Why did the Soviet Union Collapse? It went bankrupt due to low oil prices (....lessons for Russia today)
According to Yegor Gaidar, who was the acting prime minister of Russia, minister of economy, and first deputy prime minister between 1991 and 1994.
"The timeline of the collapse of the Soviet Union can be traced to September 13, 1985. On this date, Sheikh Ahmed Zaki Yamani, the minister of oil of Saudi Arabia, declared that the monarchy had decided to alter its oil policy radically. The Saudis stopped protecting oil prices, and Saudi Arabia quickly regained its share in the world market. During the next six months, oil production in Saudi Arabia increased fourfold, while oil prices collapsed by approximately the same amount in real terms.
As a result, the Soviet Union lost approximately $20 billion per year, money without which the country simply could not survive. The Soviet leadership was confronted with a difficult decision on how to adjust. There were three options--or a combination of three options--available to the Soviet leadership.
First, dissolve the Eastern European empire and effectively stop barter trade in oil and gas with the Socialist bloc countries, and start charging hard currency for the hydrocarbons. This choice, however, involved convincing the Soviet leadership in 1985 to negate completely the results of World War II. In reality, the leader who proposed this idea at the CPSU Central Committee meeting at that time risked losing his position as general secretary.
Second, drastically reduce Soviet food imports by $20 billion, the amount the Soviet Union lost when oil prices collapsed. But in practical terms, this option meant the introduction of food rationing at rates similar to those used during World War II. The Soviet leadership understood the consequences: the Soviet system would not survive for even one month. This idea was never seriously discussed.
Third, implement radical cuts in the military-industrial complex. With this option, however, the Soviet leadership risked serious conflict with regional and industrial elites, since a large number of Soviet cities depended solely on the military-industrial complex. This choice was also never seriously considered.
Unable to realize any of the above solutions, the Soviet leadership decided to adopt a policy of effectively disregarding the problem in hopes that it would somehow wither away. Instead of implementing actual reforms, the Soviet Union started to borrow money from abroad while its international credit rating was still strong. It borrowed heavily from 1985 to 1988, but in 1989 the Soviet economy stalled completely...
The money was suddenly gone. The Soviet Union tried to create a consortium of 300 banks to provide a large loan for the Soviet Union in 1989, but was informed that only five of them would participate and, as a result, the loan would be twenty times smaller than needed. The Soviet Union then received a final warning from the Deutsche Bank and from its international partners that the funds would never come from commercial sources. Instead, if the Soviet Union urgently needed the money, it would have to start negotiations directly with Western governments about so-called politically motivated credits.
In 1985 the idea that the Soviet Union would begin bargaining for money in exchange for political concessions would have sounded absolutely preposterous to the Soviet leadership. In 1989 it became a reality, and Gorbachev understood the need for at least $100 billion from the West to prop up the oil-dependent Soviet economy.
The Geopolitics of Oil
Remember that oil price manipulations are a geopolitical tool or weapon that was successfully used by the USA (Zbigniew Brzezynski and the Reagan government) in an attempt to bankrupt the former Soviet Union in the 1970's and 1980's. It worked.
The book assembles a now well-documented chronology of how the US and its allies, including Saudi Arabia, pushed down oil prices dramatically in the 1980s, and kept them low for a decade. It was a concerted and stunningly successful effort to break the former Soviet Union by depriving it of desperately needed hard-currency income.
It then raises the question whether those same price-control levers have lately been pushed in the opposite direction to rein in another target: the oil-short Peoples Republic of China. Contrary to popular perceptions, media commentary and official explanations, the book methodically lays out the geopolitical logic and the market mechanisms behind the stunning 12-fold run-up of oil prices from 1998 to mid-2008. It also offers an explanation for the sudden price drop from almost $150/barrel to under $100 as Russia again flexed its muscle by invading Georgia.
This timely and unorthodox analysis offers a clear and compelling explanation for the huge and otherwise unjustified gyrations in oil and other commodity prices in recent years. It also contains unique viewpoints on the reasons behind the US invasion of Iraq in 2003 and the fall of Russian oil major Yukos. The book will appeal to a broad audience—from students and practitioners of geopolitics to hard-pressed consumers and energy producers wondering how long windfall prices can defy gravity.
UPDATE: Russia admits supporting Arab terrorists
While the USA and Saudi Arabia kept oil prices artificially low in the 1970’s after the spike and 80’s to bankrupt the Soviet Union, Russia tried to raise and spike oil prices by supporting Arab terrorists—Walter Derzko
“Excerpts from Politburo materials indicate that the head of the Committee for State Security (KGB), Yury Andropov, facilitated contacts between the KGB and the Arab terrorists, who sought assistance for terrorist attacks on oil fields in order to keep energy prices high.5 The general resolution was that the Soviet Union should support the Arab terrorists in this battle.6”
.......says Yegor Gaidar, who is director of the Institute for Economies in Transition in Moscow. Between 1991 and 1994, he was acting prime minister of Russia, minister of economy, and first deputy prime minister. Between 1993 and 2003, Gaidar was a founder and a co-chairman of the Russia’s Choice and the Union of Rightist Forces Parties, and a deputy of the State Duma. His most recent book, Gibel’ Imperii: Uroki dlya sovremennoi Rossii [The Collapse of an Empire: Lessons for Modern Russia], was published in 2006.
5. A note from Yury Andropov, the head of the Committee for State Security (KGB), to the general secretary of the Central Committee of the Communist Party of the Soviet Union Leonid Brezhnev. “O konspirativnoy vstreche rezinenta KGB v Livane c V. Haddadom” [Regarding the Conspiratorial Meeting of a KGB Resident in Lebanon with V. Haddad.] April 23, 1974. No. 1071-A/OV.
6. A note from Yury Andropov, the head of the Committee for State Security (KGB), to the general secretary of the Central Committee of the Communist Party of the Soviet Union Leonid Brezhnev. “O peredache V. Haddadu partii inostrannogo oruzhiya i boepripasov k nemu” [Regarding the Handover of a Consignment of Foreign-Made Weapons and Ammunition to V. Haddad]. May 16, 1975. No.1218-A/OV.