Peak oil and the Fall of the Soviet Union: Lessons on the 20th Anniversary of the Collapse

This is a guest post by Douglas B. Reynolds, Professor of Energy Economics at the University of Alaska, Fairbanks, Department of Economics, SOM

Synopsis: The causes of the fall of the Soviet Union are thought to be inefficiency and the Soviet response to the Reagan Administration’s military buildup of the early 1980s. However, a more plausible explanation is the decline in Soviet oil production caused by peak oil. This gives the world an example of a modern economy confronted by peak oil and what lessons we can learn from it.

Neo-Classical Economics

In the West, we have great economic Nobel Laureates such as Hayek, Solow, Freidman, and Samuelson, who extol the virtues of markets for organizing an economy. Yet their theories for how great markets organize an economy contrast sharply with the planned economies of the Union of Socialist Soviet Republics (USSR) and the Soviet East. The odd thing is, the Soviet Union, even with a planned communist economy, managed to become a super-power with a military prowess that scared the West. Remember the Cuban missile crisis, or Khrushchev pounding the table at the United Nations with his shoe saying, “We will bury the West,” or the Sputnik panic? Well, Kennedy (1987) shows quite profoundly that you can’t have that degree of military prowess and be a world super-power unless you also have a strong and vibrant economy to back it up which, against all doctrines of conventional neo-classical economics, the Soviet Union had. It produced over 2 million motor vehicles a year, over 100 million tons of steel a year, and hundreds of advanced MIG jet fighters every year. So either the Nobel Laureates are wrong about their emphasis on markets or we don’t have a correct picture of the Soviet Union and its economy at all. 

However, we know that free markets do work, and upon close inspection, the Soviets actually did use markets:  managers of communist enterprises had to engage in trades and internal political markets to obtain scarce resources for production; people created their own private little gardens, “dachas,” that produced fruits and vegetables sold on farmers markets; workers were given bonuses as incentives to work hard; and the authorities allowed certain black markets to ease other Soviet planned inefficiencies. So in fact, the Soviet Union was market-oriented after all. Nobody has to give back their Nobel prizes just yet.  

Still, Robert Solow (1956) suggests that technical progress is the cause of four-fifths of the US output per worker, which suggests that it should also cause four-fifths or so of increases in Soviet output per worker. However, neo-classical economists emphasize that free markets give the incentives necessary for such innovations, which makes you wonder why was the Soviet planned economy able to essentially keep up with America when it was not be able to give as many incentives as the US could and therefore could not induce innovations as well as the US could. One reason is that the Solow neo-classical growth theory is incomplete. Yes, labor, capital and technological innovation are important inputs into economic growth, but what Cleveland et. al. (1984), Cleveland et. al. (2000), Smil (1991, 1994, 2005) and Reynolds (2002) make so clear is that energy is a vital ingredient to growth and technology. If you take away energy, the labor, the capital and the technology inputs cannot do a thing.  As one physicist friend said to me once, “I bet (those economists) can’t even change a tire.”  

So what all of the Nobel Laureates, the Nobel committee for the economics prize itself, and indeed, most economists are missing is the essential role of energy as an input into economic growth. Energy must be separated as an input into growth and analyzed and econometrically modeled. If that were done consistently, then energy analysis would be one of the most central themes in the American celebration of the global economic rise as well as a central theme in our understanding of the Soviet economy. The American and Western economies rose not just because of technology alone, but because of the use of high quality energy, and lots of it. Similarly, the Soviet Union rose due to energy use too.

The Importance of Energy for an Economic System

If we acknowledge that the Soviet Union had a powerful economy, which it did, and acknowledge that its economy was based on the same abundant, high quality energy that the US depended on, oil, then the reason for the fall is clear—peak oil.  The fall of the Soviet Union is a peak oil event and if we treat it as such, then we can begin to understand what is in store for our own economy. Indeed, the fall of the Soviet Union is a perfect economic experiment for what will happen to our own world economy as peak oil continues. 

According to the Economist (2010), the world is experiencing a rising cost for extracting energy because the energy needed to extract energy is rising, i.e. this is the concept of a falling Energy Return on Energy Investment (EROI). See Cleveland et. al. (1984), Hall et. al. (1986) and Hall (2008). What is more the Economist finally says what so many others, like Hamilton (1983), have been saying for years, that energy costs are affecting the economy. A decreasing EROI is in turn a general way to explain peak oil as it implies you can no longer find high EROI energy, e.g. conventional oil in large reservoirs but are instead finding low EROI oil, such as oil in small reservoirs. The decreasing EROI also implies another problem for the economy because the substitution away from high EROI oil is increasingly inelastic (Reynolds 1999c) and creates a loss of the Entropy Subsidy (Reynolds 1998). In other words, peak oil will cause economic decline. However, if peak oil is affecting the world, than why would it not have affected the Soviet Union too?  Clearly it did.

No one has studied closely the Soviet Union’s EROI to see, like our current world economies, if EROI was declining within the Soviet system and therefore affecting the Soviet economy. Nevertheless, one way to analyze the fall of the Soviet Union is to simply analyze its conventional oil use, which has been studied, see Reynolds and Kolodziej (2007 and 2008) and Reynolds (2009, 2001, and 1999a).  Nevertheless, before we can look at a peak oil theory for the fall, it would be good to look at the alternative Soviet collapse theories that abound.

Alternative Soviet Collapse Theories

The Economist (2009), for its part, claims that it was a decline in total factor productivity (TFP) that may have caused the fall of the Soviet Union.  However, upon a close inspection of Beare (2006) and Easterly and Fischer (1995), articles which surely would have been referred to in a TFP analysis, it is shown that in fact TFP was always growing, although at a declining rate, but growing nonetheless.  Thus, a slow growth in TFP can only cause an economy to grow more slowly, not collapse.  The upshot is that the Soviet TFP was not declining for 30 years as the Economist claims, but its rate of growth of TFP was declining. Still a poor TFP performance cannot have been the cause of the Soviet demise as even China had a poor TFP performance before its embrace of free markets and the Chinese Communist party is still going strong. 

Another hypothesis for the fall is the “Reagan Doctrine” hypothesis, where the US Presidential Administration of Ronald Reagan increased military spending and support of Soviet opposition in Poland and Afghanistan, which may have also caused the fall. But economists have yet to falsify that hypothesis although more than that, it doesn’t make sense.  Reagan came into office after the USSR’s 11th Five Year Plan (1981) was already in place.  With a Soviet Union as inefficient as it is said to have been, the Soviets would have needed time to react to Reagan’s military spending and then plan what to do.  In fact, it would have been too difficult to start reacting to Reagan within the 11th Five Year plan without rewriting and reorganizing the whole plan, a feat that would have taken years. Better to change the 12th Five Year Plan starting in 1986) instead and begin to react against Reagan’s policies then. 

However, the 12th Five Year Plan does not show any evidence of a huge change in defense spending, nor was there any recorded change in defense spending until about 1988, nor are there any other signs of change before then such as a radical increase in the number of missiles. That means the hypothesis, which depends on the idea that defense and internal communist police spending were taking away investment into new productive capital, would require many years after 1988 before an effect on the overall Soviet economy should have been observed, yet the fall started to happen in that very year of 1988 as that is when Eastern Europe, part of the Soviet Empire, started to have problems. Also, the propaganda surrounding the 12th Five Year Plan was one of openness (glasnost) and development (uskoreniye) not one of military spending increases or the need to more adequately defend the Soviet homeland. It seems highly unlikely that it was the 12th Five Year Plan that could have caused a precipitous fall in the Soviet Union that actually started in 1988 only two years after the beginning of the plan.

So what is needed is to take a different analytical tack in assessing the collapse of the Soviet Union, away from the political, economic and military propaganda, and consider the USSR as an energy system. Clearly it used the same high quality energy resources that the US and the rest of the world did, see Table 1, so that means that not only did the Soviet Union use some free market principles, parallel to the West, but it used almost the same energy systems as well.  If we analyze the Soviet Union as an energy system therefore, rather than as a political or even economic system, then we can start to understand both its great economic output in spite of its inefficient planning and its great fall in spite of its internal (albeit black) market system.

Table 1. Conventional Energy Production

Energy Source

USSR 1988

USA 1988

World 2010

(million barrels per day, MBD)

12.5 MBD

9.7 MBD

85 MBD

Natural Gas
(trillions of cubic feet per annum, TCFA)



137 TCFA

(million tons per annum, MTA)

850 MTA

950 MTA

7240 MTA

(gigawatts of installed capacity, GW)

64 GW


777 GW

(gigawatts of installed capacity GW)

20 GW

100 GW

366 GW

The energy cost effects on the Soviet economy

To start with, it must be understood that as Reynolds (1994,  2002) points out, conventional crude oil is the most valuable of all energy resources, because it is a liquid (state grade). This is why for example oil sells currently for about €10 per Gigajoule ($14/mmBtu) while coal sells for about €2 per gigajoule ($3 per mmBtu).  Also oil has 20,000 Btus per pound (weight grade), 1 million Btus per cubic foot (volume grade) and 500 billion Btus per acre in-situ (area grade). See also Smil’s (1991) concept of power density. In aggregate, as a sort of energy theory of value, oil has the highest energy grade of any energy resource. It also has the highest energy return on investment (EROI) than any other energy when considering large conventional oil fields. See for example Hall (2008).  So looking at the value of oil, it is clear why the Soviet Union rose to prominence as it was able to produce so much cheap oil upon which to base its economy. Oil smoothed out Soviet inefficiency. However, the Soviet Union fell when its oil production fell and it no longer had cheap, high quality energy. 

In fact, isn’t it the case that oil is the real reason that the US economy grew so rapidly during the early 20th century too, and then so slowly after 1973, the year of the first oil shock, as Cleveland et. al. (2000) show? Thus the Soviet Union and the US both had vast resources of oil and both grew powerful because they both exploited oil so much. Both economies extracted oil quickly, although the so called inefficient Soviet Union managed to exploit its oil resources even faster than the so called efficient USA:  a 10% rate of growth in oil production for the USSR in its early years and a 7% rate of growth in oil production for America in its early years. However, both the Soviet Union and America saw peaks in their oil production, the US in 1970, as M. King Hubbert (1956) and many others (see Brandt 2010) predicted; the Soviet Union in 1988. See Figures 1 and 2. Thus the US shows that no matter how advanced or efficient an economy is—and the US is one of the best—you will eventually endure peak oil, and that an oil shock caused by oil scarcity can affect your economy adversely.

Figure 1
Figure 2
The Chicken or the Egg?

Being a closed economic system, the USSR and the Soviet East had very little trade with the West and so that system had to depend completely on its own oil production. When Soviet oil production declined, so did its economy.  You could argue that a lack of markets, Soviet inefficiency or the political chaos in the 1980s caused the production to fall, but as spelled out in Reynolds (2000) and Reynolds and Kolodzej (2007, 2008) the only thing that makes sense is that scarcity caused the decline in oil production first and that the decline in oil production caused the collapse of the Soviet East afterward.  After all, why did only Soviet oil production decline but not Soviet natural gas production, two industries that are very similar, if inefficiency was so rampant?  Why did Soviet oil production increase before 1980 without much Western technology only to suddenly start declining after 1980 even when the Soviets had access to Western technology? And why did a period of glasnost cause the Soviet Union and the Soviet oil dependent Eastern Europe to collapse, but a similar glasnost caused China to rise and stay communist?  The only explanation that works is the dependency on internal cheap oil and the peak oil hypothesis.

If you look closely at the news prior to the collapse of the Soviet Union, you see that first Eastern Europe went through economic chaos starting in 1988, the year of Soviet peak oil, followed by Russia in 1990 and beyond. Interestingly, once the Soviets saw their peak in oil in 1988, they forced all the Council of Mutual Economic Assistance (CMEA) countries to pay for their Russian derived oil in hard currency and at Western oil prices. But the Eastern European countries had no such currency to pay for oil and so they had to curtail their use of oil.  Well, without any (almost free) oil available, you cannot run a modern economy no matter how efficient it is let alone an inefficient communist one.  This caused the Eastern European economies to collapse and revolutions in Eastern Europe to erupt starting in 1988.  Basically there were about 20 “French Revolutions” in the span of four years as communist government after communist government fell. 

Clearly, then 1988 is the initial point of the overarching fall of the Soviet Union when you include its regional influence in Eastern Europe.  But as Soviet oil production continued to decline after 1988, peak oil affected the Soviet economy as well, causing its collapse.  The Soviets eventually endured their first stagflationary shock in October of 1989 when their currency was devalued by 90%.  Eventually, as the Soviet economy fell each of the Soviet Republics from Lithuania to Kazakstan left the Union. And during that whole time Soviet and post-Soviet oil production fell from a high of about 12 million barrels of oil produced per day to a low of about 7 million barrels a day, a 40% decline. So the real reason for the fall of the Soviet Union was an oil crisis. It was the third major oil crisis of the 20th century after the 1973 and 1979 oil crises, but you never hear of it. 

The Post-Soviet Oil Rise

You might ask, if there was peak oil in the Soviet Union during the fall, then why did former Soviet oil production rise again after 1996? Doesn’t this mean that there was plenty of oil and that it was their own inefficiency that caused the collapse in oil production? To answer this question consider a parallel question. Why did the ancient Babylonians of Mesopotamia fall? After all, if the ancient Babylonians had modern 21st century technology, they would not have fallen. Well, they did not have that technology, but then neither did the Soviets have a lot of Western technology, not because the Soviets did not buy much new oil technology from the West, but because their system was not set up to use that technology.

The main reason for the rise in Post-Soviet oil production was that there was a change in relative prices between energy and labor, a change in property rights and a change in the over-arching market structure behind the use of such technology. See Dienes (2004) for the complete analysis.  During the Soviet era, the oil production enterprises used simple primary and secondary oil production techniques to produce the massive oil that existed. However, the enterprises depended on Soviet technology, Soviet supply lines and above all were under Soviet government dictums. This is where we must also use conventional neo-classical economics to understand events. Remember, oil was basically given away at a low cost, but there was an initial government plan and investment to get it, i.e. a cost within the planned economic structure. Nevertheless, there was little incentive within the system to upgrade the necessary technology and invest heavily in new techniques because the price was set so low, although much investment did occur within the confines of the system. 

The one thing that Soviet oil enterprises could not do was to manage the oil resources to maximize the value of oil over the long term.  Better to produce quickly now, and ruin a field or waste oil, then to produce more slowly to maximize total value.  Nevertheless, such waste does not imply a lack of technology caused the fall, it implies a lack of oil caused the fall and that the lack of technical efficiency did not help matters.  After all, if the Soviets had had ten more Western Siberias of oil, or even 100 more, then their oil production would not have fallen—they would not have had peak oil—because more cheap oil would have been available. Still whether you have an efficient car or an inefficient car, it cannot run without any fuel.  

After the fall, once property rights changed, and the price of oil relative to other economic inputs, especially labor, was raised, it was relatively easy not just to bring in massive amounts of new technology to reinvigorate ruined fields, but also it was easy to manage the pace of production to maximize the fields’ long term value. Nevertheless, the fact remains that under a closed and bureaucratic system that was unable to change, oil became scarce within the confines of that system. Indeed oil production declined in America’s own oil sector under America’s so called advanced market based system.  Thus, with a closed and relatively less efficient system, it could not have been lower levels of technology, lower levels of investment and lower levels of management that caused a Soviet peak and decline in oil since Soviet technology and management—though inefficient—was always improving.  Rather it was oil scarcity, i.e. the lack of more large oil fields available, that caused the oil production decline. Indeed, Soviet investments into the oil sector were increasing as Gustafson (1989) makes clear. More investment, better technology, and more openness toward the end of the Soviet Union cannot cause a peak oil event, only scarcity can do that. 

Will the World Follow a Soviet Style Peak?

The Soviet Union endured a peak in oil production within its particular system.  Once the system changed, there was indeed a renewal of oil production, but even under the new system today there is again peak oil as figure 1 shows. However, just because a system can change, does not mean that the old system did not endure peak oil, it did.  Logic dictates cause and effect in time and context.  Thus while the Soviet Union’s region does not change from 1988 to 2010, its economic system did. Still, even if a more efficient system was put in place in that region and caused oil production to increase, that still does not imply that the fall of the Soviet Union was not caused by peak oil.   

The crux of the issue is, can the world also endure the same oil crisis event that the Soviet East endured?  Yes it can.  Seeing as the world is a closed system with a certain level of technology then it too is subject to peak oil and the economic consequences of that peak. We will surely endure the same crisis that the Soviet’s endured and indeed we already are, as the Economist (2010) tacitly, though unknowingly, admits. See Figure 3 to view where peak oil stands for the world. 

Figure 3

Many of those who look at peak oil consider the world’s peak oil, as shown in Reynolds (1999b and 2009), to be a short run phenomenon and that, rather like the Soviet Union, oil production will soon increase again possibly because of the Iraqis newly revitalized oil sector. However, a close comparison of the Soviet Union and the world suggests that the world will not suddenly have an increase in oil production as the Soviet Union did.   Consider these points:  First the Soviet Union had a huge increase in technology after 1996 and especially after its currency crisis in 1998.  Second the whole of the region of the Soviet Union, not just one little oblast, was changed.  Finally, most of the Soviet oil reserves shifted from state ownership to being privately held.  If we were to compare the world to the Soviet Union, none of these conditions are present, and therefore the world in total cannot possibly have a new round of oil production increases the way the post Soviet Union did. 

However, all of the oil producing countries of the world currently have the latest and greatest oil production technologies and access to any and all innovations.  So unlike the Soviet Union, there can be no technological revolution for the world.  Next, the world already has relatively free markets even in Russia and the Middle Eastern countries.  These free markets allow capital and labor to move relatively easily and quickly to wherever they are needed, and so an increase in free markets is not possible, they already exist.  Finally, as far as property rights are concerned, most oil producing countries are not about to turn over their vast oil reservoirs to private control as the former Soviet Union did. State ownership for most oil reservoirs will continue, and so a Soviet style increase in oil production for the entire world should not be expected. 

Thus in order for the world to increase its oil production on the same magnitude and relative scale as the former Soviets managed, you would need a worldwide revolution in technology, institutions and markets, not just a change in one relatively small oil producer of Iraq, and that is just not going to happen.

  The Soviet Union’s Peak Oil as an Economic Experiment

What so many Sovietologists and economists fail to consider about the Soviet Union is that the Soviets knew about peak oil, seeing as they had one of the most technically well-educated workforces in the world with top mathematicians, physicists and oil geologists. Indeed, the Soviets were actively trying to find solutions for peak oil with new energy technology. The Soviets clearly researched alternative energy technology previous to the fall, such as solar energy, oil shale energy and nuclear power, (CIA 1985).  Those same top people undoubtedly warned the Soviet brass about the problem of peak oil and there was indeed a tremendous increase in energy research and oil investment in the USSR. This bodes badly for our own predicament, for even though we have also conducted much alternative energy research and oil investment, the Soviets, and our own 1970’s energy investments show that alternative energy has never been able to help an oil crisis.

So knowing the world rate of oil production has already peaked, then what can we expect? The Soviet Union’s collapse offers a preview. We can expect a great stagflation, where you simultaneously see a declining economy and hyperinflation. We can expect to see high unemployment and a collapse in the world economy. We can expect to see governments without any money to pay for things like health care, pensions, environmental problems, prisons, education or defense.  We can expect to see infrastructure decay.  We can even expect to see a decline in population.  Finally, similar to the post Soviet Union, we can expect to see protests, political turmoil and revolution. 

The Origins of the Financial Crisis is from the Oil Crises of the Past

So, what the Soviet Union endured is exactly what we are seeing now. Indeed, the entire financial crisis and its own resulting political turmoil is not about finance at all, but about peak oil. If you go back to the US administration of Ronald Reagan and even before, the so called free market economic revolution that he inspired was really only a set of policies in reaction to the oil crises of the 1970s. To some degree these policies worked, such as deregulating airlines, but to some degree these policies did not work such as deregulating banks. This culminated in the 1990s with the Dot Com bubble and the currency crises of Asia and the developing world, and continued in the early 2000s with government policies to help the housing and construction industries grow beyond sensible levels.  However the culmination of the housing bubble occurred when all these people living on the edge of their limited weekly pay, could not simultaneously pay for gasoline, due to high oil prices, and their mortgages and had to choose to foreclose. Now that these bubbles have burst, there is nowhere left to hide.  No more growth is possible without more cheap energy.

As the Nobel Laureates explain, a free market system is about the best system available for society, but that does not mean free markets are powerful enough to overcome peak oil. Maybe economics needs a bit of engineering reality thrown in, but to be fair, many engineers, business people, physicists, biologists and so on, also believe in the power of technology.  By studying the economic events surrounding the fall of the Soviet Union, we can at least be better prepared to handle the consequences of our inevitable collapse. A full understanding of the economics of energy such as the EROI, energy grades, peak oil and the Hubbert curve, will help, although now it’s a bit too little, too late.  We just have to learn from the former Soviets and just handle each crisis as it occurs.


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"What is more the Economist finally says what so many others, like Hamilton (1983), have been saying for years, that energy costs are affecting the economy."

Bbbbbut, if we run out of energy, won't the magic of the market just find something else to replace it with? Same with drinkable water? Breathable air? A livable planet? Isn't everything always infinitely replaceable?

The magic of the market will certainly find replacements -- it's just that you have to include the entire world, not just the human component, in the concept of "market".

People will be replaced by insects and grass. They don't need so much water or air, and they can't drive cars at all.

We will never, ever, ever run out of energy. Ever.


We are running low on useful, high quality energy, but there is an incredible amount of diffuse energy to do nothing, or next to nothing, with......

Even if or when the universe reaches maximum entropy, there'd still be useless energy with no gradients.


And hydrogen is the most plentiful element in the universe, so we should base our economy on it.

(Except that most of it is in vast diffuse clouds millions of light years away. Oops.)

This is an interesting enough thesis that I added a discussion to The Oil Conundrum. I first found the argument as made by Ayres but Professor Reynolds clearly predates Ayres, with a Mr. Anonymous suggesting Hubbert had something to do with it in 1977.

It seems that the CIA took Hubbert’s methodology seriously and applied it to the USSR (Anonymous 1977). This report predicted that Soviet oil production would peak in the early 1980's. In fact there were two peaks, the first in 1983, at 12.5 million barrels per day and the second in 1988 at 12.6 barrels per day. Since then production has declined steadily. It seems likely that the Reagan administration, which took office in 1981, bearing in mind the economic havoc produced when US production peaked in 1981, followed by the Arab oil embargo and the “oil crisis” of 1973-74 and the deep recession that followed, decided to use the “oil weapon” to destabilize the USSR. Reagan embarked on a major military buildup, putting the Soviet Union under pressure to keep up. Meanwhile, declining prices after 1981 forced the USSR to pump more oil to supply its clients in Eastern Europe and to sell in world markets for hard currency. Then in 1985 Reagan persuaded Saudi Arabia to flood the world markets with cheap oil. Again, the USSR had to increase output to earn hard currency. This led to the second peak in 1988. Two years later the USSR imploded (Heinberg 2004) pp 40-41. [Ref 74]

In terms of the oil shock model, the implosion caused a reverse shock which has since stabilized.

74. Ayres, R.U., “Lecture 5: Economic Growth (And Cheap Oil)”, ASPO 2005,

How clever of Ronnie to discover oil in the North Slope and in the North sea just when he needed it to lower prices as part of the grand conspiricy to use peak oil to destroy the USSR.

Its also not well known but Gorbachev was the love child of Reagan and Margret Thatcher. They hatched him specifically to preside over Glasnost and Peristroika, further weakening the evil empire from the inside.

Interesting. One question, though. I'm pretty sure the US experienced Peak Oil too, about 10 years before the Soviets. Why didn't our system crack up first?

I'm guessing it's because of US ties to the Middle East - and the house of Saud in particular. It seems to me the Saudis just might have traded their chance at a dynamic global empire for US military protection.

I'm sure this has occured to a few citizens of the KSA as well.

It seems to me the Saudis just might have traded their chance at a dynamic global empire for US military protection.

I seriously doubt that a small, repressive and technologically/socially regressive country like the KSA could ever have been capable of building a "dynamic global empire", no matter how vast its stocks of cheap energy initially were. And I'm also extremely grateful for that fact, given the current state of Wahhabi Islam. Imagine a totalitarian global empire with legalized slavery (existed in KSA until 1950s), women treated like chattel, honor killings, eye-for-an-eye "justice", state religion, religious police monitoring everything from bedroom activities to personal fashion, death penalties for gay people and adulterers, and a strict ban on "moral vices" like alcohol and most forms of Western entertainment (for everyone except the wealthy elites of course).

I'm not usually given to brainless, jingoistic outbursts of patriotism, but the very thought of a Saudi global empire makes me want to loudly sing the theme song to "Team America":

But it is really not technically feasible to eliminate them. Really.

I wasn't advocating for outright annexation of the KSA. I was just noting that the world has been better off under American hegemony than it would have been under Saudi hegemony --despite all of America's hot/cold wars, political puppet states, abuses of power, and other mistakes.

No doubt.

Although I personally believe that the world would be even better off under the Chinese.
America often talks about democracy but as we've seen in the ME, the U.S. often is very cold when it comes to it's interests. The Chinese are no better but at least they are not hypocrites about it. And they are investing big time in Africa(although propping up terrabad regimes while America at least formally want some kind of democratic reforms in return).

One thing is sure though, a bipolar world is not likely to be very stable.

the US experienced Peak Oil too, about 10 years before the Soviets. Why didn't our system crack up first? -- Sponia

I'd say the number one reason was NAFTA.

If you take away energy, the labor, the capital and the technology inputs cannot do a thing.

The EIA's Monthly Energy Review is now out with the April data. The "Petroleum Products Supplied" column shows that in 2005 the US had an average of 20,802,000 barrels per day supplied to assist labor, capital and technology in doing their thing. The average for the first four months of 2011 the petroleum products supplied was 19,042,000 barrels per day, a drop of 1,760,000 or 8.5 percent.

But in 2009 petroleum products supplied was down even more, down 2,031,000 barrels per day or 9.8 percent. And we were trying, at that time, to come out of a deep recession. But the recovery has been anemic.

Unless we can show an continuing increase the energy supplied to labor, capital and technology then GDP must stop growing also. And as it was in the former Soviet Union, the end of growth must be the beginning of collapse.

And it is worldwide. The below chart is not for the US but for the UK. (I could not locate one for the US that I could reproduce here.)
The UK's Stagnating Economy

 The Office of National Statistics showed a dip of 0.5 per cent in the last quarter of 2010 which was cancelled out by the 0.5 per cent increase so far this year - meaning no growth in GDP

Biggest drop in household spending since 2009
Investment in business declined 7 per cent
Economists downgrade growth predictions for second time this year

If energy decline caused the collapse of the Soviet Union then obviously energy decline is now causing the collapse of the world economy... in slow motion right now but the decline may increase very soon.

Ron P.

". . . but the decline may increase very soon."

Ron, I think you meant to write "but the decline rate may increase very soon."

I think the decline rate will increase dramatically over the next five years, because of westexas's Export Land Model. We're in for more financial crises, more recessions, and quite possibly a Greater Depression accompanied by accelerating inflation.

The road ahead is full of bigger and bigger potholes, and the slope is downhill. The steepness of the decline over the next five to ten years will, I think, be roughly at an annual rate of 3% per year, on the average. Prosperous times are in the past; in the future "prosperity" will be a year such as 2011 with a low rate of growth in global GDP.

IMO, the next recession will be longer and deeper than the last one, i.e., the one we have not yet recovered from.

There may be political changes in the U.S. over the next dozen years equivalent to what happened in the Soviet Union after 1988. My guess is that the U.S. will evolve into an authoritarian dictatorship, but in my gloomier moments I visualize us evolving rapidly to an Orwellian nightmare of totalitarian dictatorship. Peak Oil for the West means Peak Democracy. Just as the German inflation of 1923 wiped out the middle class and set the stage for the rise of Hitler, I expect economic pain (combination of increased unemployment and rapidly increasing inflation) to destroy all but the nominal form of the U.S. government.

Now, having said all that, I think the U.S.--relative to other places in the world--will be spared the kind of collapse that we see in countries such as Zimbabwe. The U.S. has abundant crop land, good rainfall, a great deal of real capital (railways, roads, bridges, buildings, machines, tools, computers, etc.) and a considerable amount of human capital, i.e. an educated labor force combined with an approximately zero rate of natural increase in population.

Hi Don,what are your views on the outcome in Europe and India in the future of the down slope?Your viewpoint would be appreciated.

I think outcomes in Europe will vary a great deal by country. I think France and the Scandanavian countries will do the best in Europe, for various reasons.

India will have mass starvation and a decline in population. They depend on irrigation and the Green Revolution. But they keep adding to population and importing more and more food. Ten years from now they may not be able to import much, if any, food. In addition to fossil fuels (and hence fertilizer) becoming more expensive, I expect both the absolute and relative cost of food will rise substantially during this decade. India already has a serious problem of undernutrition and also one of malnutrition; these problems will spread. The upper and the upper middle classes may do all right in India, but the great mass of peasants and unskilled laborers will be worse off than they are now. I suspect there may be more suffering and misery in India than in any other country--too many people and not enough resources.

Thanks Don.They tally with what I had in mind but you are better at these assessments than me so your
opinion puts me to rest.However my view of Europe is less bullish than yours.I live in Belgium and was in Hungary,Romania for 15 years.Had a chance to travel to several countries.Whereas you are correct that France(because of nuclear)and Scandinavia(hydro,nuclear,renewables)will be better off,the rest of Europe will pull these down also(something like the current economic crisis where the periphery is tugging the centre) and not to mention the demographics in Europe.In Hungary,Romania and even in Belgium they are shutting down nursery schools because of no children.In Budapest last year they closed down children parks,no children.By the way demographics is bad also in Scandinavia.I think that your view would hold good if the EU breaks up and every country is on it's own,but the guys in Brussels are hellbent on continuing with the union at all cost.Your view.

Never underestimate the power of accidents.

Any nuclear accident could be devastating for France, as well as it's neighbors. Doel 1 and 2 in Belgium are quite old, conveniently situated near a major conurbation cum transport hub. If something went amiss (god forbid!) at Doel, the city of Antwerp would be in serious trouble. There are refineries in Antwerp. It sits within 100 miles of the major ports of Rotterdam, Zeebrugge and Dunkerque, at the northern end of the British channel. This is the place that has the highest concentration of shipping in the whole wide world ; check any shipping tracker. Nuclear reactors in the vicinity include Dungeness(GB), La Hague(FR) and Tihange(B).
If you spend some time tracking shippping, you'll notice that most of the activity is in the Dover/Calais channel : never less than a thousand ships are reported, between 1200 and 1600 seems usual. The next best spots are Japan and signapore, U.S. portuary regions coming a distant third.

If any of the four reactors I mentioned should develop a serious fault - which I know is a distinct possibility for Doel as well as Tihange - we should expect more than just local disruption. Most of the worlds shipping goes throuh here.

Tks for the interesting observation.

I live in the Nederlands and worry more about this nuclear plant it is below sea level.

anyway not to worry the Government is discussing opening a few more of so they mentioned in De Telegraaf newspaper today.

Hi Don,

I really love France, especially the interior regions of Provence - great for bicycling (although my days of travelling there are probably over). I found the lifestyle (and people) to be quite wonderful. However, I kept wondering about something. Although there are great rivers like the Rhone, much of the land is very high above sea level (and river level) and very arid (I'm most familiar with the area east and north of Avignon in the Luberon area) - it seemed to me that huge quantities of water were being pumped to many villages and growing areas. I didn't see much evidence of wells - mostly the water seemed to be pumped from significant distances.

It was kind of a hobby of mine to ask local people about their water supply - where did it come from and did they have any concerns given that the land in its natural state was very dry. Honestly, I never got a knowledgeable response - it was generally assumed that the water supply was not a problem - it just came, quite reliably, in pipes.

It seemed to me that very large tracts of land in this area would have huge problems if water supplies were decreased due to energy issues. I'm wondering if anyone here has some insight into this question. It seemed to me that this otherwise idyllic area would be devastated without a very energy-based water supply. Will water supply issues like this be greatly impacted by declining FF supplies? It would seem so.

Interesting piece.

But what I don't see being considered here are what should be two very relevant facts, i) regardless of some transient decline in oil production, the Soviet Union oil was throughout this period a net oil exporter, implying that it still had sufficient oil for its own needs, and ii) during the 1980s the price of oil fell through the floor, thus depriving the Soviet Union of much needed revenue from its oil exports.

Also, has it not been claimed (though perhaps not proved) that the Reagan administration persuaded the Saudis to flood the market with oil for the express purpose of causing Item ii to take place and thus further stressing an already weak Soviet economy?

I thing we all generally acknowledge the the health of the economy is inversely related to the price of oil. However, the price of oil, like all commodities, is also affected by the level of short-term demand. So is it not possible that if the Soviet economy went into a slump for whatever other reasons, and if at the same time there was a worldwide glut of oil, should we not then expect Soviet oil production to decline due to i) falling internal demand, and ii) reduced incentive to produce oil for export due to low prices?

So, in this case it is not clear to me whether the chicken or the egg came first.

Joule's comment about the Sovien Union remaining an oil exporter is spot on and difficult to reconcile with the arguments given in the article.

It's hard to understand how an oil exporting nation can collapse due to insufficient cheap oil to run their own economy. The now-Former Soviet Union has been an exporter of oil, natural gas and coal for the last half century as depicted in the graphs below from the Energy Export databrowser. In each graph, the new nations that emerged from the Soviet Union are colored based on their 2009 import/export status.

In the case of oil we see that the decline in production started about a year or two ahead of the decline in consumption (contrary to Joule's suggestion).

Natural gas production saw a smaller but still substantial drop beginning in 1990 with consumption falling after a similar 1-2 year lag.

Coal saw a huge decline from 1989 on that had much more to do striking miners than it did with "peak coal".

I believe the case for "peak oil" causing the fall of the Soviet Union is very difficult to accept given that the Soviet Union was still able export large quantities of oil, gas and coal up to and throughout the entire 'collapse' period. I would argue that "above ground" factors were much more important than geology in ending the Soviet Union and in shaping the production profiles seen above.

During the 1980's the Soviet Union had the following stiff headwinds:

  • Worker unrest throughout the region that began with Solidarność in Poland in 1980. (Such unrest is contagious in authoritarian regimes as we are currently seeing in the Middle East.)
  • A disastrous war in Afghannistan with huge costs in money, materiel, manpower and national identity.
  • A total collapse in the price of oil from an inflation adjusted $100/bbl in 1980 to $33/bbl in 1989. (Oil was the Soviet's main source of hard currency.)
  • The Soviet Union was 70 years old in 1988 and those who follow generational dynamics would predict that any large social order will go through a process of renewal on a 70-80 year cycle. Hence the miners' strikes.

It seems clear to me that in the case of the Soviet Union it was not geology that affected oil production and in turn led to collapse. Rather it was societal collapse due to the factors listed above that led to unwilling workers that in turn led to production declines.

Geology is very important in determining production but it is not the only thing. In free-market economies like the US, UK, Norway, etc. we can expect geologically determined production profiles. But in command-and-control economies, especially secretive ones like the Soviet Union, human factors are often more important.


Many good points. And if the leaders didn't have a crazy old rogue cowboy at the head of their adversaries to point to in order to frighten their constituents into towing the line a bit longer, they may have failed much earlier, imvho.

"•The Soviet Union was 70 years old in 1988 and those who follow generational dynamics would predict that any large social order will go through a process of renewal on a 70-80 year cycle. Hence the miners' strikes."

I tend to agree that the article puts perhaps too much emphasis on energy and too little on the "above ground" social and generational aspects of political change. My personal impressions from having lived and worked in the Soviet Union in the late 1980s lead me to believe that the younger generation of the time was unimpressed with the values of the Revolution and was more influenced by the ideals of the outside world, which were beginning to legitimately creep into the culture through glasnost'. I believe that Gorbachev knew that Soviet borders could not remain closed and the population kept ignorant of external ideas indefinitely, and that it was better to open the floodgates gradually. The collapse of the USSR was (to some) unexpectedly bloodless.

The collapse of the USSR was (to some) unexpectedly bloodless.

This is true in terms of violent death. However, life expectancy in the FSR declined significantly, so the Grim Reaper was paid his due by other means.

The Soviet economist and Perestroika component Yegor Gaidar wrote and spoke about the period and decline in question before he died @ age 57 in 2009. He was the architect of Russia's extreme restructuring which took place during the Yeltsin period:

Former associates acknowledged Gaidar as an object of loathing among ordinary Russians who lost everything during the economic liberalization, but they praised him as a man who averted greater catastrophe. "He stood before the choice of civil war or painful reforms", Boris Nemtsov, a former deputy prime minister under Yeltsin, told the Ekho Moskvy radio station. "He gave his life to avert civil war."

Anatoly Chubais, the minister responsible for privatization in the early 1990s, who considers himself a friend of Gaidar, praised Gaidar as Russia's "savior". "It was Russia's huge good fortune that in one of the worst moments in its history it had Yegor Gaidar. In the early 1990s he saved the country from famine, civil war and disintegration", Chubais wrote in his blog. "Few people in the history of Russia and in world history can be compared with him for force of intellect, clarity of understanding of the past, present and future, and a willingness to take the most difficult but necessary decisions", wrote Chubais.

Gaidar's recollections parallel the thesis of Joule and Jon Callahan. He noted in a presentation made for the American Enterprise Institute in 2007 that the Soviets had an export problem along with a defective agriculture sector:

The result of the disastrous agriculture policy implemented between the late 1920s and the early 1950s was the sharpest fall of productivity experienced by a major country in the twentieth century. The key problem confronting the Soviet Union was well-expressed in the letter sent by Nikita Khrushchev to his colleagues in the leadership of the party. The letter fundamentally stated:

“In the last fifteen years, we have not increased the collection of grain. Meanwhile, we are experiencing a radical increase of urban population.

How can we resolve this problem?”


In 1963, Nikita Khrushchev sent a letter to the leaders of the Socialist bloc, informing them that the Soviet Union would no longer be able to supply them with grain. That year, the Soviet state bought 12 million tons of grain—and spent one third of the country’s gold reserves to do so. Khrushchev commented:

“Soviet power cannot tolerate any more the shame that we had to endure.”

Therefore, in the 1960s, state production of grain stabilized and, regardless of attempts by the Soviet leadership, remained fixed at 65 million tons per year until the late 1980s. The cities, however, continued to grow. What policy could succeed if a country had no increase in grain production and an 80 million–person increase in its urban population? The picture was bleak. Russia, which before World War I was the biggest grain exporter — significantly larger than the United States and Canada — started to be the biggest world importer of grain, more so than Japan and China combined.

Soviet agriculture was a theater of extremes: gigantic state-run combines alongside micro-plots for urban dwellers and farm workers. These latter put more time and effort into their smallholdings than they invested in the collective versions.

The USSR's industries made few items the consuming world was willing to pay for. Hard currency was lacking as the ruble was not convertible. Like Greece and Ireland today, the USSR could only borrow overseas in currencies other than its own. It lacked trade to obtain a flow of these currencies. Once the USSR's reserves were exhausted, it had to beg dollar- loans from western governments who made a 'hands- off in Eastern Europe' policy a condition for them.

Gaidar notes the Brezhnev invasion of Afghanistan did not help current accounts or foreign exchange, either ...

Meanwhile, the Saudis let oil prices float and met every bid for oil. 'What it lost in profit it made up in volume!' USSR's market share cratered:

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.


Second, drastically reduce Soviet food imports by $20 billion, the amount the Soviet Union lost when oil prices collapsed ...

The effort required and never considered was to reform the agriculture sector, allow markets for food products and allow farmers to keep what they earned.

Oil production dynamics played a part in the unraveling of the USSR, but the situation was more complex than a peak oil shock. Had the Soviets abandoned the failed 'state farm' centralized agriculture that the Chinese abandoned after the Great Leap Forward, it is unlikely the USSR would have had to make the grain/hard currency trade. With hard currency it could have made other reforms to its economy such as a convertible currency. Allowing trade outside the Soviet bloc would have put Russia as a European version of China. Soviet goods were clunky and awkward, but so were many Asian goods of the periods; only Japan had recently mastered 'American- style' design and marketing.

A good argument can be made that the nuclear meltdown disaster @ Chernobyl fatally undermined the credibility of- and confidence in the USSR regime. After Chernobyl, the 'imperial remnants' of the Eastern Bloc understood the Soviet's main product was corruption.


It sounds like the Soviet Union never adopted the Green Revolution. Agriculture in developing countries like Pakistan and India underwent a radical transformation in the mid 1960's when Norman Borlaug's dwarf high yield disease resistant spring wheat started being grown in large quantities. The effect was so dramatic that Pakistan's grain harvest doubled in the space of two years (winning Borlaug the Nobel Peace Prize) putting an end to their famines and making a mockery of Paul Erlich's Population Bomb.

The stories associated with that harvest are stunning. Schools converted to temporary granaries, insufficient supplies of jute bags to hold the grain, etc.

It's hard to understand how an oil exporting nation can collapse due to insufficient cheap oil to run their own economy.

I see no contradiction here. You assume that internal consumption always has priority over export. But that assumption is just plain wrong in case of command economy.

claimed that the Reagan administration persuaded the Saudis to flood the market with oil

Another claim of deals done to break things:

At the Abyss: An Insider's History of the Cold War, written by Thomas C. Reed, a former Air Force secretary who served in the US National Security Council during the Reagan administration, documents how software and other technology was deliberately created with flaws as part of US attempts to undermine the Soviet economy.

The Stuxnet code has been accused of creation to attack an energy production process. Said code has been accused of causing problems in other places - but such claims are based on many places deciding Fission Commercial Electrical power is a flawed model and grinding a "hackers are bad" VS actual documentation/leaks.

Of course one doesn't need the Stuxnet code to break things

"significant additional vulnerabilities in industrial control systems have been identified, responsibly disclosed and validated by affected parties".

The consumer sector (including foodstuff) of the SU economy was to a great extent outsourced to the imports at that time. Arguably, because of the PO:

1. Declining EROEI, which the article makes a case of, resulted in declining margins leading to lack of finance for and the collapse of the consumer sector. Gorbachev was rumored to have been presented with reports that the soap supply in the country was at a couple weeks level, because of lack of forex cash to buy the soap from foreign producers.

2. When you have ample supply of oil you may compensate low oil prices by flooding the market with oil and grabbing a greater share thereof. At the PO point, you have no such option by the very definition of the PO.

So there are arguments in favor of the PO case for the economy crunch even where the country is a net exporter of oil.

I have always thought the fall of the USSR can be traced to "peak food", not peak oil - but I suppose it could be both simultaneously. Food is more important than oil. The USSR was not able to feed itself for decades prior to its collapse. Thus, it had to import food. Imports required US or European currency, which was obtained by exporting oil. The Afghan war broke the USSR because their dependency on Western food prevented them from using true "Roman" methods to break the Afghans. This dispirited and demoralized the Soviet Army. Gorbachev's deliberate program (Glasnost and Perestroika) of undermining the legitimacy of all the key pillars of the USSR further demoralized the USSR's forces. [Contrast this with China's reforms that were intended to make the country more efficient - and did.] When the Empire fell in 1991, there was no will to keep it together by military force. It fell with hardly a shot being fired. This greatly surprised me at the time since I had always expected the fall of the USSR to involve a nuclear civil war. We can thank Gorbachev for preventing that scenario.

Russia today is more efficient than the USSR. Russia can feed itself, and even exports food.

andrewp111: All good points.

With respect to Gorbachev: He was like the cock who gladly took the credit for the sunrise, as soon as the West presented him that opportunity. This was a particularly pathetic and despicable aspect of his. Better thank all the wise peoples of the Soviet Union for that bloodless transition. The Soviet crisis was primarily, if not overwhelmingly, the crisis of leadership. There is little for Gorbachev to be proud of.

Russia indeed made great advances in agriculture over the last decade or so. This is an area where the markets have proved to be most welcome. But let's not forget that Russia was sponsoring, foodstuff-wise, the entire Soviet Union plus various satellite and allied states.

I wonder how many people here realize how backward, inefficient, irrational and deprived the Soviet economy was, with the exception of the defense/industrial sector? I suppose you have to have lived there.

The Soviets knew that the US defense budget would drive them even farther into the ground - I knew of a prominent Soviet journalist who actually had that explained to him quite baldly at the Pentagon - and knowing it didn't do them a damn bit of good.

Another very widely traveled Soviet journalist once asked me to compare the Soviet standard of living/quality of life, with that of some other country. I ventured Turkey. He laughed. Try Senegal, he said.

You had to unplug Soviet TV sets when not in use because they might spontaneously burst into flame. Like that.

Madhatter-esque. I could tell other stories.

The missiles were probably pretty good though. Thank God there was no occasion to verify that.

"I wonder how many people here realize how backward, inefficient, irrational and deprived the Soviet economy was..."

Agreed. When studying there in '74 I was struck by how amotivated the majority of folks seemed to be. Many seemed to be just going through the motions of "working". While their showcase infrastucture (Moscow Subway, Red Square, The Hermatage/ St. Petersberg) was impressive, much of the common infrastructure was in disrepair: common things like water fountains. I thought I had it figured out in Kiev as there was cannabis (hemp, really) growing everywhere ;-)

Outlying communities seemed to take more pride in their surroundings, and the most motivated folks I met were the black marketeers on the urban streets. Many folks looked like they were just trying to get through the day.

While on a textile factory tour (State sponsored, of course), I noticed that the steel staircase leading to the factory floor was being reinforced by a tree trunk I later learned (pointed out by another student) had been recently cut from near the factory entrance. The machinery didn't seem very modern or well maintained and one wondered why they chose to show off this particular plant. It was quite loud, though no hearing protection was visible for the workers or offered to visitors.

I suppose it's all relative. Having previously toured vibrant cities like Vienna and Copenhagen, Moscow presented quite a contrast: west vs. east. It was a bit sad, and I wondered why we Americans feared these people so much. They seemed tired, and I'm surprized they held out another 14 years.

"just going through the motions of "working""

I believe a common saying for a while was "they pretend to pay us, we pretend to work."

They may well not have held out as long as they did, but they were quite reasonably terrified by the insane senile cowboy with his twitchy hands on the button on this side of the pond.

Of course now they get to enjoy the pleasures of an economy run by mobsters.

Much as we now do eh?

"The Soviets knew that the US defense budget would drive them even farther into the ground - I knew of a prominent Soviet journalist who actually had that explained to him quite baldly at the Pentagon - and knowing it didn't do them a damn bit of good.

Another very widely traveled Soviet journalist once asked me to compare the Soviet standard of living/quality of life, with that of some other country. I ventured Turkey. He laughed. Try Senegal, he said."

The Soviet problem was not in that its defense budget was too small, but rather in that it was too big. You do not have to have too big a defense budget as long as you possess nukes, unless you are about to venture into some sort of extensive conventional warfare outside the country. Those ramblings regarding Pentagon's intimidating a journalist and alike "star wars" stories seem to fail the even test of the ordinary common sense reasoning. Russia's nowadays defense budget is orders of magnitude smaller than that of the US, and the country is still relatively OK defense-wise. The article actually does present some salient points regarding this question.

The story regarding Senegal and even Turkey is totally out of touch with reality. Travelling journalists like telling outlandish stories - this makes them attractive and interesting, which is how they make their living. While travelling, they could have picked up a couple of shiny trinkets or colorful magazine covers unseen in the SU. Of course, the SU's safety net was something taken by them for granted, even though it was in no way present in Senegal. This is not to say that unavailablity of the trinkets in the SU was not an outright idiocy, but judging the living standards solely on those trinkets was a bit far-fetched, to say the least.

You had to unplug Soviet TV sets when not in use because they might spontaneously burst into flame. Like that.

Looks like you never actually lived in the USSR. Only somebody with no experience of Soviet products would make this claim. Much like the assertion that Soviets used vacuum tubes in their jets during the 1970s because they had no transistors as opposed to the fact that vacuum tubes are much more resistant to EMP. That Soviet-manufactured shortwave radio I brought over with me to the west must have been a figment of my imagination then. Also, there was nothing wrong with the early 70s colour television sets manufactured in the USSR.

The whole discussion in the article and the comments is absurd. The USSR had a command economy and no amount of fantasies about "it needing western currency to survive" can pass the logic test. The only thing it really needed foreign currency for during the 1980s was wheat imports. The USSR did not run out of dollars in the 1980s to buy wheat, it also borrowed from foreign lenders as evidenced by the $40 billion debt that Russia paid off after taking over the "legal successor of the USSR" role in 1991.

The command economy of the USSR did not depend on oil exports for its existence. Inefficiencies and the gradual breakdown of the authoritarian system have nothing to do with oil revenues. The citizenry was not paid in trickle down dollars from oil sales. This is the banana republic model that actually more closely applies to the successor states of the USSR after their shock therapy transition to capitalism. Trickle down form international trade now plays a very important role in the economy of these fragment states.

I actually live in one of the former US sattelite states and do remember very well what it was like to live under the communist regime. The fact is that the USSR and US economies were maybe comparable on a grand scale, i.e. tones of steel produced, tones of coal mined, etc. However, a major difference was that much bigger portion of the resorces available in the USSR went to the military, as opposed to the West. Workers were really paid badly and many of the consumer products were not available or they had very little quality. In the whole communist world only about 10 models of cars were produced on a mass scale. They were of very poor quality, same model was produced for 15- 20 years without any progress. Yet for ordinary people they very expensive, in 1988 it took 2 years of average salary to buy a small car and wainting time to buy the car often counted in years. Any color TVs were of very short supply, Soviet made were known for a very bad quality, requiring frequent repairs. Such a TV cost 5 average salaries. After winning WWII, USSR was soaking up resources from the more developed countries included into ist empire, like Poland, Hungary or Czechoslovakia. After all, also these economies were falling behind the West with very little goods to export. Currencies were not freely exchangeable, so it required to have D-mark or US dollar to buy staff from the outside of the communist camp. Bananas were availabe just before Christmas and very quickly run out. Also for the industry key inputs were missing, ICT technologies were banned by US for export to the USSR for a good reason for example. So, the export of oil was indeed a vary important source of foreign currency. And, by the way, we have called the USSR "Haute-Volta with rockets". IMHO, Gorbatchew intention was to restructure the command economy, but it got out of his hands and once people were feeling fresh air, the whole system nobody believed in anymore just collapsed.

Paging Dr. Orlov. Dr. Dimitri Orlov, you have a call from on the Big Red Phone.

It was not a collapse but a theft made ​​by the new capitalist and parasit elite to the working class which privatized and monopolized all means of production.

It was not a collapse was a regression from socialism to capitalism, and all workers of the world are suffering it now because there is no a global ideological barrier to parasites that hoard the means of production.

Good to hear from you, KM. Didn't know you were still around.

The end of the cold war certainly encouraged a certain triumphalism, seen especially in the neocons and their ilk. The lesson they failed to learn was that rigid ideologies that refuse to adjust adequately to changing times and needs tend to lead their countries to ruin.

Of course, development in South America and some other places seem to be going in a different direction.

Anyone heard from Friedrich Engels recently?

It is interesting how the corruption in the US corporate sector mirrored the collapse of communism in the USSR. All the Enrons, financial instrument games (think subprime crisis), and offshoring of corporate profits really blossomed in the 1990s. No matter how bad it was in practice, the idea of communism put the fear of God in the corporate oligarchs so they at least had to sacrifice something to make western citizens have social welfare and a high standard of living. Now that there is nothing to fear there is a relentless drive to destroy the middle class and undo all of the social progress of the last 80 years. If you listen to the political "dialogue" today when it comes to health care, social security and whatnot you would think there was still a cold war. All that cold war propaganda paid off for the oligarchs, they are resetting the world back to the gilded era.

Exactly. I still recall my immediate reaction to a friend when I first heard of the fall of the Berlin wall. It was "Oh crap. What's going to keep the US in check now?"

A command economy can be very efficient in the short run. Every great nation that is preparing for or engaged in war in modern times has nationalized the basic production and armaments industries in order to ramp up production and supply military and essential civilian goods. All combatants in World Wars I and II did do. In "peacetime", the command economies of Hitler, Stalin, and Mao rapidly transformed the basic industries in their respective countries with a rapidity unmatched by any market economies.

Market economies are more efficient in the long run, especially with respect to consumer goods production, primarily because they have mechanisms for causing ineffective businesses to fail. They use bankruptcy, takeovers, etc., to remove business organizations that have become rigid, inefficient, and unable to renew themselves, their methods, their product lines, etc.

The USSR lacked the necessary organizational mechanisms to remove failed business and political units. Due to the interlocking nature of the government and business, Gorbachev could not restructure the economy without restructuring politic and vice versa. When he tried to do both at the same time, the economy and the government both collapsed.

China, having become a communist state 30 years later than the USSR had a much younger and less sclerotic government, particularly since the structures of the new elite had been disrupted by Mao's Cultural Revolution. Therefore, China was able to restructure its economy without a major restructuring of its political systems.

Most economies are trending towards something like 1/3 government economic activity and 2/3 private enterprise activity. An interesting question is whether that provides enough "creative destruction" in the private sector to renew economic institutions. Furthermore, the renewal of political organizations in either a one-party system or a two-party system is at issue. The two-party system would seem to have an advantage in that the parties are occasionally voted out of office which provides some deterrance of complacency. However, in a one-party system, the party is cognizant of the need to provide for development and renewal from within, and such organization become senescent only when the top of the organization fails in these tasks.

The failure of the USSR is probably due to Kruschev. Rather than purging the party and government, he failed to remove the cadre that later grew up around Brezhnev. The last chance was the Kosygin Reforms, which the Brezhnev forces repudiated.

*In "peacetime", the command economies of Hitler, Stalin, and Mao rapidly transformed the basic industries in their respective countries with a rapidity unmatched by any market economies.*

Each of those countries indulged in the mass slaughter or death by deprivation of their citizens. Each economy reflected the murderous paranoia of their leaders. I don't know much about China, but Hitler and Stalin destroyed many possibilities for a civilized society of trust by creating an immense and parasitic secret police apparatus against which only intimate acquaintances could be trusted, and sometimes not even those.

The effects of a command economy in the SU were plainly a form of industrial and administrative madness. The SU could have held out even against western military budgets if it had not been so pathetically incompetent. Russia is potentially the most richly endowed country in the world. It has still not completely recovered from Stalin, the security organs and the "planners" of the Central Committee of the CPSU. Not the least of the sins of the latter were its vast environmental crimes against Russia. The present negative birth rate is one form of testimony against Communist rule.

Of course, capitalist economies never do any harm to anyone, domestic or foreign, current or future.

Pathetically incompetent is a good phrase. It may apply to some fed chairs, regulators and captains of capitalist industry as well as to apparatchiks.

*Of course, capitalist economies never do any harm to anyone, domestic or foreign, current or future.*

Human beings haven't yet figured out a satisfactory way to run a mass industrial-post/industrial society. But the SU fell because people had had enough. The phrase "Soviet Union" became a sort of curse. I heard it pronounced that way with my own ears, not by any capitalist conspirators but by an ordinary passenger on the Moscow Metro.

If enough people had loved it, it would not have collapsed. They did not love being treated like ****.

"Human beings haven't yet figured out a satisfactory way to run a mass industrial-post/industrial society."

As pointed out below, the Cubans seem to have come the closest:

*As pointed out below, the Cubans seem to have come the closest:*

The closest to what, the most efficient secret police?

One Soviet journalist told me about his visit to Cuba: I know you have to have a secret police, but the Cubans are ridiculous.

Too many Cubans have opted out of Cuba for anyone to want to use them as a model. A great society where lots of its citizens prefer to leave.

"society where lots of its citizens prefer to leave."

This seems to be your one-note-samba answer to everything.

Many people leave the US, too. So it must be an atrocious place to live, by your standards.

The measure was human welfare with minimal environmental impact, if you're interested.

With communist statistics, anything is possible but truth.

The FSB is just as 'efficient' as the KGB.
Who killed Litvinenko with an isotope only produced in nuclear weapons labs?
Of course, the Prime Minister of Russia is KGB also.
Russia has always been number one in that department going back to Ivan the Terrible.

Good point m.

You remind me that as much as the USSR was communist it was Russian. Russia has a long history of really bad government, exascerbated by a highly stratified society. The surfs were sold with the land until 1865, only 50 years before the revolution. One of the results was a generally submissive population, yet somehow incredibly patriotic. How much of the failure of the USSR was Russian and how much communist?

The Oprichniki were responsible for the torture and murder of internal enemies of the Tsar. Notorious for their violent means of enforcement, they could be compared to modern "death squads" or even secret police. Guided by Ivan, they laid waste to civilian populations. They dressed in black garb, similar to a monastic habit, and bore the strange insignia of a severed dog's head (to sniff out treason and the enemies of the Tsar) and a broom (to sweep them away). The dog's head was also symbolic of "nipping at the heels of the Tsar's enemies." They were sometimes called the "Tsar's Dogs" on account of their loyalty to him. They also rode black horses in order to inspire greater terror. The Oprichniki were given orders to execute anyone who was disloyal to Ivan IV. Their most odious member was Malyuta Skuratov.

The Oprichniki would use different methods of torture including tying each limb to a different horse and riding in the opposite directions or dropping the person into a vat of boiling water. They would impale victims, or even tie the victim to a pole and burn him over an open fire. All of this was supported by Ivan IV (Ivan the Terrible).

When Ivan declared himself the "Hand of God", 300 of the Oprichniki were selected to be his personal "brotherhood" that lived within Ivan's castle. Every night at 3 am these Oprichnik "monks" would attend a sermon given by Ivan himself before the morning's ritual executions. The Oprichniki would lead an externally ascetic lifestyle, like the monks they emulated, but there would be rash outbreaks of cruelty and debauchery.

"Russia has a long history of really bad government, exascerbated by a highly stratified society. The surfs were sold with the land until 1865, only 50 years before the revolution."


Serfdom in Russia was abolished in 1861 in the course of the Alexander II agrarian reform.

1865 - is the year of the passage of 13th amendment to the US Constitution. This amendment abolished slavery, which is arguably a far more oppressive form of exploitation, in the US.

FYI, 1865 is 4 years later than 1861, as far as the matters of backwardness and progressiveness are concerned.

My mistake. I was working from memory. 1861 it was, according to Wikipedia. However there are big differences between the Civil War emancipation of slaves in the US and the emancipation of Russian serfs (4 years earlier). For one, the serfs constituted almost 40% of the entire Russian population, not more than 5% of the US population were slaves in 1865. But to me a larger issue was that the Russian serfs were the native peoples of Russia, slaves on their own homeland, whereas the slaves in the US were (initially) brought from a remote continent and kept culturally separate from the general population. I think this is important in the context that I commented earlier. Namely that Russian governments had a long history of opressive treatment of the native population and that, as a result, had engendered some sense of futility in the population. The communists quickly quashed and hope that they would be different in that regard.

So my point was not about the relative "backwardness or progressiveness" of various governments but of the effect of the peculiar characteristics of Russian governments over a long period of time on the collapse of the Soviet Union.

Proof by accusation. Naturally Russians are too stupid to use one of dozens of chemical agents that induce a heart attack and that decompose into regular metabolic compounds to off Berezovsky's clown, so instead they choose a messy isotope "weapon" generously smeared on a London to Moscow flight to incriminate themselves. As covered in the investigative report by a New York Sun reporter (link) the chronology claimed by the accusers is badly messed up.

Litvinenko was an indirect asset to Russia since he would make absurd accusations such as "Russia staged the Danish Mohammed cartoon fiasco" on a regular basis. He claimed to have a briefcase full of documents "proving" the FSB staged the 1999 apartment bombings to provide a pretext to invade Chechnya which he *never* produced. Also, the Chechen warlords provided all the pretext needed when they invaded the Russian federal republic of Daghestan long before the apartment bombings. Litvinenko was an embarrassment to his patron, gangster oligarch Boris Berezovsky (read the Godfather of the Kremlin, by Paul Khlebnikov), who had every motive to shut him up and get a two for the price of one deal on smearing Russia. Interesting how Khlebnikov was also murdered, surely it must have been Putin (with no motive) and not Brezovsky (with all the motive) in your feeble understanding of anything pertaining to Russia.

"Naturally Russians are too stupid ... "

Yeh, just like those stupid Romans with their ineffficient, time wasting technique for killing people called crucifixion. But the Tsar took his title partly because he wanted to be the "legitimate" successor to the Roman Ceasars. I don't want to defend the use of terror, but it has brought success to those who have employed it in history. e.g. the 'Mongol Hordes", etc.

Many good points.

But from your second paragraph: "Market economies are more efficient in the long run, especially with respect to consumer goods production, primarily because they have mechanisms for causing ineffective businesses to fail."

Put another way, "Market economies are more efficient, especially with respect to using up resources and turning them into pollution."

And do we need to be reminded that our current system does not let ineffective businesses fail, particularly if they are ineffective in a very, very big way.

There are at least a couple of reasons why market economies are good at satisfying consumer demand. First, consumer demand in the form of sales revenues provides a direct incentive and wherewithall for producers of consumer goods and services to expand or contract production. If prices of consumer goods are controlled in a command economy, this demand signal is distorted. Second, competition among multiple providers of goods and services generates a lot of variety and complexity in the products offered. This is satisfied in a market economy by the allocation of revenues into investment in more product R&D and production R&D. In a command economy the variety and complexity of products is limited by inertia in the production side of enterprise, rather than being driven by the largely absent marketing and sales side.

Therefore, a market economy is good at producing lots of varied consumer stuff to satisfy the populace. The exhaustion of resources and generation of pollution is incidental to the process.

"The exhaustion of resources and generation of pollution is incidental to the process."

That is, indeed, the standard economic view. But from the point of view of the earth it is the central process.

There are no externalities on a finite planet.

From the point of view of the earth, humans are incidental.

"From the point of view of the earth, humans are incidental."

Again, very much the standard economist's view.

Those who actually commit their lives to the study of life on earth and the systems that support it tend to disagree.

Man, there are a lot of sweeping over-generalizations on this site.

Blaming economists for a bad economy is like blaming weathermen for bad weather. They didn't cause it, they just give you the bad news about what is going to happen to you.

Put another way, "Market economies are more efficient, especially with respect to using up resources and turning them into pollution."

Resources cost money and waste cuts into profits. That's why the energy intensity (energy/GDP) of capitalist economies improves by about 2% per year.

Isn't the energy efficiency of the western democracies inversely proportional to the amount of manufactured goods imported from Asia?

I don't know. However, China has been improving a lot, and the world aggregate as well:

This wasn't any 2% per year, however, so I take that back for now.

AFAIK, the world PO per capita was in the seventies. Why couldn't the Soviets handle a small plateau or slight dip? The rest of the world has managed for 40 years.

I actually find it a bit offensive that you call the Soviet economy "strong and vibrant", btw. But no matter, if you believe it to be true, then of course you should say so.

What was the % of GDP was Oil? How about gold, diamonds, lumber, weapons, etc?

It was more than just economic problems that caused the fall of the U.S.S.R. They had lost the will to sustain their own system. Just look at N. Korea and Cuba. They do not have nearly the resources that the Soviets had and they are still maintaining their Marxist governments. They could have done the same, but it would have led them down the same path as these two countries, crippled economies and complete alienation from most of the world.

Gorbachev was a remarkable man that saw the Soviet people wanted a change for the better.. and VOILA.. Peristroika!


North Korea is definitely a basket case. That is as much because they have an insane dictator in charge as because of any particular veneer of any particular ideology. Insane dictators crop up under all sorts of circumstances.

A friend of mine just got in there to do some vaccinations. They were driving through the dark countryside for a long time, or what they thought was countryside. They saw a weird reflection in the headlights, so they stopped the car, turned off the lights and got out. They were in the middle of a city, but there were no lights on. You could see all the stars perfectly. (This particular feature I think would be cool to replicate elsewhere; we over-light and light-pollute to a shocking extent.)

One school she went to was made up of a series of small low buildings. During vaccinations, she noticed that all the kids had bulky layers on even though it was warm in the building. As she left, she looked back and notice there was smoke only coming from the one building she was in. The rest of the school was unheated in the middle of a very cold winter's day.

Cuba, on the other hand, could be said to be the most successful economy in the world, if you measure both highest human general well being against least harm to the rest of the living world.

(Now, don't jump all over me with flaws in their system, human rights...I didn't say it was a freakin' paradise--just that by this important measure, it seems to be outdoing pretty much every other nation on earth.)


your introduction about the "vibrant" communist economy is painful to read, so out of touch with reality. Here are some eyewitness observations:

- infrastructure: if you crossed the iron curtain in the mid seventies driving from Hamburg to Berlin, there was an immediate change from colorful to gray, and from well-maintained to neglected.
- old buildings in Hamburg (the capitalist side): painted colorfully, well-maintaintained; old buildings in East Berlin or Magdeburg (the "vibrant" side): only paint a dark gray cover of soot, some plaster so corroded from pollution that the underlying bricks became visible, bullet holes from World War II still visible in some places
- the "vibrant" side had to erect a fence to prevent their citizens from fleeing, most of those fleeing did so for economic, not for political reasons
- the "vibrant" side was polluted and had extremely low energy efficiency
- products were not changed since the 50ies, for examply the notorious Trabant car with its plastic hull and two cycle engines spewing enormous amounts of pollution
- even these inferior products were rarely available and on long waiting lists
- German families in the West were sending aid parcels all the way until the collapse in 1989

I think the notion of a "vibrant" communist economy is a mirage. In reality, it was an ailing economy that was propped up by oil and natural gas from the Soviet Union, plus the exploitation of the peripheral "brother nations" by the Soviet Union.

When I worked two sessions, travelling across northern Poland in early mid 1980s, comparisons with the UK in the 1950s sprang to mind. The most obvious seemed to be that Poland did not have access to world oil markets. It took me back to UK in the 50s when we still ran on coal, before plastic and mass car ownership (or refrigerators or washing machines for that matter). For goodness sake, quite a bit of their vast potato crop went for industrial alcohol as a feedstock - nobody mentioned being able to afford 'biofuel'. Some things were nice to see again - populous rural villages and very small farms for one (in Poland 70% private ownership; very differnt from other Eastern bloc). The seed potato industry I was concerned with was, given fuel, machinery and fertilizer constraints, well organised and overseen by knowledgeable scientists.
Having said that, Jonathan Callaghan above makes valid points about timing and balance of oil exports in relation to the collapse of the SU. I agree with him these do not support the 'PO caused collapse' thesis of this article (author Prof Reynolds, not Luis, BTW). The SU and client states did not constitute or participate fully in 'globalisation'. It is difficult to see how E & C Europe in particular could grow consumer economies equivalent to the West without the global flows of investment and inputs that West/Japan/Korea were able to take advantage of. The best you could hope for was full employment, security in old age and sufficient medical care, and according to Orlov, higher quality education.

"The best you could hope for was full employment, security in old age and sufficient medical care, and according to Orlov, higher quality education."

I've seen exactly these things being defined as the "American dream" in a comment posted by an American on the forum.


your introduction about the "vibrant" communist economy is painful to read, so out of touch with reality. Here are some eyewitness observations:

- infrastructure: if you crossed the iron curtain in the mid seventies driving from Hamburg to Berlin, there was an immediate change from colorful to gray, and from well-maintained to neglected...."

Go and visit Brixton or some less "vibrant" East End districts in London, to get the sense of decay and dilapidation right in the middle of the financial/consumer paradise. Or Detroit or another city in the US that even their mainstream media calls the hellholes. That phenomenon is not socialist-country-specific, so to say.

How did the Soviet Union exploit the "brother nations"? The SU was always a donor towards them, this was essentially the price to pay for the security buffer, as the article describes. That being said, the consumer sector of the Soviet block did appallingly poorly nevertheless, no doubt.

The Soviet block was weaker demographically, economically, climate-wise and even resource-wise. So no question that the walls were better painted in the West that they were in the East. Many thanks to the bright Western leadership who invented the Cold War concept that was so warmly welcomed by the post-World War II Soviet leadership - this is one thing to oppress a disoriented nation demoralized by the World War I suffering and absolutely another - to manage a victorious nation emerged as a winner from World War II. Cold War helped a lot with the latter. Many thanks to the western progressive thinking that helped to ensure "subprime" living standards of the ordinary people in the East for the decades to come.

Aren't you tired of those stories about the Soviet "inferiority" constantly propagated by the futile dummies from the "enlightened" expatriate community.

That they are still going on about it 20 years after the fall of communism suggests some sort of psychological pathology. The walls were not painted in psychedelic colours, the trauma!

Memories. My family made that drive in 1973 and I can vouch for your observations. I recall the drab, depressed landscape and the faces of opression. In 1978 I passed through that border again, but by rail. There was nothing vibrant about the socialist economy either in East Germany or Russia.

Luis de Sousa - thank you for this post, and for including your references.

I just want to note that you've done something that I see a lot: you've omitted some very important specific energy values (you used the term energy density, not quite right). I see this happen a lot, and I understand why. Still, I think it's improper to leave them out.

Also oil has 20,000 Btus per pound (weight grade), 1 million Btus per cubic foot (volume grade) and 500 billion Btus per acre in-situ (area grade).

Uranium specific energy, even in the present reactors that only use .7% of the uranium as fuel: 25,000,000 BTU/lb, or 30,000,000,000 BTU per cubic foot. Multiply those numbers by 140 for reactors that use all the energy in uranium; the numbers are much the same for reactors burning the more common fertile element thorium. (I didn't do the 'area-grade' number; I'm not sure how that one gets calculated.)

People also seem to leave out the oxidizer mass required to get the BTUs out of the carbon and hydrocarbon fuels. You have to add in roughly double the mass of oxygen to oxidize the fuel; that drops the overall specific energy by about a factor of three. It's a good thing we've got a reasonable reservoir of oxygen that we haven't had to extract before we can use the carbon/hydrocarbon fuels....

But what's the point of that calculation? Yes, U has a very high energy density, but the equipment needed to use it (and handle and store it) certainly does not.

That energy density would suggest that U should be used for aircraft, trains and cars, and it certainly isn't.

The key measure is the utility (actual economic gain) delivered by the energy - the fact that oil can be used in mobile equipment, from motor scooters to cargo ships, is invaluable. Uranium can only effectively be used for stationary power, (and a few specialised military ships), and if energy density for stationary power was the key criteria, no one would ever bother with hydro, where the energy density is about 0.5btu/lb

Ditto for the oxidiser - unless you are underwater, or in space, it is all around you, all the time, available for use, as much as you want - it doesn't get much more "free" than that.

the numbers are much the same for reactors burning the more common fertile element thorium.

which reactors would these be? Can you provide a link to these thorium burning reactors?

"If you take away energy, the labor, the capital and the technology inputs cannot do a thing."

I think classical economics, i.e., early 19th century and earlier, used land and labor for the factors of production. It was only later that land was replaced by 'capital'. Land had a feature that capital does not, namely what those early economists called 'natural increase'. Natural increase is the workings of Nature, and is what today might be called 'sustainable'. Back then, understanding the economics of mining and economic development of mineral resources was a problem not yet addressed. Energy as discussed here is primarily the mineral resource form of energy. There is hydro-power, which operates by different rules that oil. I think the point that the Soviet Union did in fact function as major industrial power for several decades is a point well worth making. All efficiency is relative. Our current economic system may very well be 'more efficient' than some other economic system, but it surely helps a lot to have more resources than the competition. But the party is coming to an end, and as a famous economist whose name I've forgotten said, the punch bowl is being taken away.

The Soviet Union was a closed economic system both because it was their choice, and because they had little reason to believe that they would be treated honorably by the outside world. In our case today, we have a closed economic system because ... the biosphere is closed, except to negative entropy in-flows from the Sun. When the mineral resources are depleted, the world will be a very different place. Not at all like the world in which our species evolved. And certainly not one about which economists have thought deeply.

Thanks, Prof. Reynolds

Please don't forget what Yegor Gaidar had to say about the role of oil in the collapse of the USSR...

Chernobyl probably had more to do with the fall of the Soviet Union than anything else.

Chernobyl cost them trillions of rubles, killed or sickened hundreds of thousands,
including much of their army who were heroically trying to contain the disaster, and
rendered a large area permanently uninhabitable, requiring the relocation of all of the residents.

It also destroyed what little faith the people had in their government.

Chernobyl might also be a factor in the very low birth rate in the former Soviet Union.

*sigh* Everyone seems to ascribe the fall of SU to their pet pevees. Each more crazy than the other. (No, Chernobyl didn't cause nearly the harm you say it did.)

The real cause of the fall is that its leadership wasn't that evil. They saw the system didn't work and abandoned it.

*They saw the system didn't work and abandoned it.*

That's about as good a one sentence summary as you can write.

As the collapse was happening in the summer of '91 I remarked to my Moscow landlord - who was not the lowest of the low - that events might bring the IMF to Moscow to manage this wreck of an economy (distribution system broken down, empty shops et. al.), and his immediate response was: "Please!" You could hear the exclamation mark in his inflection.

Spot on!

We will see the same process in Japan - and not be able to blame it on indigenous oil having peaked.

Take a look at Gundersen's videos to get a flavour.

The credibility of the Soviet System was totally destroyed by this event:
Chernobyl: The Consequences of the Catastrophe for People and the Environment

Ridiculous claim made above and supported by you. 1) Chernobyl did NOT "killed or sickened hundreds of thousands". 2) The physical effects of the reactor failure were FAR less than greanpeace et. al. would have you believe.

The main effect of Chernobyl was to discredit the system which could have built such a dangerous reactor (no containment) at all, then done such a poor job of managing the event post-failure. It also did a decent job of helping to enable the far right in other countries to discredit all democratic socialists by claiming they are "like them socialist dictators", which we are NOT.

Please keep this right-left nonsense out of the discussion. What is Japan? Right or Left? Obviously, it does not fit into the US stereotype.

As regards the number of victims of Chernobyl, that is well-documented and it will be going on for thousands of years. Each year, massive numbers of fresh victims are born or are aborted or die from a spontaneous abortion. Do a quick Google and try to learn something new to you.

Lately, I came to the conclusion that there is a distinction between money and capital. Money merely assists in topping up a barter of goods. True Capital is energy, and the USA is not using its energy wisely. For so many years the oilfields were producing cheap energy, that the US thought it was their superior system instead. I fear that I am right and they are wrong.

Energy is an asset. Capital is the liquidity to buy such an asset. Money is capital and an asset.

Energy is an asset. Capital is the liquidity to buy such an asset.

Money is a proxy for assets, or a claim on them, but that does not always mean you can convert it to an asset. In the Soviet days, roubles were almost useless - inside the country there was no bread (or many other things) to buy and outside, they were worthless.

The US dollar may yet see the same fate

The US dollar may yet see the same fate

It has been 5 years since I held US dollars, and except for immediate purchases I don't know any Canadian who will touch the stuff. Canada probably has more circulating US dollars than any other country (outside eg Pacific/Caribbean Island States); so that seems to tell me something.

I saw a sign in a bakery here (near Vancouver) this afternoon that said "sorry, we no longer accept US $, but we always take Canadian Tire money"

Prof. Reynolds,

I have a question for a professional economist who has demonstrated a capacity to handle outside the box ideas. I have in my library a book, Linear Programming and Economic Analysis, by Robert Dorfman, Paul Samuelson and Robert Solow. I think the Solow whom you reference must be the third author of this book. The book was first published in 1958 but my copy is a later reprinting that I picked up in a used book store in the mid-'90s. I graduated from college in 1955, and embarked on a career in physics. Until I found this book, I had gained the impression that economics was totally handwaving and verbal arguments without benefit of careful mathematical formulation. I asked an economist where I worked about the book. He said, oh yes that book is a famous classic but we don't do that kind of thing any more. As if there are styles or fashions in science and this style had gone out of fashion. But the science that I know is primarily about placing constraints on what can be expected to happen in the real world. And I couldn't understand how some mathematical rigor could go out of fashion. I could understand that the computers of the 1950s were not up to the task of supporting the data collection needed, but by the mid-90s surely
there should have been a lot of visible progress. I've been looking off-and-on since the '90s and still am puzzled at the lack of mathematical, and more importantly, intellectual rigor.

Has the premise of this book been somehow shown to be false? What happened?

Mathematical rigor has not gone out of economics; instead it has turned into rigor mortis. See any issue of "The American Economic Review" for specific examples of current uses of math in economics.

The discipline of economics has several serious problems; overemphasis on fancy mathematical models is one of them. IMO, much (probably most) of the fancy math in economics is mere mental masturbation. The great economists could all do math, e.g. John Maynard Keynes, who published a book on statistics before he gained fame as a mathematician. But Keynes was wise enough to write his economics in prose; others then turned his prose into math.

Most economists (Paul Samuelson is a notable exception, and so was Milton Friedman) cannot write their way out of a brown paper bag. The Nobel Laureates in economics who get multimillion dollar advances to be listed as the author of major principles of economics textbooks generally hire ghostwriters to do the actual writing of the textbooks. To the best of my knowledge, Paul Samuelson was the last noted economist to actually write the textbook with his name on it. Samuelson was a math genius, but he was also a prose wizard, and he had special talent at expressing complex ideas with a series of relatively simple graphs.

We have not had a living Great Economist since the mid nineteen fifties. We're overdue for somebody with the stature of John Maynard Keynes or Alfred Marshall to make economic sense out of a world with declining net exports of oil.

Galbraith was a great writer. And there's always the marxists like Sweezy and Baran and so on.

When I was an undergrad at Berkeley, 30 years ago, I shared a ride with a fellow who was working on his PhD in economics, doing his dissertation on the German hyperinflation of the '20s. I found this quite interesting, and asked him his opinion of what effects the Versailles treaty and war reparations had on this economic event.

He had never heard of these events! And apparently had no interest in them either; he was going to do some sort of mathematical models.

What was more disturbing was that obviously his dissertation committee thought the historical and political underpinnings of the hyperinflation was not important enough to suggest he at least learn what they were.

At that point I realized that economics was so divorced from reality that it was of little value. Unfortunately, the rest of the world doesn't seem to realize this fact. Yet.

One of the most serious weaknesses of the discipline of economics is that the economists do not study economic history. There are departments of Economic History, and profs in this discipline talk to one another, but when they try to talk to economists, nobody is listening. Economists also tend to be very weak on general knowledge: Not only do they not know about or explicitly deny the importance of Peak Oil, they don't know much of anything that is not published in economic journals.

Of course, there are exceptions to the generalization above. John Maynard Keynes had a tremendous amount of general knowledge. His undergraduate major was Medieval Latin poetry! Keynes knew plenty of history, and he knew all about the disaster that was the Versailles Peace Treaty--and indeed, he wrote a book about it published, if memory serves, in 1919. In his whole life John Maynard Keynes had only six weeks of formal instruction in economics; I think that fact helped him to become the giant of twentieth century economics.

The Austrian economists tend to know a lot about history; certainly both Frederic von Hayek and Joseph Schumpeter knew a lot about history. Unfortunately, most modern economists are essentially mathematicians who mainly just play with their pretty and elegant models and talk to one another in mathematical symbols.

An Economist doing a thesis on German Hyperinflation and having no interest in the treaty of Versailles and the effects war reparations had on the German economy.
Economists who have very little historical knowledge and the interplay between politics and economics through the ages.
Unfortunately politicians get elected by promising free health care, good schools and tax cuts, so they need these economists to tell them it can be done.

The law of gravity brings down houses made of cards at some point, Germany was a powerful industrial country before WW1. A war financed on borrowing and massive money printing turned it into a economic wasteland.

One has to wonder if the United States will go a similar way?

Seadog – I suspect you’ve seen such myopia in many disciplines if not all. I recall decades ago being advised to switch universities as you ran through the degree tree. Departments, be they geology or economics, seem to gather like minded folks. Even in areas where you might think there’s a good common base there may not be. Consider petroleum geologists and geophysicists. Both areas are very dependent on having a good grounding in both. Or so many would think. But I’ve see both sides of the discipline fence so ignorant of the other it was truly absurd. This has actually become worse as the computer side of geophysics has gotten intense. I know processing geophysicists who have never seen a rock. OK…that might not be true but I think you get my point. And I’ve known a few geologists who couldn’t even spell geofisics.

Sometimes, I wished I could reach conclusions that easily.

Economic theory and financial instruments have become incredibly complex and more difficult to follow the money. One thing is as true today as when Mr Micawber spoke it.

"My other piece of advice, Copperfield, said Mr. Micawber, you know. Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and, in short, you are for ever floored. As I am!"

This applies to individuals, cities and countries, all the financial double dealing just delays the repayment of debt or attempts to get someone else to pay it. Eventually all these clever tricks stop working and good old fashioned natural law takes effect. It is only a question of time.

Very interesting article. Just one minor correction: a "dacha" is not a garden. It is a private home in the countryside. Given a small patch of private land, one can have a vegetable garden.

Looks as if there are some relict Marxists here who take offense at the truth about the SU because it weakens their case for socialism and the command economy. The system fell because most people didn't care to see it go on. It didn't satisfy their needs, either material (except for a small elite) or spiritual. Who defended the system in '91? Not even dedicated paratrooper brigades, or elite KGB units. In Moscow the shops were empty, even food shops, except for a few stacked pyramids of tinned sprats and large glass jars of an unidentifiable fruit juice. There were hand-outs of tinned Chinese pork. I saw a TV on-location news show in Moscow in which Yeltsin - this is before the attempted putsch - was being yelled at by a woman who shouted that the sparse shipment of meat they were being offered wasn't fit for pigs, much less people. Young people behind the counter of a shop that had received a shipment of sausage were wrapping it in newspaper and tossing it to the frantic mob because they feared that their arms would be torn off. Across the street from the apartment I was living at on Taganskaya there was a dairy products shop, outside the door of which a mob of people were yelling and waving their fists over a chance to get in first. A man waiting for a liter of milk at another shop shouted at the woman behind the counter that he knew she was handing off the milk to favorites of hers at the rear of the shop. A woman came in from the country - we met her on Kalinin Prospekt - and she said she didn't know how her daughter in Moscow was surviving, but at least on the farm they had their cabbage and carrots.

I saw the situation of the mother of an acquaintance of mine, who was was a patient at a well-known clinic. The hospital had broken windows and dirty floors. The food offered was brick-hard kasha - slop. In another hospital, in a children's cancer ward, there was one sink for sixty children. At another, patients were receiving IVs along ribbons, because there were no IV tubes.

The disintegration and desperation were unforgettable. Would the Marxists here care to explain how this magnificent idol fell over?

Thank God more blood wasn't spilled, but that was because the system had, by that time, very few defenders.

I could go on and on. The Director of Public Health in Arkhangelsk told me that 90% of the new-born infants there were sick upon birth, with dermatological and intestinal symptoms. Ten thousand tons of chemical weapons dumped in the White Sea because the State could do whatever it pleased. A young man in that city pointed to some high-rise flats and said: KGB live there, the bastards, and we're poor, but when the system changes we'll teach them what's what.

And on and on.

I could go on and on.

Yes, this is already quite obvious by now. No need really. You effort in hunting down the relict Marxists and tracking the roots of the Soviet collapse to the gossip of the evil plot of the KGBs living in the upper floors in Arkhangelsk is very insightful and well appreciated.

And so the CPUSSR is gone and the Prime Minister of Russia is still KGB.
I absolutely agree with you about people abandoning 'the system'.
I can even remember what caused it to all go down. It was when a teenager, Mathias Rust landed his airplane in Red Square in 1987.

I know Russians then thought...'WTF, do we need all this security crap for?' and the illusion was gone forever.

Reagan actually gave the Soviet System purpose and kept the zombie
Resource depletion didn't collapse the SU, the political ideology melted down.

Unfortunately the same KGB cream has floated to the top in the FSU this time allied with the Russian mob.

Russia was always an huge empire with centrifugal forces threating to tear it apart and secret police have been the glue holding it together.

I can even remember what caused it to all go down. It was when a teenager, Mathias Rust landed his airplane in Red Square in 1987.

Yet another valuable insight into the causes of the SU collapse. What about the stars and planets positions in 1980s, and what did Nostradamus say?

Reagan actually gave the Soviet System purpose and kept the zombie

Finally, a word of reason.

Hello everybody!
This seems like a great article haven't had time to read it yet, will do it as soon as I can.
Just wanted to point out that Nobel didn't create a price in economy.

The Swedish counterpart to the FED did that. Maybe so the bankers could make economy look more like science. ;)

Sleep tight


Whoa, that was a lot of ground to cover and a lot of assertions in one article. Let me try to boil it down to what I got as the main points.

1. The FSU collapsed largely due to their peak in oil production: On this one I think most at TOD would agree and this is not a new assertion. Personally I think it was the main cause, however lack of worker incentive infecting their entire "economy" over the generations was probably also a huge factor.
2. Economists often don't realize that the "market" can't adjust and grow out of some energy shortages: Again most on TOD would agree and it is an old and common assertion. I think the article clouds the issue though by going too far in some claims. First is the claim that the Soviets had functional markets on a macro scale. They did not - they were a centrally managed economy on a macro scale not a free market. So they are not a great example if you want to indict the free market's ability to adjust to shortages. For example in the US we hit peak much earlier than the Soviets, but for many reasons (partly due to freer markets IMO) the consequences were not as immediately disastrous. Likewise it appeared that the US would hit natural gas peak production a decade ago - but the free market temporarily solved that danger - something that would have been less likely if we had no profit incentive.
3. Bad scenarios will emerge after PO for most societies and we will not have a turn around in production like the FSU: Again little disagreement and not a new assertion. I would add that one big reason the Russians were able to temporarily turn around production was precisely because they abandoned an inefficient centrally managed economy and adopted more aspects of a free market. You could also bring up Cuba and give a more balanced set scenarios for a post peak collapse.
4. Lastly, and what put me in perhaps a negative mindset from the beginning, was the initial listing of many Austrian School economic Laureates along with the assertion that "they" claim the market can adjust to PO. I'm not aware that the Austrian School has a doctrine that free markets can adapt to every circumstance. The Austrian School simply says that free markets adapt better than centrally managed markets. Whereas the Keynesians say that a centrally managed market (controlled by a central bank) can adapt better than a free market. I don't think either school should really be dragged into the PO debate - there are already too many economists muddying the water in what IMO is better viewed as an engineering issue.

*1. The FSU collapsed largely due to their peak in oil production: On this one I think most at TOD would agree and this is not a new assertion. Personally I think it was the main cause, however lack of worker incentive infecting their entire "economy" over the generations was probably also a huge factor.*

If your system is hostile by design to the creation of an internal market, of course you will depend on exports to survive. But thriving internal markets are inherently free markets and they won't develop except as free markets. A deficit consumer sector producing shoddy goods is the creature of command economies.

There was a class of products in the old SU which were designated by the so-called Zvezda Katchestvo, the star of quality, meaning that they were of a better quality than ordinary goods, not shoddy. The joke was that the five-pointed star represented a man with his arms outstretched, who said plaintively: "Comrades, I'm sorry, I couldn't do it any better."

Although I have no direct experience with the old USSR, I have spent most of my life as a sort of amatuer independent scholar, working a few weeks or months and then retiring to my books for an extended period.

I found the history of the soviets and the nazis endlessly fascinating, and read virtually everything I could find written by citizens of both countries.

There is little doubt in my mind that peak oil, and /or declining hard currency revenue had something serious to do with the soviet collapse.

But the simple truth is that the soviet system rotted out and died from inefficiency, nepotism, and corruption.

Towards the end,virtually everybody was totally disillusioned with the state of thier lives, realizing that just about everybody in the West, even ordinary laborers and factory workers and clerks, was living a better life than even fairly high level managers and bueracrats inside the USSR.

The idealism that enabled the system to survive fairly well thru and immediately after WWII petered out by the sixties and seventies.

I have somewhere a book detailing the story of the manager of an aircraft factory-this man found it prudent to construct a large root cellar and stock it well with potatos he grew himself.

Defecting officers told stories about using the alcohol supplied to run the afterburners on military jets to keep thier maintainence men happy and on the job, since they were so ill paid.

They and thier assigned pilots then faked flight logs to cover the shortages-and also to be sure the planes would actually have few enough hours on them, given the shortage of spares, to be flyable in case of real missions.

If any one specific proximate reason can be assigned for the collapse, I should say that is was the spread of knowledge thru out soviet society-they were damned if they didn't educate the citizenry,economically;but once education and information became widespread, it then became impossible for the ruling elite to maintain the fiction that life inside the USSR compared favorably with life outside.

Disillusionment became universal, and everybody was ready to quit;as someone pointed out above, when the crisis came, not even elite military or security forces wanted to defend the status quo.

One thing that really had a lot to do with my personal metamorphosis from card carrying liberal to an odd sort of conservative-perhaps I should use the term realist instead- was the complete failure of the intellectual left to face up to the utterly obvious truths of soviet reality.

The old USSR was about as far from a workers paradise as you could get.

The descriptions up thread of the squalor and misery posted by members with actual soviet experience are dead on in agreement with what I read written by various defectors.

But the simple truth is that the soviet system rotted out and died from inefficiency, nepotism, and corruption.

Towards the end,virtually everybody was totally disillusioned with the state of thier lives...

This is the point which appears to be universally agreed by virtually every poster on this thread.

The article's point is that with an infinite flow of free energy you can always buy the loyalty of you populace, flooding out the effects of the inefficiencies etc. with the abundant oil. "Inefficiencies", "nepotism" and "corruption" are always direct consequences of the resource scarcity and become pronounced at the time of the resource scarcity. Being excessively "efficient" at times of ample resource supply may, in fact, prove to be a very inefficient policy from the practical standpoint.

Look at the Saudis' increased social spending as of late, in the view of the turmoil in the Middle East.

The old USSR was about as far from a workers paradise as you could get.

All your points are well taken, but they, as often happens, fail to look at the other side of the coin - the SU's universal safety net, infrastructure. The safety net was almost completely destroyed by the "reform", and believe me - it is greatly missed by the vast majority of the people in Russia now. Look at the appalling state of the post-reform Russian demographics - which other indicator can be a better evidence in this regard.

The hawkish western observers always try to make the case that the safety net is incompatible with the "free markets" in Russia - but this is utter nonsense. They would better take this case to the voters in their own countries of residence. Why at all would you need the "free markets" with all their "efficiencies" if they result in wide-scale premature deaths of the population. The truth is that the Russian "reformers" totally screwed up the reform in this respect, and this is why they are viewed with as much disdain by the Russians as the preceding communist rulers.

Look at the current debate re Medicare in the US, btw.

Syndroma's summary below is pretty good and balanced in this respect.

*The safety net was almost completely destroyed by the "reform", and believe me - it is greatly missed by the vast majority of the people in Russia now.*

Are you saying that there's no safety net without a command economy? Are you saying that most citizens of Russia would like to go back to rule by the Central Committee CPSU and the security organs?

Are you saying that there's no safety net without a command economy?

I am saying exactly the opposite - read what I wrote.

Are you saying that most citizens of Russia would like to go back to rule by the Central Committee CPSU and the security organs?

Again, I am saying the opposite - read what I wrote. But you are welcome to consult the recent trends reported in the relevant sociology surveys.

Still, the billionaire plutocracy that has replaced communism must anger the average Russian.
And the russians still are ruled by a Czar.

Moscow now has more billionaires than New York.

*Still, the billionaire plutocracy that has replaced communism must anger the average Russian.*

The end of the Soviet Union was not a panacea. Personally, I hold with Solzhenitsyn's critique of materialism.

Still, the billionaire plutocracy that has replaced communism must anger the average Russian.

This is not anger, this is more a confusion regarding the relevance and legitimacy of many of those in that plutocracy. For historical reasons, Russians' view of their country is fundamentally different from that of, say, Americans. In the New World, whoever was more entrepreneurial, would come and take the richest land plot, and feel no liability towards his companions/competitors. Nor would he expect to be challenged on the legitimacy of the his land/resource grabs. This has been the spirit of the nation in the new continent without the boundaries and visible foes (except Indians). The Western Europe's legacy model of medieval land/resource grabs was probably similar to the American, as the Europeans' expansion was primarily maritime in nature.

When looking at the rich in Russia, the western analysts unconsciously apply that familiar "entrepreneurial" template.

But in Russia/SU, the country-building effort was viewed as being collective for the common good, and the people were routinely making serious personal sacrifices in the expectation (generally accepted) that the society will compensate and reward them for those. When the post-Soviet reforms arrived, the rationalization behind the introduction of the new riches was that they, due to their entrepreneurial skills, will make the economy more successful, and the society in general will greatly benefit.

In some areas that did prove to work - primarily in consumer-related and alike. However, in rent-generating industries, like natural resources, - or indeed in whichever area where a scarce resource is allocated at someone's will - be that land plots for construction or radio waves for communication- the value of the "entrepreneurial skills" proved quite elusive. It was the same nepotism and corruption that guided these areas that it was back in the Soviet times. Efficiency gains were doubtful, while on the country-wide scale the plutocracy activities resulted in mass impoverishment, as the new riches sought to park the industry revenues outside Russia. So instead of a new kindergarten somewhere in Russia, however inefficiently built, we now had a new villa, beautifully and efficiently built - in France. All this has been happening while the Russian people held a view, deeply and quite justifiably ingrained in their consciousness, that the country's wealth was the result of the collective effort and even suffering, rather than some dubious "business-skills" of people who often had no knowledge whatsoever of the industry in which they made "acquisitions".

It these circumstances it is not entirely clear for the Russians, what is the raison d'etre of that new plutocracy. People are generally perfectly happy with others having wealthy lifestyles, as long as that wealth is somehow beneficial for the common good.

And the russians still are ruled by a Czar.

The Russians are ruled by the President. Google President of Russia.

After some consideration, I decided to share my thoughts on the matter. You know, it's not easy to speak about Russia in English-language forums. The thread degenerates into trollfest after two or three posts (with me being one of the most active trolls, I admit). That's why I usually don't get into discussions about Russia here on TOD, even if I have something to say. I believe TOD would be better without all that flame.

I agree with this article that resource depletion was one of the main reasons of SU collapse. One just needs to look at Samotlor production data to see that the age of "easy oil" was over in SU in the middle of 80s. But as of itself, resource depletion is not enough for collapse. It was amplified by psychology. Given the very minimum of information, people have created and believed in all sorts of weird ideas. You can just read all the stuff by pavel.chichikov above. He's the typical representative of Soviet intelligentsia of the times. I'm sure he sincerely believes what he says, but that doesn't make his words any closer to reality.

Another interesting point is infrastructure. Everyone has his own definition of the word. For Westerners it's often a bright paint on the buildings. But the SU never cared about the "looks" of the things, "functionality over beauty" was almost a policy. Five-story apartment buildings were ugly, but they moved millions from postwar barracks to decent living. I grew up in one of them, and still grateful to Khruschyov for it — I don't feel entitled to live in a nice one-family house (although I have one nowdays).

Three years ago I made a 5,000 mile roundtrip over the European part of Russia. Ural, Moscow, Black Sea, Caspian Sea, Ural. I was really impressed by the amount of infrastructure put in place in Soviet times. All those roads through endless forests and mountains, all those bridges, power lines, rail lines. It didn't come from nowhere. And since I came to TOD I started to research the energy infrastructure around me. CHP plants, breeder reactors. It was all built in Soviet times and we still use it.

Of course, Soviet Union was not as efficient as the Western world. But is the efficiency a solution or a problem?

Well said,Syndroma.

Cheerleaders of the western stripe generally forget that the soviets took over a naturally rich but very backward country, in terms of economic development.

And they also generally forget the role WWII played in the economic history and psychology of the people there.

I am about as far from a communist apologist as you can get, but I for one recognize that the soviets accomplished a hell of a lot in a very short time, in economic and historical terms.

As someone who has lived in the first world(Belgium10 years)second world(Hungary15years)third world(India 25 years,my birthplace)I can say that the second world was the best.The East block thanks to the Russians has excellent basic infrastructure.I was in Budapest for 2 years without a car and had no problem in commuting.Bus,tram,metro were just so well connected that it was no problem. Noisy,ramshackle,old,dirty but they delivered.Never had a blackout,no beggars,like I say"Poverty of luxury but no poverty of kitchen".The Hungarians were warmhearted.Always ready to assist to the maximum.The second world had first world services at third world prices.I paid Euro 8.00 for a three course meal with drinks,I pay minimum Euro 25.00 in Belgium for the same.No difference in quality,ambiance.Healthcare was cheap(Hungarians crib about tipping the doctors)not top of the world but good.Yes,India is cheaper but quality is crap.If you want quality then pay first world prices.Agree with you "efficiency a solution or a problem?"

*I agree with this article that resource depletion was one of the main reasons of SU collapse.*

Why should the potentially richest country in the world have to depend on the sale of a primary resource? It still does, and both Putin and Medvedev say they want to do something about it.

Economic problems don't make entire countries collapse. BTW, crimes against the environment alone should have been enough to put paid to that system.

I was there in '91 during the debacle, and I saw with my own eyes what happens to ramshackle social and economic systems. No one created that collapse with "weird ideas." The Soviet Union fell because people were fed up with it, and not just with economic short-comings.

Hi Syndroma,

I agree with you that we are seeing many comments here that reflect more on the commentator's ideology than the very complex reality of Russia in modern history. I claim absolutely no credentials regarding Russian history - but I do know that it is not simple. The collapse is blamed on Communism, Atheism, corruption, liberalism, resources, etc. Often the argument is an attempt to bolster the image of a country like the US - Russia collapsed while we prospered - our ideology must be superior.

I have a favorite author: Dervla Murphy - her first book was "Full Tilt: Ireland to India with a Bicycle" and a highly recommended read. But, she wrote a pair of books about traveling in Russia and my favorite is: "Silverland: A Winter Journey Beyond the Urals". Although she is usually classified as a "travel writer", she is very much the historian and political commentator. For sure, she has a left leaning bias. But, if you want a "boots on the ground" view of Siberia around 2007 then this is a very interesting read.

As for oil, a lot of it was poured back into the ground or stolen. The Russian obsession with heavy metal didn't save the SU either. It wasn't a petroleum issue that put paid to the Soviet Union, it was a quality of life issue, and telling people they ought to be grateful because they don't live in barracks any more is not a winner.

If you look closely at the news prior to the collapse of the Soviet Union, you see that first Eastern Europe went through economic chaos starting in 1988, the year of Soviet peak oil, followed by Russia in 1990 and beyond. Interestingly, once the Soviets saw their peak in oil in 1988, they forced all the Council of Mutual Economic Assistance (CMEA) countries to pay for their Russian derived oil in hard currency and at Western oil prices. -- Luis de Sousa

Of all the claims I find this one to be the most fascinating. It can tie so much together as it relates food and oil by means of "breadbasket" countries like the Ukraine being impacted by sudden oil price shocks. A domino effect from such price shocks would have an enormous economic impact.

How well does this claim hold up to scrutiny?

(Pardon me for posting this in fragments as replies to my own post but that's how I do research, call it a "scrapbook" approach.)

the Council of Mutual Economic Assistance (CMEA) is also known as COMECON, CEMA, or SEV

COMECON / The oil transfers
Wikipedia / access May 30, 2011

Beginning no later than the early 1970s,[36] Soviet petroleum and natural gas were routinely transferred within Comecon at below-market rates. Most Western commentators have viewed this as implicit, politically motivated subsidization of shaky economies to defuse discontents and reward compliance with Soviet wishes.[37] However, other commentators say that this may not have been deliberate policy, noting that whenever prices differ from world market prices, there will be winners and losers. They argue that this may have been simply an unforeseen consequence of two factors: the slow adjustment of Comecon prices during a time of rising oil and gas prices, and the fact that mineral resources were abundant in the Comecon sphere, relative to manufactured goods. A possible point of comparison is that there were also winners and losers under EEC agricultural policy in the same period.[38]

New Aspects in the Structure and Jurisdiction of the COMECON Regarding the Protection of the Environment
AN. Leont'eva, Senior Scientific Researcher, Institute of State and Law of the Academy of
Sciences of the USSR. / 1989

(footnote 2)
During the initial years of operation, COMECON was principally concerned with the development of scientific-technical cooperation based on the exchange of technical experience. Its goal was the coordination of foreign trade despite the recognized inequity in levels of economic development of its member states. Toward this end, cooperation in production was initiated (e.g., mutual construction and use of an oil pipeline by Czechoslovakia, the German Democratic Republic (GDR), Hungary, Poland, and the USSR; and the establishment of an interconnected energy system linking the electro-energy systems of Bulgaria, Czechoslovakia, the GDR, Hungary, Poland, Romania, and the West Ukrainian System of the USSR). These projects worked to further equalization and the gradual integration of the member states' national economies. ANSBACH AND HEINTZE, The Legal System of the Council for Mutual Economic Assistance, 8 MOD. LEGAL SYS. CYCLOPEDIA 785, 787-88 (1985).

... skip ...

The 43rd Session of COMECON (October 1987), which defined the broad long-term program for the modernization of the mechanism for international cooperation, played a significant role. The program's first goal was to strengthen the economic mechanism to create conditions for the active inclusion in the integration processes of economic organizations in the brother countries, based on their self-financing interests and responsibilities.

self-financing interests and responsibilities? Like having to pay for oil?

I am finding that it is difficult for me to locate supporting documents for the precise claim that the increases in the price of oil was the decree of the Council of Mutual Economic Assistance. I find more evidence that when the ties to COMECON are lost they must pay market price.

Regulatory Reform in the Electricity Sector in Hungary
OECD 2000

Following the collapse of the former Soviet Union (FSU) and Hungary’s economic ties with the countries of the Council of Mutual Economic Assistance (CMEA) in 1989 to 1991, the country underwent a difficult period of transition from the former state-controlled economy to a market economy, during which industrial output and GDP dropped sharply and unemployment and inflation surged. Since 1996, the country has increasingly reached macro-economic stability, although the complete transformation and modernisation of its infrastructure will take significantly more time.

The striving for regulatory reform and the results that were obtained must be seen against this backdrop. Although the centrally-planned economy has led to inefficient resource allocation, which has left numerous traces throughout the economy, one of the most important features that the country has had to struggle with in its transition was distorted, below-cost prices. ...

It can tie so much together as it relates food and oil by means of "breadbasket" countries like the Ukraine being impacted by sudden oil price shocks.

Ukraine was not a part of CMEA because it was a republic within the Soviet Union, just like Russia. Therefore this price hike did not touch Ukraine at all, as it continued receiving oil products virtually for free in accordance with the SU's internal central planning directives.

But the comment of yours certainly holds relevance in respect of the CMEA countries like Poland, Hungary and others.

Yes, I have a lot to learn about this. I'm going out to do some more research now.

If anyone can substantiate the claim COMECON members they were made to pay market value for oil I'd love to see citations or links.

The documentary "My Perestroika" repeatedly mentioned the food crisis including footage of grocery stores completely stripped of every item: 100% bare shelves, worse than anything I have seen on video even in Zimbabwe where token food items such as soda remained.

None of the old footage had a gas (petrol) station price sign visible but they spoke of dire inflation in the price of food. No one ever mentioned anything about the price of fuel let alone crude oil. I assume private cars were not at all something they were used to in the past but after the restructuring some of them were heavy commuters.

At the end one of the interviewees did mention that the Internet was something his children knew more about than he did (and he wasn't very old.)

It is as if their very language lacked concepts of oil prices and that they could not see how that would factor into their existence.

If you want to see a very clear example of the relationship between food and oil prices look at the price of wheat compared to oil both in 2008 and 2011. Then look at Egypt and what happened there both times. Here is a documentary about 2008:

In 2011 the news is still fresh.

The relationship between famine and revolutions is distinct in both the cases of Russia and Egypt.

The relationship between oil and food is more than a coincidence.

The relationship between famine and revolutions is distinct in both the cases of Russia and Egypt.

Yet, the SU's problem seems to have been low oil prices at that time as the SU was an oil-exporter making living selling oil, while Egypt's problem now seems to be high oil prices and the resulting high food prices.

I do not think that Russia experienced famine any time in 80s-90s, even when the shop shelves were empty.

You should be aware that your perception is formed by the environment you live in. So when you research something with different basic rules your intuition can fool you. 100% bare shelves were not a sign of famine. It didn't mean that there was no production of food or other stuff. It meant that the money had no value. Everybody tried to exchange money for something, anything. Have you ever stood in line for crystal ware? I did.

*100% bare shelves were not a sign of famine. It didn't mean that there was no production of food or other stuff.*

There was production all right during the collapse. It was the storage and distribution system that was screwed up. Food was available, though not abundant, in Moscow on the open market, if you had the cash. It's not widely appreciated in the West, though, how many low-income people there were in the SU, and these people were in difficulty. Low-income people would include not only unskilled workers, but scientific and medical personnel. For example, even in 1993 scientists at the Institute for Human Morphology in Moscow were earning the equivalent of 25 dollars a month (sic), and the director, as I recall, 35 (personal interview). People like that were driving taxis to survive, or going into some other private business venture.

Bread was always available. If the authorities did nothing else they would make sure of that, because empty bread stores would have meant serious civil unrest.

The father of an acquaintance of mine, a man who had taken part in the defense of Moscow with an artillery brigade, and who was blind by 1991, was given some tinned meat donated by a German charity, a somewhat bitter irony.


Robert U. Ayres, and Benjamin Warr, 'Accounting for Growth: The Role of Physical Work', Structural Change and Economic Dynamics, 16 (2005), pp. 181-209.

Robert U. Ayres, Benjamin Warr, and International Institute for Applied Systems Analysis., The Economic Growth Engine : How Energy and Work Drive Material Prosperity, Paperback edn. (Cheltenham: Edward Elgar, 2011).

This is an energy based theory of economic growth, in which work performed replaces technological change in the Solow production function.