SOVIET ENERGY DEVELOPMENT AND ITS STRATEGIC IMPLICATIONS FOR EAST-WEST RELATIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89B00423R000100090044-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: December 21, 2016
• Document Release Date: February 11, 2009
• Sequence Number: 44
• Publication Date: September 10, 1984
• Content Type: MEMO

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EXECUTIVE SECRETARIAT
ROUTING SLIP
DDCI
EXDIR
D/ICS
5
6 DDA
7 DDO
8 DDS&T
9 Chm/NIC
10 GC
11 IG
12 Compt
13 D/Pers
14 D/OLL
15 D/PAO
16 SA/IA
17 AO/DCI
18 C/IPD/OIS
14 September
Please prepare a response for the
DCI's signature.
3637 (10-81)
Executive Secretary
10 September 1984
Date
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September 10, 1984
THE WHITE HOUSE
WASHINGTON
MEMORANDUM FOR THE HONORABLE WILLIAM J. CASEY
The Director of Central Intelligence
SUBJECT: Soviet Energy Development and Its Strategic
Implications for East-West Relations 25X1
Background
The Soviet Ministry of Foreign Affairs has voiced its intention to
discuss U.S. export controls on energy equipment during the
U.S.-Soviet economic working group meetings to be held under the
Long-Term Agreement to Facilitate Economic, Industrial and Technical
cooperation tentatively scheduled for November 1984 in Moscow.
Because of the importance of this issue in the context of our
overall U.S. foreign policy objectives, I believe it would be
imprudent for the Administration to undertake any such discussions
without an up-to-date assessment of Soviet energy policy goals and
the role of Western equipment and technology in achieving these
goals. Past work by the Agency on Soviet energy developments and
their implications for East-West relations has contributed
significantly toward the advancement of U.S. policy formulation.
For this reason, I am requesting that you revisit this issue so we
may be prepared to consider whether or not any adjustments to our
present policies in this area may be required.
Nature of the Problem
Over the past few years, we have seen several disturbing instances
where the Soviets have sought to gain important political and
economic leverage over the West through the use of energy exports.
The Soviets are:
o Using energy sales to the West as the centerpiece of their hard
currency earnings structure. Today oil and gas-sales account
for about 66% of total annual Soviet hard currency earnings.
o Seeking an increasingly dominant share of European gas markets
through predatory pricing practices. The Soviets probably hope
to capture as much as 50-60% of Europe's total gas demand over
the next two decades, resulting in additional crucial hard
currency earnings of, as much as $10 billion or more. (Rough
estimates based on a fully subscribed first strand of pipeline,
use of other existing pipeline capacity and a full subscribed
new second strand of the Siberian pipeline). 25X1
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2 e% logo r,4
o Seeking to expand their development of oil and gas resources
off of Sakhalin Island jointly with the Japanese (SODECO)
possibly at the expense of future U.S. LNG sales to Japan. We
also have reports that they will also be selling up to 5
million tons of metallurgical coal to Japan with initial
shipments beginning this year.
o Legally and illegally acquiring sophisticated Western oil and
gas equipment, some of which is militarily useful, by
leveraging future Soviet orders for energy-related equipment.
Using the lure of energy equipment sales to also obtain
preferential terms on credits. Much of Western sales of
equipment for the Siberian pipeline project --wasfinanced with
subsidized loans. 25X1
o Using pricing policy on gas sales to the West and the threat of
cancellation of contracts to extort greater cooperation on the
part of at least one West European government to cooperate in
resisting U.S. and/or COCOM controls on strategic technologies.
For example, a recent report reveals that the Soviets have told
the Austrians that if they continue to cooperate with the West
in restricting sensitive technology, they will double the price
of their gas exports (Austria is about 80-90% dependent on
Soviet gas supplies for its total gas requirements) and arrange
for the cancellation of two construction contracts for projects
in Eastern Europe totalling eight billion schillings.F__-] 25X1
The Soviets will continue to pursue expanded energy exports to the
West as a central component of their long term economic and
geopolitical gameplan. In most instances, the Soviets will have the
economic/commercial advantage and the ability to undercut
alternatives through predatory pricing practices and the prospect of
increased Western equipment sales and employment. The U.S.,
therefore, must continue to counter this Soviet policy with an
on-going strategy building upon the President's major achievements
in East-West economic relations over the past two and a half years.
U.S. initiatives should continue to focus on: 25X1
o Encouraging viable alternatives to Soviet gas in West European
markets even if a "security premium" is embodied in higher
prices.F_~
o Limiting oil and gas equipment and technology transfers which
give the Soviet's additional advantage/leverage in the
development of their energy resources and increased sales to
Western Europe and Japan.
o Monitoring the projected level of hard currency earnings
derived from energy sales to the West and its impact on the
Soviet ability to sustain its present global commitments. ~~ 25X1
o Assessing the degree to which Western sales of oil and gas
equipment to the Soviets are best balanced against common
Western security interests.
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o Limiting Soviet efforts to expand energy sales in the Pacific
Basin countries particularly Japan (Sakhalin project) at the
potential expense of expanded U.S. LNG sales in the next
decade.
o Monitoring Soviet energy assistance and export to Eastern
Europe and other Soviet surrogates such as Nicaragua and the
prospect of sustaining this level of assistance in the future.
o Analyzing the extent to which the Soviets would seek resources
outside its borders (i.e. intervene in Iran), if the ability to
exploit domestic reserves were, for any reason, sharply
diminished.
Suggested Terms of Reference
To better position the U.S. to curtail the Soviet strategy of using
energy sales as a geo-political weapon, major hard currency earner
and lever for the acquisition of sensitive and sophisticated Western
equipment and technology, a major effort is required to update past
assessments on:l 25X1
o Soviet Energy Prospects: This aspect of the study should
concentrate on the role of Western equipment and technology in
the Soviet effort to develop its energy resource base. The
impact of the denial of Western/U.S. equipment and technology
should be assessed with particular reference to the
approximately twenty-two items originally proposed to COCOM for
multilateral controls. This section should also include a
review of the equipment and technology most vital to Soviet
development efforts, potential military applications of such
items (i.e. single-crystal turbine blade technology), and the
possibility of establishing controls on the export of such
equipment in cooperation with our allies. In addition, the
study should attempt to assess Soviet capabilities to develop
indigenous manufacturing capacity in these critical areas and
assess the impact on the efficiency of the use of Soviet
equipment.
o Soviet Strategy to Maximize Energy Exports, Advance Soviet
Geo-political Objectives and as a Hard Currency Earner: This
aspect of the study should examine Moscow's strategy for export
maximization. It should begin with an estimate of future
Soviet hard currency requirements and the role of oil and gas
exports in achieving these targets. The impact of Soviet
barter arrangements with OPEC nations should be examined.
Soviet tactics to enlarge energy exports to Europe and the
Pacific Basin nations should also be reviewed. Finally, the
role of Soviet energy exports in maintaining relations with
client states should be assessed.
o Western Markets for Soviet Energy Sales: The energy outlook
for Europe and the Pacific Basin should be examined, with an
emphasis on likely efforts by the Soviets to further penetrate
these markets. Potential alternatives to Soviet imports and
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presented for consideration.
the costs of developing these resources should be reviewed. In
addition, European and Pacific Basin country attitudes toward
greater dependence on the Soviet Union should be covered in the
study, as well as the potential for U.S. exports to compete
with and replace Soviet energy exports. U.S. policy options to
minimize Soviet sales to key U.S. allies should also be
o European/Japanese Perceptions of Soviet Energy Trade: The true
economic benefit to Europe and Japan should be assessed,
particularly the effects on Western employment (particularly
the FRG), utilization of underused heavy industrial capacity
and the indirect subsidization of uncompetitive Western
companies for political purposes. In addition, Soviet
disinformation themes should be catalogued which are designed
to persuade Europe that, for example, the Soviets do not
urgently need energy trade with the West and that the rationale
behind U.S. efforts to restrict dual use energy equipment and
place limits on Soviet sales to the West is really only a
device to secure a preferred position for U.S. energy equipment
suppliers.
The time horizon for the studies should be for the period of
1985-2000.
During the coming year we will be having extensive consultations
with our Allies, bilaterally and within such fora as the IEA, OECD,
COCOM and NATO, and therefore timely submission of this
comprehensive update would be helpful. The Agency has been very
responsive to our need in this area in the past and we know that you
do have an accumulation of material which could be used for this
assessment. However, given the overall importance of this exercise
and the long term nature of the problem, we do not wish to set an
unreasonable deadline.
25X1
I suggest that Roger Robinson, Bill Martin and David Wigg of my
staff meet with members of OGI, SOYA, EURA to determine reasonable
deadlines and to further discuss the nature of this study. 25X1
cc: The Secretary of State
The Secretary of Commerce
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