Three Takes on the Manipulation of Oil Prices. #3

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

The author is a media fellow at the Hoover Institution with good access to many of the key sources.

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.

140-1: “In early 1983, the Treasury Department concluded a massive secret study on international oil pricing. Treasury often did reports on such subjects, but this one received considerable interest at the NSC. Bill Casey and Caspar Weinberger also reviewed it. The study took six months to write and was hundreds of pages long; it was an impressive compilation of data. World oil prices were an important determinant of both U.S. and Soviet economic health. But exactly how significant were they to each superpower?”

141: “The report argued that the optimum oil price for the U.S. was approximately $20 a barrel, well below the 1933 price of $34. At the time the United States was spending $183 billion on 5.5 billion barrels of oil a year. Of that, imports amounted to 1.6 billion barrels. A drop in international markets to $20 a barrel would lower U S. energy costs by $71.5 billion per year. That was a transfer of income to American consumers amounting to 1 percent of existing gross national product. “Lower oil prices were basically like a tax cut,” recalls Weinberger [in a personal interview with the author].

14l: “While the effects for the United States were unambiguously good,” dropping oil prices would have a “devastating effect on the Soviet economy.” The report noted Moscow’s heavy reliance on energy exports for hard currency. By Treasury Department calculations, every one dollar rise in the price of oil meant approximately $500 million to $1 billion extra in hard currency for the Kremlin.”

143: “Anything that could be done to suppress prices was being pursued.” The U.S. pressure in Britain to increase North Sea oil production, arguing that high oil prices would lead Europe to switch from oil to natural gas from the Soviet Union. The U.S. also stopped purchasing crude for the Strategic Petroleum Reserve.

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