Man does not live by bread or oil alone, but the leaders in the third world quickly discovered that it helps to have a little of both. Once the USSR began offering to underwrite the growing ranks of rebellious colonies with Soviet petroleum, this reduced the retaliatory powers of the mother countries and the Western oil cartels, which often as not did their bidding. Even when there was no formal embargo on petroleum sales, such offers from Soviet officials were very much appreciated because most of these former colonies lacked sufficient hard (convertible) currency for their needed purchases in the traditional energy markets. The Soviets in almost all cases were happy to sell oil at a lower price (sometimes less than a dollar a barrel) or lend or barter their oil without insisting on hard currency payments as a way to gain influence. This was an important form of economic support for the East European Communist and other Council of Mutual Economic Assistance countries (CMEA but more commonly referred to as COMECON) as well as Cuba and most of the former African and Asian colonies including India, Ceylon, Pakistan, Guinea, and Ghana.28
Since the Soviet Ministry of Petroleum was an instrument of the state, there was little resistance within the Soviet Union to using the country’s petroleum this way. The first priority was to provide for domestic needs. The next was to use petroleum exports to generate the money needed to pay for the Soviet Union’s and Eastern Europe’s hard currency imports from the capitalist world. Anything extra available for export could then be used to promote the state’s political goals. Unlike a private petroleum company, the Ministry of Petroleum did not feel constrained by normal corporate profit and loss considerations. To say the least, profit maximization was not an overriding objective. In fact, it usually played no role at all. Moreover, just as in the Czarist era, the richer countries in the outside world, and especially the Seven Sisters, were not particularly welcoming to exports of Soviet petroleum. Both Western governments and businesses remained unforgiving about the nationalization of the Baku oil fields. For example, until 1971 the British went so far as to prohibit oil dealers, including a network of as many as 400 Soviet-owned service stations located in the United Kingdom, from importing Soviet crude oil.29 The Soviet response was to arrange for their English subsidiary to import crude oil instead from Finland, which was strange, since Finland is not often thought of as a petroleum powerhouse. In fact, Finland imported more than three-quarters of its petroleum from the USSR. Admittedly this was a pain in the neck and added an extra step for the Soviet Ministry of Foreign Trade officials in charge of their British subsidiary. But it also shows how difficult it was to exclude Soviet petroleum exports from world markets.
Such efforts to keep Soviet petroleum out of world markets was largely a result of the Seven Sisters’ neither needing nor desiring to buy any petroleum from the Soviet Union. These companies regarded the Soviet Union as a spoiler and a disruptive influence—often accusing Soiuznefteexport, the Soviet Foreign Trade Organization responsible for exporting the country’s petroleum, of dumping its products to force down the Sisters’ petroleum prices and profits. Because there was pressure to keep them out of world markets, for some time Soviet petroleum export officials were relegated to dealing with impecunious and marginal consumers or working out under-the-table transactions.
As world energy demand grew, however, attempts to exclude the Soviet Union from the capitalist world’s petroleum markets became harder. Even more important, by the mid-1970s it made increasingly less sense. The first serious Soviet challenge to important Seven Sisters markets occurred in 1960. ENI, an Italian energy company headed by Enrico Mattei, had been attempting to break into the Sisters’ club. In 1957, he signed a contract with Iran to buy petroleum from that country at concessionary prices that were higher than those that had been offered Iran by the Seven Sisters.30 At the same time he offered to sell potential customers that Iranian petroleum at a cut-rate price. Increasing the pressure, Mattei broke ranks again in 1960 by arranging for yet another out-of-order petroleum purchase, this time a cut-rate purchase from Soiuznefeexport. As he did with Iranian petroleum, he sought to sell this petroleum to Seven Sisters customers in Europe by undercutting the prevailing Seven Sisters price. This was considered a direct challenge to the ability of the Seven Sisters to control prices and a serious destabilizing threat. In some quarters, the inability of the Seven Sisters to prevent low-priced Soviet petroleum from breeching their monopoly control was viewed as the end of the Seven Sisters monopoly.
But Soviet petroleum exports served as an equal opportunity spoiler. They not only undermined the Seven Sisters and their price control efforts but they also undercut the efforts of the Organization of Petroleum Exporting Countries (OPEC) member countries that were trying to do the same thing. Created in September 1960, OPEC was set up to prevent private oil companies from cutting the price of the petroleum they purchased from Saudi Arabia, Kuwait, Iraq, Iran, and Venezuela. These original members of OPEC attempted to do this by regulating how much petroleum each of these countries could produce and by doing so reduce worldwide supplies.
But while most of the world’s major petroleum exporters were curbing their production and exports, the Soviets were expanding theirs. By 1975, they had become the world’s largest producer of petroleum, overtaking the United States, which had maintained that distinction continuously since 1902 when it outproduced the largest producer at that time, Czarist Russia.
By refusing to go along with OPEC, the Soviets increased their political leverage as well as their earning power. For that reason, the 1973 OPEC oil embargo imposed on the United States and several European countries provided the Soviet Union with a golden opportunity. The tightening of petroleum markets that resulted from that OPEC embargo more or less brought an end to the USSR’s bad boy image. The Soviet Union may have been a rogue, but OPEC members were no better, and in 1973, at least, were much worse. Thus after 1973, energy consumers around the world came face to face with the realization that reliance on energy supplies from the Middle East involved enormous risks. How much more risky could reliance on the USSR be?
As their industrial output continued to grow, Soviet leaders also sought to export some of their growing output of natural gas. At the same time, after 1973, whatever resistance potential customers may have had to buying petroleum and gas from the Soviet Union all but disappeared. Chastened by the 1973 Arab embargo, customers in Western Europe in particular began to search for ways to reduce their dependence on the now uncertain imports from the Middle East. The Germans were especially eager to gain access to other sources, and the Soviets could ship them natural gas—a cleaner fuel than oil—via an overland pipeline. Most of all, it was reassuring that petroleum and gas from the USSR would be unaffected by OPEC embargoes or sea blockades. To top it off, because of their outsider status, the Soviets were usually willing to undercut market prices.