In 1979, the Soviet Union was the world's leading producer of oil,
pumping 11.5 million barrels of oil 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.
## Western Siberia
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 5 times the size of Texas.
About a third of the area is potentially oil-bearing,
nearly 1 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.
60-70% of the area are swamps and lakes. There is no regular water supply. For nine or
ten months of the years, those lakes freeze to their very bottoms.
Needless to say, this 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 Urengoy gas field and
Russia’s biggest oil field Samotlor. 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.
## Convinced
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-Ural 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 Volga-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 so much about 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-Ural oil fields 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% - 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 save Romania depended on the Soviets for their energy.
These oil and gas deliveries were made through extensive cross-country pipelines named
Druzhba or "Friendship" and Bratstvo or "Brotherhood".
## Pushing Forward
In January 1968, Soviet Premier Aleksei Kosygin visited the Tiumen - sometimes
also spelled with a “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 Shcherbina.
Shcherbina would later gain
lasting renown as the guy in charge of managing the Chernobyl crisis in 1986.
He was played by Stellan Skarsgard in the 2019 HBO TV mini-series.
Were it not for the whole Chernobyl meltdown thing, Shcherbina would be
more well known as the founder of the West Siberian oil and gas industry.
## People
West Siberia presented a serious development challenge.
People. Baku had already a growing urban area surrounding it.
The Volga-Urals had seen a population surge because of the War.
But hardly anyone lived in West Siberia. So developing the area meant
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 the 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 1.5-1.7x 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 in 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.
## Growth
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. And 1977, an insane 211 million tons.
By 1973, a total of 113 oil fields had been discovered. Five billion-ton super-giant oil
and gas fields were discovered from 1965 to 1973, including the aforementioned Samotlor.
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 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 pipeline so fast
was that they completely disregarded ecology. Wastewater pollution,
torn up swaths 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.
## Customers
West Siberia's oil dominance found the right customers at the right time.
International conflicts throughout the 1950s and 60s proved 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%,
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.
## Geopolitics and Detente
These agreements soon led to others. Throughout the 1970s as part of detente,
the Soviet Union reached out to various countries of the West
to strike economic partnerships - even the United States.
In 1972, the US and the Soviet Union agreed on a potential energy deal - "North Star". Here,
Soviet natural gas would be liquefied and shipped
over the Barents 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 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 Soviets' reputation as
an erratic trade partner, many of these energy relationships remain to this day.
## The Empire's Downside
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 COMECON, or CMEA. I will use CMEA since Comecon 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 "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-bloc
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 "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 socioeconomic repercussions,
especially as the satellites found themselves increasingly indebted to Western creditors.
## Good Money After Bad
People and policymakers 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% a year.
Between 1971 and 1978, that average rate had fallen to just
6.2%. The Soviet oil juggernaut was showing signs of sputtering.
By 1981, the country's total oil growth rate had fallen to under 1%.
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 Samotlor-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.
## Consumption
What all of 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 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% 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.
## Collapse
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.
All in all, oil prices fell from $27 a barrel ($67 in 2021 dollars) to below $10 ($25, 2021 prices).
Now, all the investment the Soviets put into oil suddenly started turning
a loss. Foreign currency earnings from oil and gas sales evaporated,
paving the way for the debt crisis that dissolved the Soviet Union a few years later.
## Conclusion
The Soviets perhaps would have been better off in
the long run had it never exploited the oil and gas of West Siberia.
High energy revenues papered over the need for much needed reforms in the Soviet economy.
No need to improve domestic agriculture if oil money paid for meat and butter from the West.
No need to make your own computer if you could just buy them from the West.
Energy did and did not destroy the Soviet Union.
It was the pillar that kept the Soviet house standing for far longer than it should have.
It was also the crutch that weakened the country's ability to stand up on its own.
The legacy of the Soviet energy superpower and
its influence on European and Asian politics continues on to this day.