The Russians Are Coming! The Russians Are Coming!

By John Haldane

Even dedicated anti-communists must agree that Mikhail Gorbachev is the kind of forward looking leader the Soviet Union has needed for over twenty years. He is smart, tough and determined to cajole or, if necessary, force his people to turn the Soviet Union into a modern, technologically advanced nation able to compete with the United States. To that end, he is determined to implement a long term national economic strategy which will revitalize a stagnant economy, improve lagging agricultural production and, most importantly, ensure adequate energy supplies into the 21st century.

Information flooding our newspapers regarding the 27th Congress of the Soviet Communist Party confirms Western Soviet experts statements that the Twelfth Five Year plan, to run from 1986 to 1990, will have as its main goal the creation of an industrial and agricultural superpower, one that will be capable of producing quality civilian goods, as well as military and space equipment. As one Washington based Soviet diplomat said of the Party Congress: "This is the most important event in our history since the death of Stalin. Peoples' expectations have been aroused." This bold step into a new technological age may mean Gorbachev will have to bang together a number of heads in the upper reaches of the Soviet hierarchy, but he seems ready and willing to use an iron fist to accomplish his goals.

The Soviet leader will need to overcome one huge obstacle, a problem far more serious than cronyism, drunkenness or plain old inefficiency. Petroleum output, which provides more than two thirds of Soviet hard currency earnings, is in serious decline. Evidently, the giant Siberian oil fields which account for an estimated 64 percent of the nation's oil, have begun to run dry before Soviet planners anticipated. The current world oil glut only exacerbates this loss in revenue. Moscow loses about $500 million in foreign exchange earnings each time the price of oil drops $1. Jan Vanous, a Washington-based analyst of the Soviet economy, stated recently that "The decline in oil prices represents the most serious external challenge to the Soviet Union since World War II."

Strenuous efforts to find new fields thus far have gone unrewarded. This explains an item in the new 1986 Soviet budget for a 31 percent increase in capital investment in oil. Given Gorbachev's warning only a few months ago that the energy sector, which already absorbs about 20 percent of the USSR's total capital investment, would have to manage without additional funding, it seems clear that an important policy turn around has been made. But, as every oil hungry nation knows, financing exploration and drilling is not necessarily finding. So careful leaders cast about for alternatives.

Going Where the Oil Is

Moscow has reached a decision to go where the proven oil reserves are: the Middle East. Saudi Arabia and Kuwait rank first and second in world reserves. The United Arab Emirates sit on over 300 billion barrels of oil, almost as much as the United States. By the year 2000, when many of the currently producing areas, such as the North Sea and Alaska, begin to run down, the OPEC nations, but primarily the Arab producers, will be supplying more than half of the world's oil.

The Soviet Union undoubtedly desires an increased political role in the Middle East, But international prestige does not provide the money to raise the domestic standard of living, as Qaddafi is learning. A strong Soviet Union, with secure and guaranteed foreign energy supplies, can engage in such international games as it wishes. Energy poor nations cannot afford such luxuries.

The Soviet Union is turning its attention to the Middle East at a most propitious time. American Arab relations have been on a sharp downturn ever since the Israeli invasion of Lebanon in 1982. Saudi Arabian, Kuwaiti and Jordanian requests for modest amounts of military equipment have been flatly rejected by the U.S. Congress. Iran has been posing a serious threat to the Gulf states for five years now, but no American effort has been made to provide significant military support to these small, lightly defended nations. Some cynics seem to believe that the prolonged Iraq Iran war is beneficial to the United States in that it keeps Arab eyes turned away from Israel. They do not seem to realize that the rulers of those states, especially the ones with sizeable oil incomes, will feel forced to turn elsewhere, to Moscow, if necessary, to buy the arms they consider vital to their countries' security.

The tide already has turned towards Moscow. Kuwait and Oman have established diplomatic relations with the Soviet Union, and rumors abound that the United Arab Emirates will soon follow suit. Last year, Moscow returned its ambassador to Egypt, after a four year hiatus. Some analysts even believe traditionally anti communist Saudi Arabia is considering establishing diplomatic relations. Should this occur, Middle East experts in Washington think Bahrain and Qatar will follow the Saudi lead and reconcile with Moscow. Oman's decision is especially disturbing since the Sultanate is the only Gulf state to have signed an agreement permitting American military forces to use its airfields and ports. The United States has spent more than $300 million over the past five years to upgrade four facilities there, including an airbase on Masira Island, for use by the U.S. Command's rapid deployment force.

Despite Arab trepidations regarding Moscow's role in Afghanistan and South Yemen, the Arab states are coming to realize that a better balance in their relationships with the two superpowers is essential to their own national interests. No Arab nation can hope to secure large amounts of military equipment from the United States, Oven the openly pro Israel posture of the Reagan Administration and the Congress. Saudi Arabia has turned to Great Britain, but the Gulf states may opt for Soviet arms. Oil poor Jordan may well do the same, if Moscow makes an enticing offer.

Making and Losing Friends Among the Arabs

As the Soviets increase their sales of military equipment, taking oil in exchange, we will see the arrival of military advisors and technical personnel, as we did in Libya, Syria and Iraq. Not only will the Soviets be training Arab military personnel in the use of aircraft, missiles, tanks and other combat vehicles, they will become involved in the many related rear echelon activities, such as spare parts procurement, maintenance and warehousing. Buying from a common source simplifies resupply requisitioning, an advantage to less sophisticated armed forces.

What kind of Middle East will the United States be facing in 10-20 years if the Soviet Union is able to establish friendly military and economic ties with most of the Arab states? Moscow will have achieved its goal of secure crude oil supplies just at a time when the West will be beginning to look around for oil to replace stocks formerly obtained from non OPEC sources. Japan will have been careful to maintain its good relations with the Arabs, and the European Economic Community will have done the same. But what about the United States?

By the year 2000, according to a recent Conoco report, the U.S. will import 43 percent of its oil needs, up from 29 percent in 1984. Charles DiBona, president of the American Petroleum Institute, has even gone so far as concede that the oil industry can't cure American dependence on foreign supplies. The present supply situation may be comfortable, he warns, "but don't expect it to last," adding that "evidence of trouble" might emerge as early as 1990. American oil companies currently are rolling back exploration and production efforts to cut costs, jeopardizing the development of new sources of oil. In the estimate of one oil analyst: "The exploration they're cutting back, given the lead time for exploration, is exploration that would have brought in U.S. oil for the 1990's." The bottom line clearly is that the U.S. will desperately need Arab oil in ten years or so.

There still is time for us to act before Moscow sews up a large percentage of future Arab oil supplies. But unless we adopt a more even handed approach in our relations with the Arab nations, we will be facing the loss of access to foreign oil supplies vital to the future of our country's economic well being.

John Haldane is a specialist in Middle East affairs who has served as a foreign service officer in Baghdad, Beirut and Cairo, and as an international economist in the Departments of Commerce and Treasury.