Communism and oil

I just listened to a podcast of Marshall Goldman regarding the Russian economy.  He, like Chris Doss over at LBOtalk, emphasizes the importance of rising oil prices for Russia.

This lecture got me thinking about Peter Schweitzer, a media fellow at the Hoover Institution.  Schweitzer tells how William Casey conspired with Saudi Arabia to drop oil prices to destroy the Soviet Union.  I post the source below, but anyway, the idea occurred to me that had to Communists held on a bit longer, unit the oil price exploded, there might be only one superpower in the world — and it might not be the US.

OK.  That is a stretch, but I think it serves as an antidote to the triumphal blather about the demise of communism. 

Schweizer, Peter. 1994. Victory: The Reagan Administration’s Secret Strategy That Hastened the Collapse of the Soviet Union (NY: Atlantic Monthly Press).

31: William Casey met with Prince Turki of Saudi Arabia.  He showed him raw intelligence reports to make him fearful about Saudi security.  “What Casey was trying to do was to send a prince a message.  No single world oil producer had a greater effect on world oil prices than Saudi Arabia.”  “By raising the issues of oil pricing and the U.S. — Saudi security relationship in the same conversation, Casey was in effect saying that the two were related.  It was an element of the Reagan strategy.  “We wanted lower oil prices, “recalls Weinberger.  “That’s one of the reasons we were selling them arms”.” citing an interview with the author.


5 comments so far

  1. wellbasically on

    OT if you are listening to podcasts I have been listening to a series on the writer/thinker Karl Polanyi(sp?) author of “The Great Transformation”.

    I listen to that GBH one now and then, but the oil one looked pretty obvious but I’ll give it a try. It would be fun to discuss others though, please post when you hear one we can talk about.

  2. spencer on

    The problem with this thesis is that when you look at the world oil production data it was not Saudia oil production that caused oil prices to fall. It was an expansion of output from almost every source possible as well as the world wide recession and drop in demand. Volcker had much more to do with the fall in oil prices then Saudia.

  3. juan on

    spencer, you are correct about the recessionary context and increased non-OPEC production but, at the same time, OPEC – especially the Saudis – had been cutting production in an effort to maintain price.

    Here’s the EIA’s short note about this and the subsequent ramp:

    Faced with declining world oil demand and increasing non-OPEC production, OPEC cut output significantly in the first half of the 1980s to defend its official price. Saudi Arabia, which played the role of swing producer in the cartel, bore most of the production cuts. Saudi Arabia crude oil product, which peaked at over 10 million barrels per day for the period October 1980 through August 1981, fell to just 2.3 million barrels per day by August 1985. In late 1985, Saudi Arabia abandoned its swing-producer role, increased production, and aggressively moved to increase market share. Saudi Arabia tried a netback-pricing concept, which tied crude oil prices to the value of refined petroleum products. This reversed traditional economic relationships by guaranteeing specific margins to refiners, thereby transferring risk from the crude oil purchaser to the producer.

    In response, other OPEC members also increased production and offered netback-pricing arrangements to maintain market share and to offset declining revenues. These actions resulted in a glut of crude oil in world markets, and crude oil prices fell sharply in early 1986.

    (@: )

  4. Donald on

    \”We can\’t solve problems by using the same kind of thinking we used when we created them.\” – Albert Einstein

    Well said great fellow!

  5. Diana on

    Thanks for the ideas!

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