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By early 1983, the Treasury Department, under the direction of Casey and Weinberger, had completed a voluminous study of U.S. and Soviet energy costs. The study had discovered that the best price required by the United States for a barrel of crude oil was only $20. This was far below the $34 per barrel being charged in 1983. If oil prices came down, it would save the United States almost $72 million a year, or almost one percent of the gross national product. What would a fall in the oil price do to the Russians?

Very ugly things, it seemed. The study concluded that while a cut in oil prices would boost U.S. economic welfare, the same cut would have a "devastating effect on the Soviet economy," in the words of one former Reagan adviser. In fact, Reagan National Security Adviser Bill Clark told Schweizer that "Ronald Reagan was fully aware that energy exports represented the centerpiece of Moscow's hard-currency earnings." The energy-export industry was working at full capacity. A drop in price, and the Russians were badly lamed.

Soon U.S. officials were huddling in Geneva with the Saudi oil adviser, Sheikh Ahmed Zaki Yamani. Following the meeting, the United States announced it was cutting its oil imports from 220,000 barrels per day to 145,000 barrels. In late February, the Saudi ambassador, Prince Bandar, met with senior U.S. officials, including Casey and Weinberger, according to former Reagan officials who were involved.

Abruptly, the Saudis boosted production of oil, resulting in lower world prices. By August 1985, Saudi production jumped from 2 billion barrels a day to 9 billion. Since Saudi Arabia was the swing producer in OPEC, which used its production levels to control the market price of crude, the effect was instantaneous. In Russia, the effect was calamitous...

Well, the problem with that theory is that the Saudis began flooding the market in 1981, in an attempt to increase their share of the total market.

Here is another analysis -

During the 1979-1980 period of rapidly increasing prices, Saudi Arabia's oil minister Ahmed Yamani repeatedly warned other members of OPEC that high prices would lead to a reduction in demand. His warnings fell on deaf ears. Surging prices caused several reactions among consumers: better insulation in new homes, increased insulation in many older homes, more energy efficiency in industrial processes, and automobiles with higher mileage. These factors along with a global recession caused a reduction in demand which led to falling crude prices. Unfortunately for OPEC only the global recession was temporary. Nobody rushed to remove insulation from their homes or to replace energy efficient plants and equipment -- much of the reaction to the oil price increase of the end of the decade was permanent and would not respond to lower prices with increased demand for oil. The higher prices also resulted in increased exploration and production outside of OPEC. From 1980 to 1986 non-OPEC production increased 10 million barrels per day. OPEC was faced with lower demand and higher supply from outside the organization. From 1982 to 1985 OPEC attempted to set production quotas low enough to stabilize prices. These attempts met with repeated failure as various members of OPEC would produce beyond their quotas. During most of this period Saudi Arabia acted as the swing producer cutting its production to stem the free falling prices. In August of 1985, the Saudis tired of this role. They linked their oil prices to the spot market for crude and by early 1986 increased production from 2 MMBPD to 5 MMBPD. Crude oil prices plummeted below $10 per barrel by mid-1986. A December 1986 OPEC price accord set to target $18 per barrel was already breaking down by January of 1987. Prices remained weak. The price of crude oil spiked in 1990 with the uncertainty associated Iraqi invasion of Kuwait and the ensuing Gulf War, but following the war crude oil prices entered a steady decline until in 1994 inflation adjusted prices attained their lowest level since 1973. OPEC had mixed success at controlling prices. There were mistakes in timing of quota changes as well as the usual problems in maintaining production discipline among its member countries.