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Thanks to the War Machine
The current war in Lebanon has elicited the traditional bitter denouncement of the Israeli military from official Moscow. However, the Israeli invasion of Lebanon is inaugurating the second period of material prosperity in the recent history of Russia.
28 Years Ago
When 25,000 Israeli soldiers entered Lebanon to strike against Palestine Liberation Organization units in March 1978, after a terrorist bombing of an Israeli bus killed 30 people, an oil crisis broke out throughout the world. They were asking $39 per barrel for Arab oil at the beginning of 1979, ten times more than at the beginning of the decade. The lines for gas were so long in California and other American states that governors imposed to system under which owners of cars with license plate numbers ending in an even number were allowed to buy gas on even-numbered days, and odd-numbered license plates on odd days. Gas prices topped $1 per gallon (3.79 liters) for the first time, which made a deep impression on Americans. There would seem to be no reason for panic, since neither Israel nor Lebanon produce oil. But the events in Lebanon forced Americans to think about the problems of the Middle East and that, along with the revolution in Iran, was enough to create a feeling of impending oil apocalypse, gas fever and speculation on the American oil market. President Jimmy Carter even suggested imposing a windfall profits tax on oil companies.
Soviet propaganda as usual heaped condemnation on the Israeli war machine, without mentioning that the world oil crisis was bringing huge money into the USSR. In 1978, the Soviet Union passed the United States and Saudi Arabia to become the world's largest oil producer, pumping about 11 million barrels a day. A third of that oil was exported, and mainly to capitalist countries, since socialist countries were unable to pay in hard currency and preferred to make payment in goods.
The crisis made Siberian oil fields the main sources if Russian oil. They allowed the country to raise its production so drastically from the level of 3.1 million barrels a day in 1960. In 1973, Soviet leader Leonid Brezhnev, maybe understanding that an Arab-Israeli conflict would promise a huge influx of petrodollars, suggested to U.S. President Richard Nixon that they cooperate in developing Western Siberian oil fields. The Soviets proposed a project under which the U.S. would invest $10 billion in the course of 25 years, after which (that is, in 1998) it would get its investment back in oil and gas. The general secretary could not, of course, foresee the sharp fall in oil prices and the consequent default. The Americans decided to pass on the offer since they were not sure that there really were reserves of that magnitude that could be profitably accessed in Siberia. They also doubted that it would be technically possible to bring Siberian oil and gas to the American market. Soaring oil prices made Siberian oil production quite profitable, and Japan willingly provided the Soviet Union with a $100-million credit for developing production. As a result, Nikolay Tikhonov, chairman of the Council of Ministers was able to claim, with great pleasure, at the 16th Congress of the Communist Party of the Soviet Union that “inspired by the high estimate of the Party, the Siberians… more than doubled oil production (including gas condensate) and increased natural gas production by 330 percent. That is one more feat in the name of the Homeland.” The general secretary of the party Central Committee presented a broader picture as he compared 1980 with 1970. “In northwest Siberia in 1970oil production (including gas condensate) amounted to 31 million tons, and in 1980 it was over 312 million tons. Natural gas production increased from 9.5 billion to 156 billion cubic meters in that period.”
Rising world oil prices and increased oil and gas production underwrote the significant increase in trade turnover at the time with the leading capitalist countries. In 1978, Soviet trade turnover with West Germany reached $6.5 billion, with Japan $3.9 billion, with the U.S. $2.8 billion. It should be especially noted that the oil proceeds from the Lebanese war allowed the Soviet Union to solve its problem with foodstuffs. In 1978, it bought $1.7-billion worth of grain in the U.S. – a considerable rise over the $1 billion it spent there the year before.
There can be no doubt that the influx of petrodollars and imported goods and food allowed the USSR to hold the Olympic Games in 1980 successfully. As Comrade Brezhnev noted, “the Moscow Olympics were a dramatic demonstration of the achievements of Soviet sportsmen.” They were helped by the fact that the U.S. and a number of other Western countries did not send any athletes to the competition, although they continued to send oil money, that is, financing for the event they were boycotting.
Finally, the Soviet oil boom raised the image of the Soviet Union in the world. In 1978, Christina Onassis, heiress to an empire of oil tankers, married Soviet citizen Sergey Kauzov.
28 Years Later
At the beginning of last year, oil prices were still only $40 per barrel. But petroleum analysts were predicting at the time that oil could double in price if tension in the Middle East mounted. And so it happened. They had only to speak of Israel and Lebanon and a barrel of American oil cost $80. A new absolute high price for gasoline was set on the American market: for the last two weeks, a gallon of gas has cost an average of $3.0150. The previous record, $3.0117, was set last September.
There would seem to be no danger to oil supplies. Israel and Lebanon still do not produce oil. But, speculators, say, who knows how things will develop further. What if a full-scale Arab-Israeli war breaks out? As Michael Fitzpatrick of the American brokerage house Fimat pointed out, “it is difficult to construct an argument for lower prices as long as the situation in the Middle East persists … It still has the potential to mutate into an uglier and uglier state of affairs with each passing day.” Tobin Gorey, a commodity strategist with Commonwealth Bank of Australia, noted that “Bigger issues remain. The question mark over Iranian supply remains a much bigger concern and is worth $10-$15 on current prices. Plus demand for oil doesn't seem to have slowed a lot to date.” Thus, just as in 1978 and 1979, Iran and the military action in Lebanon are provoking record high prices and a speculative mood.
Russian officials are expressing concern over the situation in Lebanon – and, just as in Soviet times, are not mentioning what the new oil crisis is giving Russia, and on a much greater scale than in the 1970s. The price of a barrel of Russian Urals oil reached a record high of $72.09 on July 14, after the beginning of the military action in Lebanon. Russia, like the Soviet Union, is the world's leading oil producers. According to the international database JODI, it produced 9.63 million barrels of oil per day in April of this year, and Saudi Arabia came in second with 9.22 million barrels per day.
Russian foreign trade is developing as dynamically as a result of the oil crisis as Soviet trade did. And Russia has a significant positive foreign trade balance. It is paying debts from Soviet times ahead of schedule, and thereby showing its status as the Soviet successor state. The Soviet Union had a very good credit rating and found it easy to find credit thanks to its oil production. Russian authorities are now proud that they have such a reserve of petrodollars that they can pay all of their foreign debts right now. The Russian ruble is strong and stable, comparable with the ruble of Soviet times, which was also a source of propaganda pride. Finally, to drive the analogy home, Russian authorities are constantly expressing their desire to hold Olympic games – summer, winter, any. Huge Russia has little Lebanon to thank for it all.
Sergey Minaev
All the Article in Russian as of July 31, 2006
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