Moscow, too, has economic leverage
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.
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.
The greater oil dependence when combined with the projected increases of Soviet natural gas through new gas pipelines increases the vulnerability of Western Europe in terms of energy security. For example, West Germany may rely on the Soviet Union for as much as 10 percent of its total energy requirements by 1988, when contracted Soviet gas supplies will have reached maximum projected levels.
In more than doubling its share of oil exports to the West over the last two years, the Soviet Union has also enhanced its ability to influence spot markets as well as the international oil pricing system. OPEC, which shares with the Atlantic Alliance an interest in a stable and predictable oil market, is concerned that the Soviets could break their fragile price agreements by heavily undercutting official prices as they did in the late 1950s and early 1960s. During that time, the Soviet Union sold oil to the West at one-third the price of Middle Eastern crude.
Differing assessments of energy vulnerability created by the increasing energy ties between Western Europe and the Soviet Union have resulted in strains in the relationship between the US and its West European allies. In the gas pipeline deal, for example, the US places greater danger on West Germany's vulnerability to Soviet gas supplies than does West Germany itself, though the US is not vulnerable to Soviet gas cutoffs at all.
Differences over oil and gas reliance are further heightened by diverging views on the needs, benefits, and appropriate level of East-West trade. These differences - relating largely to questions of technology transfer and credit subsidies - were not eliminated by the termination of US sanctions against the Soviet Union last November.
Few Europeans dispute the importance of continued East-West trade. Indeed, in addition to oil and gas, trade in pipes, turbines, and other energy-related items is increasing between the Soviet Union and Western Europe. For example, West Germany and the Soviet Union are negotiating a $16 billion investment deal in synfuels which will figure in the discussions between Kohl and Andropov in Moscow this week. West German trade with the East is promoted by powerful business lobbies as well as by labor unions.
The US was largely silent on questions of European energy vulnerability and East-West trade at the recent Williamsburg summit. In removing this controversy from acrimonious public debate the US administration (for once skillfully) showed some sensitivity to the European position and opened up additional ground for Alliance solidarity on the more pressing security issue of the planned deployment of Pershing II and cruise missiles in Western Europe this fall.
The less strident American approach also suggests that the administration's attitude of confrontation with Western Europe is losing ground in favor of a more prudent approach which seeks consensus rather than conflict. This may reflect a recognition that the US does not have a monopoly on leverage in the conduct of its foreign policy as well as a realization that an uncompromising approach to European views on East-West trade could affect European perceptions of American performance in other areas such as missile deployment and arms negotiations.