WINTER TESTS THE FORMER U.S.S.R.

Decision time has arrived for developed-country governments wondering how to respond to events in the rapidly deunifying Soviet Union. International oil companies can and should help. Decision time has arrived because the winter has arrived in the Soviet republics. Human suffering is widespread. A crumbling economy cannot respond. Following Ukraine's lopsided vote in favor of independence, there are questions whether any role remains for the central government.

Dec. 9, 1991

3 min read

Decision time has arrived for developed-country governments wondering how to respond to events in the rapidly deunifying Soviet Union. International oil companies can and should help.

Decision time has arrived because the winter has arrived in the Soviet republics. Human suffering is widespread. A crumbling economy cannot respond. Following Ukraine's lopsided vote in favor of independence, there are questions whether any role remains for the central government.

What governments elsewhere must decide is whether and by how much they should assist or boost aid to the splintering nation in this most difficult period. Oil companies can help by pointing out that the decision involves more than international relations, that it should be viewed in terms beyond traditional foreign policy parameters, however important those considerations may be.

WORLDWIDE CONSEQUENCES

Developments in the Soviet republic will have worldwide economic consequences. It is not insignificant that companies from a number of countries have growing stakes in the reconstruction of the Soviet economy. Beyond those interests, however, lies the question of what role the reconstituted Soviet republics will play in future international commerce, especially energy trade. The outcome will affect petroleum supply, price, and - therefore - consumers around the world.

Soviet oil production - which still leads the world - may be this decade's most important petroleum market variable. At present it is falling rapidly. Soviet exports have slumped to 2 million b/d from 3 million b/d in recent years. The reasons are mechanical and economic, not geologic. With rapid investment and remedial work by international companies, Soviet production and exports probably can return to former levels or beyond within a few years. Without repair, production will continue to slide, and the Soviet republics, depending on demand, collectively might become a major importer.

Which will it be? The market demonstrated its sensitivity to the Soviet wildcard last month. Crude prices jumped when Russia, which accounts for 90% of Soviet oil production, suspended some export licenses in an apparent housekeeping measure. The answer to the exporter-importer question also will shape the economic fate of Soviet republics. The speed and extent of the Soviet capitalist evolution will largely be functions of the amount of hard currency available from oil and gas exports. So, by association, will the extent to which the republics become markets for goods from abroad.

REVERSIONARY PRESSURES

It is crucial, therefore, that foreign companies in significant numbers conclude contract negotiations and get busy reversing the Soviet production decline. They cannot do so, however, until the political climate stabilizes, which still requires time. Harsh winters make struggling people impatient with change and susceptible to reversionary pressures. Exhortations to abandon the course toward democracy and capitalism will peak in the next few months.

If outside economic assistance is appropriate, therefore, now is the time to provide it. Prospective benefactors must decide for themselves whether they should and can afford to help. What they must not do is pretend that they have no economic stake in this pivotal Soviet winter. The petroleum fortunes of Russia alone will affect economics worldwide. Oil companies should not hesitate to make the implications clear to their governments.

And governments considering aid to the Soviet republics must decide quickly. Whatever further international help may be forthcoming will never be more effective than it would be right now.