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Approved For Release 2000/05/15: CIA-RDP79T01098A000100129 et No Foreign Diuem Communist Aid to Third World Oil Industries Secret ER RP 73-12 June 1973 Approved For Release 2000/05/15 : CIA-RDP79T01098A000100120001-2 Approved For Release 2000/05/15 : CIA-RDP79T01098A000100120001-2 WARNING This document contains information affecting the national defense of the United States, within the meaning of Title 18, sections 793 and 794, of the US Code, as amended. Its transmission or re- elation of its contents to or re- ceipt by an unauthorized person is prohibited by law. declassifimtion sch~?dule of EC. 11652 exemption category 5E{1 !2',111 Automatically declassified on Dote Impossible to Uefe?m no Class hed by 015319 Exempt from general Approved For Release 2000/05/15 : CIA-RDP79T01098A000100120001-2 Approved For Release 2000/05/15No ok% 098A000100120001-2 o COMMUNIST AID TO THIRD WORLD OIL INDUSTRIES Summary 1. From 1956 through May 1973, the European Communist countries have provided US $1.3 billion worth of aid for the petroleum industries of the less developed countries. Initially, this aid was part of the overall Communist effort to expand re- lations with the Third World. In the early years, assistance generally was confined to countries of little interest to Western oil companies. For ex- ample, Afghanistan, India, and Syria were the first to welcome such assistance on a large scale. More recently the Soviets have sought to become involved with the major producers in large measure to help meet growing Communist requirements for oil and gas imports. 2. The Communist countries did not gain entry into any major oil producing country until the mid-1960s. By then the major producing countries had begun to press the Western oil companies for more favorable participatory and financial arrangements. Moreover, they had either formed or strengthened existing national oil organizations and enhanced their bar- gaining positions by forming international organiza- tions of major producers. 3. Opportunities for Communist participation increased further when Western-owned assets and concessions were nationalized. By 1971, for ex- ample, Algiers had nationalized natural gas con- cessions and all oil pipelines and refineries and had obtained a 51% interest in French oil companies operating in Algeria. Libya and Iraq nationalized additional Western investments during 1971-73. Many such countries were not reluctant to accept a Com- munist presence in their oil industries because of major economic and military agreements already con- cluded. This publication examines the growth of Communist aid to LDC oil industries. Text and Appendix tables provide detailed statistical data on relevant aid and trade. Note: Comments and queries regarding this publica- tion are welcomed. They may be directed to - 25X1A of the Office of Economic Research, Code 143, Extension 6716. Approved For Release 2000/05/15 : CI,~-yWR77TO1098A000100120001-2 No Foreign Dissem Approved For Release 2000/05/15: CIA-RE ?eTf@A000100120001-2 Discussion Magnitude and Direction 4. From 1956 through May 1973, Communist coun- tries extended an estimated $1.3 billion worth of petroleum development aid to 27 less developed countries* (see Table 1). About one-half has been committed since the beginning of 1966. More than 75% has been provided by the USSR. Almost 90% has gone to Middle Eastern and South Asian countries. More than 45% has been channeled to India and Iraq and another 35% to Afghanistan, Egypt, Iran, and Syria. About one-half of the aid extended has been drawn. 5. Approximately 85% of Eastern Europe's assistance has come from Romania ($149 million) and Czechoslovakia ($99 million). Bulgaria, East Ger- many, and Hungary together have provided about $40 million, all to Iraq. Poland extended its first such aid in 1973, about $1 million to Yemen (Aden) for an oil survey. Character of Communist Aid 6. More than 55% of Communist petroleum aid has been allocated for oil exploration and pro- duction**(see Table 2). Practically all the re- mainder has gone for transportation and refining facilities. More than one-half of East European aid has been for refineries. Among the East European countries, Romania has the most diversified program, being the world's third largest manufacturer and the second largest (although a distant second to the United States) exporter of petroleum equipment. * Throughout this publication, the terms Zess developed countries (LDCs) and Third WorZd countries are used interchangeably to mean the following: (1) all countries of Africa except the Republic of South Africa, (2) all countries of East Asia except Hong Kong and Japan, (3) all countries in Latin America except Cuba, and (4) all countries in the Middle East and South Asia. ** For a listing of Soviet and Eastern Europe projects, see Appendix Tables A-1 and A-2. Approved For Release 2000/05/15 : CIA-RDP79T01098A000100120001-2 SECRET Approved For Release 2000/05/15 : CIA-RDP79T01098A000100120001-2 Soviet and East European Aid Extended to Third World Oil Industries, by Country and Areal 1956 -May 1973 Total 1,275 987 288 Africa 41 29 12 Algeria 12 12 .... Ethiopia 12 12 .?.? Ghana 1 .... 1 Mali 2 2 ? . ? ? Morocco 2 1 1 Nigeria 4 .... 4 Somalia 2 2 ??.? Sudan 3 ???? 3 Tunisia 3 .... 3 East Asia 30 .... 30 Indonesia 30 .... 30 Latin America 80 64 16 Argentina 46 43 3 Bolivia 1 1 Brazil 13 5 8 Chile 20 15 6 Middle East 647 438 209 Egypt 135 87 48 Iran 81 77 4 Iraq 299 196 104 Jordan 2 2 ???? Syria 101 50 51 Turkey 24 24 .... Yemen (Aden) 3 1 2 Yemen (San'a) 1 1 South Asia 478 456 21 Afghanistan 137 137 .... Bangladesh 27 27 ... India 290 269 21 Pakistan 23 23 .... Sri Lanka 1 1 1. Because of rounding, components may not add to the totals shown. Approved For Release 2000/05/15 : CIS R1098A000100120001-2 Approved For Release 2000/05/15: CIA-RIVIYA98A000100120001-2 Soviet and East European Aid to Third World Oil Industries, by Type of Activity 1956 -May 1973 Total Aid USSR Eastern Europe Million US $ Percent of Total Million US $ Percent of Total Million US $ Percent of Total Total 1,275 100 987 100 288 100 Production 369 29 292 30 77 27 Exploration 354 28 297 30 57 20 Refining 305 24 151 15 154 53 Transportation 233 18 233 24 Others 14 1 14 1 .. 1. Including construction of oil storage tanks, technical training, and research. 7. Soviet and East European. aid often are complementary, although not necessarily by design. Oil produced from Soviet-developed fields in Syria is transported to a Czechoslovak-built refinery at Homs. A refinery being built by Prague at Basra, Iraq, will be supplied with crude from oilfields at North Rumaylah, developed with Soviet aid. Natural Gas 8. Soviet aid worth at least $125 million has been used to build natural gas pipelines and re- lated facilities in Afghanistan and Iran; gas that is not locally consumed is exported to the USSR. In the early 1960s, Soviet technicians found gas deposits in northern Afghanistan estimated at more than 8.8 trillion cubic feet. In 1963, Moscow ex- tended a $39 million credit for Pipelines from these fields to the USSR and to Soviet-built electric power and chemical fertilizer plants in Afghanistan. The project was completed in 1967. By 1970, Kabul was pumping annually 88 billion cubic feet of gas to the USSR valued at $14 million. A second pipe- Approved For Release 2000/05/15 : CIA-R 7R1 1098A000100120001-2 Approved For Release 2000/05/15 : W(V7bT01098A000100120001-2 line under construction will raise throughput to the USSR to 140 billion cubic feet by 1974. 9. The Soviets have assisted in building a 690-mile gas pipeline from southern Iran to the USSR. The gas, a by-product of oil production, had been flared off as waste. In 1966 the USSR extended $77 million in credits v tap technical and equipment for a pipeline to most of the gas to the USSR.*, The pipeline was completed in October 1970, and gas deliveries began shortly afterward. By 1975 the USSR will be re- ceiving about 350 billion cubic feet annually from Iran and by 1985 will have imported $1 billion worth of Iranian natural gas. The two countries also are discussing construction of a second gas pipeline to the USSR. 10. Moscow is purchasing gas from Afghanistan and Iran at a delivered price of $0.16-$0.19 per 1,000 cubic feet, compared with the $0.34-$0.37 per 1,000 cubic feet it is charging its West European customers for Soviet gas. Although these imports represented less than 5% of some 7.8 trillion cubic feet produced in the USSR in 1972, they are convenient supplements to dwindling supplies in areas of the USSR adjacent to the two countries. These deliveries save the cost of bringing gas into the area from more distant fields in Soviet Central Asia and free more Soviet gas for sale in Western Europe. Technical Assistance 11. Communist technicians in the LDCs explore for oil; assemble equipment; supervise construction of pipelines, storage tanks, and processing facili- ties; serve as advisers to state oil organizations; and train local technicians and engineers. Although most are employed on projects financed with economic aid credits, some are hired under individual con- tracts on a commercial basis. Soviet participation amounted to about 11% of the project's total cost of $700 million. Some $245 million of Western credits financed the pur- chase of pipe and auxiliary equipment from France, Japan, and the United Kingdom. Iran provided the balance. Approved For Release 2000/05/15: CIA MTif'098A000100120001-2 Approved For Release 2000/05/15 : CIA-Rb `t?URQ98A000100120001-2 12. The number of Communist oil technicians in aid-receiving countries has risen steadily, to nearly 2,000 in 1972. Some 60% were geologists and engineers working on exploration teams; the rest were mostly training LDC technicians or build- ing refineries. The majority of the technicians were in Algeria (700), Iraq (480), Afghanistan (130), Egypt (115), Syria (115), Turkey (100), and India (85). 13. LDC technical personnel generally are trained on the job. More specialized training is provided,at-vocational training centers in the LDCs. More advanced training is being carried out at a large petroleum institute built in Algeria; other such institutes are being planned for Nigeria and possibly Iraq. An estimated 1,100 LDC technicians have been trained at oilfields and refineries in Eastern Europe and the USSR, and an estimated 425 petroleum engineers have graduated from Communist technical institutes. 14. Soviet technical personnel, while competent, are criticized for their narrow specialization and the excessive administrative support associated with their employment. Criticism of Soviet equip- ment is more widespread, and Soviet oil technology is considered to lag considerably behind that of the West. For instance, Soviet aid to India in offshore drilling in the Gulf of Cambay was halted after reaching 4,900 feet, the limit of Soviet equipment. India's most promising structures are believed to be below 15,000 feet. 15. Moscow's refineries supplied under aid, although generally adequate, are limited in the variety of products they can produce. They contain distillation units that produce many basic products but lack the more complex secondary units that yield higher quality fuels. This factor contributed to Ethiopian acceptance of an Italian offer to modernize and expand the Soviet-built Assab refinery to meet Ethiopia's needs for jet fuel and high-octane gaso- line. Moscow itself may have recognized these problems. Soviet officials are considering pur- chasing US equipment to be used in LDCs. Approved For Release 2000/05/15 : C~~ff01098A000100120001-2 Approved For Release 2000/05/15: c19(-9E719T01098A000100120001-2 Major Programs India 16. India, the first LDC to receive Communist aid for petroleum development, relied heavily on the USSR to help establish a national oil industry. Since 1956, Moscow has provided nearly $270 million in credits and Romania another $21 million. The comprehensive Soviet program has included surveys, exploration, production, design and construction of refineries, pipelines, storage facilities, and training technicians in both India and the USSR (see Figures 1 and 2). Widespread oil exploration Figure 1. Soviet "Christmas Tree" at a Well Head in Cambay Figure 2. Soviet-Built Refinery at Barauni was begun in the late 1950s. Strikes subsequently were made in the Punjab area of northern India, along the Anklesvar and Cambay coasts of western India, and in the Assam region of eastern India. In 1972 these areas produced one-half of India's crude oil production of 7.5 million metric tons. Approved For Release 2000/05/15 : CIA-RDP79T01098A000100120001-2 SECRET Approved For Release 2000/05/lf; 3 DP79T01098A000100120001-2 17. Three Communist-built refineries account for nearly 30% of India's refinery capacity of 24 million tons. India's first public sector refinery was a 1 million-ton plant built by Romania at Gauhati (in the Assam region) and completed in 1962. Two refineries, each with a capacity of million auni tons, subsequently were built by These (in eastern India) and Koyali (near Cambay). plants refine only domestic crude. Moscow, however, plans to expand Koyali's capacity to 6 milli and provide equipment capable of refining imported crude. New Delhi is building a 2.5 million-ton refinery at Haldia (near Calcutta). Romania and France are building different parts of the facility. 18. About 85 Communist technicians were in India in 1972, most of them Soviets engaged in explora- tion, production,-and construction of refineries. The rest were Romanians working on the Haldia refinery. As estimated 3,500 Indian geologists and oil technicians have been trained in India since 1956, and about 200 were trained in the USSR and Romania. Ira 19. Iraq is the first major producer to accept a comprehensive Communist aid program in the petroleum sector. Baghdad readily accepted this kind of assistance because Moscow already was its its chief pri- foreign source of development capital and mary arms supplier. About $300 million of petroluem aid has been extended since 1969, nearly two-thirds by the USSR. Soviet aid includes development planning; exploration; development of new oilfields; construction of refineries, pipelines, and storage facilities; and training of Iraqi technicians. The two countries also have discussed forming a joint company to transport oil by chartering foreign tankers. 20. Communist involvement developed several years after Baghdad had established a state-run oil company. Direct public involvement began in 1961. Iraq reclaimed almost all concessions granted to the Iraq Petroleum Company (IPC), including the North Rumaylah oilfields in southern Iraq, where oil had been discovered but production had not be- 8 Approved For Release 2000/05/15 : Cr ACIS 7p T01098A000100120001-2 Approved For Release 2000/05/A):~1bI~-I6P79T01098A000100120001-2 gun. Three years later, Baghdad created the Iraq National Oil Company (INOC). After years of pro- tracted negotiations with IPC over compensation for nationalized concessions and related IPC un- willingness to expand oil production, Baghdad accepted an offer of Soviet aid in 1969. In June 1972, Baghdad nationalized IPC's assets at Kirkuk in northern Iraq. 21. Soviet exploration and development have been confined largely to North Rumaylah, which contains about one-half of Iraq's total proved reserves. Moscow has committed about $120 million for the development of this and nearby fields. Bulgaria, East Germany, Hungary, and Romania have committed at least another $50 million. Initial production of some 5 million tons (about 6% of Iraq's current annual production) began in 1972. Production is expected to rise to 18 million tons (about 16% of planned production in that year) when the second stage of development is completed in 1974. 22. The USSR is constructing pipelines in Iraq, one of which will connect the North Rumaylah fields to a 1.5 million-ton refinery Moscow is building in Mosul. Oil from these tieids also will be pumped to a 3.5 million-ton refinery that Czecho- slovakia is building at Basra. When completed, these refineries will double Iraq's current capacity to 10 million tons annually. 23. Baghdad plans to invest some $1.4 billion in the petroleum sector during the 1970s. Available Communist credits represent more than 20% of that amount, most of which are scheduled to be used by 1975. With its predilection for Communist, particu- larly Soviet, assistance of all kinds, Baghdad no doubt is counting on expanded Communist participa- tion in the petroleum sector. Algeria and Libya 24. Algeria and Libya are the only other major producers where Communist countries have developed some presence in the oil industry. Soviet geolo- gists and engineers initiated exploration activities Approved For Release 2000/05/15 : T~ P7?T01098A000100120001-2 Approved For Release 2000/05/15 : CIA-RDPI'T6P668A000100120001-2 AIger_i-j in 196'3 .rid have I-,men engaged in research n oil ant eras prodnction si r,rA 1966. About 200 Tiets are worki nc1 ,? rt tha f mld and as advisers to 11- 1 star-- nwnecd, pc troln,im r?o