How did the Soviet Union pay for $3 billion worth of Pepsi products in 1989?

The origins of Pepsi's naval adventure date back to 1959, when the US and the USSR agreed to hold cultural exhibitions in each other's countries to showcase their lifestyles and achievements. The US exhibition in Moscow featured a model American house, where Vice President Richard Nixon and Soviet leader Nikita Khrushchev engaged in a heated debate over capitalism and communism, known as the "kitchen debate". One of the attractions at the exhibition was a Pepsi vending machine, where Nixon offered Khrushchev a glass of the drink. The Soviet premier liked it so much that he asked for a second one, and reportedly said "This is very refreshing". This was a historic moment, as it marked the first time a Soviet leader had publicly tasted an American product for the first time.

Pepsi seized this opportunity to enter the Soviet market, which was largely closed to Western goods. After years of negotiations, Pepsi became the first foreign consumer product to be sold in the USSR in 1972. However, there was a problem: Pepsi could not accept Soviet rubles as payment, as they were not convertible to other currencies and had no value outside the USSR. To solve this issue, Pepsi struck a deal with the Soviet government: instead of rubles, Pepsi would receive Stolichnaya vodka, which it would then sell in the US and other countries. This arrangement worked well for both parties, as Pepsi expanded its sales in the Soviet Union, and Stolichnaya gained access to new markets.

However, by 1989, things changed. The US imposed sanctions on Soviet products, including vodka, after the USSR invaded Afghanistan. This meant that Pepsi could no longer sell Stolichnaya in its main market. At the same time, Pepsi's contract with the USSR was about to expire, and it needed to renegotiate its terms. Pepsi's CEO at the time, Donald Kendall, who had personally arranged the deal with Khrushchev three decades earlier, flew to Moscow to meet with Soviet officials. He asked for $3 billion worth of payment for his syrup, but the Soviets had no hard currency to offer. Instead, they proposed an unusual alternative: they would give Pepsi a fleet of naval vessels that they no longer needed or could afford to maintain.

Kendall agreed to this offer, and became the owner of 17 submarines, a cruiser, a frigate, and a destroyer. According to some estimates, this made Pepsi's navy the sixth-largest in the world at that time, surpassing those of countries like Australia and Spain. Of course, Pepsi had no intention of keeping or operating these ships. It quickly sold them to a Swedish company for scrap metal, making a profit of about $3 million.