SOVIET OIL INDUSTRY DEALING WITH SEVERAL CRISES

The U.S.S.R.'s oil industry remains in disarray.

Soviet oil exports in 1991 will apparently slump for the third straight year and reach the lowest level since the early 1970s.

A study made by two associates in the U.S.S.R. Academy of Sciences' Institute for World Economic and Political Research (Iwepr) indicates that overall sales of Soviet crude and refined products may be 2.5 million b/d or even less in 1991.

That compares with expected exports of 3-3.1 million b/d in 1990, 3.695 million b/d in 1989, and 4.104 million b/d in 1988.

Meantime, signs abound of crisis in the Soviet oil industry amid reports of lagging crude production and severe products shortages in the U. S. S. R.

PLUNGING SOVIET EXPORTS

The last time Soviet worldwide oil sales fell to less than 2.5 million b/d was in 1974, when exports of crude and products totaled 2.34 million b/d.

If the Soviet oil export forecast by Iwepr associates Alexei Yakushin and Vladimir Voloshin is accurate, the effect on overall Soviet revenues from foreign trade could devastate Moscow's hopes for the early success of perestroika (economic restructuring).

A third successive year of sharply lower oil export volume, especially if accompanied by declining world petroleum prices in 1991, would likely deprive the U.S.S.R. of the hard currency required to modernize the nation's decrepit industrial base.

Last year, crude and refined products accounted for more than 27% of total Soviet exports. They were by far the most important source of hard currency revenue.

GORBACHEV'S EFFORTS

During his recent tour of western European countries, Soviet President Mikhail Gorbachev was promised new lines of credit by France, Italy, and Spain in addition to large loans previously received from Germany.

But Gorbachev also has emphasized that increased borrowing from the West is a poor substitute for higher Soviet exports in meeting the U.S.S.R.'s foreign exchange needs.

While Gorbachev was seeking a loan in Paris, an adviser to French business firms was quoted in the Soviet press as advising his clients to be extremely careful in signing contracts with the U.S.S.R. regarding oil and gas production.

He urged that western companies be paid for their services "in the most reliable currency-petroleum products and natural gas."

DEBT CRUNCH

The Soviet Union's foreign debt was estimated at more than $52 billion in January 1990 and is expected to jump to more than $70 billion by the beginning of 1991.

Moscow officials believe the value of the U.S.S.R.'s combined exports may drop to 40 billion rubles this year from 68.8 billion rubles in 1989.

Total Soviet exports haven't been less than 40 billion rubles since 1978. Moreover, 12.5 billion rubles of this year's export revenues must be allocated to payment on the U.S.S.R.'s foreign debt.

This year, the U.S.S.R. planned to hike oil exports to foreign customers able to pay in hard cash while modestly reducing crude and products sales to Communist and formerly Communist eastern European countries, plus Cuba and Viet Nam, which are permitted to use soft transferable rubles in exchange for imports from the Soviet Union until Jan. 1, 1991.

Instead, Yakushin and Voloshin expect the U.S.S.R.'s oil exports to eastern Europe to plunge dramatically while deliveries to countries offering payment in hard currencies also slide to a lesser extent because of the surprisingly large shortfall in Soviet crude production.

EASTERN EUROPE SALES

Writing in Moscow News, the two researchers said the U.S.S.R. is likely to sell eastern Europe 300,000-400,000 b/d less crude than the 1.4 million b/d originally planned in 1990.

They noted that partly due to this extreme cut in Soviet crude deliveries to eastern Europe, lines of vehicles at filling stations in Czechoslovakia, Hungary, and Poland are becoming ever longer.

Attempts by Hungary to raise gasoline prices by 6369% in late October resulted in the blocking of Budapest's streets and bridges by trucks, taxis, and private cars.

Hungarian officials blamed the price hike on a shortage of about 7 million bbl in Soviet crude deliveries this year and the jump in world oil prices.

But angry motorists charged the government was gouging consumers unfairly because most of Hungary's 1990 oil imports have come from the U.S.S.R. at a price still frozen far below recent world prices.

Facing a political and economic crisis, Budapest authorities sharply scaled back the gasoline price increase.

Yakushin and Voloshin said eastern European countries are increasingly worried over the virtual inevitability of greatly reduced oil imports from the U.S.S.R. again next year.

The researchers said plans call for Soviet 1991 crude deliveries to these nations to fall to "nearly half" of the 1990 level-apparently to little more than 500,000 b/d.

OTHER COUNTRIES

The U.S.S.R. will also reduce its crude exports to other countries next year, according to the Moscow News article.

Whereas the Soviet Union delivered more than 2.88 million b/d of crude to all customers in 1988 and almost 2.55 million b/d in 1989, crude exports in 1990 may be only about 2 million b/d and could dip to 1.2-1.6 million b/d in 1991.

Soviet petroleum product exports were about 1.22 million b/d in 1988 and 1.15 million b/d in 1989. They dropped by 176,500 b/d during the first 9 months of 1990 and should average less than 1 million b/d for the full year.

If the Persian Gulf crisis persists with world crude prices ranging to as much as $40/bbl, eastern European countries will have to spend most of their total export revenue on oil imports, the Moscow News report said.

"One should also keep in mind that Iraq owes eastern European countries some $5 billion, with part of this debt to be repaid in oil.

"But the United Nations embargo made this impossible, and the Soviet Union is also affected. This year the U.S.S.R. was to get some 10 million tons (200,000 b/d) of Iraqi crude, part of which was to be reexported to eastern Europe."

EASTERN EUROPE'S DILEMMA

Yakushin and Voloshin expressed little sympathy for eastern Europe's oil supply problems. They said that since eastern European countries will have to pay world prices in convertible currencies for imported oil starting Jan. 1, they must look for reliable sources of hard cash.

"They will be forced to stop regarding the Soviet Union as a source of bargain priced fuel and raw materials obtainable in exchange for their goods that can't compete in the western market.

"In the wake of the first oil crises in the 1970s, many countries quickly rebuilt their economies along energy saving lines. Eastern Europe didn't hurry in this direction because supplies of low cost Soviet raw materials created sheltered conditions and did not motivate the development of energy saving technologies.

"But today one has to pay for past mistakes. Nothing in this world is free, and, as Margaret Thatcher said, 'Free cheese is only to be found in a mouse trap."'

SOVIET OIL SETBACKS

Soviet oil production has suffered further setbacks in the final months of 1990, and distribution of petroleum products remains in disarray.

Contrary to past practice, Moscow by late November still had not announced specific fuel or other production targets for 1991.

It also failed to disclose output goals for the new 5 Year Plan that was scheduled to start Jan. 1.

The Moscow newspaper Izvestia said late last month that the U.S.S.R. State Planning Committee had prepared but not released publicly a report on economic projections for 1991. Officials acquainted with the study said it forecast a continued economic crisis next year, with an estimated drop of about 5% in gross national product.

FUEL SHORTAGES

Meanwhile, L. Ryabev, deputy chairman of the U.S.S.R. Council of Ministers, contended it was premature to predict a severe Soviet fuel shortage this winter.

But the Moscow press continues to publish articles regarding "energy chaos" in many areas of the nation.

Residents of the Soviet capital complained of inadequate heat in their apartments and of children suffering from the cold. A check of 18 Moscow filling stations in late November showed five without gasoline.

The head of Armenia's Civil Aviation Administration called on the republic's population not to buy airline tickets except in extreme emergency because of an aviation fuel shortage. He said that practically no flights were made to Moscow or other cities during 4 days in late November, adding that jet fuel was also in short supply in other parts of the country.

Pravda published an article last month stating the Soviet oil industry was "in deep crisis." It said oil fields in many areas of the U.S.S.R. were receiving less than 80% of scheduled deliveries of equipment and materials.

The newspaper Rabochaya Tribuna said that more than 3,000 wells in western Siberia were idle in November "mainly because they had not been connected to gathering lines which hadn't been laid due to a pipe shortage." Western Siberia, by far the U.S.S.R.'s biggest crude/condensate producer, is expected to fall 300,000 b/d short of its output target this year.

Izvestia reported in late November that Western Siberia's Khanty-Mansiisk Autonomous District, which produces more than half of the U.S.S.R.'s crude-"worth $70 billion annually at current world prices"-will be able to deliver only 60-65% of the State Planning Committee's decreed oil output for the area in 1991.