How Oil Ate the Soviet Economy

in 1979 the soviet union was the world's leading producer of oil pumping 11. 5 million barrels each day at the end of our last video on this the soviet union finished the 1960s as the second biggest oil producing nation in the world even so the country's most plentiful bounties of oil and natural gas were still yet to come hiding beneath siberia's frozen swamps and lakes in this video we look at how the soviet union became an energy superpower and how that contributed to the country's eventual dissolution but first a quick shout out to the asian army patreon early access members get to watch new videos and selected references for them before their release to the public it helps support the videos and i appreciate every pledge thanks and on with the show some 600 miles east of the ural mountains is the soviet west siberian basin it is broad flat and vast 3. 4 million square kilometers or nearly five times the size of texas about a third of the area is potentially oil bearing nearly one million square kilometers but this area alone is larger than texas and oklahoma combined even in a russian context the area is undeveloped harsh and remote the summers are short and the winters are long and severe the air is humid and with temperatures plunging to as low as negative 27 degrees celsius frost and fog are common sixty to seventy percent of the area are swamps and lakes there is no regular water supply for 9 or 10 months of the year those lakes freeze to their very bottoms needless to say the area is sparsely populated many landless russian peasants came to siberia during the building of the trans-siberian railroad in the late 1890s but most settled in the siberian south again due to the cold but beneath these lands are some of the world's great oil and gas deposits second only to those found in the persian gulf dating back to the triassic and jurassic periods they include the massive uren gas field and russia's biggest oil field samadlor the field partially lies above the siberian traps the site of one of the largest known eruption events in world history 250 million years ago from 1960 to 1970 the soviet union's total oil production rose from under 3 million barrels per day to 7.

1 million barrels which very roughly translates to about 380 million metric tons per year much of this new oil came from the second baku area of the volga euro province which are in the european regions of the soviet union as far back as the 1930s soviet geologists have predicted that the west siberian basin potentially held significant deposits that could be even larger than what was in the volca ural several potential oil gushers had already been found however the soviet government refrained from exploring and developing those fields yes there seems to be oil out there but how much and what would it take to get it out of the ground one high-ranking communist party member was quoted as saying the huge oil and gas reserves that the people of west siberia talk about so much are nothing more than the fruit of a sick provincial imagination they must stop misleading everyone and go about their business circumstances eventually made the soviets change their minds starting in the mid to late 1960s the volga euro oil field started to decline much faster than anyone anticipated from 1971 to 1975 the soviets planned for the european older oil fields to decline by 150 million tons a year they actually declined by 261 million this was bad news because the oil production business had very critical functions for the soviets first the soviet oil industry was by far the country's biggest source of foreign currency over 50 percent for purchasing wheat and other goods from abroad and second the soviets had long-term oil export obligations to the countries of the eastern bloc all of them saved romania depended on the soviets for their energy these oil and gas deliveries were made through extensive cross-country pipelines named drizba or friendship or bratsville or brotherhood in january 1968 soviet premier alexei kosigan visited the tumen sometimes also spelled with the y region of west siberia there he talked about the area's potential for advancing the soviet economy and the need to begin building infrastructure two years later in 1971 brezhnev himself began urgently pushing the soviet economy towards developing west siberia a new ministry was founded to build oil infrastructure there led by the high-ranking ukrainian communist party member boris shabina shabina would later gain lasting renown as the guy in charge of managing the chernobyl crisis of 1986. he was played by stellan skarsgard in the 2019 hbo tv miniseries where not for the whole chernobyl meltdown thing shavina would be more well known as the founder of the west tiberian oil and gas industry west siberia presented a serious development challenge people baku had already a growing urban area surrounding it the vulgar euros had seen a population surge because of the war but hardly anyone lived in west siberia so developing the area meant that the soviets needed to create entire towns out of essentially nothing in order to fully tap its bounty of oil and gas the soviets would have to bring out hundreds of thousands of geologists builders and work crews worker settlements are difficult to build due to harsh conditions and since agriculture is basically impossible all food has to be transported via rail for this reason the cost of living there is 1. 5 to 1.

7 times greater than what it is in the european parts of the country the days of stalin just moving entire populations here or there are over workers in the soviet union now had freedom of choice into choosing where to live and work people had to want to come out to this wasteland salaries in west siberia were higher 2. 2 to 2. 5 times greater than what you can find elsewhere and it was easier to get promoted the party ran media campaign ads in the older oil and gas regions looking for specialists the vast majority of these workers were young under 35 and signed up to work there for a short period of time to earn a lot of money before long west siberia started yielding its vast riches in 1965 the area generated about 5.

6 million tons of oil and 1. 4 billion cubic meters of natural gas in 1970 oil production in west siberia reached 31 million tons just five years later in 1975 oil production numbers reached 141 million tons in 1977 an insane 211 million tons by 1973 a total of 113 oil fields had been discovered five billion tons supergiant oil and gas fields were discovered from 1965 to 1973 including the aforementioned samadhlor the soviets built long gas pipelines to transport their products to their primary buyers in europe throughout the second half of the 1970s the soviets laid down 1 400 kilometers of pipeline moved 130 million cubic meters of soil and tore up 27. 2 million square meters of agricultural land to speed up pipeline construction ready-made pieces were trucked from the factory to the site gas pipeline construction rates were three to five times faster than that in the west resulting in costs per kilometer a third of western averages economically it was a big success environmentally however it was a disaster another reason why the soviets could build pipelines so fast was that they completely disregarded ecology waste water pollution torn up swathes of taiga and hundreds of abandoned drilled wells it was not that the soviets didn't care it was just that the economic plan had to be fulfilled no matter what the west siberians were constantly pushed by the government to generate more and more oil despite warnings about its sustainability west siberia's oil dominance found the right customers at the right time international conflicts throughout the 1950s and 60s prove to europe that they cannot solely rely on arab oil soviet oil seemed like a compelling diversification option the first western european country to strike a deal with the soviets for oil was austria in 1968.

italy in 1969 west germany in 1970 and france in 1972 soon followed west germany was a particularly notable get for the soviets the decision to take soviet gas had been a domestically controversial one on one hand the country's coal mines had given out and domestic gas demand was skyrocketing estimated to rise from 8 billion cubic meters in 1969 to 26 billion in 1975. yet on the other hand there were significant political issues for instance the ongoing issue of berlin's division as well as the larger question of german reunification but the german ministry of economics believed that if soviet share stayed under 20 percent then everything will be fine the year after west germany started accepting soviet gas the two sides signed the four power agreement of 1971. the federal republic of germany and the german democratic republic finally de facto recognized each other's sovereignty these agreements soon led to others throughout the 1970s as part of dutont the soviet union reached out to various countries of the west to strike economic partnerships even the united states in 1972 the u.

s and the soviet union agreed on a potential energy deal north star here soviet natural gas would be liquefied and shipped over the barren sea to the american west coast from 1980 to 2000. the soviets and various energy lobbyists wanted this deal pretty badly had it gone through the japanese would have joined in and the two countries would have brought a vast amount of much-needed lng revenues and western technologies to the soviets unfortunately congress eventually nixed it the soviets wanted most favored nation status and credit guarantees but were denied these by various opponents in congress it was later entirely called off in 1974. the oil crises of the 1970s including the iranian revolution accelerated these economic exchanges between the soviets and western europe despite the soviet's reputation as an erratic trade partner many of these energy relationships remain to this day as i mentioned earlier soviet oil and energy exports were one of the nails holding the whole eastern bloc together shortly after world war ii the soviet union set up an economic trade organization for the states of the eastern bloc the council for mutual economic assistance or comic-con or cmea i will use cmea since comic-con sounds like comic-con in the years after world war ii the eastern bloc largely traded only within the cmea the soviets sent its satellites raw goods and the satellites sent back manufactured goods machinery and agricultural produce these oil deliveries were made on quote-unquote brotherly terms far lower than the western market price if the cost of extraction were to ever go up the soviet union could not pass on these extra costs it had been known since the mid-1960s that these inter-block trade agreements were unfavorable to the soviets as the soviets developed its lucrative west european energy export industry in the 1970s the opportunity costs of these quote-unquote friendship oil trade agreements became ever more so clear yet these states had now come to depend on these brotherly oil imports east germany czechoslovakia and hungary most of all failing to meet these oil obligations had onerous political and social economic repercussions especially as the satellites found themselves increasingly indebted to western creditors people and policy makers had expected the west siberian energy giant to grow seemingly into infinity what actually happened was that production stalled and gave out just as fast as it grew starting in 1975 west siberia's oil production growth rates rapidly declined from 23.

8 in 1976 to 7 in 1981. west siberia's abrupt stagnation had massive ripple effects throughout the country during the 1960s soviet oil production increased at a rate of about 9. 1 percent a year between 1971 and 1978 that average rate had fallen to just 6.

2 percent the soviet oil juggernaut was showing signs of sputtering by 1981 the country's total oil growth rate had fallen to under one percent without access to more advanced oil drills and pumps from the west brezhnev and the soviets felt that they had no choice but to simply drill more exploratory wells further out in search of another somewhat lower sized mega giant field the country doubled the amount of drilling it did each year from 13 million meters drilled in 1977 to over 26 million in 1984. 16 million of that new drilling came in west siberia alone this means exploratory teams have to travel further out drill deeper and work in more complicated formations none of this is cheap on a per meter basis drill costs doubled trouble brewed despite these all-out efforts things continued to deteriorate in 1984 soviet oil output fell into negative growth what all this means is that the soviet energy industry and eventually the soviet economy as a whole found itself investing more in order to produce less a seemingly inescapable cycle of throwing good money after bad yet the soviet empire demanded more oil in 1970 the soviet union required the energy equivalent of 0. 71 tons of coal to generate a thousand dollars of economic income by 1987 that ratio had gone up to 0.

83 over the years the soviet union economy like many other developed economies had become more energy intensive there were no easy answers for cutting consumption in the west a significant share of oil consumption comes from car drivers and households when oil shocks happen they grumble and get angry but also have the flexibility to adjust their usage in the soviet union just 15 percent of the country's oil consumption came from households nearly half is from heavy industry unfortunately those users are not so flexible though a push to switch from oil to natural gas consumption did yield some savings and then again there are the country's considerable oil export obligations so the soviets had little room to cut and adjust down their consumption thusly the oil wells have to produce by the late 1980s the soviet union was still the world's largest producer of oil and its third biggest producer of coal yet despite this the country's economy had stagnated consumed by its unproductive energy industry coherence within the eastern bloc faded as the soviets started prioritizing their own needs over those of their socialist brothers the satellite states turned to the west then in 1986 oil prices collapsed rising output from alaska the british north sea and opec all contributed to an oil glut saudi arabia in particular drastically raised their oil quotas in september 1985.