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Soviet Oil Production - CIA

The CIA's Office of Economic Research (OER) has been following Soviet oil production for many years. The prevailing estimate since the mid-1960s in the CIA, as well as in the oil industry, has been that Soviet oil production would rise with gradual slowing into the 1990's without any significant declines. A published CIA study, "Soviet Long-Range Energy Forecasts," completed in September 1975 reflected this position.

CIA's analysis of the prospects for Soviet oil production provoked a good deal of controversy in the 1970s. A paper prepared for the Joint Economic Committee (JEC) Outlook for Soviet Energy (June 1976) had noted that the USSR was the only major industrial nation self-sufficient in energy and was likely to remain so, although future growth in the Soviet energy supply depended on the development of resources in a hostile Siberian environment. It predicted that oil production in 1980 would reach 590 million metric tons compared with the plan of 620 to 640 million metric tons (mmt).

CIA's position then shifted abruptly. As early as 1970, 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. It was not until 1975 that the CIA understood the greatly increased pumping capacity made possible by the purchase of large numbers of US made high-capacity submersible pumps.

President Carter announced in a television news conference on April 15, 1977, that the CIA had provided him with a report showing that the world energy situation was more pessimistic than generally believed. Within 2 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.

The 1977 paper continued, "maximum levels are not likely to be maintained for long, however, and the decline, when it comes, will be sharp." Two basic problems confronted the industry: first, acceptable reserve-to-production ratios could not be maintained unless a massive new field was found and, second, existing wells were experiencing severe water encroachment.

In March 1977, the Central Intelligence Agency classified Intelligence Memorandum "The Impending Soviet Oil Crisis" concluded that "The Soviet oil industry is in trouble. Soviet; oil production will soon peak, possibly as early as next year and certainly not later than the carly 1980s. The maximum level of output reached is likely to be between 11 and 12 million barrels per day (b/d) - up from the 1976 level of 10,4 million b/d. Maximum levels are not likely to be maintained for long, however, and the declinc, when it comes, will be sharp.

"The Soviets have two basic problems: one of reserves and one of production. Barring an extremely unlikely discovery of a massive new field close to an existing field, new deposits will not be found rapidly enough to maintain acceptable reserves-to-production ratios, and those fields that account for the bulk of Soviet production are experiencing severe water cncroachment. As a result, increasingly large quantities of water must be lifted for cach barrel of oil produced, and high-capacity submersible pumps - obtainable only from the United States - will be required if production declines are to be staved off even temporarily.

"During the next decade, thc USSR may well ?ind itself not only unable to supply oil to Eastern Europe and the West on the present scale, but also having to compete for OPEC oil for its own use. This would be a marked change from the current situation, in which exports of oil to the West annually provide 40 percent of total Soviet hard currency earnings."

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, et cetera) Soviet oil production was going to peak in the early 1980's and that the Soviets may face difficulties in the mid-1980's meeting their own petroleum needs. "More pessimistically," the report said,"the U.S.S.R. itself will become an oil importer." 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, report, "Energy: Global Prospects to 1985-2000", was even more pessimistic than the reports published by the CIA.

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.

A New York Times feature story of 28 April 1977 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 reports were much too pessimistic.

Oil experts from private industry, academia, and the Government felt that the Soviet Union would be able to avoid becoming a net importer of oilin the 1980's. Most experts 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.

In 1979 the rate of increase of oil production dropped sharply. The Soviet invasion of Afghanistan on 26 December 1979 was followed by the announcement of the "Carter Doctrine" with respect to the Gulf region in January 1980. The Carter Doctrine stated that the Persian Gulf area, because of its oil fields, was of vital interest to the United States, and that any outside attempt to gain control in the area would be "repelled by use of any means necessary, including military force."

Some in the Carter Administration were concerned that the Soviet invasion of Afghnistan in 1979 was an initial move in a strategy to seize oil resources in the Middle East. One result of this concern was the formation of the military organization that became Central Command [CENTCOM]. Was Moscows 1979 intervention in Afghanistan, as Brzezinski and others claimed, part of a grand design to seize oil fields and warm water ports in the Persian Gulf region, or merely a move to protect a new socialist government in a country contiguous to its sensitive southern border? The Central Intelligence Agency forecasts were widely accepted throughout America's foreign policy community. They provided the basis for high-level contingency planning and United States foreign policy decisions, including creation of the Rapid Deployment Force and intervention in Afghanistan, both to defend against an adventurous Soviet Union desperate for oil.

Afghanistan seemed the wrong place to invade as part of a strategy of military control of Persian Gulf oil. Depending on whose estimate is accepted, and understanding that exploration and the marginal costs of increasing production were as variable and unpredictable in the Soviet Union as anywhere else, the Soviets had several options: cut domestic consumption, cut back on deliveries to Eastern Europe, buy more oil, or expropriate oil on the cheap by military conquest of an oil field and the nation that happens to contain it.

The 1977 projections had by 1980 proved embarrassingly inaccurate, underestimating actual output by as much as 1.1 million barrels per day. The new January 1981 study increases the earlier estimates of production in 1985 from 8 to 10 million to 10 to 11 million barrels per day. But the new figures predicted a serious shortfall, as the 1977 study did, merely delaying it five years, to 1990. By that time, the CIA believed the Soviet Union's oil production will fall to 7 to 9 million barrels per day.

CIA analysts helped to shape not only US policy, but even may have helped to shape Soviet policy as well. The Kremlin monitored economic studies done in the West on the Soviet Union, especially CIA reports. As it turned out, CIA was right on the fundamental problems that eventually brought about a fall in production. But CIA analysts underestimated the Soviets' ability to avert the worst by shifting investment in favor of the energy sector and changing the USSR's extraction and exploration policies -- changes that perhaps resulted from Moscow's reading of the Agency's published assessment.

After many years of occasionally spectacular growth, Soviet oil production began to level off in 1983, although the Soviet Union remained the world's largest oil producer. Oil production climbed to 603 mmt in 1980 and 616 mmt in 1983. It then fell to 595 mmt in 1985 before rebounding to 624 mmt in 1987 and 1988. As it turned out, CIA was right about the fundamental problems that eventually brought about a fall in production. However, CIA's estimate of oil reserves was low -- even though it was derived from open Soviet literature, which was not prone to understate Soviet potential -- and CIA did not take sufficient account of Soviet willingness to shift resources to Siberian development in the middle of a five-year plan.

Western experts have disagreed sharply about the amount and importance of production changes, especially because exact Soviet fuel reserve figures remained a state secret. It is known that at the end of the 1980s oil production did not increase significantly from year to year.




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