250. Overview of an Intelligence Assessment Prepared in the Central Intelligence Agency1

ER 80–10037

Impact of Economic Denial Measures on the USSR [handling restriction not declassified]

Overview

The impact of economic denial measures on the USSR depends critically on whether (a) the United States acts alone or is joined by other major suppliers and (b) the measures are enforced for a year or a few months or are continued for several years. Acting alone, the United States can hurt the USSR appreciably only by its grain export embargo and, to a lesser extent, by cutting off critical oilfield exploration and development equipment. The effect of even a one-year denial of grain on Moscow’s consumer programs will be marked. A longer term curb on US grain would be even more effective if other producing countries cooperated. These countries are capable of stepping up production to meet Soviet import requirements over a period of several years. A combination of Western countries could severely impair Soviet economic growth by refusing to sell steel and steel pipe, metallurgical equipment, and a broader range of oil and gas equipment. Except for steel, however, the denial would have to be maintained for a prolonged pe-riod to have a substantial effect. Finally, while a widespread boycott of the Moscow Olympics would not hurt the USSR economically, it would tarnish the leadership’s image badly. [handling restriction not declassified]

Of the measures introduced or suggested in the aftermath of the Soviet invasion of Afghanistan, three (grain embargo and denial of superphosphoric acid and fishing rights) would impact mainly on Soviet plans to upgrade consumer diets. Four measures (denial of oil and gas equipment, metallurgical equipment, communications and automotive equipment and computers, and specialized steel products)—if supported by other Western suppliers—would impinge on Soviet efforts to eliminate bottlenecks that are holding down Soviet economic growth. Limits on Western credits would also retard Soviet growth by inter[Page 724]fering with plans to modernize the Soviet economy across the board with the help of Western equipment and technology. Finally, a proposed boycott of the Olympics would be a political setback for Mos-cow and deny the USSR some hard currency. [handling restriction not declassified]

A review of these measures suggests that a one-year grain embargo would force meat consumption in the USSR down to the level of the early 1970s, which would have an immediate impact on consumer perceptions. A continued denial of Western grain would severely curtail the Brezhnev livestock program in the 1981–85 period. Losing the superphosphoric acid would reduce the availability of fertilizer (and thus grain) only marginally. The impact of a denial of fishing rights would also be minimal, even if Canada and Japan cooperated with the United States. The Soviet Union’s catch in the waters belonging to these countries has been declining, and the USSR probably can move elsewhere to maintain its production. [handling restriction not declassified]

Although the United States is the predominant manufacturer of petroleum equipment, the USSR probably could satisfy most of its needs from other Western countries if they did not cooperate with a US embargo. In any event, a brief embargo would have little impact. Continued denial of US petroleum equipment technology and know-how—if at least partially supported by other countries—would force a more rapid decline in Soviet oil production than we now expect and greatly reduce the chances that the decline could be slowed or stemmed in the late 1980s and beyond. [handling restriction not declassified]

Because the steel industry ranks second only to energy as a Soviet problem area, Western denial of steel products could have a substantial impact on domestic steel supplies for several years at least. In the long term, a denial of Western help in building up the Soviet steel industry would severely impede Soviet efforts to modernize that industry and slow improvements in the technological level of machinery output. It would delay the completion of several projects necessary (a) to produce quality steels that the Soviet economy requires in growing amounts and (b) to eliminate Soviet dependence on imports. In addition, a long-term denial of steel pipe would seriously interfere with Soviet pipeline construction and cut the growth of gas production in half—a loss equal to about 250,000 barrels of oil per day. [handling restriction not declassified]

Curbs on Soviet purchase of Western computers, communications equipment, and automotive production equipment would have little economic impact unless all important suppliers cooperated and the curbs were maintained for an extended period of time. The effects would be felt to a degree in oil exploration, and production would be [Page 725] disrupted in certain new plants that have been built with Western help. [handling restriction not declassified]

A short-term interruption of officially supported Western credits to the Soviet Union would have little economic impact. The USSR, if necessary, could expand commercial borrowings and sell more gold. But Moscow probably counts on financing a large part of its machinery imports in the 1980s with official long-term credits. If Western governments and private banks refused to extend new credits, the Soviet Union would not be able to buy more in the West than it could pay for from current earnings—which we expect to fall drastically as Soviet oil exports decline. A boycott of the Olympics by major Western nations would have almost no effect on Soviet hard currency earnings because most of the earnings from tourism and broadcast rights have been prepaid. But such a boycott would humiliate the leadership and deprive the USSR of the prestige and propaganda opportunities it clearly hopes to extract from a well run, noncontroversial Olympics. [handling restriction not declassified]

[Omitted here is the main text of the intelligence assessment.]

  1. Source: Carter Library, National Security Affairs, Staff Material, International Economics, Tim Deal File, Box 11, USSR: 1/80. Secret; [handling restriction not declassified]. The paper was prepared in the CIA’s Office of Economic Research.