Soviet Energy Policy Toward Eastern Europe (u)
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Soviet Energy Policy Toward Eastern Europe(u)
KeySoviet leadership views the USSR's energy relationship with Eastern
Europe in the context of its efforts to increase specialization andabor among the Soviet bloc countries, strengthen East European cconomi dependence on the USSR, and weaken East European tics with the West-thai is, io promote bloc economichis energy relationship hi in fact been the single most Important clement inefining the substantive content of economic integration.
The significance of the energy issue, however, transcends economics. Economic integration is seen by Moscow as one of (he threetogether with military and politicalsupport Soviet hegemony in this strategically vital region. The manner in which the energ needs of the Soviet client stales arcnotan important factor afTecting iheir economic growth and domestic political stability.
Despite countcrcurrcnts and resistance both in Eastern Europe and the USSR, bloc economic integration has gradually increased in recent years. Given Eastern Europe's bleak prospects for substituting imports of energy and raw materials from other suppliers for imports from the USSR, or for substantially expanding exports of manufactured goods to the Western market, the trend loward integration probably will continue in, sustained, this further tilt toward the Soviet Union in the orientation of th East European economies willajor political achievement for the Soviet leadership.
Over the lastears Soviet energy policy toward Eastern Europe has bee characterized by remarkable continuity and consistency. This stabilityurprising, since the policy has been shaped in response to anf fundamental Soviet interests:
To pui the brakes on Soviet oil exports to Eastern Europe.
To recoup the costs of Soviet fuel deliveries to Eastern Europe.
To assure thai East European energy needs are nevertheless met as muc as possible.
To use the energy relationshipeans of strengthening integration.
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These interests are not all mutually complementary, however, and in recent years tensions in Soviet policy and conflicts between the USSR and its allies on these issues have grown. The outlook fors that these policy dilemmas and conflicts will become still more acute, forcing even tougher choices on Moscow. In the face of potential instability, the Soviets arc as likely to demand that their Fast Luropcan allies strengthen discipline or take other political countermeasurcs to cope with it as ihcy arc to attempt to buy it off with more fuel or credits.
The above information is Unclassified.
Soviet Energy Policy Toward Eastern Europe (u)
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Soviet-East European Dialogue
Despite their domination of key energy-related posts in the institutional structure of the bloc's Council of Economic Mutual Assistancehe Soviets have been compelled by the principle of unanimous voting to engage in protracted negotiations as they have attempted lo push their strategy through CEMA. Thus, it has takenozen years or more simply to reach agreement on what the bloc energy program ought to be. |
In the negotiations, the East Europeans have argued implicitly that:
There can be no comprehensive solution to the East European energy problem that depends upon the states in this regioneeting their own needs by developing indigenous resourcee.
The central elementloc energy program must be energy and raw materials deliveries from the USSR.
The program musl address critical near-term energy problems.
The program should offer long-term guarantees within the CEMA framework for energy supply.
The costs to the East Europeans must be kept within tolerable limiu.j
arge exienl, these arguments have been ignored by the Soviets. The leading Soviet spokesman on CEMA matters. Premier Aleksey Kosygin. has never publicly accepted the premise that the solution of Ihe Fast European energy problem isoviet responsibility. The themes he has stressed point in the opposite direction: that although the USSR will help, the basic responsibility lies with the East Europeans themselves. Thus Kosygin and other Soviet officials have talked about conservation, the role of coal in ihe energy balance, the upgrading of secondary refining capacily, nuclear power, synthetic fuels, expansion of the unified electric power grid, and renovation of electric power generatingareas in which Soviet assistance is possible, but in which the marn burden must be borne by the East European
Soiiet Strategy
The Sovietswo-track policy in their energ relations with Eastern Europe, proceedingalong multilateral and bilateral planes. The main multilateral arena has been CEMA and its various organs. The CEMA forum has been used by the Soviets primarilyeans of channeling bloc economic discussions in ihe proper direction and of commilling allies to agree in principle io various common economic activities. Bilateral relations are used for establishing concretely who should get what and at what cost, and theyore private ant effective mechanism for the Soviets to bring to bear th full complement of their power resources, to play off one partner against another, and on occasion to make concessions.
The CEMA Program. The current Soviet strategy rot dealing through CEMA with the East European energy problem is embodied in the so-called Power, Fuel and Raw Materials Target Program adopted by the CEMA session ofhe Target Prograi represents an almost total victory for the Soviet position. Il places ihe burden of responsibility for energy provision basically on the East European slab f
First, il assigns top priority lo eleciric power genera-lion. The increase in electric power supply is to be accomplished in the near term through the cxpansior of coal-burning thermal power generation, and in tbt longer run through nuclearwhich ihe Target Program assigns highesl priority. Second, the Target Program reflects the Soviet line in its heavy stress on conservation and efficient energy utilizatiot Third, and most importantly from ihe East Europcai perspective, the Target Program responds only slight to the critical East European concern over future Soviet energy deliveries.
The Target Program includes no joint projectsuarantee oil to East European stales inlan period and no follow-on to the jointly undertake
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natural gas pipeline project that has now been essentially completed. The only joint piojccti now on the books that will guarantee delivery of energy from the USSR to Eastern Europe arc two nuclear power plants to be built in the Ukraine. Given the likely lead limes for commissioning these plants, there arc thus no collective CEMA projects at the moment that will increase Soviet energy deliveries lo Easlern Europe in any way duringBl
Bilaural Dee/iags. The East European slates collectively exercise no influence over the hey decisions of how much oil ihe USSR will export, and what the delivery pioportions will be among CEMA, hard-currency, and less developed countries maikels.on ciporu to individual East European countries are arrived at through siricily bilateral negotiations in which the Fast European stales are able lo affect Soviet policy only marginallyBJ
For several years, the Soviets have been telling the East Europeans notxpect significant increases in "planned" oil deliveries duringive year plan period. On occasion Ihcy have warned thai unless stiff terms are net they may be compelled to reduce the volume of deliveries. The evidence currently available suggcsU that the Soviets arc largely adhering to this line and providing for little increase in oil deliveriesbove0 level. The Soviets have tempered their petition somewhatillingness to discuss marginal deliveries above0 level that would be paid for in hard goods or hard currency. In the negotiations about therade agreements wilh individual Eastcountries, there are some recent signs lhat there may be some flexibility in the Soviet position, although the Soviets so far appear to have made only small concessions on the volume, price, or method of payment
Currently, il appears that Ihe Soviets intend to intensify rather than relax the oil price pressure on their Eail European clients. They will probably increase ihe share in total oil deliveries of so-called "above-plan" oil, which must be paid for in hard currency or goods salable for hard currency (that it, hardnd they have shown signs ofto agree loprcdetcr mined prices for such oil. They have been seriously considering moving from the
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existing five year basehree year base (or even shorter period) for calculating the lagged average world market price they use in setting the yearly CEMA oil price. This would raise the price of Soviet oil still ckocr to ihe level set by the Organization of Petroleum Exporting Countrieshere have also been signs thai the Soviets might insist on receiving more hard goods for "planned" oil delivered under the five year agreements. In addition, they have generally been very unrectptivc to requests from the East Europeans for credits overeriod, although there have been recent reports thai they may be prepared to help the Poles with ruble crcditiB^BB
Policy IHkmmas
If the Sovicis are unprepared fully to meet rising East European oil needs, or lo meet themost affordable to Easlern Europe, ihey are in effect telling ihe East Europeanso cut back economic growth and consumption and to find oil elsewhere.additional supplies of oil can only be acquired by Eastern Europe now for haidin turn can only be earned through exports to Western industrialized nations or oil-producing states and their be neftc ia ries. BJ
The East Europeans are being put in ihe position of having lo increase exports io hard currency markets while reducing imports from the West as much as possible (even at the expense of sacrificing equipment and raw materials imporu lhat in the longer run would promote greater hard currencyt the same time the East Europeans are being pressed io cinand their hard goods trade with ihe USSR. The pressures on Eastern Europe to export more to the West and toEast are likely io be satisfied, if at all, onlyeduction in consumption. I
This dilemma confronting ihe East Europeans also poses policy problems for the Soviets, who wish to at.h jBjfsj frustrations in their East European cbent statesore Westward orientation in their Irade. The Soviet response so far has been ambivulent. To some extent, the Soviets may believe lhat the CEMA energy program will satisfactorily resolve the dilemma. The Soviets unquestionably also feel that Ihcy Have already made major sacrifices to meet East European energy
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hcy rcscnl having io do even mineliving siandards lhat they perceive to betheir ownj
In principle, the Soviets favor stienglhcning intra-CEMA trade tics and reducing Eait European dependence on Western trade. Bui even as Moscow has increasingly pressured tbe East European stales in recent years to direct more trade toward the USSR and lo limil their indebtedness to the West, it has loleialed new East European trade arrangements with the Wen. To be sure. Moscow's tolerance is especially evident in areas that have helped promoteoviet political or economicasihe prospects for Soviet arms controlor facilitating the transfer to the USSR of Western technology. The Soviets, however, have tended to look the other way rather than meet East European hard currency borrowing needs themselves when this has been the only option J
(IMA and the Oil Producing Stales
The clear and present need of Eastern Europe to supplement Soviet oil with growing OPEC deliveries, and ihe Soviet political and economic slake in the satisfaction of this need, arc the factors thai give the USSR even todayritical intcicst in assuring rising CEMA imports of oil from othei oil-producing stales. This interest will runner intensify as the USSR's own oil consumption is increasinglyby falling oil prcductiott.|
The idea ofa joint approach by the CEMA countries to Ihe oil-producing stales goes back ai leastnd5 CEMA signed cooperation agreements with Mexico and Iraq, although so far nothing much appears lo have tome from these8 the notionollective CEMA approach lo ihe oil-producing simes was elevatedeclared policy objective in the CEMA energy Targel Program The Soviets have probably made the greatest effort to coordinate and control activities ia the lucrative and politically sensitive area of arms trade and military assistance In other economic areas, however, joint CEMA collaboraiion with oil-producing countries is more problcmaiic: there have cerlainly been some attempt* ut il. bul often there appears to be cither no collaboration or outright compeluion.pBJ
Even if Eastern Europe turns more io the West or th Middle East locarn the hard currency needed to purchase additional quantities of oil. its overall cncri dependency on the USSR will not be substantially affected. Eastern Europe gets almost all its natural gas, increasing volumes of electric power, and (with the exception of Romania) the major iharc of its nuclear-related lechnology imports and all its nuclei fuel from Ihe USSR. Natural gas deliveries will rise the future, and nuclear ties wilh the USSR will in lir become criticalajority of East European countries. The point at issue is thus not declining dependency, as some observers have aigued, bul the degree of leveragetrong persisting dependen will actually provide the Sovietsituation in whi attempts to exploit il could undercut the USSR's ow prospective gains from economic integrationhreaten political stability in Eastern Europe I
Oullook:Energy Policy and Political Instability inuiope
Moscow is obviously concerned about the possibility political instability in Eastern Europe (especially in Poland, which is probably the country mot! vulncral to massnd is prepared at least to lisien the argument lhat failure by ihe USSR io satisfy fu demand in one or another country could precipitate crisis Soviet leaders, however, have heard this argu mem before, and arc probably disponed to interpret in ihe first instanceign of unwillingness on the part of their allies toair share of the burden Nor docs it necessarily follow lhal (he Sovi< leadership will be preparedake concessionseliveries even if (hey are convinced therehreat instability. There arc limits to disposable Soviet fue reserves. Under certain conditions Soviet leaders mi be prepared to go alongeader such as Hungary's Kadar, who attempts louted nationalismeans of getting people to suffer willingly and quietly. Bul when push cornet tosbem the Soviets arc as likely io demand lhatropi regimes strengthenf undertake other political counter measures aimed at coping wilhinstability as they are to attempt io buylh more fuel or credits.
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policymakers will probably regard havingse military forceuppress disturbances in Eastern Europe as undesirable. But, under the conditions that are likely to exist in the first half of, there willimit lo the price they will be willing lo pay to preempt this eventuality, even if it wereccur in Poland, where ihc costs of military action could be hi;
The mosi likely way in which Soviet energy-related behavior might help torisis in Eastern Europe would beumber of possible miscalculations. Thereeasonable likelihood that the Soviet commilmcnt undertaken9 tooil deliveries io Easiem Europe al0 level duringeriod, upon which Hast European production and foreign irade plansill be based, may be predicated upon the assumption that Soviet oil production can also be stabilized or even slightly increased over this period, rather than declineillion barrels per day as we prcdicl^^awj
The Soviets may also have miscalculated thefor implementing Ihc CEMA Target Program:
conservation potential in Eastern Europehigh tests and may not be realized.
Coal production may be much harder to increase than ihe Soviets believe (with the added danger of unrest among hurd-prcssed coal miners).
Nuclear power plants almost certainly will not be commissioned as scheduled.
East European hard currency export earnings could fall below anticipated levels.
the East European states and the USSR couldore difficult time acquiring OPEC oil even al world prices, much less on concessionary terms, lhan they may haveegotiations already suggest
and managerial competence exercised by Eastregimes in coping with their energy problems. It is highly questionable, for example, whether Ihc Polish leadership eveneal energy pohcyB
There are some elements of flexibility in the situation, however, that may ease the pressure* on Soviet policymakers. Energy-produced deprivations felt by East European populations to some exlent arcby comparisons with living standards in the West, and these maye stagnating or declining in. In addition, the Soviets have tbe option of permitting or encouraging East Europeanccept higher hard currency debt service ratios. Assuming Western lenders could be found, such borrowing would provide temporary relief, and- -in the case of Poland il might be icpaid through sn expansion of coal or electricity exports to Western Europe. Finally, ihc Soviets have ihc option of sacrificing their own domestic needs, at leastin order to supply an last European country in desperate straits wiih more natural gas, oil. or credits with which to purchase oil on the world run kct.'Sj
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Soviets may also miscalculate energy-induced poiilical developments in Eastern Europe. In their willingness io see living standards lowered in ihe region if need be, Soviet policymakers may misiudge the lolcrance level of East European populations. They may also miscalculate the degree of effective control
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