Russia's economic lifeline
Bohdan Nahaylo
The rift between the United States and Europe over the Siberia-West Europe gas pipeline is threatening the Western alliance with yet another crisis. The Euro- peans, having promptly rejected the Reagan administration's extension of sanctions against the controversial project to cover American subsidiaries abroad and equip- ment produced by foreign companies under American licences, are now actively defying the ban. This week the British government became the latest European partner of the United States to instruct companies to disregard the embargo and to honour their contracts with the Soviet Union.
Russia's response to President Reagan's sanctions against the pipeline has been a rather crude mixture of bluff and threats. Soviet spokesmen confidently claim that the USSR has the technology and know- how to produce all the equipment for the new pipeline itself, and that the project will be completed on time regardless of the American attitude. They have argued that great damage will be done to Western economies if the Americans and Europeans reject the Siberian pipeline scheme. Representatives of European companies have at the same time been warned in no uncertain terms of the penalties facing them should they break their contracts.
For all its bluster, Russia is only too pain- fully aware of how much is at stake in the venture and just how damaging the American embargo could be. The sorry state of the Soviet economy is well known, as indeed are some of the reasons for the malaise. The Soviet leadership stubbornly resists badly needed economic reform of the inefficient industrial and agricultural sec- tors and, at a time of sluggish economic growth, continues to spend at least 14 per cent of the national product on defence. Western credits, technology and grain have been exploited to compensate for the defi- ciencies of the economic system, but this in turn has led to an acute shortage of hard currency. At present the Soviet Union derives about half of its hard currency earn- ings from exports of oil and some natural gas. There are problems, however, with oil, for the USSR is committed to selling some 78 million tonnes of it a year to its East bloc economic partners. In addition, it is ex- periencing difficulties in increasing oil pro- duction. The emphasis has therefore been shifted to natural gas.
This bold and crucial project provides for the construction during the Eleventh Year Plan (1981-85) of six major pipelines from Western Siberia to the European part of the Soviet Union, measuring some 20,000 kilometres. One of them, the 'export pipeline' to Western Europe, will stretch
4,500 kilometres from Urengoi to Uzhhorod on the Ukrainian-Czechoslovak border. From there it will be extended into Czechoslovakia where it will branch off in three directions: one through West Ger- many to France, a second through Austria to northern Italy and a third to East Ger- many. The success of this remarkable engineering feat, as the Soviet leadership knew only too well, was dependent on technical and financial aid from the West. Consequently, while Moscow has played up the advantages of the 'gas-for-pipes' ar- rangement for foreign customers, it has been anxious to conceal the full extent and significance of Western 'assistance'. Despite the fact that East-West detente has supposedly been shattered by Soviet behaviour over Afghanistan and Poland, the USSR has nevertheless successfully ob- tained Western technology and credits to build itself what is in effect an economic lifeline.
If the high-handed manner in which on 18 June President Reagan announced the general ban on supplying equipment for the Euro-Siberian pipeline appeared tactless and even offensive to his European col- leagues, the Americans have never made a secret of their opposition to the project. The Carter administration on several occa- sions expressed its reservations about the pipeline, and soon after Reagan took office the new US Defence Secretary, Casper Weinberger, spelt out the American posi- tion at a NATO meeting in Rome. At first the Americans argued that the pipeline would make West Europe more dependent on the USSR for energy and therefore vulnerable to politically motivated interrup- tions in supply. Following the deterioration of the situation in Poland and the imposi- tion of martial law there, the Reagan ad- ministration's line hardened. European allies were asked for greater restrictions on loans to the USSR as it became apparent that the United States was seeking to apply concerted economic pressure against the Soviet Union, both for punitive reasons because of Poland and in order to en- courage it to make the right choice between guns and butter.
The American ban has reopened the en- tire question of East-West trade. Is the role of the West to help the Soviet Union over- come its economic difficulties while remain- ing indifferent to the nature of the system which it is propping up? What about the wishes of those peoples, all too often forgotten, whose lands the pipeline will cross? US officials openly admit that the sanctions against the pipeline are intended to prevent billions of pounds of hard cur- rency from pouring into Soviet coffers.
They maintain that the time is ripe to squeeze concessions out of the USSR. The thousands of Soviet Jews who were allowed to emigrate following the 1972 Jackson- Vanik Amendment which linked US trade policy towards the USSR with Jewish emigration are evidence that this approach is not as unrealistic as some would think.
Put bluntly, the Western Europeans have too many vested interests in the Euro- Siberian pipeline project to be swayed by President Reagan's talk of principles. After all, it is one thing for the Prime Minister to call for a boycott of the Olympic Games in Moscow, and quite another to risk 3,200 British jobs and £134 million in contracts. West Germany, Italy and France stand to lose far more than Britain if they were to order their companies to observe the American embargo. At a time of recession and unemployment in Europe the United States's Western allies find trade 'with the Soviet Union too important and profitable to renounce. Moreover, so far at least eight Western European countries want to buy some of the 40 billion cubic metres of gas due to be exported by the Soviet Union from Siberia. With the predicted decline of the Groningen gas field in Holland, delays in the development of the North Sea reserves and the relative unreliability of Libyan and Algerian supplies, Soviet gas appears to them as an attractive and necessary proposition. As presently plann- ed, the Euro-Siberian pipeline is in any case expected to provide only between 20 and 35 per cent of Europe's needs during the last decade of this century. With the European states determined to press ahead with the project, with or without President Reagan's approval, it seems likely that American sanctions will delay but not scuttle the Euro-Siberian pipeline. At present the Soviet media are preoccupied with minimising the difficulties caused by American restrictions. TheY recently announced that 600 kilometres of pipes have already been welded of which a third have been laid in the ground. The Soviet Ministry of Foreign Trade has also reported that deliveries of steel tubes from Western Europe are continuing according to schedule. As for the turbine pumps withheld by General Electric, it has been announced that the Neva Plant in Len- ingrad is building even more efficient machines, which is somewhat surprising considering that this factory was publiclY criticised only a few months ago for its serious shortcomings.
There is still a remote possibility that the Reagan administration will modify its stance on the pipeline embargo before the ban comes into effect on 18 August. Statements emanating from Washington have suggested that this could happen if European states agree to be more stringent in supplying the Soviet Union with credits. If the Western allies agreed at the very least on the need to thrash out a more uniform policy for East-West trade, President Reagan would have made his point and the present crisis would probably be defused.
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