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Pipeline prudence

By Frederick H. AldenFredrick H. Alden, a former consultant to the US State and Energy Departments, is now a consultant to the World Bank. / August 11, 1982



The outright French, Italian, and British rejection of US attempts to block the Soviet pipeline reflects the short and long term nature of the pipeline problem. In applying strong-arm tactics, the administration has caused a rift in the Alliance and will probably achieve little else. At most, it may delay the deal for a year or two. Once the pipeline is in place, however, there is the real danger that the Soviets could drive a permanent wedge in the Alliance. This is the box the administration is in.

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Despite what the Europeans say, the pipeline clearly affects our collective security. The worry is increased European vulnerability to simultaneous oil and gas interruptions and hence greatly increased Soviet leverage.

The scenario goes like this: Western oil supplies from the Middle East are cut off by direct or Soviet-inspired moves. The US prepares to act in concert with Europe. The Soviets counteract by neutralizing the Europeans with the threat of an immediate gas embargo. Hit with the serious economic impacts of a sharp oil disruption, in addition to a potential gas curtailment, the Europeans could become even more edgy about adopting a firm anti-Soviet stand. Not surprisingly, Pravda calls the pipeline an energy ''bridge'' that would make Europe less ''captive'' to US Mideast policy. Those who think that the prospect of hard currency earnings are going to stop the Soviets when the chips are down are just plain wrong.

Absent a Soviet engineered energy squeeze, gradual Soviet influence in Europe is also cause for concern. European addiction to a steady stream of Soviet gas could make the Europeans more reluctant to adopt policies that the Soviets find problematic in other areas. A recent EEC report underscores the potential impact; when the gas deal is completed Italy could depend on the Soviets for 35 percent of gas consumption, West Germany 34 percent and France 26 percent. This dependence is greatly compounded by the fact that by 1990 non-EEC gas will account for as much as 46 percent of supplies compared to only 26 percent in 1981. In other words, potential exposure to gas cut-offs becomes progressively worse because of the sharp increase in external sources of gas as a whole.

Finally, the credit provided by the Europeans to build the pipeline is a gold mine for the Soviets; where can you get financing at below 10 percent and expect to repay the loans with high priced gas at fixed price in a declining market? This subsidy is shameful but even more serious is the failure to factor into the total pipeline cost the measures that the Europeans should adopt to protect against simultaneous oil and gas interruptions and Soviet leverage. This is in effect the cost of making Soviet gas ''safe'' for Europe and the Alliance and as such should be included in the delivered cost of the gas. If such costs are factored in, Soviet gas would be uncompetitive with Norway's vast but isolated deposits, US coal, perhaps Canadian gas, and who knows what else.

Despite these real dangers it is apparent that overt pressure applied against the allies is likely to enhance rather than neutralize Moscow's leverage and risks precipitating the very thing the administration sees as the greatest danger; a fragmented Alliance.