CHAPTER IX


The Leaky Pipeline Embargo
27


"It seems beyond doubt now that the pattern of Soviet-Cuban-East German intervention constitutes a single apparatus with a serious purpose. It merits a serious American response."

— Wall Street Journal, December 29, 1980


Siberia is a vast store house of oil and gas reserves. In the 1970s the Soviets brought off an almost unbelievable deal to develop these reserves.

A known Soviet objective in economic warfare is to make Western Europe dependent on the Soviet Union. Such dependence will severely reduce European options in case of war with the Soviet Union. The Soviets designed a massive pipeline project large enough to change the entire Siberian infrastructure to channel these Siberian natural gas reserves to gas deficient Europe, thus making Europe dependent on a vital energy resource. At the same time the Soviets convinced the Western deaf mute blindmen to finance this $22 billion deal and so finance their own destruction — just as Lenin predicted.

The Siberian gas deal, known as "Russia No. 6" to the financing bankers, is a 2,800 miles gas export pipeline from the Urengoy gas field in Siberia to Uzhgorod on the Czech-Soviet border, where it feeds into the West European gas pipeline network. Daily throughput is 2.8 billion cubic feet.

Initially, even the U.S. State Department (October 1982) objected to the deal on the following grounds:

• Russia No. 6 would make Europe 20%-30% dependent on Russian gas, thus crossing "the threshold of prudent dependence on the USSR,"

• the financing offered by Western bankers "amounts to a subsidy of Soviet economic development,"

• resulting hard currency earnings from sale of the gas will "have a strategic impact by allowing the USSR to continue to import Western goods and high technology equipment, alleviating serious domestic resource constraints."28

In the late summer of 1981, the Soviet Union contracted with U.S., French, West German, and Italian engineering firms for equipment for the Siberian pipeline. The Soviets required each European country to make available substantial export financing to be eligible for pipeline contracts. Financing offers by the European export credit agencies were for subsidized interest rates, in most cases under 8%, at a time when interest rates ranged from 11% to more than 20%. Using credit, the Soviets purchased power turbines, gas compressors, and monitoring, firefighting, and control equipment. Large diameter pipe was purchased and financed as part of bulk orders of Western steel pipe regularly imported by the Soviets.

In late 1981 and early 1982, long-term gas supply contracts based on the new pipeline were signed between the Soviet Union and gas distribution companies in West Germany, France, Austria, Switzerland, and later Italy. The new contracts significantly increased West European dependence on the Soviet Union for natural gas, in some cases pushing it above 30% (see Table 9-1). Such a level of dependence on Siberian gas is unwise because:

• gas is a fuel particularly hard to replace at short notice because of the way it is transported and stored;

• gas is used in the politically sensitive residential and commercial sectors of Europe.

By the end of the present decade and after equipment credits are paid off, expanded gas exports will earn the USSR $8-$10 billion annually in hard currency. This will be a most important source of hard currency for the Soviets, offsetting an expected decline in crude oil export earnings.


Table 9-1

Gas Supply Sources for Major European Consumers

Federal Republic of Germany

1980 1990

Domestic

30.1% 22.3 %

Netherlands

36.6 15.7

Soviet Union

17.5 25.0

Norway

15.7 22.3
Middle East 7.8
Africa 6.5
 

France

 

1980

 

1990

Domestic 27.5% 8.0%
Netherlands 37.6 8.0
Algeria 7.8 23.0
Soviet Union 13.3 32.0
Norway 9.1 12.0
W. Germany 4.0
W. Africa 16.0
 

Italy

 

1980

 

1990

Domestic 46.8% 17.0%
Netherlands 24.3 13.6
Algeria 27.2
Soviet Union 23.7 35.2
Libya 4.9 5.6
Source: Financial Times (London)


Working Both Sides of the Street

Financing of the Siberian gas pipeline is an excellent example of the two-faced nature of the deaf mute blindmen. In great part those who financed this vast expansion in Soviet ability to wage global war at Western taxpayers' expense are also prime military contractors for Western governments.

General Electric supplies guidance systems for Polaris and Poseidon missiles and jet engines for U.S. military aircraft, while at the same time supplied equipment for Soviet military end uses — on credit at preferential terms that could not be obtained by an individual U.S. taxpayer. In brief, because the U.S. government guarantees these Soviet orders, General Electric is in a position to have the U.S. taxpayer subsidize its contracts in the Soviet Union while the same taxpayer is shelling out for the U.S. Defense budget.

Here are the U.S. prime contractors on "Russia No. 6," with a brief notation of their U.S. government defense contracts:

Military Contracts with United
States Government

Contracts with Soviet Military
End Use (In addition to "Russia
No. 6")
General Electric Company
Total 1980 sales: $18,654 million;
military sales: $2,202 million (No.
5 in USA)
• Produces jet engines for military
aircraft including F-4 Phantom,
F-5 Freedom fighter and F-18
Hornet. plant.
• Guidance system for Polaris and
Poseidon missiles.
General Electric Company
1981 — Romania ($142 rail.)
Steam turbine generating equip-
ment for nuclear power station.
1980 — USSR ($40 mil.) Sub-
contract for computers and electri-
cal equipment for electrical steel
General Electric Company
• Data processing systems.
• Components for nuclear weap-
pons.
General Electric Company
1979 — Hungary
Licensed production of poly-
propylene film, also technology
for condenser manufacture.
1979 — Yugoslavia
Know-how for manufacture of
polyethylene cable.
1978 — Poland ($12 rail.)
Equipment for hot strip steel mill.
1976 — USSE ($90 million)
Hot gas rotating components.
Exxon Corporation
Total 1980 sales: $63,896 million
Military sales: $479 million (No.
29 in USA)
Exxon Corporation
Participation, through holdings in
Ruhrgas and Gasunie, in the dis-
tribution of Soviet gas in Europe.
1978 — Poland
Additives for and formulation of
high quality lubricating oils.
1977 — USSR
Scientific and technical coopera-
tion, exchange of petrochemicals,
information and research cooper-
ation in developing additives to
lubricating oils, resins, solvents
and semi-finished chemical prod-
ucts over 5 years.
Royal Dutch/Shell Group
Total 1980 sale: $225,090 million
• Sales to U.S. DoD were $225
million in 1980, ranking it No. 52.
Royal Dutch/Shell Group
1979 — Hungary
5-year cooperation in various
field including marketing.
In 1978, Shell business with
Hungary included $5 million in
buy-back products.
1979 — Romania
Subsidiary General Atomic to sup-
ply Triga nuclear reactor for
research center.
1978 — Bulgaria
Licensing of process for liquid
plant protectant.
1978 — China
Licensing of process for $250
million methanol plant.
1976 — Poland
Licensing of process for ethylene
oxide plant.
Ente Nazlonale Idrocarburi
(ENI) (U.S. Subsidiary is Agip)
Total 1980 sales: $27,186 million
• Subsidiary Agip had $223 mil-
lion of business with U.S. DoD in
1989, ranking it 53rd among
U.S.defense contractors.
Ente Nazlonale IdrocarburI
(ENI)

1981 — GDR
5-year cooperation agreement
with Chemiaranlagen Export-Im-
port.
1981 — China
Joint agreement for research and
development of Chinese petro-
chemicals and synthesized
polymers.
ENI (U.S. Subsidiary is Aglp) ENI (U.S. Subsidiary is Agip)
1981 — Romania
Framework agreement for com-
plete production program of tur-
bines, compressors, pumps,
valves, etc.
1981 — Hungary ($3 million)
Supply and licensing of 30,000
tpa methyl terbutyl ether (MTBE)
plant.
1980 — GDR ($90 million)
Snamprogetti: construction of
highly advanced plant to recover
lead from batteries.
1979 — China ($50 million)
Subsidiary Nouvo Pignone: joint
production of centrifuge com-
pressors.
1978 — Hungary ($80 mil.)
Supply of gas compressor station.
1976 — Poland
Subsidiary Haldor Topse: licens-
ing of process for two ammonia
plants.
1975 — USSE ($200 million)
Supply of three urea plants.


Foreign Companies with Significant Department
of Defense Contracts

Rediffusion Ltd. (UK)
(Controlled by British Electric
Traction Co. Ltd.)
• One of the top 10 suppliers of
electronic equipment to UK mili-
tary.
• R & D work for U.S. DoD
(1977, $2.3 million); communica-
tions, data processing and flight
simulation systems.
Rediffusion Ltd. (UK)
1981- USSR
Supply and videotext systems and
terminals for gas pipeline.
1979 — Czechoslovakia
($1.5 million) Supply of data
transmission system and equip-
ment.
1979 — Poland ($1 million)
Supply of data processing system
and computers.
1978 — Czechoslovakia
($1.2 million) Supply of two com-
puter systems.
1977 — USSR
Supply of computer system.
1977 — Czechoslovakia
($1 million) Supply of six data en-
try systems.
1977 — Poland ($1 million)
Supply of EDP computer equip-
ment.
Thomson Group
Total 1981 sales: $8,656 million
• Variety of military electronics
equipment including contracts on
full range of Matra missiles such as
Crotale, Martel, Otomot, and on
MBB Kormoran antiship missiles.
• Surface radars, avionics, mill-
tary data processing from Brandt
Armaments Division.
Thomson Group
1979 — USSR ($100 million)
Supply of computerized telephone
exchange system.
1979 — USSR
Construction of printed circuit
plant at Minsk.
1979 — USSR
Data processing for nuclear plants.
1976 — Romania
Supply of air traffic control
system.
1978 — Bulgaria
Agreement on electronics devel-
opments.
Rolls-Royce
Total 1980 sales: $2,926 million;
military sales: $250 million (No. 4
in UK)
• Propulsion systems for Blood-
hound and Sea Dart missiles.
• Jet and turbine engines for mili-
tary craft such as Harrier V/STOL
fighter.
• With Turbomeca (France):
Adour engines for Jaguar strike
plane.
• With Detroit Diesel Allison:
Spey engine for Corsair.
• With Fiat and MTU: RB199
engine for Panavia Tornado.
Rolls-Royce1980 — USSR
Supply of "Avon" turbines for Surgut-Chelyabinsk pipeline. 1979 — Romania ($450 rail.) Agreement for the supply of jet engines and eventual production. 1979 — China ($220 million) License to produce supersonic Spey engines. Licensed manufacture of aircraft engines. 1974 — Yugoslavia/Romania RR Viper turbojets and afterburn- ers for Yugoslav/Romanian Eagle jet fighter and Jastreb strike and
tactical reconnaissance plane.
1975 — USSR
Scientific and technical coopera-
tion in industrial motors.
Fiat SpA
Total 1980 sales: $25,155 million
• Subsidiary Aeritalia (50%)builds
military aircraft including F104
Starfighter. Partner in Panavia
production of Tornado strike
plane.
• Subsidiary Sistemi Elettronica
(SISTEL) builds Sea Killer, Indigo,
Martel and Mariner missiles.
• Fiat Aviation Divsion builds
turbine engines for military air-
craft including General Electric
licenses.
• In cooperation with MTU and
Rolls-Royce: RB199 engine for
Tornado. 
Fiat SpA
1981 — USSR ($86 million)
Fiat-Allis to supply 300 63-ton
heavy track loaders to USSR for
use in large-scale civil engineering
projects.
1981 — USSR ($90 million)
Earth moving machinery for strip
mining in N. Siberia.
1980 — Hungary
Subsidiary Ercole Marelli: licensing
of auto ignition tuner production.
1978- USSR ($22 million)
Subsidiary Telettra to supply tele-
communications network along
Trans-Siberian railway.
1977 — Poland
Extension of licensing agreement
for auto engines and automobiles.
260,000 vehicles produced under
previous agreements.
1976 — USSR
Subsidiary Comau: subcontract
for machine tools for nuclear
energy components manufactur-
ing plants (Comau sales to USSR
for period 69-74 worth $100
million).
1977 — Hungary
5 year agreement for scientific and
technical cooperation.
1976 — USSR
Agreement to expand auto input
and for production of manufactur-
ing, farm and building vehicles.
1976 — Bulgaria
General agreement on industrial
and economic cooperation; joint
R&D.
British Petroleum Co.
Total 1980 sales: $49,471 million
1977 sales to U.S. DoD worth
$211 million.
British Petroleum Co.
1981 — China
Reconnaissance seismic survey in
South Yellow Sea. First by any
Western company.
1973 — USSR
Technology for 75,000 tpa chlor-
oprene monomer plant in
Yerevan.
1980 — USSR
Development of natural gas ex-
ploration and gas pipeline con-
struction.
1977 — USSR
5-year exchange of technical in-
formation including refining
lubricants, processes, and syn-
thetic protein.


Foreign Companies with Siberian Pipeline Contracts and
Significant European Defense Contracts

Friedrich Krupp GmbH
Total 1980 sales: $7,962 million
• Subsidiary of AG Weser: mili-
tary ships for West German Navy.
• Subsidiary Mak Maschineenbau 
GmbH: tanks for West German
Army; also development of a re-
mote controlled mine-sweeping
system.
• Subsidiary Krupp Atlas Elec-
tronik: electronic equipment in-
cluding simulators and sonar
systems.
Friedrich Krupp GmbH
1981-82 — USSR
Supply of steel pipe.
1980 — GDR ($875 million)
Construction of steel mill.
1980 — Poland ($137 rail.)
Construction of coal gasification
plant.
1979 — USSR ($192 million)
Construction of electric steel plant.
1977 — USSE ($82 million)
Construction of DMT plant.
1977 — Hungary ($7 mil.)
Vegetable oil processing plant.
1977 — Czechoslovakia
Supply of effluent treatment plant;
tire-making machine.
1979 — Poland
Cooperating in engineering and
plant construction, raw materials,
construction materials and foods.
1975 — GDR
Long-term economic and tech-
nical cooperation deal including
3rd market sales.
Creusot-Loire
Total 1981 sales: $3,805 million
• General steel products (gun
turret mountings, etc.), engines,
military vehicles.
Creusot-Loire
1980 — USSR ($300 million)
Prime contractor for steelcomplex
at Nololipetsk.
1979 — GDR ($350 million)
Construction of nitrogen fertilizer
plant, cooperation in sales.
1978 — USSR
Supply of turnkey petroleum coke
calcination unit at Krasnorodsk.
1975 — USSR ($500 million)
Supply of chemical and ammonia
plants, all paid for on buy-back
basis.
1975 — USSR ($37 million)
Supply of equipment for Oren-
burg natural gas complex.
1979- Bulgaria
Cooperation in mechanical en-
gineering, chemicals, power
engineering.
Aeg-Telefunken
Total 1980 sales: $6,750 million;  
military sales: $755 million (No. 2  
in Germany)  
• Guidance system on Euro-  
missiles Roland, Hot and Milan.  
• Subcontracts for avionics and  
electrical equipment on Tornado  
fighter plane.  
• Electronic defense equipment  
including radar and navigation  
systems.  
• TR86 computer for DISTEL  
command and control system  
used by NATO and USAF. 
Aeg-Telefunken
1981 — GDR ($40 million)
Subcontract to supply heavy elec-
trical equipment for plate rolling
mill at Eisenhuttenstadt.
1979 — USSR ($22 million)
Telecommunications network.
1979 — China ($22 million)
Electrical equipment for three
chemical plants.
1979- Romania ($1.4 rail.)
Sale of Thyristor rectifiers for
acetylene extraction.
1979- Poland
Motors for power trucks and utility
vehicles.
1977 — USSR
In cooperation with Mannesmann
AG (FRG) built a section of Oren-
burg natural gas pipeline ($875
million in total).
1977 — Bulgaria
Contract to plan equipment and
supervise expansion of electrical
engineering works.
1978 — Yugoslavia
Joint production of copying
machines and spares.


There is a simple, direct message in the above listings. Some of the most famous multinational corporations are sufficiently amoral to accept military contracts from both sides. This is not a new story. It occurs time and again in the history of the past century, but rarely has it been possible to identify the double-dealing while in progress.

While financing highly strategic projects for the Soviets, these multinationals are selling weapons and supplies to Western governments. An obvious deduction is that these corporations have little incentive to reduce world tension. They maximize profit by keeping both sides in a state of near conflict.

As Charles Levinson, author of The Vodka Cola Pipeline, phrases it:29

Western workers must now be asking themselves [some] questions: why should they, through their taxes, bail out the banks who lent money to the enemy? Who gave Deutsche Bank permission to lend cheap money to Leonid Brezhnev, freeing him to divert domestic resources to the huge standing Soviet Army, Eastern Europe's "enforcer." Under what authority do Exxon and Shell, working through layers of overseas subsidiaries and holding companies, push to increase Western European dependence on Soviet energy sources?

Despite the power of the interests at work, the system is not yet concretised and may yet be reversible. But far more public examination and debate is needed. And as time goes on, the ability of the power elites to keep down protest on both sides grows greater. Recent experience cannot be allowed to become a precedent: we cannot accept that human rights are worth less than a pipeline.


The Reagan Administration Marshmallow Approach

The initial public reaction of the Reagan Administration to Russia No. 6 was realistic enough. State Department issued a two page summary listing the dangers to world stability and Western freedom. Part of this report is reproduced on the first page of this chapter.

Then came months of heated debate within the Administration and heavy outside pressure from the deaf mute blindmen on the Reagan Administration and Congress. In general, conservative members of the Administration and Department of Defense made strong arguments against U.S. technology or exports for the Russia No. 6 project. In particular, Secretary of Defense Casper Weinberger and DoD Assistant Secretary of International Security Richard Perle made strong public arguments urging a widespread clampdown on U.S. subsidy of Soviet economic development. They argued correctly that we compounded our own defense problems with these projects.

On the other hand, leftovers from the Henry Kissinger-Richard Nixon detente school won the day. Led by then Secretary of State Alexander Haig (a protege of Henry Kissinger) and backed by Congressmen under pressure from the deaf mute blindmen pushed the Reagan Administration to collapse. In meeting with European allies Haig was accused of not pushing the Administration position and allowing the Europeans to continue with the deal by default. Without question the U.S. could have offered the Europeans an energy package of Alaskan oil, Canadian liquified gas and U.S. coal to replace Russia No. 6.

In brief, Russia No. 6 demonstrates the ongoing political power of the deaf mute blindmen, in this case that group centered on David Rockefeller of Chase Manhattan. The U.S., even after six decades of subsidy of the Soviet economy and with a defense budget approaching $300 billion annually, was pressured into a project that gave the Soviets hard currency earnings, subsidised credit, and our finest technology —at U.S. taxpayers' expense.

 

Footnotes:

27Much of this chapter is based on an excellent study, The Vodka Cola Pipeline, by Charles Levin-son. Available from P.O. Box 277, 1211 Geneva 19, Switzerland. Send $6 per copy postpaid.

28U.S. Department of State, Gist "Siberian Gas Pipeline and U.S. Export Controls," October 1982.

290p cit., p. 40.

 

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