Market Focus : For the Soviets, the Mideast Crisis Has Been Money in the Bank : The Kremlin condemned the Iraqi aggression but the resulting furor has provided it with plenty of petrodollars from rising worldwide prices. For its part, Moscow is downplaying any desire to profit from the situation.

The Soviet Union has joined the rest of the world in condemning Iraqi strongman Saddam Hussein and his nation’s invasion of Kuwait. But the Kremlin could just as well send him a thank-you note.

The invasion Aug. 2 sparked a worldwide hike in oil prices that is providing a windfall of hard currency to the Soviets, still the world’s largest producer and second-largest exporter (after Saudi Arabia) of crude oil.

That windfall comes at a time when the Soviet Union is reeling from economic problems so severe that disgruntled consumers across the country have recently been rioting over shortages of liquor, cigarettes and other consumer goods.

The unexpected petrodollars also promise to ease some of the economic strain caused by an unexpectedly sharp decline in Soviet oil production in the last two years. A shortage of gasoline at home has left farm equipment idle; it is one reason grain is rotting in fields despite a bumper crop this year. Moscow has curtailed oil exports to Eastern European allies to make up the difference.

Any windfall from oil revenue “won’t substitute for economic reform, without which the economy will stagger,” said Tomasz Telma, an economist with PlanEcon Inc., a Washington-based consulting firm specializing in the Soviet Union and Eastern Europe.

“But in the short term, it gives them real breathing space. . . . If (high prices) persist for the next six months to a year, the Soviets will be able to set aside quite a substantial amount of hard currency.”

Kommersant, a well-connected independent business newspaper, reported last month that the Soviet Union could see a windfall of as much as $750 million in hard currency this year as a result of higher world oil prices after the invasion.

Western analysts said the take could go much higher, depending on where oil prices stabilize. Prices, which climbed as high as $32 a barrel on world markets from less than $18 a barrel in July, are now trading at about $25 or $26 a barrel.

By perhaps the most optimistic rule of thumb, the Soviet Union gains $1 billion in hard currency income for every $1 increase in the price of a barrel of oil.

For their part, the Soviets, longtime allies of Iraq, have downplayed any desire to profit from the crisis.

“We do not see the present situation from a position of commercial benefit,” said an official at the Soviet Union’s oil export firm shortly after the invasion. “Sales of Soviet oil on the world market will not be increased from the planned levels.”

That is hardly likely in any case, given the dramatic falloff in Soviet oil production.

The 1986 Five-Year Plan set an oil-production target of 12.5 million to 12.8 million barrels of oil per day in 1990. But in 1989, oil output actually fell to 12.1 million barrels per day from 12.5 million barrels in 1988.

In the first half of this year, production declined 4.3% to 11.7 million barrels per day, according to PlanEcon. The figures are estimates, given the difficulty in assessing the performance of the Soviet economy.

Production has fallen because of aging fields, poor management, equipment breakdowns, lack of spare parts, transportation problems and widespread labor unrest in oil-producing regions. There is little prospect for a turnaround, given a lack of capital for new exploration, lack of technology to increase the output from nearly depleted oil fields and few incentives to attract skilled workers to remote oil areas.

As a result, exports from the Soviet Union have fallen off. In the first quarter of the year, the Soviets sold about 6.5% less oil to the developed West than they did last year, PlanEcon reported. At the same time, the Soviets cut crude oil exports to Eastern Europe by about 12%.

The reduction in sales to the West threatens a prime source of hard currency. In 1989, the Soviets depended on oil exports to non-Socialist countries for $12.1 billion in hard currency, or 28.7% of the total $42.1 billion from exports to those countries, PlanEcon reported.

The cuts to Eastern Europe accelerated in the summer, when shortages at home forced curtailments. “This will permit us to supply our agriculture,” said Prime Minister Nikolai I. Ryzhkov.

“We knew this would be an unpopular move, but there wasn’t much we could do,” added Ryzhkov’s deputy, Deputy Prime Minister Leonid I. Abalkin. “We need this oil for ourselves.”

“Cutbacks to Eastern Europe in the first six or seven months of the year are related partly to problems with domestic production, partly to the fact that the Soviets are getting low prices in trade with Eastern Europe and they do not want to continue subsidizing their former allies,” economist Telma said.

In 1989, Telma estimated that Eastern European nations paid the Soviets the equivalent of roughly $7.40 per barrel for oil, compared to the world market price of about $19.03 a barrel then. The Soviets have put Eastern Europe allies on notice that they will have to cough up hard currency for oil beginning next year.

Any gains in hard currency could be offset by other losses from the Middle East crisis. The annexation of Kuwait by Iraq is likely to cut off, at least for now, the substantial investment in oil development and recovery that Kuwait was going to make in remote parts of Siberia and the Far North, according to the government newspaper Izvestia. There will also be disruptions to Soviet projects in Iraq.

The hike in oil prices, which will eventually be passed on to Moscow’s customers, could also could hurt the economies of Eastern Europe, which still depend on the Soviets for most of their oil.

“At first blush, (the current crisis) appears to mean a windfall and more hard currency” for the Soviets, said John E. Treat, an international oil analyst with Booz, Allen & Hamilton in San Francisco and former energy adviser to President Jimmy Carter. “But the secondary effects on their markets in Eastern Europe . . . could pose some difficulties for them and offset some of that benefit.”

Curtailments of oil exports to Eastern Europe this summer raised gasoline prices there by as much as 50% overnight.

“The downside has got to be that (the Soviets) planned . . . to move to market prices for oil . . . in trade with Eastern Europe,” added Thomas Wallin, an editor with the widely read Petroleum Intelligence Weekly newsletter. “I wonder if it will happen as fast as expected because the higher prices will slam Eastern Europe and make it hard for them financially to absorb.”

In any case, most analysts doubt that the new infusion of hard currency would mean more investment in oil and gas production when there are more pressing uses for that money.

“Unlike the United States, higher prices won’t mean increased investment in the Soviet Union,” Wallin said. “The best hope for Soviet oil production is probably the involvement of Western firms.”

Chevron Corp., Texaco Inc. and the French oil company Elf Aquitaine have reached preliminary agreements with the Soviets to study possible exploration and development of the Soviet Union’s vast untapped reserves.

The Tengiz field in Kazakhstan, where Chevron is conducting a feasibility study, holds an estimated 25 billion barrels of oil, about 2 1/2 times the capacity of Alaska’s Prudhoe Bay field.

“If there is additional hard currency, I’m sure it will be used probably in the food areas. . . . There’s such a dire need for consumables and debt reduction . . . that I have a feeling the Soviet oil industry isn’t getting a windfall,” said Scott Edward, vice president of Chevron Overseas Petroleum Inc., who is in charge of negotiations with the Soviets on possible joint ventures.

It is possible that high prices could complicate the oil supply within the Soviet Union. The Russian Federation, the largest of the many Soviet republics, controls more than 90% of the Soviet Union’s oil resources, according to Vladimir L. Kvint, a Soviet academician and lecturer at Fordham University in New York.

Soviet republics are increasingly vying with the Moscow-based central government over control of natural resources, and the Russian Federation is already seeking to gain more control over its own.

“Russia will not sell oil to Eastern Europe any more if they do not pay hard currency,” Kvint said through a translator. “More than that, it is not beneficial for Russia to sell oil even to the Ukraine or Byelorussia because they don’t pay hard currency.”

Boris N. Yeltsin, president of the Russian Federation, has openly challenged Soviet President Mikhail S. Gorbachev over the issue. Earlier this year, an economic official of the Russian Federation even suggested the possibility of Russia’s joining the Organization of Petroleum Exporting Countries, although the remark seemed off the cuff and has not been repeated by Yeltsin or his followers.

Lee reported from Los Angeles and Dahlburg from Moscow.

KEY SOVIET OIL CUSTOMERS

Total exports 4,276 (Thousand barrels daily) Eastern Europe, Cuba , and other: 1,795 Western Europe: 1,593 Asia: 405 Latin America: 402 U.S.: 49 Africa: 15 Japan: 13 Canada: 3 Australia: 1