As oil prices slumped toward $80 per barrel recently, many Russians looked nervously back at the collapse of the Soviet Union. In the late 1980s, the price of oil plummeted, from $35 per barrel at the beginning of the decade to only $10 per barrel by 1985. Several years later, the Soviet Union collapsed under a mountain of inflated rubles and unpaid debt. Many blame the Soviet collapse on oil prices, but that is misleading and cannot offer any insight into Russia's current economic problems.
The argument that oil caused the Soviet Union's demise has proven remarkably useful in Russian politics. The strongmen from the security forces who now control most of Russia's energy industry point to the Soviet Union's dissolution as the reason why the state needs to keep an iron grip on oil companies.
Economic history, however, tells a different story. In fact, oil was far from the most significant factor destabilizing the Soviet budget during the 1980s. Throughout the decade, the Soviet Union was embroiled in a hopeless war in Afghanistan. That misadventure required higher military spending and caused the West to retaliate by imposing trade and investment sections. This led to slower growth and a higher budget deficit.
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