The most important purchaser by physical volume and market share was Italy. According to Gurov’s calculations, Soviet oil accounted for 48 percent of Italy’s total oil imports during the ten-year period from 1925 to 1935. In addition to their economic significance, these exports took on political importance after Mussolini became prime minister in 1922 and dictator in 1925. In other words, politics, at least in this instance, was no barrier to export. Only in 1938 and 1940 did the Soviet Union refuse to export petroleum to Mussolini’s fascist government.49 The Soviets were only slightly more discreet in selling petroleum to Hitler’s Germany. Sales remained at the relatively constant level of 400,000–500,000 tons until 1936.50 Exports to Germany then fell to about 350,000 tons in 1936 and to 275,000 tons in 1937. In 1938 and 1939 they dropped to almost nothing but shot back up to 657,000 tons in 1940 after the signing of the Nazi-Soviet Pact. In fact, in 1940 Soviet sales to Nazi Germany accounted for 75 percent of all Soviet petroleum exports that year.
PETROLEUM AND THE SOVIET BALANCE OF TRADE
Given their magnitude, Soviet petroleum exports were important not only for the purchaser but also for the Soviet balance of trade. Whereas before the revolution petroleum exports at their peak accounted for 7 percent of Russia’s export earnings, in 1932 Soviet petroleum earnings generated 18 percent of total Soviet export receipts. That was a pre–World War II record. Exports in that record year amounted to 6.1 million tons and accounted for 29 percent of total production. Soviet net exports of petroleum far exceeded American net exports in 1932–1933. It should be pointed out that while the 18 percent share of oil exports in overall Soviet export earnings was due in part to the increase in the physical volume of petroleum exports, it was also due to the sharp fall in Soviet grain exports. Forty years earlier, when Russia was the bread basket of Europe, grain exports accounted for 70 percent of national export earnings. However, by the twentieth century, Russia’s role as a grain exporter had diminished so much that grain generated only 53 percent of the country’s export earnings. Then with the advent of communism and collectivization in particular, grain never again accounted for as much as 22 percent of the export volume. On those rare occasions when the Soviets were able to export grain, these exports seldom amounted to more than 10 percent of the country’s overall total export revenues.
Important as petroleum was, however, it was not as crucial as some observers thought. Sutton, for example, mistakenly asserts that petroleum exports “became a significant factor in Soviet economic recovery, generating about 20 percent of all exports by value; the largest single source of foreign exchange.”51 In fact, in 1928 petroleum accounted for only about 14 percent of all earnings.52 Moreover, the relative earnings of timber exports exceeded those of petroleum throughout the 1920s and 1930s, often by a substantial margin. For that matter there were years such as 1922–1923, 1926–1927, 1930, 1931, 1937, 1938, and 1940 when grain earned more than petroleum despite poor harvests and widespread famine.
The fall-off in petroleum exports after 1932 was due to the depression that afflicted all exports. From a peak of 3.2 billion rubles in 1930, Soviet export revenues fell to 2.8 billion rubles in 1931 and kept falling yearly (except for 1937) until they reached a mere 462 million rubles in 1939. (All trade figures cited here are stated in terms of constant 1950 ruble prices.) Reversing the trend, export revenue rose briefly in 1940, but this was a by-product of the Nazi-Soviet Pact. Because of the increase in the sale of petroleum to Germany, exports to Germany amounted to 50 percent of all Soviet exports (including petroleum) that year. In part, some of the reason for the drop in exports was that the Soviet Union began to need more of its raw materials for its own domestic production needs. More important, Soviet efforts were undercut by the collapsing economies of their customers. Depression may be a capitalist disease and it may have had no ostensible effect on the internal workings of the Soviet economy, but there is no denying that a depression of this length and magnitude was bound to have a devastating effect on the world demand for raw materials. This in turn affected Soviet petroleum export earnings. The Soviets quickly realized that they were exporting more but earning less. Thus, while 4.7 million tons of petroleum exports earned them 548 million rubles in 1930, two years later in 1932 when they increased export volume to 6.1 million tons, they generated only 375 million rubles in revenue.
It would take more than twenty years before the volume of Soviet petroleum exports would exceed the 1932 level. While production continued to expand, at least until the chaos of World War II, Soviet authorities began to direct more and more of the country’s production inward. This was partly because of the realization that exports could be sold only at a low price and partly because the growing Soviet economy came to need more and more petroleum at home. Soviet planners also had to deal with a drop in yield at the Baku oil fields. That had an adverse effect on the state’s efforts to meet the yearly production plan targets. The annual plan was a system introduced by Joseph Stalin in 1927–1928 to stimulate economic growth. When the USSR nationalized all the country’s factories and means of production, it also did away with the private profit and loss system. But the Soviets needed an incentive system, so in place of profit and loss the state set out yearly and five-year plans specified in physical terms such as meters, tons, and product units. Managers and workers were rewarded with bonuses when the plan targets were met and penalized when they were not, and it was a disappointment when oil production fell temporarily in 1932. Fortunately it rose again sharply in 1934 but thereafter increased only modestly. As a result, petroleum output lagged far behind the targets set out for the Second Five-Year Plan, which ended in 1938. Production totaled 30 million tons, significantly behind the 46.8 million goal.53 With the technology then at their disposal, the Soviets could not increase the production rate at their traditional fields in Baku and at Grozny.
Yet just as production seemed to be tapering off in the Caucasus, important new fields were discovered in the region between the Volga and the Urals. Eventually called the “Second Baku,” the first discoveries in this area were made as early as 1929.54 As in earlier years, however, a shortage of proper drilling equipment delayed the region’s expansion. Only after the Second World War was petroleum in the newly discovered fields produced in large quantities, and the region, particularly its giant field at Romashkino, then came to outproduce Baku.55