US drops opposition to W. European-Soviet gas deal

With the $10-15 billion Soviet-Western European gas-for-pipeline deal approaching its final stages, the US has dropped its former tacit opposition to the whole package.

Washington is now focusing instead on ensuring that West German consumption of the Soviet gas would be sufficiently dispersed so no single region became excessively dependent on it.

This shift became clear in the maiden press conference of the new US ambassador to West Germany, Arthur Burns, July 9. It comes at a convenient time for the Europeans and the Soviets, who want to close the biggest ever East-West deal quickly, as well as the Americans, who, in view of their own trade with the USSR, want to avoid any impression of a double standard.

Although Mr. Burns first issued the disclaimer that the decision is not America's but West Germany's (and the other participating governments'), under questioning, he had some premeditated advice to offer in case the West Germans ask his opinion.

It would be best, he suggested, to distribute the Siberian gas evenly among West German regions and to channel it more to industry than to private homes. That way energy dependence on the Soviet Union -- and thus vulnerability to Soviet blackmail -- would be minimized.

This, of course, has been the chief American fear: that West Germany -- whose 30 percent share of the eventual 40-45 million annual cubic meters of Soviet gas would give it a 30 percent gas dependence on Soviet imports and a 6 percent primary energy dependence on Soviet imports by 1990 -- would become politically vulnerable to Soviet threats to turn off the spigot.

This concern would be alleviated if in any emergency gas consumers could be switched quickly to other energy sources. This is an easier task for concentrated industries than for scattered households. It is also an easier task for a Ruhr region that has a variety of fuels and foreign suppliers, for example, than a Ruhr that draws the bulk of its energy from a single fuel imported from a single country.

Burns said a 6 percent West German dependence on Soviet energy would not of itself be excessive, as long as it did not mean a 1 or 2 percent dependence in one region, and a 15 or 20 percent dependence in another.

And, of course, Burns counseled Western Europeans to "watch the financing very carefully." It is Soviet insistence on obtaining credits at interest rates well below the prevailing bank rates that has held up the final contracts since the beginning of 1981.

Washington's shift from its earlier blanket unhappiness about the deal to more pragmatic evaluation of its detailed terms should avert any major US-European -- and especially US-German-clash on the issue. It should also avert any European perception of an American double standard, since Washington is approving US grain and possibly (indirect) cut-rate US butter sales to the Soviet Union. The American accommodation is also timely, since both sides hope to close the gas-for-pipe deal well before Soviet President Brezhnev's visit to Bonn in the late fall.

The new movement is indicated by the sudden flurry of visits back and forth by Western European and Soviet negotiators. It is also indicated by reports from Tokyo this month that private Japanese companies have finally agreed to a package for sales of steel pipe to the Soviet Union involving 10- year interest rates of about 7.75 percent. This was the reported approximate rate agreed on tentatively by the Soviet Union and Western European banks by early 1981.

Some West German bankers suggested at the time that the real interest rate could be brought closer to 9.75 percent by compensatory hikes in the prices of Western pipe, compressors, and refrigeration equipment for the 3,600-mile pipeline, or by reductions in the price of purchased gas.

Given the steadily rising commercial interest rates this year. Western European banks have been balking at the nominal 7.75 percent. Reports circulating among West German businessmen suggest that Moscow is finally yielding and is now prepared to go up to 8.5 percent. (The final West German decision is basically a commercial one, since government participation here is limited to strategic scrutiny of the deal, plus ordinary credit guarantees. No subsidized government credits would be involved.)

West German companies' bargaining hand may have been strengthened by the current world oil surplus. The West German oil company VEBA has felt sufficiently sure of alternative supplies this month to let its 20-year Soviet oil contract lapse because of Moscow's "excessive pricing."

Oil is expected to yield to gas in this decade in any case as the Soviet Union's largest hard currency earner.

Despite past American criticism of Western European plans for tapping Soviet gas reserves -- the largest in the world -- the Bonn government has consistently supported the plans. For a West Germany that imports the bulk of its energy fuels, Siberian gas itself represents a needed diversification. It means avoidance of overdependence on Libyan oil, Algerian gas, or domestic nuclear power (whose expansion is being successfully protested by environmentalists).

Bonn is also making efforts to ensure that it will not become vulnerable to Soviet manipulation of energy exports, however. A senior Cabinet member has stated that the country's projected 6 percent energy dependence on the Soviet Union is in fact, the top permissible limit.

According to unconfirmed reports, the West Germans also have Soviet guarantees that there will be no branch-line installations along the pipeline for possible diversion of gas to Eastern Europe. Additionally, they are said to have received quiet assurances that gas deliveries from the Netherlands would be stepped up in an emergency.