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THE EVIL EMPIRE:

Reagan Administration and the Soviet Pipeline Embargo

by

Phillip Freiberg

July 9, 2011

Webster University, Thailand

"If it is destroyed, then he will fall, and his fall will be so low that none can foresee his arising

ever again. For he will lose the best part of the strength that was native to him in his beginning,

and all that was made or begun with that power will crumble, and he will be maimed forever,

becoming a mere spirit of malice that gnaws itself in the shadows, but cannot again grow or take

shape. And so a great evil of this world will be removed."

J. R. R. Tolkien The Return of the King, The Last Debate.

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Introduction

The 2008 Russo-Ukrainian gas debacle that left much of EU without natural gas has made

many to question the reliability of Russia as a gas supplier and whether it could use the

monopoly position as leverage against its consumers. Social instability in the Middle East brings

doubts about the reliability of that energy source as well.

These events bring to memory Ronald Reagan. Not the gracefully smiling former actor posing

with the communist leader Mikhail Gorbachev; but rather, an essentialist Reagan who saw the

Soviet Union as an „evil empire‟ governed by the ideology that would stop at nothing to protrude

itself, being a “prime source of threat to American security”. The same Reagan who imposed an

embargo on Soviet pipeline that was to take Siberian gas to Western Europe.

A 3 US embargo followed, that made the French foreign minister declare, “This [is] the

beginning of the end of the Atlantic Alliance.” (Stone, 2010). „After a diplomatic furor had been

created between the US and its major trading partners over the extra-territorial nature of such

controls, the US rescinded them in late 1982, and construction on the Soviet pipeline continued.‟

(Alexander, 2009) Inauguration took place in France in 1984.

In 1985, the Soviet Union was at the negotiation table to put an end to the nuclear arms race.

By 1992, the Soviet Union disintegrated but EC became a European Union. US is now the only

standing superpower with China challenging its dominance on all fronts. The threat of

communism has been replaced by Islamic fundamentalism. Presently the Russian gas pipeline,

running though Ukraine, covers 25% of EU natural gas demand (Tsakiris, 2004). Russia and EU

investors are building 2 more pipelines that will bypass Ukraine, Baltic States and Poland.

Desiring to diversify its energy portfolio, the European Union got involved in the Nabuco, a

pipeline project of its own. (Shearman, 2009). 1

This paper will analyze the political and economic background for the US decision to impose but

eventually lift the embargo in the context of historical developments in both the USSR and the

USA. It is the author‟s opinion that history stands as a witness to the fact that embargos in the

postindustrial globalizing world are ineffective and outdated economic tools in the foreign policy

toolbox. This paper will argue that the US embargo of the Soviet pipeline was an unnecessary

and risky step influenced by domestic politics of the Cold War. The embargo retrieval was in the

long run one of the most strategically correct steps by US, so that in 1992 Reagan‟s successor

1 AMERICAN VS. EUROPEAN( FRENCH) FOREIGN POLICY IN DEALING WITH THE 2008 SOUTH OSSETIA CONFLICT by

Phillip Y. Freiberg Webster University May 2011

2

George H. W. Bush could victoriously declare in his State of the Union address: “Communism

died this year. By the grace of God, America won the Cold War.”2

USSR

By 1980, the empire that Joseph Stalin wrought out of the blood of millions still looked very

strong and threatening to the Western world. It occupied the territory of one-sixth of the Earth‟s

land mass, its military was second to none, its international influence spread across the globe

and its huge natural resources were only partially tapped. . It proudly portrayed to the whole

world its defense armaments of mass destruction every May at the Red Square close to the

mausoleum that housed the corpse of the communist ideologue Vladimir Lenin. Marxism-

Leninism was still the only allowed religion, and the curtain looked as iron as ever. Though

officially General Secretary- Leonid I. Brejnev was in charge, due to his poor health, the country

was ruled by the Politburo. Everyone was waiting for the hearse3 to bring in the next leader with

his new agenda.

And yet with a close up look, it was evident that the Soviet world had changed since the times of

the Georgian despot4 and that USSR was heading in hitherto unknown direction, to what would

later be identified as its eminent doom. Years ago, the Soviet leaders hadve made a

strategically wrong decision, which would derail the country in the years to come. In response to

détente, the Soviet world was opened to Western products and technology. Soviets quite soon

realized that in many spheres it was impossible for them to compete against the Western

production tuned to the forces of demand and supply. The planned economy simply did not

have in it to be flexible enough to quickly meet the demands and wishes of consumers. Instead,

it was tuned to the bureaucratically inflexible government Five year plan-Gosplan. Convinced of

the eminent collapse of the capitalist world, Soviet leaders decided in the meantime to simply

buy the technology necessary for the USSR economy. “The idea of promoting the communist

cause through tactical alliances with the „world [of] capitalism‟ emerged in the Bolshevik version

of realpolitik that was practiced with considerable success in the 1920s and 1930s. (Zubok,

2008) Ford‟s engineer Albert Khan and his company disguised under the name “Gosproektstroi”

have engineered 571 (Matuz, 2009) factories for the Soviet Union from 1929 to 1932. USSR

2 http://janda.org/politxts/State%20of%20Union%20Addresses/1989-1992%20Bush/bush.92.html

3 Since Lenin, the Politburo member in charge of the funeral of the late General Secretary was the next GS

4 “Gori, Georgia, was the home city of Joseph Stalin, the god-father of Soviet Union‟s policy on nationalities.” AMERICAN VS.

EUROPEAN( FRENCH) FOREIGN POLICY IN DEALING WITH THE 2008 SOUTH OSSETIA CONFLICT by Phillip Y. Freiberg Webster University May 2011

3

had paid his company an astounding amount of 2 5billion dollars by selling gold and starving its

citizens to death.

„Just like in the 1930s, in the late 1960s the Kremlin leaders expected that whole industries

would be created or renovated with Western equipment‟ (Zubok, 2008)for which USSR needed

lots of hard currency. Most of the Soviet consumer goods were inferior to the western

prototypes and thus would never bring in the much needed hard currency. The only things that

Soviet Union could sell 6to the West were arms, gold and energy resources. Thus as can be

clearly seen from the CIA report (Intelligence, 1982) figure 2 in the appendix, USSR has over

the years steadily increased its hard currency revenues from energy sales. „Détente became for

the Kremlin a substitute for domestic economic, financial, and political reforms.‟ (Zubok, 2008)

By 1980, the Soviet economy was clearly stretching thin. „The military and the colossal military-

industrial complex controlled a quarter of the national GNP, three-quarters of all R&D potential.‟

(Zubok, 2008) Besides „the Afghan trap‟, USSR was helping friendly regimes in Third World

countries and communist parties around the globe, wiring out $35.4 billion in 1978–82. USSR

was also subsidizing its citizens on many levels from free education and medicine to housing

and food. Brejnev‟s plan was to take Soviet meat consumption from 57 kg to 82 kg or roughly

three quarters of US (Paarlberg, 1980). To accomplish that lofty goal, a lot of the hard currency

had been spent on grain imports, most of which were coming from US. In 1976–80, revenues

from oil and gas‟ were $15 billion; of this the Soviets spent $14 billion to buy grain, both to feed

the cattle on collective farms and to feed the people. (Zubok, 2008)

USA

In 1980 a former Hollywood actor and governor of California, Ronald Wilson Reagan, defeated

Jimmy Carter during the presidential elections and in 1981 became the 33rd US president.

Interestingly enough, both Carter‟s defeat and Reagan‟s victory are linked to the Soviet Union.

As it was mentioned earlier, USSR had to purchase roughly 72% of its grain from abroad. Three

quarters or 25 million tons of the grain came from US (Paarlberg, 1980). In 1979, Carter, who

previously vowed not to do it, has imposed a grain embargo on USSR as an act of punishment

for invading Afghanistan, a move that had cost him the support of several Midwestern states in

5 What in today‟s prices constitutes 220 bln USD

6 (the situation has not changed much since then)

4

the 1980 election (Quester, 2007). Presidential candidate Reagan did not fail to promise to lift

the embargo if elected.7

Soviet experts preferred Reagan to Carter. Reagan in their view would be more like predictable

Nixon with his détente and not like Carter with his embargo. Hearing the adjective “evil” aimed

at them, TASS called Reagan administration as able to “think only in terms of confrontation and

bellicose, lunatic anticommunism.” 8

In his book The Crusader: Ronald Reagan and the Fall of Communism, Paul Kengor writes

“Ronald Reagan want[ed] to do three things: One, build up the economy. Two, build up defense.

Three, he [was] going to bring down the Soviet Union." National Security Directive (NSDD-75)

was "Operation Rollback" by which the U.S. endeavored to "change" and "eventually reduce"

the Marxist system within the USSR. Since the Communist system and the USSR were one and

the same, this meant transforming the USSR itself.‟

Reagan‟s policy towards the USSR, is his effort to shape an effective campaign of economic

warfare which exploits their growing dependancy on Western imports” (Bialer, 1983)

Initially, Reagan considered USSR as “Guided by a policy of immoral and unbridled

expansionism," and following a pattern set by Lenin the Soviet Union was advancing "all over

the world" with the goal of promoting revolution." It was thus a threat to the security of the free

world on all fronts.'' (Farnham, 2001) Reagan‟s anti-communist views could be traced as early

as his actor‟s career when he was president of the Screen Actors Guild. In his October 23,

1947 House Un-American Activities Committee Testimony, he cooperated with HUAC in

commenting on the alleged activities of communists in Hollywood and the Guild.

But even „after almost two years in office , his conduct toward the Soviet Union [was] guided

less by a comprehensive and consistent long rage policy than by a general ideological

orientation tied to several concrete and controversial elements of policy‟“ (Bialer, 1983)

The pipeline project and what it promised

As the USSR needed hard cash for its budget, it saw a great opportunity for itself during the US

initiated détente. While its western neighbors needed more energy (in part to produce more

7 „Reagan lifted the grain embargo against the USSR without denying the principle of economic

sanctions, which was invoked in the case of Poland less than nine months later.‟ (Dobson, 2005) 8 http://www.britannica.com/presidents/article-214232

5

goods for the USSR), the USSR had huge recently tapped gas reserves in the difficult

permafrost region of Siberia. In 1978, the USSR has proposed a pipeline project never before

seen by the world. It would run 4,500 kilometers and have a diameter of 1,420 mm. The annual

capacity of the pipeline would be 32 billion cubic meters (bcm) of natural gas. It would have

42 compressor stations along its route pumping Soviet gas from Urengoy gas field to Central

and Western European countries via Uzhgorod in Western Ukraine.

But the Soviet economy was already stretched thin and did not have the finances necessary to

run a project like that, as much as it desired to do it alone. Thus out of desperation, the Politburo

voted for the draft of economic and trade agreements with the United States. Later, when the

US Congress unexpectedly imposed the discriminatory Jackson–Vanik amendment on the trade

agreements with the Soviet Union, the Soviets focused on Western Europeans, especially

Germans, French, and Italians, as well as on Japanese, as alternative trade partners and

technology suppliers. (Zubok, 2008)

It was also decided that Soviet Union would take loans from energy desperate countries to

purchase compressors, pipes and pipe laying equipment. Upon the completion of the project

hard currency earned from gas revenues could be used to repay the loans.

In July 1981, a consortium of German banks, agreed to provide 3.4 billion Deutsche Marks in

credits for the compressor stations. Later finance agreements were negotiated with a group of

French Japanese banks. In 1981-1982, contracts were signed with Caterpillar Inc. and Komatsu

and other western companies.

Why US instituted the embargo?

In 1982, the CIA issued a National Intelligence Estimate report entitled “The Soviet Gas Pipeline

In Perspective,” a response to Soviet plans to build a gas pipeline to Western Europe. The

report warned, that “the increased future dependence of the West Europeans on Soviet gas

deliveries will make them more vulnerable to Soviet coercion and will become a permanent

factor in their decision making on East-West issues… the Soviets believe successful pipeline

deals will reduce European willingness to support future U.S. economic actions against the

USSR.” (Intelligence, 1982) In the report it has been has estimated that if successful, the US

embargo would deny the USSR hard cash. Thus, the Soviet government would be facing a

choice of between continuing military buildup and feeding its population. The CIA reasoned that

if the USSR chose the arms over the bread, its citizens would create civil unrest. On the other

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hand, if the USSR chose bread over the arms, it would put USSR programs of expansionism

and thus threat to the US to a halt, thereby allowing a stronger US to further pressure the USSR

for reforms. For some people in his Administration, the long-range objective [was] nothing less

than to effect a gradual transformation or collapse of the Soviet system of government. While for

others, the maintenance of policy would appear to be to magnify Soviet difficulties at home and

to make Soviet military growth as costly as possible” (Bialer, 1983)

The United States imposed sanctions on Poland and the USSR in December 1981, and

extended them extraterritorially against its allies in the summer of 1982. 9 (Dobson, 2005)

The reason for intervention into the EC energy project was simple: the US lacked commercial

contacts with the Soviet Union, and Reagan was averse to another grain embargo since the last

one turned out to be more disastrous to US than to the USSR.

But the pipeline embargo was a lame duck since the inception. „Many EC states rejected this

[embargo] because they viewed such reserve powers [by USA] in a contractual agreement to be

an abuse of the freedom to contract and to be an intrusion upon the legislative competency of

the state where the goods or services were exported‟ (Kuijper, 1984, 84–87).

Additionally EC was doubtful about real US intentions, since while pressuring EC states to go

along with the embargo Reagan “was willing to encourage normal business with the Devil, as

when he authorized a huge five-year contract for Soviet wheat purchases in August “ (Watt,

1984) Thus, when the French signed a major pipeline contract with the Soviets and it became

evident that there would be a real problem between the United States and its allies, others soon

followed. (Dobson, 2005) Luckily for the US, the EC did not agree to American energy

alternatives of North African gas, US coal and more nuclear energy. OPEC analysts write “I

was particularly anxious to show that, with the Soviet gas available , a heavy resort by

European buyers to LNG originating in West Africa would necessitate paying a very large

subsidy, in both direct and indirect costs.” (Banks, 2003)

9 „It also, however, granted exceptions for a major contract for pipe layers for the Caterpillar Company in

July 1981 and eventually lifted the extraterritorial sanctions in November 1982. In August 1983 it lifted the

embargo on pipe layers.‟ (Dobson, 2005)

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Why US lifted the embargo?

Before we analyze why US eventually lifted the embargo that was supposed to strike a deadly

blow to its vicious enemy, we need to answer one very important and yet illusive question: what

were the exact objectives that the US wished to achieve with this embargo?

Reagan declared that his intention was “to convey to those regimes, how strongly we feel about

their joint attempts to extinguish liberty in Poland.” (Dobson, 2005)

Few embargos exist just to punish or to teach a lesson. Such an embargo is set for a failure

since it runs on pure emotions. Italians have a saying: Vengeance is a dish that needs to be

served cold. But again, is embargo a vengeance?

Trying to understand why US pipeline embargo had to be recalled, we simply have to remember

the grain one. The 1979 Carter Grain embargo was there to simply punish USSR for invading

Afghanistan. It ran on politics and doctrines and not on economics and reason. There were no

stipulations attached to it. It was a bet on weather more than anything else. Bad weather in US

fields will explain why US needs to retain its grain for its own needs. (Paarlberg, 1980) The

Soviet Union on the other hand certainly would not take troops out of Afghanistan because of

this embargo, and could without much difficulty find other suppliers of the grain it needed. Carter

was a real hostage of the situation-if he would not announce this embargo, which was more

damaging to US than to the USSR, he would be frowned upon by the allies for trading with the

communist aggressor. Paarlberg writes “No future President should wish to find himself

uncomfortably positioned, as was President Carter earlier this year, with his most viable trade

and security policies toward the Soviet Union moving in opposite directions.” (Paarlberg, 1980)

And yet here was Reagan.

To understand Reagan‟s actions in imposing and later lifting the embargo, we have to study his

entourage and their views of the issue. Reagan was obviously getting mixed messages. Some

of his advisors wanted harsher actions on USSR while others wanted less. It all depended on

the future they were allocating for the „evil empire‟. “Some advisers, like Weinberger, Perle, and

Pipes, saw the situation [in the early 1980s] as a historic opportunity to exhaust the Soviet

system.” The principal “architect of the pipeline sanctions, Richard Perle, “indicated that

American coercive objectives ran much deeper than the symbolic and compellance objectives

associated with the issue of martial law in Poland.” George Shultz on the other hand was a

much more effective operator and someone who was on record as a critic of what he called

“light-switch diplomacy,” or turning on and off trade flows. (Dobson, 2005)

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Reagan‟s reliance on the advisers prevented neither the firm establishment of a clear intent on

the part of the U.S. administration, or the implementation of an effective strategy of all-out cold

economic warfare. “Thus while Reagan‟s language was often provocative and harsh, his actions

toward the Soviets were consistently more moderate.” (Dobson, 2005)

„Except his core ideas and his powerful performances, when ideology or performances were not

instrumental, Reagan was at a loss at the mercy of his advisors‟ Now if we couple these

qualities with a description of Reagan being: “intellectually shallow and inconsistent, with no

analytical abilities; detail ignorant but insistent,” (Farnham, 2001) we will get a recipe for disaster

in issues that require more analytical approach, and less charisma.

„In the end Reagan was willing to risk Allied “estrangement” over sanctions, but the extent to

which this pushed them away eventually inclined him to compromise: not so with the ideological

hard-liners.‟ (Dobson, 2005)

Embargos are ineffective foreign policy tools

(Losman) explains that „Sanctions are a nonmilitary form of coercion designed to inflict

economic damage. Target state economic distress, then, is a necessary condition for success,

but not a sufficient one.‟ History has taught US a lesson of what a desperate nation is capable

of. Imperial Japan was dependent on the United States and the Netherlands for petroleum but

when squeezed by an energy embargo attacked Pearl Harbor. (Quester, 2007)

Similarly, if the embargo were to stay and were a success, then most probably USSR would

„hold a grudge‟ against the West and would withdraw behind the Iron Curtain to plot the

messianic crusade against the rest of the world that happily traded. Bailer continues “even were

the West able to impose extreme economic choices on the USSR, the system would not

crumble, the political structures would not disintegrate, the economy would not go bankrupt, the

elites and leadership would not lose their will and power to rule internally and to aspire

externally to the status of a global power” (Bialer, 1983)

The Soviet Union would not have been ready for Genève in1985 if embargo was still on.

But in reality, by 1985, the USSR no longer had an enemy. The revolutionary dogma requires

an enemy. In the absence of conflict and enemy; and in the presence of international trade, the

USSR lost its messianic purpose for existence. The messianic role could be found in both

Soviet and American doctrines. They determined the course for these two counties. As much as

the US desired to promote freedom and justice for all, being the “last, best hope of mankind on

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Earth”, so did the Soviet Union regard itself and all it actions within a paradigm of a messianic

role of bringing hope to the oppressed proletariat though a worldwide revolution against the

capitalist oppressors. This Marxist revolution was as eminent for the Soviet psyche, as the

Judo-Christian second coming is for the American one. Without this messianic role, 16

independent republics and millions of culturally and ethnically diverse groups USSR no longer

had reason to exist together. After 70 years of being Soviets even the Russians started

questioning who they were.

Conclusion

With Secretary Schultz, the US reevaluated its approach towards its Soviet Strategy. Allowing

the USSR to run this mega project tied the USSR (and Russia) with the western economy for

many years to come. It would allow the USSR to continue in its self-destructive lifestyle of

depending on the highly volatile natural resources‟ prices and not developing its economy, thus

relying on western technology. Hard cash that was available now would continue to purchase

technologically superior western goods and would eliminate a need to create it domestically.

The western economy was in profit as much as western foreign policy was.

As the Soviet economy became more deeply integrated into the world economy, it removed the

Soviet bitterness towards the capitalist West, thus eliminating the possibility of a major arms

conflict. The Soviet Union now depended on the Western economy‟s health, since it was

purchasing many products from it. Western economic heath depended on the reliability of

energy supplies from the east.

Thus it is evident that lifting the embargos brought results that the embargo engineers never

dreamt of. The examples of grain and pipeline embargoes clearly illustrate that these embargos

perhaps inflicted more damage to the inflicting country than to the country originally targeted. .

The use of embargos should be the last tool in the foreign policy tool box, if at all, since it is an

economic measure that distracts the normal course of international trade. “Predicting the

outcome of sanctions in any specific situation is extremely difficult, so it is a tool that can be

utilized with limited confidence.” (Losman)

The US realized this fact and changed its strategy during the pipeline embargo whose ultimate

goal was elimination of the dangerous communist ideology in the USSR . The US found other

ways to achieve its goals. Unfortunately for the Soviet citizens, the USSR did not survive without

the communist ideology.

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Between 1981 and 1989, the US and Reagan moved from an idealist approach where all of its

actions were guided by an ideology, to a realist that grasped that if one wanted to defeat an

enemy without going to war, one needed to be a little more cunning, and smiling, actors do the

best. „As early as 1983 he was able to sense a change in the level of threat and intentions

emanating from the USSR while its military capabilities were as strong as ever. He has also

showed interest in improving US-USSR relationships. Among the external pressures was the

presence of the soft power of Secretary Shultz, America‟s ever growing military strength,

problems in the Soviet command economy and the 1984 elections with American public‟s

yearning for more security in US-USSR relationships.‟10

Perhaps these lessons of history could be of help while the US is formulating its future policy

towards other potentially threatening counties. As happened with USSR –openness though

trade reversed the enemy‟s political system, so it could happen with other countries like Iran,

Cuba and North Korea.

Whether US policy was guided by shrewd CIA calculations or by Reagan‟s „emotional

intelligence‟ (Farnham, 2001), looking back, we can say that whatever the approach was –it did

work. Despite scares that the West would be open to Soviet blackmail, the Soviet economy for

lack of other exports and clients (in the short run) became hostage to energy resources‟ volatile

prices. When in 1987,OPEC (not without US Administration help) increased its oil production,

thus lowering the world oil prices, the Soviet economy went into a picket never to recover again

and to be reduced to a receiver of the US humanitarian aid in the 1990s. The empire that saved

the world from the Third Reich and threatened the US for many decades, in an attempt to

reform, crumbled down like the empire of Sauron in the epic novel by Tolkien.

10

Article analysis “Reagan and Gorbachev revolution: Perceiving the End of Threat” by Barbara Farnham by Phillip Freiberg June 20, 2011

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APPENDIX

A National Intelligence Estimate report entitled “The Soviet Gas Pipeline In Perspective” by CIA

Figure 1

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Figure 2

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