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Moscow, too, has economic leverage

By Fred TannerFred Tanner, a Swiss citizen completing his doctorate at Tufts University's Fletcher School of Law and Diplomacy, is associated with the Center for International Affairs of Harvard University. / July 7, 1983



The visit of West German Chancellor Helmut Kohl to Moscow is a reminder that the Soviet Union has become an important energy supplier and business partner to Western Europe and is expected to become even more so in the future. Despite the increased trade, this aspect of East-West relations is less controversial today than it was a year ago when the Reagan administration publicly criticized European governments for their business dealings with the Soviet bloc.

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The Soviet Union, as the single most important supplier and producer of energy in the world, finds a ready customer in the industrial nations of Western Europe. Its oil production level of 12.5 million barrels a day is higher than that of any other country and its oil exports are second only to those of Saudi Arabia. In addition, the Soviets are the leading exporter of natural gas and, in terms of total production, expect to exceed the United States next year.

The greatest share of Soviet energy still flows to Eastern Europe, which must import 80 percent of its oil and over half of its gas. However, the various Soviet-West European natural gas contracts and the increasing Soviet oil deliveries to the West are part of a growing West European attraction to Soviet natural resources. At least three factors account for this interest:

* It helps Western Europe diversify its energy sources and reduce its dependence on OPEC oil.

* Soviet energy is geographically closer and often cheaper than other sources such as Algerian gas or US coal.

* Soviet energy constitutes a convenient form of payment for East-West business deals, with Soviet oil and gas instead of inconvertible rubles exchanged for West European factories, machinery, pipes, and technological know-how.

Soviet gas supplies to Western Europe are expected to continue to increase over the next several years. The Soviets as well as some West European governments view this additional gas flow as an energy substitute for expected declines in Soviet oil deliveries to the West. But this expectation may not materialize. Last year the Soviet Union diverted extra crude oil and petroleum products away from its domestic economy as well as its East European allies, directing them instead toward Western Europe. This appears to be a Soviet reaction to OPEC's downward adjustment in the price of oil by $5 a barrel, a slide in price which could cost the Soviets as much as $2.4 billion in oil earnings this year. Increasing the volume of oil exports was thus the most feasible way for the Soviet Union to stabilize its hard currency earnings, 60 percent of which are generated by either petroleum or petroleum products.

In undercutting OPEC's price, the Soviet Union increased its exports to the noncommunist world by 40 percent over the previous year. Today, the largest West European oil consumers - West Germany, France, Italy, and even the United Kingdom - import at least 8 percent of their oil needs from the Soviet Union. The Soviet share of total petroleum requirements is still higher in the Netherlands and Belgium, both of which serve as centers of the world oil spot market. These two countries rely on the Soviet Union for up to one-third of their oil needs.