COMMUNIST EXPORTS OF PETROLEUM TO THE FREE WORLD IN 1967 AND PROSPECTS FOR 1968

Created: 5/1/1968

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Intelligence Memorandum

Communist Exports of Petroleum to tbe Free World7 and Prospects

Secret

ER08

copy N2 38

CENTRAL INTELLIGENCE AGENCY Directorate of Intelligence May8

INTELLIGENCE MEMORANDUM

Communist Exports of Petroleum to the Free World7 and Prospects'

Summary

Exports of petroleum from the USSR and the Communist countries of Eastern Europe to tho Free World7 amounted to aboutillionith an estimated valueQ million.** This was an increase ofercent6 and was the smallest annual increase in sales to the Free Worldhen the Communist countries first became net exporters of oil.

Most of the oil exported from Communist countries to the Free World7 originated in the USSR, which emphasized sales to the industrializedof Western Europe to earn convertiblefor the purchase of Western equipment and technology. Sales to these countries increased by moreillion tonsr byercent Shipments to less developed nations of the Free World went downercent, the socond successive year of decline. Rising demand in the USSR limited the growth in the amount of

Tonnages are given in metric tons.

All referenoee to ezporte of petroleum from Communist countries refer to exports from the USSR and the Communist countries of Eastern EuropeBulgaria, Czechoslovakia, East Germany, Hungary, Poland, and Rumania.

Mote: Thie memorandum vas produced solely by CIA. It was prepared by the Office of Economic Research.

oil available for export, and there was little Soviet interest in goods that the less developed nations offer in exchange for oil. Moreover, closure of the Suez Canalesult of the Arab-Israeli crisis made it difficult for the USSR to supply certain markets east of Suez and elsewhere.

pproximatelyillion tons ofmay be exported from Communist countries to the Free World,ercent more than Someillion tons of Sovietillion tons of crude oil andillion tons of refined productsprobably will be available for export to the Free World. In addition, the Free World probably will continue to receiveillion tons of products from the Communistof Eastern Europe.

, rising demands for oil in the Communist countries will militate against anyincrease in the availability of petroleum for export. It is doubtful that exports of oil from these countries to the Free World will increase at an annual rate of moreercent. If, as is expected, demand for oil in the Free Worldthe United States) increases at an annual rate of aboutercent, the share of that demand satisfied by imports from Communist countries will decline.

It is unlikely that Eastern Europe will import large quantities of oil from countries other than the USSR. The Friendship pipeline is being expanded to facilitate movement ofamounts of crude oil from the USSR into Eastern Europe. Although some Eastern European Communist countries are seeking to diversify their sources of supply by negotiating with oil-producingof the Middle East, thus far no oil from that area has been delivered. The amount of non-Soviet oil that the Eastern European countries willmay be partially determined by the quantity of Eastern European goods that oil-producing countries of the Free World will accept in exchange. Probably no moreillionillion tons of oil from the Free World will be imported into Eastern Europe

ECRET

the USSR, thereby making possible increasedof oil and the earning of significant amounts of foreign exchange. owever, two new refineriesotal combined capacity ofillion tons per year were fully utilized for the first time. esult, the crude oil charge to Soviet refineries roseigher rate than usual,reater share of crude oil production was used to satisfy the growing domestic demand for petroleum products.

capacity in the Free World,in Western Europe, has been expanding,for imports of petroleum products isnearly as rapidly as is demand for This lack of Free World interest inproducts, coupled with the growingpetroleum products in Communist countries,the rate of increase in Communist exports

of products to slow considerably. ommunist exports of petroleum products to the Free world were onlyons greater thann increase ofercent (see This is in marked contrast to the previous five years, when the average annual increase in Communist exports of petroleum products was approximatelyercent.

Markets

of the increase in Communist salesto the Free World7 was inthe developed countries, primarily toexports to the less developed countriesfor the second consecutive year. to the developed countriesillion tons6 to moreons7 and represented aboutthe value of total Soviet exports of oil toWorld. Soviet sales to the lesswereillion tons less than Exports of petroleum products fromto the developed countriesercent higher thanhereasto the less developed countriesower. The allocation of exports ofCommunist countries is indicated intabulation:

5. 7 the USSR was able to increaseof hard currency by expanding sales to the industrialized countries. The rate of increase in sales to five Western European nationstaly, West Germany, Sweden, Prance, and Norwaywas more than three times the overall rate of increase in Soviet exports to the Free World. The extent to which the increase in exports tp industrialized countries of Western Europe resulted from the Arab-Israeli crisis cannot be determined, because the pattern of annual growth in exports to thesehas been so erratic in past years. It appears probable, however, that the reduction in exports to the less developed countries stemmed, at least in part, from Soviet unwillingness to tie up tankers on long voyages to such countries as India, Ceylon, and Burma after the Suez Canal was closed. Reduction also resulted from changes in import policies of some of the less developed countries. For example, Ghana, in an effort to secure crude oil at lower prices, switched from the USSR to Western suppliers. Its contract with the Western suppliers, which originally ran from7 toas been renewed through Consequently, Soviet sales to Ghana8 will be smaller than they have been. Argentina cut imports of Soviet petroleum products in half7esult of an increase in its own production of crude oil that enabled domestic refineries toarger share of the demand for petroleum products by processing the indigenous crude oil.

Table 1

Composition, Origin, and Destination of Communist Exports of

Million Metric Tons

Crude oil

Petroleum products

From the USSR

3

To Other Ccnmiunlst Total Countries

From Eastern Europe

Total To the to the

Free Free World World

/2

Froca the USSR

7

To Other Communist Total Countries

Total To the to the

Free Free World World

/9

0 7

the Communist countries of Eastern Europe, Cuba, Yugoslavia, Communist China,North Korea, and Mongolia. For details of Soviet exports to these countries, seeon

half of the total was supplied by Rumania, the only Eastern European Communistan exportable surplus from indigenous supplies. Other Eastern European countries derivetheir capability to export petroleum products from refining Imported Soviet crude oil.

-SECTOTT

6. boutillion tons of petroleum were exported from Communist countries to Western Europe. This amount represented an increase of moreillion tons over the level6 and constituted aboutercent of total Communist exports of oil to the Free World. These exports to Western Europe representedercent of that area's rising total demand, an only slightly larger share thanercent recorded. Italy, West Germany, and Finland received significantly larger amounts of oil from Communist countries7 than Thoy imported half of all the oil sold by Communist countries to the Free World7 (see TableThe United States imported two tanker loads of low-sulfur fuel oil from Rumania, the first oil that it had purchasedommunist country since

9 .

7. Oil from Communist countriesoro than half of the petroleum consumed in Somalia, Finland, Iceland, Afghanistan, Ghana, Ceylon, and Yemen, but, except in the case of Finland, the quantities were not large. illion tons of oil were exported from thecountries to less developedillion tons less than Sales bycountries to Argentina. Brazil, Burma, Ceylon Ghana, and Greece were lower than After the Arab-Israeli clash inhe USSR raised the price of crude oil offered to Brazil forduring the period7 torazil refused to pay the higher price, and Soviet shipments were suspended. ew Soviet offer toillion worth of oil to Brazil during the period8 to9 is now under

Prices

8. Prices charged by the USSR for its exports of petroleum vary according to the class of the recipient nation. In general, the highlydeveloped countries are charged the lowest prices, comparable to world market prices, because their convertible currencies are of value to the

Committ Export* of fttroleum to tba Free World7

Thousand Motrin TonB

Petroleum Product0

Percent ofwanc

Destination

98

Crudethe

Eastern European

Total

the USSR the USSR Coaaunlat Countries Total

A

Europe

Germany

l naryerWe3 primarily from infomttlon on tanker movenents and froaImport data.

asteriskeat developed country; all others are developed countries.

e. If the demand of countries that do not Import petroleua from Communist countries. It Included, the share of Communist oil in Free World demand, excluding that of tbe United States, laercent, as it has been for several years.

Ooranitt Exports of Petroleum to the Free7 Continued)

Th cmsand Metric Tons

Petroleum Products

Crudeof

Eastern Recipient's

the USSR the USSR Communist Countries Total Petroleum Is mend

United Kingdom

East

Arab Republic*

Communist Exports cf Eetrcleun to the Free7 (Continued)

Thousand Metric Tons

Petroleum Products

Crudeof

Eastern Recipient's

Pastiest the USSR the USSR Communist Countries Tctal Pet role

Morocco*

1

America

2:

USSR in the purchase of modern technology and equipment. The less developed countries, and the developed countries that deal in nonconvertible currencies, are charged higher prices because the goods that they offer in exchange for oil are not in great demand in the USSR. Other Communistare charged the highest prices, but theindicated by these oil prices may be more apparent than real, as the prices of goods traded for Soviet oil are also inflated. The average prices charged by the USSR for crude oil exported to the various classes of customersre compared graphically in Figure 2. On the basis of prices charged for crude oil and products exported from the USSR6rice data are nothe value of Soviet exports to the Free World7 is estimated at0 million. Of this amount, approximatelymillion was in hard currency.

AVERAGE PRICES' OF SOVIET CRUDE OIL EXPORTS

RUBLES PER METRIC TON

20r-

To Communil! Counlrici'*

16

'.4

Soft Current/ Counlrlet of the Free World

tha 5ov>oi boid*'

IA

Method of Delivery

9. At leastercent of the petroleumby Communist countries to the Free World7 was shipped in oceangoing tankersmore than half in Communist-owned vessels. Of the total exports of aboutillion tonsore thanillion tons were shipped from Black Sea ports and almostillion tons from Baltic Sea ports. The quantity of petroleum exported from Black Sea ports wasillion tons less thannd the share of these ports ;in total exports dropped fromercent6 Tanker shipments from Baltic ports, however, rose by about one-third6 and accounted for aboutercent of total petroleum exported to the Free World. The importance of the Baltic ports, primarily Ventspils and Klaipeda, has been rising steadilyhen exports from these ports began. They are economical andpoints for shipment to countries of northern Europe and Scandinavia that have been importingquantities of Soviet petroleum in recent years. These ports have been expanded, and,esult of the completioninch crude oilfrom Polotsk to Ventspils inxports of oil from the Baltic should increase,

10. illion tons,ercent of total exports of petroleum to the Free World, were shipped from Soviet Far Eastern ports. Theent,illion tons. Was moved by rail and barge. The following tabulation shows the estimated movement of petroleum to the Free World

Prospects

substantial change is anticipated inrate of increase or in the compositionof oil from Communist countries toWorld Soviet plans call forofillion tons in the productionoil With the past record ofit is probable that theillion tons. Plans also callcrude oil charged to refineries8 tomillion tons more than Thus theSoviet crude oil available for export will be

7 million tons greater8 than Of this additional crude oil, atillion tons are already committed to other Communist countries, ^and lessillion tons will be available for export to the Free World. Total exports offrom Communist countries to the Free World8 may reachillionercent more than Included in this estimate of total exports areillion tons of crude oil andillion tons of petroleum products from the USSRillion tons of products from the Eastern European Communist countries. It is expected that exports of petroleum from Communist countries to the Free Worldill increase at an annual rateercent.

The trend of exporting available oil to hard currency countries, in preference to less developed countries that offer nonessential goods in exchange, probably will continue. Formation7oviet-Belgian marketing company,n Antwerp and attempts by Naftao market petroleum products directly in the United Kingdom tend to strengthen this opinion.

During thehe demand for petroleum in the Free World, excluding the United States- will increaseate of aboutercent. If exports of petroleum from Communist countries to the Free World increaseate ofercent, the Communist countries will not be able

to maintain theirercent share in the Free World market.

-SECRET

14. The ability of the Soviet Union to expand exports of oil to the Free World will be limited by production, by the growing demand for petroleum within the USSR, and by Soviet commitments to supply larger quantities of oil to other Communist countries, especially those of Eastern Europe. Soviet exports to other Communist countries67 are shown in the following tabulation:

Htllion Ton a

ea

Products

Oil

Products

Europe

T

5.2

China North Vlotnsji

0

0.2

0.2

0

n ?

Xorea

m

0.4

7

hen the USSRillion tons of crude oil, it exported almostillion tons of petroleum. Of this amount, aboutillion tons were shipped to other Communistillion tons to Eastern Europe. The oviet plan for production of crude oil0 isiHion tons. In that year the USSR mayillionillion tons of crude oil and petroleumillion toillion tons to other Communist countries and aboutillion to the Free World. It is anticipated thatoviet exports to Communist countries other than those in Eastern Europe will remain at about the same level as during the past two years. Plans and agreements already exist whereby the Communist countries of Eastern Europe will import nearlyillion tons of crude oil from the USSR It is estimated that in that year these countries will also produce aboutillion tons of crude oil, import about 5tons of petroleum products from the USSR, and

procureillionillion tons of crude oil from other sources. About half of this non-Soviet oil probably will be imported by Rumania, which until the present has always met its own needs for crude oil and haset exporter of pe troleum products.-

15. The above plans and estimates of imports by Eastern European Communist countries are compatible with plans for expansion of pipeline and refining facilities. The Friendship crude oil pipeline system, which links Eastern Europe to the oilfields of the Urals-Volga region in the USSR, is being expanded to facilitate increased deliveries. This system is now operating near its capacity as originally designed,illionillion tons through the northern branch to Poland and East Germanyillion tons through the southern branch to Czechoslovakia and Hungary. econd line, parallel to the first, is to be laidthe entire system which eventually will have an annual capacity of aboutillion tons. This capacity probably will not be fully attained until thes. The laying of the second line has been completed within Czechoslovakia, and work is in progress in the USSR. Larger pipe has been laid on the second strand than was used for the first, and the combined capacity of the southern branch probably will be aboutillion toillion tons per year when all pumping stations are installed No such quantity of imported oil is yet required by Czechoslovakia and Hungary, and on the basis of plans for expansion of refining capacity it does not appear that the new portion of the southern line will be fully utilized until owever, the capacities of refineries served by the southern branch of the line are to be expanded byillion tons and the capacities ofserved by the northern branchillionillion tons. Czechoslovakia and Poland have agreed to provide equipment for Soviet industry in return for increased deliveries of Soviet oil after

16. Bulgaria, which now receivesillion tons of petroleum from the USSR by sea, plans0 toillion tons of refining

capacity and to increase its annual imports of petroleum by atillion tons. TheEastern European Communist country, Rumania, plans to add atillion tons of refining capacity Indigenous production of crude oil is not expected to increase rapidly enough to utilize this new capacity fully, and Rumania has been exploring possibilities for obtaining oil from tho Middle East. It has concluded an agreement toillion tons of crude oil from Iranthend has engaged in discussions with Saudi Arabia and Kuwait. Other Eastern European countries, in an effort to diversify sources of supply, also have made or arc seeking to makewith Iran for crude oil. To data, none of thc Eastern Europoan countries has taken delivery of any Iranian oil, probably because of the prohibitive transport costs caused by tho closing of the Suez Canal. The quantity of non-Soviet oil that Eastern Europe can obtain may also be limited, in part, by the willingness of Free World countries to accept Eastern European goods in exchange.

-ECRET

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