INTELLIGENCE MEMORANDUM SOVIET CAPABILITY TO ABSORB MIDDLE EASTERN OIL

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700030112-3
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• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 22, 2016
• Document Release Date: January 18, 2011
• Sequence Number: 112
• Publication Date: July 1, 1972
• Content Type: IM

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DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Soviet Capability to Absorb Middle Eastern Oil
Secret
ER IM 72-112
July 1972
Copy No-.
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WARNING
This document contains information affecting the national
defense of the United States, witl'in the meaning of Title
18, sections 793 and 79.4, of the US Code, as amended.
Its transmission or revelation of its contents to or rc-
c:eip'. by an unauthorized person is prohibited by law.
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
July. 1972
INTELLIGENCE MEMORANDUM
SOVIET CAPABILITY TO ABSORB MIDDLE EASTERN OIL
Introduction
1. Oil producing countries of the Middle East and North Africa are
seeking to control a greater share of their oil industries. Negotiations
currently are under way betweei Western oil companies and the
Organization of Petroleum Exporting Countries (OPEC) on implementhng
20% participation by OPEC members in oil company operations within their
borders. Indeed, some oil producing countries already have taken unilateral
action to achieve control. In April 1971, Algeria legislated a controlling
interest over its entire petroleum industry. More recently Libya nationalized
British Petroleum's (BP's) share of the Sarir oilfield and related facilities
and Iraq nationalized the Iraq Petroleum Company's (IPC's) Kirkuk oilfield
and related facilities. BP's share of the output of the Sarir field has been
about 11 million metric tons per year - 225,000 barrels per day (bpd) --
and until April 1972 the Kirkuk field was producing at a rate of 50 million
to 60 million tons per year (1.0 million to 1.2 million bpd). The key factor
for the oil producing countries in seeking to gain control over their industries
will be the ability of their national oil companies to market increasing
quantities of oil.
2. The USSR has procured small quantities of crude oil from Egypt,
Algeria, and Syria - some 3 million tons in 1971 - and has agreed to
take 1 million tons from the North Rumaila field in Iraq in 1972. Almost
all of this oil has been, or will be, shipped to foreign markets on Soviet
account, primarily to other Communist countries. In recent weeks the USSR
has agreed to acquire some 2 million tons (40,000 bpd) of Sarir crude
oil during the next 12 months. Even more recently, the USSR and Iraq
have signed an agreement on development of trade and economic relations.
The details of this agreement have not been made public, but the Western
press has speculated that perhaps the USSR has agreed to help market some
of the Kirkuk oil.
3. This memorandum examines the capability of the USSR. to
consume or market Middle Eastern oil (a) in the very short run, (b) within
two or three years, or (c) by the end of the 1970s.
Note: This memorandum was prepared by the Office of Economic Research.
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4, The USSR can be expected to seek political or economic
advantage from the difficulties of international oil companies in the Middle
East. However, its ability to import for domestic purposes or to market
large quantities of Middle Eastern oil in Ea sterit or Westi,rn Europe in the
next few years is not great.
5. Within a year the USSR might be able to import up to 5 million
tons (100,000 bpd) of Middle Eastern oil and to market an additional 5
million tons in other Communist countries. By 1975, Soviet facilities
probably could be constructed that would enable the USSR to import some
10 Trillion tons per year (200,000 bpd) and possibly market an additional
10 million tons in other Communist countries. Western countries probably
would not import sizable quantities of Middle Eastern oil with the USSR
serving as broker. In any event the quantities of Middle Eastern oil that
the USSR could acquire for any purpose would be small when compared
with the present total Middle Eastern output of some 900 million tons
per year (almost 18 million bpd) or even with the 80 million tons produced
annually in Iraq.
6. The principal short-term constraint on the ability of the USSR
to import Middle Eastern oil is the capacity of Soviet ports and distribution
facilities. The ports have been geared to exports, not imports, and there
is little excess capacity in storage, pipeline, and port handling facilities.
As a result the system lacks flexibility, and a sizable import capability could
not be developed for three or four years without sacrificing export
capability.
7. Tanker capacity would not be a limiting factor in Soviet transport
of Middle Eastern oil in the short run. Although the Soviet tanker fleet
is fully committed in present oil trade, it could be supplemented by
chartering non-Communist tankers, which are readily available.
8. In view of the USSR's continuing need for foreign exchange, any
reversal of its position as a net exporter in the next two to three years
is most unlikely. The volume of net exports has increased steadily, reaching
some 100 million tons per year (2 million bud) in 1971. Exports to the
industrialized West - about 40 million tons at present - have become the
largest single source of foreign exchange for the Soviet Union. Although
serious problems in production must be overcome, through 1975 the USSR
should be able to meet its own growing requirements for oil, supply most
of the oil consumed in Eastern Europe, and still be able to export 45 million
to 50 million tons per year to non-Communist countries.
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9 In the longer term the problem becomes one of basic Soviet oil
policy. Trends in Soviet oil production and consumption in the late 1970s
are uncertain because of unresolved technical problems, high development
and pipeline costs, and lack of a firm long-term plan for energy production
and use. By 1980, Soviet production may not be sufficient to maintain
a high level of exports to non-Communist countries while satisfying the
growing needs of the USSR and other Communist countries. In such a
situation, larger quantities of Middle Eastern oil - perhaps 30 million to
SO million tons -- could be acquired to help meet Soviet and East European
needs.
Background
10. The USSR is second only to the United States as a producer
of crude oil in the world, and exports annually the equivalent of more
than one-fourth of its oil output. In 1971, Soviet production was about
372 million tons (7.4 million bpd), some 15% of total world production
and 23 million tons more than in 1970. During the 1960s, annual increases
in production averaged nearly 20 million 'tons. In 1975, oil production is
scheduled to reach 496 million tons (9.9 million bpd), a level that will
require an average annual increase of 31 million tons during 1972-75. Most
of the increase in oil production is to come from deposits in West Siberia
and Central Asia; these deposits are costly to exp'oit because of the difficult
climatic and terrain conditions involved and their remoteness from centers
of consumption. Development of these resources will require modern
technology and equipment, much of which may have to be imported from
the West.
11. Since the mid-1950s the USSR has been a net exporter of oil.
Exports rose from 8 million tons in 1955 to an estimated 101 million tons
in 1971. This latter figure excludes some 3 million tons of crude oil
obtained from the Middle East and North Africa and re-exported to other
Communist countries on Soviet account. In 1971, approximately 55 million
tons of oil were exported to other Communist countries, primarily Eastern
Europe, and some 46 million tons to non-Communist countries
(see Table 1). Deliveries to non-Communist countries had an estimated value
of some $685 million, of which about $460 million was hard currency.
Oil exports are the largest single source of foreign exchange for the USSR.
12. The Soviet position as a growing exporter of oil apparently has
had no adverse effect on meeting the' basic needs for oil at home. Although
periodic shortages occur because of unusual seasonal demands, the overall
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Soviet Exports of Oil a/
1971
Million Metric Tons
Crude Oil
Petroleum
Products
Total
Total 770.6
.29 9
100 6
Non-Communist
26.1
20.0
46.2
Western Europe
23.0
16.2
39.2
Middle East
1.7
1.9
3.5
Africa
1.0
0.4
1.4
Asia
0.5
1.5
2.0
North America
0
0.1
0.1
Communist
44.5
9.9
54.4
Eastern Europe
39.2
5.5
44.7
Far East
0.1
11.5
1.6
Cuba and
Yugoslavia
5.2
2.9
8.1
a. These data exclude oil procured by the USSR--
from non-Communist countries and re-exported on
Soviet account; such oil is excluded in official
Soviet trade statistics. As part of an oil swap
between the USSR and the British Petroleum Company
(BP), some 800,000 tons of Soviet crude oil is
being delivered to Sweden in exchange for a simi-
lar amount of BP oil (from Abu Dhabi) delivered
to Japan. on Soviet account. Because of rounding,
components may not add to totals shown.
sapply is adequate. Apparent domestic consumption is estimated to have
been about 270 million tons in 1971 (5.4 million bpd) and should rise
to about 36G million tons by 1975. Annual increments in consumption,
which in recent years have averaged about 15 million tons, probably will
increase to more than 20 million tons.
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Soviet Options in Disposing of Middle Eastern Oil
13. If the USSR were to acquire some Middle Eastern oil, its options
would be (a) to use the oil domestically, (b) to ship it to Eastern Europe,
(c) to attempt to market it in the West, or (d) a combination of these
courses of action. Technical and economic constraints limiting Soviet ability
to dispose of such oil would be considerably greater in the short run than
in the long run.
Short-Term Technical Constraints
14. Most Soviet oil ports are believed to be operating at or near
capacity, and it is doubtful that within a year they could accommodate
imports of more than 5 million tons while maintaining present export levels.
By 1975, capability probably could be extended to import some 10 Million
tons per year of Middle Eastern oil. The quantities mentioned would
represent only 10% to 20% of the annual output of the Kirkuk field alone
and are insignificant when compared with the present total yearly output
of some 900 million tons in the Middle East.
15. Some 48 million tons of oil were exported from the Black Sea
in 1971 (see Table 2), mostly from four ports: Odessa, which is supplied
by rail and barge, and Novorossiysk, Tuapse, and Batumi, which are supplied
by pipeline and rail (see Table 3 and the map). Novorossiysk is the only
Soviet oil port capable of handling tankers of up to 80,000 deadweight
to-is (DWT). None of the others can handle tankers larger than 50,000
DWT. In the Black Sea area an estimated 2 million tons of storage capacity
(14 million barrels) is located in 18 different sites and is divided perhaps
about equally between crude oil and refined products.
Table 2
Method of Delivery of Soviet Exports of Oil
1971
Million
Metric Tons
Percent
Tanker
Black Sea
48
47.5
Baltic Sea
20
19.8
Far East
2
2.0
Pipeline
21
20.8
Rail and barge
10
9.9
Total
101
100.0
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Black Sea area
Soviet Pipeline Network for Oil Export
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Capacity
(Million
Length Diameter Metric Tons
(Miles)
(Inches) Per Year)
Baku-Batumi
500
28
14-17
Malgobek-Tikho-
retsk
310
28
14-17
Tikhoretsk-
Novorossiysk
155
21
6-8
Tikhoretsk-Tuapse
150
21
6-8
Kremenchug-
Kherson
190
28
14-17
Baltic Sea area
Polotsk-Ventspils
Crude
310
21
6-8
Products
310
21
6-8
Eastern Europe
a. Diameter of e second section of line, now
under construction.
b. Capacity of the second section.
Friendship crude
oil pipeline system
Kuybyshev-
Unecha 797
40
35-45
48 a/
52-80 b/
Unecha-Mozyr' 181
32
20-24
Mozyr' -flock 431
24
10-12
28 a/
14-17 b/
Plock-Schwedt 284
20
6-3 -
24 a/
10-12 b/
Mozyr'-Uzhgorod 454 24
10-12 -'
28 of
14-17
Uzhgorod-
Bratislava
256
21
6-8
28 a/
14-17 b/
Sahy-Szazhalom-
batta
83
16
3-4
Sala-Zaluzi
260
16
3-4
Schwedt-
Rostock
126
16
3-4
Schwedt-Halle
210
20
6-8
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Oil Producing Areas of European USSR and Eastern Europe
... Oil Pipeline.
^- Oil Pipeline
Under Construction
Al Oil Refinery
Oil Producing Reglor
Yaroslavl'
f1i
Moscrw'
Un
~'Unecha
Kremenchug
TURKEY
YUGOSL,W
dessa~ Astrakhortl
H~ 7ikhorelsk
NovorosslysI?
Tuapse~
i CYPRUS ----f
LEBANON
A .
ISRAEL
L
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16. Ventspils and Klaipeda are the main oil export ports on the Baltic.
In 1971, about 20 million tons of oil were shipped from these port;,
approximately 20% of total Soviet exports of oil in that year. Ventspils
is served by two pipelines and Klaipeda by rail. There is a total of about
600,000 tons of storage capacity (4.5 million barrels) in five sites in the
Baltic area.
17. The Soviet tanker fleet is fully committed at present. Soviet
vessels deliver most :,i the oil shipped by sea to other Communist countries
and about half of the oil exported to non-Communist countries.
Non-Communist tankers, most of them owned or chartered by importers,
carry the other half of the Soviet'oil moved to non-Communist countries.
The availability of tankers, however, is not a constraint on Soviet movement
of domestic oil or Middle Eastern oil in the short run, as non-Communist
tankers are readily available for charter.*
18. Even if sufficient port capacity were available to handle large
amounts of Middle Eastern oil, internal distribution of the oil would be
a problem. At present, the Soviet oil pipeline network is designed for
distribution of domestically produced oil within the Soviet Union and for
export. Approximately 30 million tons of crude oil and 15 million tons
of products can be delivered to the Black Sea area by existing pipelines.
Part of this pipeline capacity is used to supply crude oil to the refineries
on the Black Sea. These refineries now have a combined capacity of only
about 7.5 million tons per year (150,000 bpd) and hence would not be
capable of processing any sizable quantities of Middle Eastern oil. Some
15 million tons of petroleum, divided' equally between crude oil and
products, can be delivered by pipeline to Ventspils on the Baltic. Thus,
if the direction of flow of all existing pipelines to the port areas - including
proc'-ict lines - were reversed, they could carry up to 60 million tons of
imported oil. Such reversal is not an easy matter. Moreover, present lines
in the Black Sea area could only carry oil inland to three major refinery
complexes that are located near important producing fields and that are
now equipped to process, local crude oils having a lower sulfur content
than Middle Eastern oil. A shift to Middle Eastern oil would cause serious
dislocations in the distribution system.
* As of the end of 1971, the USSR had 185 tankers with a total capacity of some
4.3 million DWT, the equivalent of 300 T-2 tankers, or approximately 2.5% of the
world tanker fleet capacity. The entire Soviet tanker fleet could move 100 million to
120 million tons of Mediterranean oil to the ;91ack Sea and 20 million tons of oil
per year from the Pertiian Gulf to the Black Sea or to southern Europe via the Cape
of Good Hope (perhaps 50 million tons if the Suez Canal were in service).
Non-Communist tankers with a capacity of some 10 million to 20 million DWT are
reported to be readily available for charter. 'Chartering these tankers would increase
the Soviet capability for movement of oil by tanker by two to four times.
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19. Use of the Friendship oil pipeline system to supply Middle Eastern
oil to Eastern or perhaps Western Furope would entail even greater
dislocation. The capacity of the lines from Mozyr' in the USSR - the most
logical entry point for Middle Eastern oil - to Eastern Europe is now about
21 million tons per year and is expected to reach 50 million tons by
1975-76. All of this capacity is fully committed to supplying Eastern
Europe. Although only a small (perhaps 10% to 15%) of the Soviet tank
car park would be required to move 50 million tons of oil from the Black
Sea to the Friendship line, such use of facilities would make little sense.
The capacity of the Black Sea ports would be slogged with imports, leaving
little or no capability for export other than from the Baltic.
20. The simplest method of supplying Middle Eastern oil to Eastern
Europe would be by tanker to Romania and Bulgaria on the Black Sea
and to East Germany and Poland on the Baltic. In addition, delivery of
Middle Eastern oil to the landlocked countries of Hungary and
Czechoslovakia could be made through Yugoslavia via a pipeline that now
is scheduled for completion within two to three years, and that ultimately
is to have a capacity of about 20 million tons. Such deliveries of Middle
Eastern oil to Eastern Europe would leave the Friendship pipeline and Soviet
port facilities available for exporting Soviet oil. Middle Eastern oil
transported to Eastern Europe in amounts greater than now planned could
be substituted for Soviet oil, which, if market conditions permitted, could
be exported to non-Communist countries. However, market conditions that
would make oil delivered via the Friendship pipeline economically
competitive in Western Europe are not likely to aAse.
Short-Term Economic Constraints
21. The Soviet oil that has been successfully marketed in Western
Europe has been shipped by tanker from the Black Sea or the Baitic.
Delivery via the Friendship pipeline would be considerabiy more expensive
than by tanker, and West European countries would purchase such oil only
if they could not get Middl. Eastern oil. Moreover, use of the pipeline
for exports to the West rather than for export to Eastern Europe would
constitute a major change, which the USSR might be reluctant to make.
It has poured large investments into developing the system partly to forge
closer ties between the East European and Soviet economies.
22. Oil producing countries in the Middle East undoubtedly wish to
receive as much hard currency for their oil as possible. The Soviet Union
would be unwilling to pay for significant quantities of Middle Eastern oil
with hard currency, and the producers would not accept large amounts
of Soviet goods and/or technical assistance as payment. Western countries
that import Middle Eastern oil would not pay the USSR to act as middleman
in delivery of oil from the Middle Eastern producers. The consuming
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countries probably would reach agreement with the Middle Eastern countries
and receive oil directly from the producers before allowing a third party -
especially the Soviet Union - to intervene in this extensive oil trade.
23. Eastern Europe has even more limited capability than the USSR
to pay for Middle Eastern oil with hard currency. Most of these countries
have agreements with such Middle Eastern oil producing countries as Iran,
Iraq, and Syria to import small quantities of oil during the next several
years with payment to be made in East European goods and technical
assistance. The quar-tity of such goods and services that the eil-producing
states would be willing to accept probably would not be great, as they
have long been accustomed to payment in hard currency and to purchasing
higher quality Western goods.
Short-Term Prospects
24. Although there are serious problems to be overcome, the Soviet
goal for production of 496 million tons of oil in 1975 probably can be
achieved. If it is, Soviet supplies will be adequate to meet domestic needs,
to provide some 80 million tons to other Communist countries, and to
export some 50 million tons to non-Communist countries. In view of this
export surplus, little reason exists to expect the USSR to import for its
own use any sizable quantities of Middle Eastern oil within the next two
or three years. It might, however, be able to market 5 million tons of
Middle Eastern oil in Eastern Europe within a year and to expand such
deliveries to some 10 million tons per year by 1975. It is unlikely to
attempt to market Middle Eastern oil, either in Eastern Europe or in
non-Communist countries, under conditions that would reduce its net
earnings of hard currency.
Long-Range Prospects
25. Soviet policy currently is directed tiward maintaining
self-sufficiency in petroleum. Plans call for the development of extensive
deposits of oil in Vest Siberia, and- a recent effort to interest US and
Japanese firms in cooperating in their exploitation indicates a Soviet desire
to continue to increase domestic output in the future. In the long run,
the extent of Soviet interest in Middle' Eastern oil will depend on the su.. cess
a( ieved in developing indig"nous petroleum resources. The di frcult
technical problems that must be overcome in developing the oil reserves
of West Siberia and Central Ash suggest that unless there is heavy investment
in modern technology and equipment - and pehaps participation by
Western oil companies - production may not grow rapidly enough to keep
pace with the growing demands of the Soviet and East European economies
and at the same time to maintain a high level of exports to non-Communist
countries. Should this be the case, the USSR and/or Eastern Europe might
seek to acquire Middle Eastern oil, but the amounts, perhaps 30 million
to 50 million tons, ? would be very sm