Eagle, I don't want to form an alliance anymore.

This convinced her that although the analysts on both sides served different masters, they were facing the same reality.

In 1983, the Soviet Union's total hard currency exports amounted to approximately US$262 billion, of which oil exports accounted for about US$155 billion—nearly 60 percent!

If natural gas and petroleum products are included, oil and gas together account for 65 percent of hard currency exports.

This means that for every $100 the Soviet Union earned from the West, $65 came from that black liquid pumped from underground.

A superpower with 280 million people, 11.48 million square kilometers of territory, and more than 20,000 nuclear warheads, has its foreign exchange lifeline tied to an oil pipeline!

The pipe had developed cracks over the past two years.

苏联的石油产量在1984年首次下降，从1983年的日均1213万桶降到了1175万桶，1985年预计会进一步下滑到约1140万桶。

The decline in production is due to the fact that old oil fields in western Siberia, such as the Tyumen and Samotlor oil fields, have passed their peak production capacity, and the development of new oil fields is constrained by harsh geological conditions and insufficient equipment.

The CIA report predicted:

"The Soviet Union's hard currency revenue from oil exports in 1985 may have fallen by $30 to $40 billion, accounting for more than 10 percent of its total hard currency export revenue."

Three to four billion! And this is just an estimate assuming oil prices remain at current levels (about $28 per barrel)!

CIA analysts clearly hadn't anticipated that oil prices would plummet to below $10 a few months later, but the year-end report did.

Because in a recent letter from Ukraine, Slava mentioned an economic issue he had been pondering:

"Boss, if the Americans succeed in devaluing the dollar—and I'm not exaggerating, as far as I know, many economists in Washington are discussing this possibility—while Saudi Arabia simultaneously decides to increase production to seize market share..."

This possibility is growing after Saudi Arabia lost 40 percent of OPEC's share due to four consecutive years of production cuts, so it is not impossible for oil prices to fall to $15 or even lower in the next twelve to eighteen months!

If these two events occurred simultaneously, the Soviet Union's hard currency revenue could have halved within a year.

The letter was signed "Your worried brother in prison".

This is not unfounded worry. The United States' twin deficits, the wave of protectionism in Congress, Saudi Arabia's loss of market share, quota disputes within OPEC... each of these are topics openly discussed by the Ministry of Foreign Affairs and the economics community. You don't need the foresight of a time traveler to reach similar conclusions.

PS: OPEC is the Organization of the Petroleum Exporting Countries, an international organization established by major oil-producing countries in Asia, Africa and Latin America to coordinate oil policies and oppose the exploitation and control of Western oil monopoly capital.

So Director Nian began writing a report: "Major Risk Factors in the Current International Currency and Energy Markets and Their Potential Impact on the Soviet Union's Hard Currency Balance of Payments."

She analyzed the situation of the US dollar. During Reagan's first term, the US created a combination that serves as a classic negative example in economics textbooks:

The government implemented substantial tax cuts and a massive military expansion, while the Federal Reserve pushed interest rates to their highest level since the 20th century in an effort to curb inflation.

The result was an explosive fiscal deficit, abnormally high real interest rates, and a significant appreciation of the US dollar.

1980—1985年初，美元相对一篮子货币升值约50%，对日元从1美元对220日元升到1985年初的260日元附近。

A strong dollar caused a collapse in US manufacturing exports. In 1985, the US trade deficit reached approximately $1480 billion (about 3.5% of GDP), of which the deficit with Japan was about $500 billion.

Against this backdrop, protectionist sentiment surged in the U.S. Congress. In the spring and summer of 1985, the Senate passed a resolution accusing Japan of currency manipulation, and the House of Representatives' Danforth-Bentsen-Rostenkowski Act threatened to impose a 25% tariff on all countries with trade surpluses with the U.S.

Therefore, Trump's practice of imposing tariffs on all surplus countries was already in place during the Reagan era.

From the early 80s to 85, the first term of the Reagan administration was led by Treasury Secretary Regan, a staunch follower of Hayek who ideologically believed that the market determined exchange rates and would never interfere with the market.

Now, Reagan's second term has been overseen by Baker, who is a much more pragmatic man, a close disciple of Keynes, and advocates for active intervention.

Previously, when the director was making contacts with various KGB branches in Eastern Europe, he had already discovered Baker's activities.

Baker is in secret contact with the finance ministries of West Germany, Japan, France, and the United Kingdom to discuss the possibility of coordinated intervention in the foreign exchange market.

If the five countries reach an agreement to jointly devalue the dollar, it is entirely possible that the dollar could depreciate by 20% to 30% within the next twelve months!

On September 22, several months later, at the Plaza Hotel in New York, the finance ministers of the G5 signed the famous Plaza Accord.

The following day, central banks around the world jointly intervened in the foreign exchange market, selling off US dollars. The total intervention amounted to approximately US$180 billion, with the United States contributing about US$30 billion, Japan about US$30 billion, Germany about US$12 billion, and the remainder shared by other countries.

Japan pledged to allow the yen to appreciate and to coordinate this with monetary policy. Various countries committed to fiscal and structural reforms to balance domestic and external demand.

The effect was immediate. On Monday, September 23, the US dollar plummeted by four percentage points against the Japanese yen in a single day. In just over two years, the yen appreciated by about 9% against the dollar, far exceeding the original design!

By early 1987, the dollar had depreciated too much, so the G7 signed the Louvre Accord in Paris with the goal of stabilizing the dollar and preventing further declines—but the market had already run out of steam.

Thus, Japan's economic bubble burst, resulting in the "Lost Thirty Years." Japanese manufacturing shifted its production capacity to Southeast Asia and South Korea on a large scale, indirectly giving rise to the Four Asian Tigers—one of the underlying causes of the 1997 Asian financial crisis.

The United States almost couldn't withstand it, but fortunately the collapse of the Soviet Union brought a huge windfall. Otherwise, if the US had continued with Reagan's approach, it would have been questionable whether it could have survived 99.

But if it were just the Americans signing the Plaza Accord, which caused a massive devaluation of the dollar and dealt a heavy blow to the Soviet Union's foreign exchange reserves, that wouldn't have been so painful. The key issue was that the oil crisis broke out at the same time!

That would be a big problem.

Since the two oil crises of the 1970s, OPEC, especially Saudi Arabia, has been wavering, trying to maintain high international oil prices by cutting its own oil production.

In 1980, Saudi Arabia's daily production was about 1000 million barrels, but by mid-1985 it had dropped to about 250 million barrels. In other words, Saudi Arabia alone carried the entire OPEC production cut quota, allowing other members (Iran, Nigeria, Venezuela, and especially Iraq, which was at war and desperately needed cash) to produce at or even above their quotas.

What was the cost? The cost was that Saudi Arabia's fiscal revenue plummeted from $1190 billion in 1981 to about $260 billion in 1985, and its foreign exchange reserves were rapidly depleted.

Non-OPEC oil-producing countries such as the UK, North Sea, Mexico, and the US have seen a surge in production, eating away at the market share ceded by Saudi Arabia.

No, what country's finances can withstand this kind of squandering? Even a prince may be wealthy and powerful, but even he doesn't waste his money like this!

Saudi Arabia cannot continue to unilaterally bail out oil prices!

Therefore, in September 1985, almost simultaneously with the Plaza Accord, Saudi Arabia officially announced its shift to "netback pricing".

The essence of this mechanism is: the price at which Saudi Arabia sells crude oil to refiners = the price at which refiners sell refined oil products - refining costs - agreed profit.

In other words, Saudi Arabia has relinquished all market risk, ensuring it always has buyers and cash flow, but no longer defends the absolute price of crude oil.

As for what other oil-producing countries will do? Only God knows.

As soon as the policy was introduced, Saudi Arabia's daily production soared from about 250 million barrels in the third quarter of 1985 to 500 million barrels in the second quarter of 1986, more than doubling.

According to the law of value mentioned in Capital, when the supply in the market far exceeds the demand, it will trigger a sharp drop in prices.

In November 1985, Brent crude oil was around $30 per barrel.

In December 1985, at the OPEC Vienna meeting, Saudi Arabia officially announced its intention to regain market share, triggering widespread panic in the global crude oil market.

In January 1986, oil prices fell below $25.

In March 1986, it fell below $20.

In March 1986, it fell below $15.

In April 1986, it reached $10.

In July 1986, crude oil prices fell below $10.

I don't know if Saudi Arabia is rolling in oil, but the Soviet Union was shattered by the plummeting prices.

According to estimates by Soviet economists, the decline in oil prices alone cost the Soviet Union approximately $400 billion in hard currency revenue between 1986 and 1988!

What does this mean? During Gorbachev's entire reform period, the Soviet Union's accumulated foreign hard currency debt increased from $300 billion to approximately $700 billion.

The collapse in oil prices alone would be devastating, but historically, the Soviet Union also suffered multiple shocks that year:

反酗酒运动——伏特加是苏联预算的支柱，1984年酒类专卖收入约占预算收入的14%，那场运动直接导致1985-1988年预算损失约670亿卢布。

The Chernobyl nuclear accident—with direct disposal costs of approximately 140 billion rubles and indirect costs estimated to be several times that amount—continues to have an impact to this day.

The ongoing war in Afghanistan costs approximately 50 billion rubles annually.

The arms race – Reagan’s Star Wars program, though largely technically ambitious, forced the Soviet Union to catch up in terms of research and development investment.

这一连串打击导致苏联国家预算赤字从1985年的占GDP约2%，飙升到1989年的约11%，这就是后来不得不大量印钞引发1989年恶性通胀的根源。

As a side effect, the oil price collapse deprived Gorbachev of the financial buffer for any of his economic reform plans. The collapse forced him to attempt several things simultaneously without sufficient funds, none of which succeeded.

Therefore, later historian Gaida, who was also Yeltsin's acting prime minister, directly raised this point in "The Collapse of the Empire":

The Saudi decision in 1986 was the single most important external factor in the collapse of the Soviet Union.

The year-end director combined these risk factors and drew the following conclusion:

"This means that within a year the Soviet Union will lose most of the foreign exchange resources needed to import equipment and technology for industrial modernization, to import food and feed for agriculture, and to maintain energy subsidies for the Eastern European countries!"

The budget for importing machinery and equipment needed for the accelerated development strategy would be forced to be drastically reduced, and the Soviet economy would face its most severe external shock since the 1970s.

At the end of her report, she offered some suggestions to Prime Minister Ryzhkov:

"It is recommended to immediately implement the following two preventative measures: First, adjust the currency structure of foreign exchange reserves, reduce the proportion of US dollar assets, and increase the weight of German mark, Swiss franc and Japanese yen assets."

Second, accelerate negotiations on long-term agreements with major natural gas importers in Western Europe, and lock in export contract terms for the next five to seven years under the current relatively favorable price environment.

The aforementioned measures fall within the scope of routine reserve management and commercial negotiations, and do not involve ideologically sensitive policy adjustments. However, their potential protective effects may demonstrate key value over the next twelve to twenty-four months.

Sigrún has taught at the Iceland University of the Arts as a part-time lecturer since and was Dean of the Department of Fine Art from -. In – she held a research position at Reykjavík Art Museum focusing on the role of women in Icelandic art. She studied fine art at the Icelandic College of Arts and Crafts and at Pratt Institute, New York, and holds BA and MA degrees in art history and philosophy from the University of Iceland. Sigrún lives and works in Iceland.

After reviewing the report, Ryzhkov immediately convened a meeting of economists to discuss the veracity of the year's predictions.

Although many of these economists are market-oriented, they all reached a consensus after analyzing the annual report—

This possibility is very high, and we must make preparations in advance to prevent shocks and ensure a soft landing for the Soviet economy.

"Comrade Ivanova, the Union's economists have reviewed your forecast report." His gaze shifted from the report to Director Nian sitting opposite him.

"This is an analysis based on real data. We should prepare immediately, Comrade Ryzhkov—as for whether this data will evolve into reality as I have analyzed?"

I can't give you 100% certainty, but I can say there's a 70% to 80% probability.

“If you’re wrong, all our preparations will have been in vain.” Ryzhkov still looked down on the young director.

"Seventy to eighty percent also means that if I'm right and we do nothing, the league will face a financial disaster next year that we are completely unprepared for!"

Nikolai Ivanovich, did you buy fire insurance for your house because you were 100% sure it would catch fire?

Must we wait until the wolf's teeth are at our throats before regretting not buying a gun?

Ryzhkov took a deep breath, closed the report, placed it on the table, and pressed it down with his palm.

Director Nian knew he was making a decision.

"How about this, I can arrange the currency reallocation directly. We don't need to go through the Politburo. It can be done within the daily reserve management authority of the National Bank and the Foreign Trade Bank."

But the scale cannot be too large or too fast; we cannot let Western banks notice that the Soviet Union is massively selling off dollars.

“I have already come up with a plan for you. I investigated it when I was on a business trip in Europe. There is still plenty of time. We will spread it out over six to eight weeks, going through banks in London and Paris, with each transaction not exceeding one hundred million US dollars.”

The total amount will be controlled to reduce the proportion of US dollars from the current approximately 70% to around 45%.

"Wow, that's impressive. You've even thought of the operational details?" Ryzhkov looked at Director Nian with admiration, stood up, and shook hands with him.

“Then let’s do it your way, Comrade Ivanova.”

Director Nian smiled, took a sunflower seed out of his pocket and popped it into his mouth. The sound of cracking the sunflower seed was particularly crisp in Ryzhkov's quiet office.

Director Nian spat the shell into his palm and threw it into the trash can, then said, "My style of doing things is to think about an escape route first, and then decide whether or not to set off."

"And what about Comrade Ivanov?" Ryzhkov asked with interest.

Anyone in the Politburo who isn't blind can see that the relationship between these two goes far beyond that of revolutionary comrades.

"Him? He would say that—"

Seeing that the matter was settled, Director Nian was happy to relax with Ryzhkov, so he picked up the black overcoat that Ryzhkov was hanging on the rack, put it on, and stretched the coat outwards while shrinking his neck to imitate the figure of the short man Slava.

She sat in the chair, pursed her lips, looked to both sides, and slowly shook her head as she spoke:

"Since there's a road ahead, let's keep going. I don't really like going back!"

"Ha! Ivanova, you and Ivanov are such a perfect match. I noticed that neither of you comrades seems to be married. When can you invite me to your wedding?"

Ryzhkov laughed heartily as he hung the clothes that the New Year's guide had returned back on the rack. He had never seen a Deputy Foreign Minister so disruptive in the Prime Minister's office.

"Well... things have been too tense lately, let's talk about it later, later—what's your opinion on our long-term gas agreement with Europe?"

Director Nian pushed his sunglasses up, changing the subject.

"I'll handle this coordination. You can ask Gromyko at the Ministry of Foreign Affairs; he can coordinate the negotiation framework with Europe. However, the contract terms regarding pricing and gas supply must be signed jointly by the Council of Ministers and the Ministry of Gas Industry."

I can use the budget shortfall caused by the anti-alcohol campaign as a reason to accelerate natural gas negotiations with the Politburo – 'Alcohol tax revenue has decreased, and we need to find alternative sources of income.'

This logic is acceptable to everyone in the Politburo.

“Ligachev is probably not happy; he’s been sulking for a long time after Slava rejected his ‘alcohol ban’ a few days ago,” she said.

"He deserves to suffer. You're definitely going to Europe to negotiate; what do you plan to gain in those negotiations?"

"Three things. First, extend the price protection period of existing contracts from three years to five years, so that even if international oil prices fall during the protection period, the natural gas settlement price will not follow suit;"

Second, sign new long-term incremental contracts with Ruhrgas in West Germany and ENI in Italy to increase total natural gas exports to Western Europe by 20 percent within two years.

Third, increase natural gas exports to Lao Zhong. While pipeline natural gas construction is too late, short-term trade arrangements for liquefied natural gas (LNG) can be made. Thanks to Slava, we already have a Sino-Soviet trade framework in place, and adding natural gas as a new category is technically not difficult.

Historically, Sino-Russian natural gas cooperation did not materialize until the 21st century, but the geological conditions of the Altai route (western pipeline) had already been explored in 1985.

"But does China have the infrastructure to receive liquefied natural gas?"