Gulf crisis puts Eastern Europe in desperate economic crunch

September 22, 1990|By Kay Withers | Kay Withers,Special to The Sun

WARSAW, Poland -- The emerging economies of Eastern Europe, pushed out of their Communist cocoons into the hurly-burly of the free market, are discovering that the ties they saw as chains also functioned as protective arms.

And it is the gulf crisis and spiraling oil prices that have shown them how cushioned they once were by Moscow's suffocating embrace.

Eastern Europe did a lively trade with Iraq and allowed that country to accumulate a sizable foreign debt that it paid in oil. Iraq owes Poland a half-million dollars accumulated from arms sales (which amounted to $115 million in 1989 alone), building contracts and the sale of Polish machinery and tools. In turn, Iraq was to supply more than 7 million barrels of oil at $14 a barrel.

Czechoslovakia, too, sold arms to Baghdad. "We sold arms, and they paid in oil," a Czechoslovak diplomat said. "Then we sold the oil on the world markets and got the hard currency." Hungary is an Iraqi creditor as well.

With the world embargo on trade with Iraq, those debts are frozen and the Iraqi oil source dried up. Polish officials calculate, moreover, that Poland is losing $457 million over the embargo, and government press spokeswoman Malgorzata Niezabitowska said yesterday that Warsaw is hoping for compensation.

Worse still, the crisis hit just as the Soviet Union, Eastern Europe's main oil supplier, drastically cut supplies and warned that next year it cannot guarantee supplies at all.

As a result, Eastern Europe is now forced to look West.

Prague reportedly was negotiating with Mexico, Venezuela and Argentina on a barter deal. "We would build two electric power plants, and they would pay us in oil," said an official.

There were all-day meetings at Warsaw's Industry Ministry this week as officials searched for solutions. "We are not certain that the Soviet Union will stick to its stand," said Industry Ministry manager Kazimierz Adamczyk.

The East Europeans expended strenuous effort to persuade the Soviets to change their mind.

"Hungary will insist on the full contracted 4.48 million tons from the Soviet Union [this year]," Istvan Zsengeller, general manager of the National Oil and Gas Trust, told Budapest's economic weekly HVG.

Prague has begun negotiating directly with the Soviet republics, an official said. He mentioned talks between Czechoslovak union representatives and their counterparts in oil-producing Siberia, in the Russian republic, at which the Czechoslovaks offered insulated wooden huts, processed meat, food and domestic appliances in return for about a million tons of crude.

Unless they can work out barter arrangements, these countries face the expenditure of most of their hard-currency incomes on oil. "Even at only $25 a barrel we would have to pay 75 percent of our annual hard-currency income for oil," the Czechoslovak official said.

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