage facilities, Hairatan, Pul-i-
Khumri, and Mazar-e-Sharif ($5.0 million)
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USSR: Credits and Grants for Hydrocarbon
Development in Non-Communist LDCs, 1956-84 (continued)
Date
Extended
Projects
Extended Drawn
(million US $) (million US $)
Status a
Oil production, Agnis and Ab-e-Dariah
Refinery, Jeraqduq
UC
Oil products pipeline, Termez-Kelegai-Bagram
C
Oil products pipeline, Termez-Kelegai
C
Total
420.0
363.6
USSR
1961 Mar
Credit-Petroleum exploration
4.0
4.0
C
1972 Mar
Credit-Oil and gas exploration
14.7
14.7
C
1975 Apr
Credit
5.5
5.5
C
Gas liquifaction plant, Chittagong
Bitumin plant, Chittagong
Oil and gas exploration ($5.5 million)
C
Total
24.2
24.2
USSR
1956 May
Credit-Petroleum exploration equipment,
Punjab, Assam, and Gujarat
3.6
3.6
C
1959 Sep
1961 Feb
1966 Jul
Coal mining machinery plant, Durgapur,
West Benegal ($21.0 million)
Coalfield development, Korba,
Madhyha Pradesh ($11.2 million)
Underground mines, Banki, and
Surakachhau ($5.7 million)
Open cast mines, Manikpur and
Korba ($1.6 million)
C
Workshop ($1.7 million)
C
Credit-Petroleum development
69.3
69.3
C
Credit-Petroleum refinery, Barauni, Bihar
34.1
34.1
C
Line of credit
57.8
57.8
Oil Refinery, Koyali, Baroda, Gujarat
($18.9 million)
C
Coal washery, Kathara ($6.2 million)
C
Expansion of Barauni refinery ($1.7 million)
C
Petroleum exploration and production, Cambay,
Anklesvar and other areas, ($31.0 million)
C
Trade credit-Coal mining equipment
and technical assistance
67.0
10.0
UC
Line of Credit
140.0
50.0
Petroleum exploration and development,
Assam ($100.0 million)
Six coking coal projects, Ramgarh,
Bihar ($20.0 million)
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USSR: Credits and Grants for Hydrocarbon
Development in Non-Communist LDCs, 1956-84 (continued)
Date
Projects
Extended
Drawn
Status-
Extended
(million US $)
(million US $)
Mathura Refinery, Madhyha Pradesh
C
($20.0 million)
1980 Dec
Credit-Coal development
123.0
20.0
UC
Construction of Nigahi and Jhanjra mines
Coal mining, Singrauli, and Raniganj
UC
($15.5 million)
USSR 1961 Mar Credit-Oil exploration 26.0 26.0 C
USSR 1973 Trade Credit-Onshore and offshore oil 3.8 3.8 C
and gas exploration
a Symbols used in this table have the following meanings:
S - under survey, UC - under construction or being implemented,
and C - completed. No entry indicates no work has begun.
b The amount extended is estimated.
c The amount extended is not known.
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Secret
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