Page 477 - Arabia the Gulf and the West

474 Arabia, the Gulf and the West

on the one side and Hungary, East Germany and Czechoslovakia on the other

Although these transactions have been conducted with Soviet approval, the
Soviet government is still anxious to retain the major part of the Eastern
European market for itself, for obvious political purposes. It also wants to

remain in a position to export oil to the West and Japan for the financial reasons
outlined above.
There are only two ways open to the Soviet Union of meeting these various

requirements: one is by expanding Soviet domestic production of oil; the other
is by importing more oil from the Middle East. Most of the oil produced in the
Soviet Union at present comes from the Volga-Urals region. It is doubtful,

however, whether the deposits there will be sufficient to supply even half the
volume of oil needed in the near future. There are large deposits in Siberia,
especially around Tyumen in western Siberia, but their exploitation depends
upon capital investment and advanced technological resources beyond the

present reach of the Soviet government. Hence the Russian efforts in recent
years to interest both the United States and Japan in the development of these
oilfields. Even if these efforts were to bear fruit, there is little likelihood that oil

would begin to flow from the Tyumen fields in any quantity for some time to
come. Meanwhile the Soviet Union will become increasingly dependent upon
Middle-Eastern oil to fill the gap between demand and supply and to provide
the surplus needed for sale to Western Europe and Japan.

The Russians, however, are having to pay much higher prices for Middle-
Eastern oil than they were before October 1973, and the extent to which they
can increase their trade with the oil-producing countries to meet the bill is

limited. Up to date the Russians have paid for Arab oil mainly with arms, to a
value of $500-600 million annually over the past few years. Oil imports have
been of comparable value, viz. 20 million tons in 1973 at a cost of $800 million
at pre-October 1973 prices. The same volume of oil at prices obtaining in 1979

would cost anything between $4,000 million and $4,500 million. It seems
unlikely that the Russians will be able to increase the value of their arms
shipments to anything approaching these figures, and ordinary Russian manu
factured goods have little appeal in the oil-producing countries, where there is

a strong preference for Western and Japanese manufactures. The Soviet
government’s inability both to supply acceptable manufactures as substitutes
for Western and Japanese products and to pay for oil in the requisite amounts
of hard currency would appear to limit severely its power to purchase oil ro

the Middle East in appreciably larger quantities than those it is at presen
purchasing. Certainly it lacks the financial and economic means needea

induce the governments of the oil-producing states to divert 01 expor
the West to the Soviet bloc on a scale sufficient to cause serious damag

West’s economy. . in such
It would seem, therefore, in so far as any >^" 3,re pMe

uncharted terrain, that the Soviet government is faced with an