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Oil geology. Outburst during retrieval of instrument. Head pressure 75 atmospheres. Waiting for airplane urgently. Thanks to the Beryozovo oil blowout, the presence of oil and gas in the Western Siberian Plain was proven for the first time. Other gas deposits were found shortly after the discovery at Beryozovo. However, the industrial use of gas was only planned for , as the gas deposits were considered insufficient to plan and develop a main gas pipeline.

The first oil blowout in Western Siberia was found in the Shaim oil field in , after over five years of geological exploration. As a result of concentrating efforts in the Priobye area in , a powerful oil gusher was found near a settlement called Megion, which launched the big oil period in Siberia. Other huge deposits were explored shortly after this, including the immense Samotlor field in it was rapidly put into service; the first industrial well was completed in April Almost all Western Siberian wells discovered in — were considered unique according to the existing classification, as the recoverable oil reserves of each of them exceeded million tons.

These deposits had extremely high well-production rates of over tons per day during the second half of the s and the s, they began to plunge, resulting in two severe oil production crises in the USSR. Also, by the end of the s, geologists came to the conclusion that the Yamalo-Nenets Autonomous Region in the northern Tyumen Region had huge, unprecedented natural gas deposits. Geologists could only work in the winter, when many swamps were frozen enough to be able to withstand heavy machines.

Economic Factors in Soviet Collapse

Initially, there were absolutely no communications or social infrastructure. The main negative consequence of Dutch disease is considered to be the fact that the processing industry, which usually suffers during the expansion of the raw materials sector, generates a lot more positive effects than the latter although research shows that this is not always true.

This example shows that the raw materials sector can lead to even more negative external effects by causing huge ecological damage to areas with a fragile ecological equilibrium. If each ton of the oil sold included a tax equal to the damage done by its production, the costs of oil production would skyrocket and the amount of oil rent would be reduced by the amount of the tax. Only a separate measure like this could serve as a catalyst for economic diversification although one could object that some processing industries such as the chemical and metallurgical industries create highly negative externalities through ecological damage.

In this case, the pressure to pay for externalities would lead to diversification in cleaner productions under the condition that the residents are rich enough to value good ecology. After the discovery of Western Siberian oil and gas deposits, the authorities faced the issue of choosing a strategy for exploring the region, considering both its huge prospects and, at the same time, its remoteness and lack of development.

Gas output was planned to grow fifteen-fold, from In fact, despite the intensive exploitation of Western Siberian oil deposits in the s, oil output by the USSR reached just Even during the record-breaking year of , oil output at million tons 44 was way below estimates. The fact that these plans were drafted when there was no information yet regarding the biggest oil deposits makes this even more surprising. Possible explanations are the planned steep growth of industrial output of about 9. In this case, the annual oil production growth rate of 8.

Broadly speaking, such industrial output growth rates are not completely unique, albeit they are very solid over the two decades. But two factors need to be considered. Secondly, as a country becomes richer, the share of industrial output in its GDP declines and gets substituted mostly by an increase in the share of services.

On the whole, assuming that the Soviet economy grew at the same rate as the Japanese economy, it would still hardly be able to export considerable amounts of oil in the s and s. This assumption is very important since if oil and gas production efficiency calculated as the percentage of material actually extracted from deposits approached Western standards, output would grow much faster. The United States is a good example. Between the beginning of the twentieth century and , the country was the world leader in oil production, but it was never mentioned as a nation that suffered from the resource curse.

In , the USSR consumed 7. In , the CIA prepared a set of reports that forecasted, in particular, a decline of oil output in the Soviet Union to million tons, which would have made the country a net importer of this resource. This is why the Soviet Union had to export less and less oil as its level of economic development approached that of developed nations, especially considering the distances and the climate. This thesis is backed up by theoretical studies. In the beginning of the s, when the giant Western Siberian oil and gas deposits had not been discovered yet, the authorities actively promoted the idea of building the Lower Ob Hydropower Plant in , Nikita Khrushchev talked about its construction as a resolved issue If this idea had been implemented, a large part of the oil and gas rich territory would have been flooded and apparently made impossible to use by the industrial oil and gas production at the existing level of technology.

The first scenario can be considered moderate. According to it, Western Siberian deposits were supposed to be actively explored in the short term. Active export of oil and gas to distant foreign nations was also not planned. According to the advocates of this scenario, its implementation did not have any serious risks. But this was based on the assumption that the Volga-Urals oil-and-gas-bearing region still had significant and relatively easy-to-extract oil deposits.

Indeed, its oil production in However, in , output was million tons; it fell to Moreover, in the mids, many experts working in Gosplan and the oil and gas industry did not expect that this could happen at all. The moderate way generally presumed that a bird in the hand is worth two in the bush. But, as often happens, its advocates did not know that it was even more risky than the exploration of Western Siberia. In the s, Gosplan considered the second option of active exploration of the Western Siberian oil-and-gas-bearing region to be a very risky one.

Nevertheless, the advocates of the second option included the ministers of the oil and gas industry and the geology minister, so this strategy won. Its supporters cited solid arguments. Firstly, thanks to the existence of huge deposits, existing resources could be focused entirely on exploration, without even touching other deposits.

Secondly, the Tyumen deposits were relatively close to the European part of Russia and also near the extremely large Urals industrial region , much closer than the deposits around Baku and Grozny, in proximity to the state border. Finally, the costs of exploring Western Siberia were supposed to be reduced by the broad use of a rotational system of work in which workers did not need permanent places of residence and all the necessary infrastructure.

The desire to quickly explore this huge region and get maximum returns with minimal costs has led to the situation in which the issues of long-term infrastructure planning were not paid the attention they needed. After , eleven of the biggest deposits were discovered, five of which had over 1 billion tons of initial in-place resources Samotlor had 6, million tons; Fyodorovskoye had 1, million tons; Mamontovkoye had 1, million tons; Lyantorskoye had 1, million tons; and Priobskoye had 1, million tons.

The production in the Volga-Urals region, which started at the end of the s, compensated for the fall in output from the Baku area. In turn, Western Siberian production compensated for the decline in output from the Volga-Urals region and each time the authorities managed to make output more than it had been previously. His successor, Feliks Arzhanov, was fired in for attempting to maintain the production plan at the level of million tons in , a total of It could be that the planned economic system, or, to be exact, the system of incentives it created, was largely to blame for the impossibility of a rapid increase in output.

For instance, as the planned numbers were usually set in units of a physical quantity, the number of meters drilled was a reasonable indicator for geologists. It seemed that the larger this number was, the better geologists worked. But geologists soon realized that the deeper they drilled, the harder it was to drill. Maybe this luck, and the huge geological exploration efforts, did more harm to the Soviet Union and Russia in the s.

The appearance of huge new oil and gas deposits made it possible to postpone the transition to more efficient energy use further and further. In the case of oil and gas, resource rent is excess income on top of normal income received from investments with normal profitability. In other words, rent is revenue from selling a resource minus its production costs.

Frankly speaking, this is not the most correct definition of rent. In a strict sense, resource rent is the sum of differences between the price and marginal costs of resources not necessarily natural. If a deposit has the economy of scale effect, then, as production increases, the rent from every additional item of a resource marginal rent first increases until the marginal cost stops diminishing and then starts to fall.

Mechanisms of extracting and distributing rent in the USSR were quite unusual and mostly hidden. The energy sector had been developing, first and foremost, in order to provide the military-industrial complex and heavy industry with resources and earn hard foreign currency to fund key import needs. The government represented by the State Committee on Prices, interacting with industry-specific ministries was setting domestic prices in the Soviet Union for extended periods of time.

They were heavily marked down compared to world prices. The turnover tax composed the principal part of this difference. In the mids, the ratio between the average wholesale price on crude oil and the retail price of octane petrol was about First, the revenue from selling a resource must be considered potential revenue that could have been received from selling the resource at a market price, rather than as actual revenue received from the sale.

In the same way, the cost of production is not the reported cost of production at any moment of time, but the cost that could have been established under the efficient organization of the industry, i. They suggested referring to this cost of production as natural production costs, and to the surplus as excess costs.

In a similar way, if excess value of extraction appears during the extraction of raw materials, it is also included in the calculations of resource rent. According to the authors, the omitted amount is an integral part of the rent, and its existence itself reflects decisions regarding the use of wealth. Then we can assume that there are taxes—formal and informal such as bribes for government officials and involuntary support of the social sector of the city or the region. Thus, profits after tax can be expressed in the formula:. This is what is left for the owners of an enterprise.

But the R variable is important for society. It can be expressed the following way:. All these categories need to be taken into account during the calculation of rent. For instance, the Soviet Union provided huge subsidies to both domestic and foreign Comecon nations energy consumers. Production costs were routinely amplified for various reasons, such as the need to boost output above the optimal pace under the pressure of federal authorities, and the necessity of not using the best production resources available the oil and gas complex, albeit to a lesser extent, also experienced the scarcity of necessary resources.

The second reason is that these categories are used to hide and redirect flows between stakeholders of the rent. The size of the share of each category of participants has important political-economic consequences.

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Essentially, it largely determines the political economy of the society, which lives off resource rent. Unfortunately, there are several technical difficulties that considerably reduce the accuracy of calculating the total oil and gas rent both in Soviet and post-Soviet Russia. As we already mentioned, a correct estimation of total rent means that we have to consider the difference between the price and marginal costs.

The figure of marginal cost is almost always unknown. The accuracy of an approximate estimation depends on how fast marginal costs were growing when the output was increased to the actual level. If the share of output with rapidly growing marginal costs in the total production is large, the figures of marginal and average costs diverge quite considerably. Then, using average costs in calculating rent will significantly overstate its amount.


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Gaddy and Ickes consider that the first assumption about the slow substitution of low-cost deposits by high-cost ones is true. Another controversial issue is how to consider different types of fixed costs, first of all, capital expenditure. In other words, should the costs of pipelines, geological surveys, and so on, be considered?

Under the formal definition of rent, there is no need to do this, as rent emerges when the actual prices exceed the minimal price, forcing a company to supply raw materials to the market. And in the short term, the company has no opportunity to avoid nonrecoverable capital investment that is, in the worst case, it is ready to downplay the prices until the loss exceeds the amount of amortization of these capital investments. Any situation better than the very worst one—the lack of money to pay for amortization—brings the rent. The authors define natural value as value corresponding to a competitive manufacturer who uses market interest rates and maximizes the expected discount cost of deposits.

It is not clear how the authors drew the difference between actual and natural oil and gas costs. As can be understood from their argument, by natural costs they mean the best result the USSR could have achieved under a certain technological and organizational level of its energy sector. This leads to certain conclusions. First, oil and gas rent was fluctuating heavily. Notably, the drop after the first peak was much longer and stronger than after the second one However, the analysis should be prolonged to the present time, as another downturn started in , the end of which is still unknown some researchers think oil prices will never fully recover due to the technological revolution both in cheaper alternative energy sources and in oil and gas production.

Over the period between and , the average rent amounted to 33 percent of GDP and in the Soviet period. However, we should make two notes that make the calculated data different from reality. Firstly, we are dealing with potential rent, calculated on the basis of the difference between world prices and minimal possible costs. In particular, this means that a considerable part of rent went not to the country itself, but to the countries receiving oil and gas at subsidized prices. This also means that sales would plummet both domestically and abroad if the subsidies stopped, and this would lower the overall volume of rent.

Thus, potential rent exaggerates the total amount of rent. Secondly, starting from the mids and until the early s , gas rent approximately equaled oil rent, and for many years after it was about twice as big as oil rent. On the whole, we can see that gas rent was a much more stable part of the total rent than oil rent. Considering the huge size of gas rent and its relative instability, this poses the question: if Russia suffers from oil and gas dependence, which factor is the main one behind this dependence—oil or gas?

These resources are considerably different in the volume of required investment. Transportation of gas demands huge capital expenditure on constructing gas pipelines and compressor stations, but the marginal cost of its extraction and transportation are relatively low.

Extraction and transportation of oil demands smaller capital investment but at a larger marginal cost. If gas deposits are located far from consumers, control over deposits makes little sense if there is no control over pipelines. In theory, the resource curse is strongly associated with concentrated resources, that is, those located within a limited area, which are, due to this reason, easier to control.

The ease of control is associated with the temptation to acquire this control, which, given the weakness of government institutions, can lead to armed conflicts which has often happened in many African nations. Figure 5 illustrates both scenarios. In the second scenario of 2 percent annual growth of marginal production costs the rent does fall, but insignificantly.

During low-price years, such as the end of the s, the rent was significantly below the baseline scenario. During high-price years, according to the authors, the difference was no more than 10 percent. Sagers, Valery Kryukov, and Vladimir Shmat see table 2. Considering that about 70 percent of the produced oil and 87 percent of gas were consumed domestically at well below world prices, the main share of oil and gas rent went to prop up the industries that were uncompetitive on the global scale.

Given this, we have to remember that a large part of the industry was military. Despite the differences in methodology, the estimation of rent in the mids was approximately the same in both studies. According to their estimates, the extraction industries created all net profits of the economy What is important is the following:. Even the fluctuations of these two kinds of rent result in different incentives of economic agents inside the country.

This happens because of the high uncertainty regarding the maintenance of this rent, and this is known to make economic agents discount future revenues and focus on the short-term horizon. Thus, speaking about the amount of resource rent, we should keep in mind a set of particular factors linked to its effect on the incentives of economic agents. But in our case, we speak about oil and gas rent, which reduces the array of possible characteristics linked to it although it could be very broad. But despite this, within its last ten years, it experienced grave problems caused by its fuel and energy complex.

They were not linked to the shortages of oil and gas, but rather had to do with rapidly increasing costs of exploring, extracting, and transporting materials , huge inefficiency, repeated shocks, and other unpleasant surprises. The policy aimed at solving these problems was so high-cost and demanded so much attention that it became the main undermining factor of the situation with the Soviet industry after the mids and one of the main direct reasons behind the downturn and stagnation of the Soviet economy.

Mikhail Gorbachev, the last Soviet leader, seemed to realize that the state energy policy was one of the main causes of economic problems. He claimed that the struggle to curb the economic downturn rates had led to excessive spending on the expansion of the fuel and energy complex and boosted supplies of new resources and their irrational use.

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Bar e gelateria. Business plan per tutti. Gowans PDF Download. The size of the share of each category of participants has important political-economic consequences. Essentially, it largely determines the political economy of the society, which lives off resource rent. Unfortunately, there are several technical difficulties that considerably reduce the accuracy of calculating the total oil and gas rent both in Soviet and post-Soviet Russia.


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As we already mentioned, a correct estimation of total rent means that we have to consider the difference between the price and marginal costs. The figure of marginal cost is almost always unknown. The accuracy of an approximate estimation depends on how fast marginal costs were growing when the output was increased to the actual level. If the share of output with rapidly growing marginal costs in the total production is large, the figures of marginal and average costs diverge quite considerably.

Then, using average costs in calculating rent will significantly overstate its amount. Gaddy and Ickes consider that the first assumption about the slow substitution of low-cost deposits by high-cost ones is true. Another controversial issue is how to consider different types of fixed costs, first of all, capital expenditure. In other words, should the costs of pipelines, geological surveys, and so on, be considered? Under the formal definition of rent, there is no need to do this, as rent emerges when the actual prices exceed the minimal price, forcing a company to supply raw materials to the market.

And in the short term, the company has no opportunity to avoid nonrecoverable capital investment that is, in the worst case, it is ready to downplay the prices until the loss exceeds the amount of amortization of these capital investments. Any situation better than the very worst one—the lack of money to pay for amortization—brings the rent.

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The authors define natural value as value corresponding to a competitive manufacturer who uses market interest rates and maximizes the expected discount cost of deposits. It is not clear how the authors drew the difference between actual and natural oil and gas costs. As can be understood from their argument, by natural costs they mean the best result the USSR could have achieved under a certain technological and organizational level of its energy sector.

This leads to certain conclusions. First, oil and gas rent was fluctuating heavily. Notably, the drop after the first peak was much longer and stronger than after the second one However, the analysis should be prolonged to the present time, as another downturn started in , the end of which is still unknown some researchers think oil prices will never fully recover due to the technological revolution both in cheaper alternative energy sources and in oil and gas production.

Over the period between and , the average rent amounted to 33 percent of GDP and in the Soviet period. However, we should make two notes that make the calculated data different from reality. Firstly, we are dealing with potential rent, calculated on the basis of the difference between world prices and minimal possible costs. In particular, this means that a considerable part of rent went not to the country itself, but to the countries receiving oil and gas at subsidized prices. This also means that sales would plummet both domestically and abroad if the subsidies stopped, and this would lower the overall volume of rent.

Thus, potential rent exaggerates the total amount of rent. Secondly, starting from the mids and until the early s , gas rent approximately equaled oil rent, and for many years after it was about twice as big as oil rent.

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On the whole, we can see that gas rent was a much more stable part of the total rent than oil rent. Considering the huge size of gas rent and its relative instability, this poses the question: if Russia suffers from oil and gas dependence, which factor is the main one behind this dependence—oil or gas? These resources are considerably different in the volume of required investment. Transportation of gas demands huge capital expenditure on constructing gas pipelines and compressor stations, but the marginal cost of its extraction and transportation are relatively low.

Extraction and transportation of oil demands smaller capital investment but at a larger marginal cost. If gas deposits are located far from consumers, control over deposits makes little sense if there is no control over pipelines. In theory, the resource curse is strongly associated with concentrated resources, that is, those located within a limited area, which are, due to this reason, easier to control. The ease of control is associated with the temptation to acquire this control, which, given the weakness of government institutions, can lead to armed conflicts which has often happened in many African nations.

Figure 5 illustrates both scenarios. In the second scenario of 2 percent annual growth of marginal production costs the rent does fall, but insignificantly. During low-price years, such as the end of the s, the rent was significantly below the baseline scenario. During high-price years, according to the authors, the difference was no more than 10 percent. Sagers, Valery Kryukov, and Vladimir Shmat see table 2.

Considering that about 70 percent of the produced oil and 87 percent of gas were consumed domestically at well below world prices, the main share of oil and gas rent went to prop up the industries that were uncompetitive on the global scale. Given this, we have to remember that a large part of the industry was military. Despite the differences in methodology, the estimation of rent in the mids was approximately the same in both studies.

According to their estimates, the extraction industries created all net profits of the economy What is important is the following:. Even the fluctuations of these two kinds of rent result in different incentives of economic agents inside the country. This happens because of the high uncertainty regarding the maintenance of this rent, and this is known to make economic agents discount future revenues and focus on the short-term horizon.

Thus, speaking about the amount of resource rent, we should keep in mind a set of particular factors linked to its effect on the incentives of economic agents. But in our case, we speak about oil and gas rent, which reduces the array of possible characteristics linked to it although it could be very broad. But despite this, within its last ten years, it experienced grave problems caused by its fuel and energy complex.

They were not linked to the shortages of oil and gas, but rather had to do with rapidly increasing costs of exploring, extracting, and transporting materials , huge inefficiency, repeated shocks, and other unpleasant surprises. The policy aimed at solving these problems was so high-cost and demanded so much attention that it became the main undermining factor of the situation with the Soviet industry after the mids and one of the main direct reasons behind the downturn and stagnation of the Soviet economy.

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Mikhail Gorbachev, the last Soviet leader, seemed to realize that the state energy policy was one of the main causes of economic problems. He claimed that the struggle to curb the economic downturn rates had led to excessive spending on the expansion of the fuel and energy complex and boosted supplies of new resources and their irrational use. At the same time, the hard currency received in return for resources was spent on current needs instead of the modernization of the economy.

Gorbachev himself was unable to break the policy, which began under Brezhnev, of a rapid growth of investment in the fuel and energy complex and the inability to introduce energy-saving policy. The reaction of the Soviet Union and developed nations to the energy shocks of the s is indicative. In response to the rapid growth of the relative oil price, a technological boom started in the West that affected geological exploration and extraction of natural resources and the search for energy-efficient technologies and alternative energy sources. The heavy dependence of energy-resource consumption on economic growth had disappeared due to the widespread use of energy preservation.

Oil consumption was reduced both in absolute figures and as a share of the total energy balance. In the USSR, attempts to boost oil production and atomic energy were the principal response. Energy saving efforts mostly failed. The irony is that the most powerful stimulus for the Soviet energy-saving policy was not the growth of oil prices in the s, but their drop in the s. This sharply reduced the inflow of foreign currency and made the Soviet Union export more oil.

In the West, a significant share was composed of private automobile and house owners, who reacted to the changes in energy costs much faster although industrial consumers also reacted much more swiftly. Unfortunately, the Soviet Union lost that opportunity. This is a paradox: when a country has the opportunity to make the necessary changes, there is no longer the desire to do so as in most raw-materials-exporting nations during resource booms and, on the contrary, when the opportunity to conduct changes is sharply reduced, the willingness to make changes caused by acute necessity sharply increases.

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This paradox is one of the symptoms of the resource curse, which lies in the drop of the quality of economic policy, when long-term goals become increasingly neglected for the sake of achieving short-term ones. This situation can be analyzed in the categories of the substitution effect and the income effect. As oil rapidly gets more expensive, even with the same real incomes, it gets more profitable for companies, households, and the government to substitute it with other energy sources the substitution effect. As real income in nations heavily dependent on oil imports goes down when oil is expensive, and the demand on oil incomes has a positive elasticity quite high, but less than one 80 , oil demand also falls due to the income effect.

In the Soviet Union, the substitution effect was also supposed to work. But, as we already mentioned, the planned system was, firstly, unreactive in regard to making such decisions, and secondly, the viewpoint that domestic consumers are more important than foreign ones was still influential. The income effect for the USSR as a large oil exporter was positive, that is, it increased the domestic demand for oil of course, a separate study is needed in order to understand how the growth of oil revenues in the s led to the growth of military expenses, vehicles-to-population and vehicles-to-industries ratios, and so on, and how it affected the demand for oil.

The USSR was no exception in providing energy subsidies to domestic energy consumers; such a policy is widespread among nations rich in oil and gas. From what was said above, we could assume that these nations were leaning toward suppressing the substitution effect, the effect of which, through intensive adoption of alternative energy sources and energy-saving measures on the whole, helped them survive the periods of low raw materials incomes much more easily.

We notice that the energy intensity of Soviet GNP, after staying at the same level in the s, sharply increased in the s, and then grew slightly in the s. The sharp increase in the efficiency of energy use is largely explained by the transition from the less efficient hard fuel mostly coal to the more efficient hydrocarbons oil and gas. At first sight, the change of trend in — is unusual: energy consumption had been growing much faster than GNP. But the explanation may be simple: by the mids, incentives to save energy started to disappear under the influence of oil and gas abundance.

It should be noted that according to credible Soviet estimates, energy intensity of production was falling see table 5. But the biggest drop of 17 percent happened between and , while in the s, the period of fast growth of oil output, the energy efficiency dropped by only 6 percent compared to the level.

Analyzing the overall efficiency of energy use, experts distinguish between two types of energy intensity 85 : the first one is the efficiency of end energy use that is, how many items of national income are created from one item of end energy, usually electric power and the second one is the efficiency of transforming primary energy of various kinds into end energy. In the s—s, the main benefits in energy savings—three-quarters—were achieved by decreasing the second kind of energy efficiency.

This happened, among other things, at the expense of the shift of primary energy consumption from coal to oil and gas the share of coal was reduced from 52 percent to 24 percent In this sense, the Soviet Union, with a delay of a few decades, was following in the footsteps of many developed nations, by sharply boosting oil and gas intensity of GDP although the transition to gas took longer and respectively reducing the intensity of coal use. The authorities failed to reduce the efficiency of end energy use in the s see table 6.

Also, it could be noted that while the energy efficiency coefficient increased from 31 to 39 percent in the s, in the s it grew just a bit, from 39 percent to 42 percent. The end of rigid limiting. However, what was even worse, energy efficient measures started to be considered economically inefficient when planning new equipment, objects, and enterprises in many sectors of the economy and in prospective developments on the whole.

One of the reasons for this was the baseless extrapolation of the prospect of very favorable conditions of economic development in the s. In this case, we can say that economic agents were getting used to the increasing flow of oil and gas rent, and it was reproduced through the resulting stock of material capital.

Nevertheless, the Soviet economy turned out to be incapable of adequately reacting to the sharp growth of marginal oil production costs which tripled in the s and s 92 and the increase of world oil prices. The first factor was supposed to create incentives to boost the efficiency of extraction and transportation of oil, which is what one can expect from a market economy. The situation with gas in the Soviet Union was completely different. The developed gas fields were so huge that the marginal cost of exploring them was minimal.

As the oil industry was the cash cow, its well-being was a priority. On the one hand, it would make it possible to considerably boost the output with the same costs and, thus, increase the available oil rent. This would result in larger economic growth rates during the downturn in and the following years. Higher volumes of oil and gas income would have made it possible to conduct even more massive procurements of food and increase subsidies to the stagnating agriculture sector , consumer goods, and investment goods.

So, possibly these industries would create even more problems. In , oil exports amounted to 2 million tons almost half of the annual production. Between and , they made up between 3. By , they dropped to 0. During World War II, there were no exports; in —, exports were also almost nonexistent 0. After this, exports rapidly grew: up to 57 million tons in , million tons in , million tons in , and million tons in The share of exports in oil production had also been increasing: from 11 percent in to This share is comparable to the level of the s and s, the period of the highest rise in oil exports.

But oil dependence was not an issue back then as absolute volumes of exports were small and prices were not highly volatile. Prior to the mids, Soviet oil was consumed inside of the Soviet bloc. It was looking for any buyers and scaled down prices in order to attract them. On the whole, surprising as it is, the attitude toward exports was somewhat neglectful. This poses the question to what extent the USSR should consider such export-import connections in developing its energy sector. One answer seems obvious: the average damage from short delivery of energy resources inside the country was much higher than the effect from its exports.

Although the Soviet Union was a big exporter of all energy resources before the s, it supplied only a fraction of their total output volume to foreign markets. In , less than 1 percent of the total USSR energy resources production was exported; by , this share rose to 8 percent, and by it increased to 14 percent. Along with this, the share of oil and petroleum products over the period between and was more than 80 percent in the second half of the s, gas exports started to grow quickly and their share in the total value of exports in amounted to 16 percent.

The hike in world oil prices was affecting the Soviet oil industry slightly differently than other oil-exporting nations. They obeyed and still obey the famous rule: with an increase in the price of an item oil , the volume of its supply needs to grow to get more profit. There is evidence that in some periods its supply curve sloped downward. The thing is that the USSR had been striving to stabilize the total amount of export revenues in hard currency in order to ensure more or less stable volumes of imports see the data on wheat and other agricultural imports below.

It was a stranger to normal commercial motivation. The Kremlin demanded that Russian trade organizations earn as much foreign currency as possible to pay for the equipment that Russia needed for industrialization. This resembles Giffen goods—goods for which the amount of demand rises along with the increase in their price. This happens due to a combination of two effects—the substitution effect and the income effect.

Due to the former, a Giffen good gets more expensive compared to other goods and the amount of demand for it drops. The income effect acts in the opposite direction; demand for such goods drops sharply with the increase of income that is, these are inferior goods and falls to the level that it exceeds the increase of demand due to the substitution effect.

But what does it have to do with the drop of oil prices in the s? According to conventional logic, when oil got cheaper meaning that the real exchange rate of the Soviet ruble dropped , the Soviet Union was supposed to export less oil and more other goods. But instead, it started exporting even more oil! Most other goods were so uncompetitive or, maybe were produced in insufficient quantities that it would take either a significant drop of their prices in dollars or an unbelievable growth of exports in order to compensate for the shortfalls in oil exports revenues.

The unbelievably strong and increasing since the s dependence of the Soviet Union on, first of all, imports of wheat and a number of other categories of consumer and industrial goods, especially high-tech ones, became one of the plates in its armor table 8 has the data on the wheat and agricultural goods trade balance However, we can assume that this explanation of the emergence of oil exports dependence is incomplete; it seems that there was a two-way dependence.

In other words, the growth of oil and gas exports, bringing more and more hard currency, encouraged the authorities to import even more wheat and other products. The increasing imports made the Soviet Union include large volumes of oil and gas mostly oil exports in future plans. When oil prices increased and they continuously increased between and , there was a temptation to boost imports even more. In this regard, it seems feasible to provide for a reserve for possible extra oil supplies of million tons over the five years when a new five-year plan will be developed.

Imports of oil and gas equipment surpassed record heights; from to , they increased eighty times in terms of value. And their physical volume increased by thirty-eight times. It can be noted that despite the sharp increase of prices of oil, its share sold to developed nations plunged, while the share of gas, on the contrary, rose. But who received the rent from exporting hydrocarbons to socialist nations? Evidence of this is the wide energy efficiency gap with Western nations, although it was considerably reduced after the crash of the USSR. This can be explained considering that most of them stopped receiving energy subsidies from Russia.

And those who continued to get subsidies, Ukraine and Belarus, have failed to considerably raise their energy efficiency. The above poses the question of how the cancelation of energy subsidies to allies would affect the Soviet Union. We can assume that this would diminish the loyalty of these nations and make them start market reforms earlier than they did.