Vinod's Blog
Random musings from a libertarian, tech geek...
Monday, August 08, 2005 - 08:39 PM Permanent link for Reagan's Oil
Reagan's Oil

Keep stories like this in mind next time someone tries to assert that the Soviets would've fallen on their own -

The first blow was struck in May 1983, when American pressure forced the International Energy Agency to put a limit on European exports of Soviet natural gas, blocking huge sums of money from reaching Moscow. But natural-gas earnings were only a Kremlin sideshow: Russia's top engine of economic wealth was its oil industry, which generated half of its hard-currency earnings, these sources said.

By early 1983, the Treasury Department, under the direction of Casey and Weinberger, had completed a voluminous study of U.S. and Soviet energy costs. The study had discovered that the best price required by the United States for a barrel of crude oil was only $20. This was far below the $34 per barrel being charged in 1983. If oil prices came down, it would save the United States almost $72 million a year, or almost one percent of the gross national product. What would a fall in the oil price do to the Russians?

Very ugly things, it seemed. The study concluded that while a cut in oil prices would boost U.S. economic welfare, the same cut would have a "devastating effect on the Soviet economy," in the words of one former Reagan adviser. In fact, Reagan National Security Adviser Bill Clark told Schweizer that "Ronald Reagan was fully aware that energy exports represented the centerpiece of Moscow's hard-currency earnings." The energy-export industry was working at full capacity. A drop in price, and the Russians were badly lamed.

Soon U.S. officials were huddling in Geneva with the Saudi oil adviser, Sheikh Ahmed Zaki Yamani. Following the meeting, the United States announced it was cutting its oil imports from 220,000 barrels per day to 145,000 barrels. In late February, the Saudi ambassador, Prince Bandar, met with senior U.S. officials, including Casey and Weinberger, according to former Reagan officials who were involved.

Abruptly, the Saudis boosted production of oil, resulting in lower world prices. By August 1985, Saudi production jumped from 2 billion barrels a day to 9 billion. Since Saudi Arabia was the swing producer in OPEC, which used its production levels to control the market price of crude, the effect was instantaneous. In Russia, the effect was calamitous, former Reagan officials said.

My reaction?   America, f*ck yeah!  And Reagan too.  

 


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