CHAPTER IX: The Leaky Pipeline Embargo

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

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

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

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

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

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

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

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

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

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

Military Contracts with United States Government		Contracts with Soviet Military End Use (In addition to "Russia No. 6")
General Electric Company Total 1980 sales: $18,654 million; military sales: $2,202 million (No. 5 in USA) • Produces jet engines for military aircraft including F-4 Phantom, F-5 Freedom fighter and F-18 Hornet. plant. • Guidance system for Polaris and Poseidon missiles.		General Electric Company 1981 — Romania ($142 rail.) Steam turbine generating equip- ment for nuclear power station. 1980 — USSR ($40 mil.) Sub- contract for computers and electri- cal equipment for electrical steel
General Electric Company • Data processing systems. • Components for nuclear weap- pons.		General Electric Company 1979 — Hungary Licensed production of poly- propylene film, also technology for condenser manufacture. 1979 — Yugoslavia Know-how for manufacture of polyethylene cable. 1978 — Poland ($12 rail.) Equipment for hot strip steel mill. 1976 — USSE ($90 million) Hot gas rotating components.
Exxon Corporation Total 1980 sales: $63,896 million Military sales: $479 million (No. 29 in USA)		Exxon Corporation Participation, through holdings in Ruhrgas and Gasunie, in the dis- tribution of Soviet gas in Europe. 1978 — Poland Additives for and formulation of high quality lubricating oils. 1977 — USSR Scientific and technical coopera- tion, exchange of petrochemicals, information and research cooper- ation in developing additives to lubricating oils, resins, solvents and semi-finished chemical prod- ucts over 5 years.
Royal Dutch/Shell Group Total 1980 sale: $225,090 million • Sales to U.S. DoD were $225 million in 1980, ranking it No. 52.		Royal Dutch/Shell Group 1979 — Hungary 5-year cooperation in various field including marketing. In 1978, Shell business with Hungary included $5 million in buy-back products. 1979 — Romania Subsidiary General Atomic to sup- ply Triga nuclear reactor for research center. 1978 — Bulgaria Licensing of process for liquid plant protectant. 1978 — China Licensing of process for $250 million methanol plant. 1976 — Poland Licensing of process for ethylene oxide plant.
Ente Nazlonale Idrocarburi (ENI) (U.S. Subsidiary is Agip) Total 1980 sales: $27,186 million • Subsidiary Agip had $223 mil- lion of business with U.S. DoD in 1989, ranking it 53rd among U.S.defense contractors.		Ente Nazlonale IdrocarburI (ENI) 1981 — GDR 5-year cooperation agreement with Chemiaranlagen Export-Im- port. 1981 — China Joint agreement for research and development of Chinese petro- chemicals and synthesized polymers.
ENI (U.S. Subsidiary is Aglp)		ENI (U.S. Subsidiary is Agip) 1981 — Romania Framework agreement for com- plete production program of tur- bines, compressors, pumps, valves, etc. 1981 — Hungary ($3 million) Supply and licensing of 30,000 tpa methyl terbutyl ether (MTBE) plant. 1980 — GDR ($90 million) Snamprogetti: construction of highly advanced plant to recover lead from batteries. 1979 — China ($50 million) Subsidiary Nouvo Pignone: joint production of centrifuge com- pressors. 1978 — Hungary ($80 mil.) Supply of gas compressor station. 1976 — Poland Subsidiary Haldor Topse: licens- ing of process for two ammonia plants. 1975 — USSE ($200 million) Supply of three urea plants.
Foreign Companies with Significant Department of Defense Contracts
Rediffusion Ltd. (UK) (Controlled by British Electric Traction Co. Ltd.) • One of the top 10 suppliers of electronic equipment to UK mili- tary. • R & D work for U.S. DoD (1977, $2.3 million); communica- tions, data processing and flight simulation systems.		Rediffusion Ltd. (UK) 1981- USSR Supply and videotext systems and terminals for gas pipeline. 1979 — Czechoslovakia ($1.5 million) Supply of data transmission system and equip- ment. 1979 — Poland ($1 million) Supply of data processing system and computers. 1978 — Czechoslovakia ($1.2 million) Supply of two com- puter systems. 1977 — USSR Supply of computer system. 1977 — Czechoslovakia ($1 million) Supply of six data en- try systems. 1977 — Poland ($1 million) Supply of EDP computer equip- ment.
Thomson Group Total 1981 sales: $8,656 million • Variety of military electronics equipment including contracts on full range of Matra missiles such as Crotale, Martel, Otomot, and on MBB Kormoran antiship missiles. • Surface radars, avionics, mill- tary data processing from Brandt Armaments Division.		Thomson Group 1979 — USSR ($100 million) Supply of computerized telephone exchange system. 1979 — USSR Construction of printed circuit plant at Minsk. 1979 — USSR Data processing for nuclear plants. 1976 — Romania Supply of air traffic control system. 1978 — Bulgaria Agreement on electronics devel- opments.
Rolls-Royce Total 1980 sales: $2,926 million; military sales: $250 million (No. 4 in UK) • Propulsion systems for Blood- hound and Sea Dart missiles. • Jet and turbine engines for mili- tary craft such as Harrier V/STOL fighter. • With Turbomeca (France): Adour engines for Jaguar strike plane. • With Detroit Diesel Allison: Spey engine for Corsair. • With Fiat and MTU: RB199 engine for Panavia Tornado.		Rolls-Royce1980 — USSR Supply of "Avon" turbines for Surgut-Chelyabinsk pipeline. 1979 — Romania ($450 rail.) Agreement for the supply of jet engines and eventual production. 1979 — China ($220 million) License to produce supersonic Spey engines. Licensed manufacture of aircraft engines. 1974 — Yugoslavia/Romania RR Viper turbojets and afterburn- ers for Yugoslav/Romanian Eagle jet fighter and Jastreb strike and tactical reconnaissance plane. 1975 — USSR Scientific and technical coopera- tion in industrial motors.
Fiat SpA Total 1980 sales: $25,155 million • Subsidiary Aeritalia (50%)builds military aircraft including F104 Starfighter. Partner in Panavia production of Tornado strike plane. • Subsidiary Sistemi Elettronica (SISTEL) builds Sea Killer, Indigo, Martel and Mariner missiles. • Fiat Aviation Divsion builds turbine engines for military air- craft including General Electric licenses. • In cooperation with MTU and Rolls-Royce: RB199 engine for Tornado.		Fiat SpA 1981 — USSR ($86 million) Fiat-Allis to supply 300 63-ton heavy track loaders to USSR for use in large-scale civil engineering projects. 1981 — USSR ($90 million) Earth moving machinery for strip mining in N. Siberia. 1980 — Hungary Subsidiary Ercole Marelli: licensing of auto ignition tuner production. 1978- USSR ($22 million) Subsidiary Telettra to supply tele- communications network along Trans-Siberian railway. 1977 — Poland Extension of licensing agreement for auto engines and automobiles. 260,000 vehicles produced under previous agreements. 1976 — USSR Subsidiary Comau: subcontract for machine tools for nuclear energy components manufactur- ing plants (Comau sales to USSR for period 69-74 worth $100 million). 1977 — Hungary 5 year agreement for scientific and technical cooperation. 1976 — USSR Agreement to expand auto input and for production of manufactur- ing, farm and building vehicles. 1976 — Bulgaria General agreement on industrial and economic cooperation; joint R&D.
British Petroleum Co. Total 1980 sales: $49,471 million 1977 sales to U.S. DoD worth $211 million.		British Petroleum Co. 1981 — China Reconnaissance seismic survey in South Yellow Sea. First by any Western company. 1973 — USSR Technology for 75,000 tpa chlor- oprene monomer plant in Yerevan. 1980 — USSR Development of natural gas ex- ploration and gas pipeline con- struction. 1977 — USSR 5-year exchange of technical in- formation including refining lubricants, processes, and syn- thetic protein.
Foreign Companies with Siberian Pipeline Contracts and Significant European Defense Contracts
Friedrich Krupp GmbH Total 1980 sales: $7,962 million • Subsidiary of AG Weser: mili- tary ships for West German Navy. • Subsidiary Mak Maschineenbau GmbH: tanks for West German Army; also development of a re- mote controlled mine-sweeping system. • Subsidiary Krupp Atlas Elec- tronik: electronic equipment in- cluding simulators and sonar systems.		Friedrich Krupp GmbH 1981-82 — USSR Supply of steel pipe. 1980 — GDR ($875 million) Construction of steel mill. 1980 — Poland ($137 rail.) Construction of coal gasification plant. 1979 — USSR ($192 million) Construction of electric steel plant. 1977 — USSE ($82 million) Construction of DMT plant. 1977 — Hungary ($7 mil.) Vegetable oil processing plant. 1977 — Czechoslovakia Supply of effluent treatment plant; tire-making machine. 1979 — Poland Cooperating in engineering and plant construction, raw materials, construction materials and foods. 1975 — GDR Long-term economic and tech- nical cooperation deal including 3rd market sales.
Creusot-Loire Total 1981 sales: $3,805 million • General steel products (gun turret mountings, etc.), engines, military vehicles.		Creusot-Loire 1980 — USSR ($300 million) Prime contractor for steelcomplex at Nololipetsk. 1979 — GDR ($350 million) Construction of nitrogen fertilizer plant, cooperation in sales. 1978 — USSR Supply of turnkey petroleum coke calcination unit at Krasnorodsk. 1975 — USSR ($500 million) Supply of chemical and ammonia plants, all paid for on buy-back basis. 1975 — USSR ($37 million) Supply of equipment for Oren- burg natural gas complex. 1979- Bulgaria Cooperation in mechanical en- gineering, chemicals, power engineering.
Aeg-Telefunken Total 1980 sales: $6,750 million; military sales: $755 million (No. 2 in Germany) • Guidance system on Euro- missiles Roland, Hot and Milan. • Subcontracts for avionics and electrical equipment on Tornado fighter plane. • Electronic defense equipment including radar and navigation systems. • TR86 computer for DISTEL command and control system used by NATO and USAF.		Aeg-Telefunken 1981 — GDR ($40 million) Subcontract to supply heavy elec- trical equipment for plate rolling mill at Eisenhuttenstadt. 1979 — USSR ($22 million) Telecommunications network. 1979 — China ($22 million) Electrical equipment for three chemical plants. 1979- Romania ($1.4 rail.) Sale of Thyristor rectifiers for acetylene extraction. 1979- Poland Motors for power trucks and utility vehicles. 1977 — USSR In cooperation with Mannesmann AG (FRG) built a section of Oren- burg natural gas pipeline ($875 million in total). 1977 — Bulgaria Contract to plan equipment and supervise expansion of electrical engineering works. 1978 — Yugoslavia Joint production of copying machines and spares.

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

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

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

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

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

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

Federal Republic of Germany	1980	1990
Domestic	30.1%	22.3 %
Netherlands	36.6	15.7
Soviet Union	17.5	25.0
Norway	15.7	22.3
Middle East	—	7.8
Africa	—	6.5
France	1980	1990
Domestic	27.5%	8.0%
Netherlands	37.6	8.0
Algeria	7.8	23.0
Soviet Union	13.3	32.0
Norway	9.1	12.0
W. Germany	4.0	—
W. Africa	—	16.0
Italy	1980	1990
Domestic	46.8%	17.0%
Netherlands	24.3	13.6
Algeria	—	27.2
Soviet Union	23.7	35.2
Libya	4.9	5.6
Source: Financial Times (London)