Part One — an early experience

Eamon Dyas

The way in which Europe is currently committing a slow economic suicide in the wake of what is effectively a US geopolitical exercise in Ukraine stands in marked contrast with what happened in 1981-82. The more robust stance adopted by Europe at that time promised the possibility of an independent Europe evolving in a way that made a safer world possible. Had Europe remained within its EEC borders and NATO not been an instrument of US Geopolitics the continent would have prospered economically in an environment of peaceful co-existence with Russia.

But, that Europe is no more. It was destroyed by a combination of globalist free trade, an expansion that went beyond its original western European genesis, and the emergence of an increasing reliance on a shared geopolitical view with the United States.

The accession of the three notoriously anti-Russian Baltic States into the EU and NATO in 2004 represented the point where the old Europe could be said to have finally given way to the Europe we now see. The old Europe which had been guided by an outlook that laid stress on the values of social capitalism and peaceful co- existence continued to function for a time after those events but the oxygen which it was now breathing was of a different mix and eventually gave way to the values of the free market, low regulation capitalism that took its cue from Tony Blair’s New Labour Britain,and a mission to spread the transatlantic version of democracy in the world.

The contrast between the old and new Europe is highlighted by the way in which both responded to Washington’s policies that have served the US geopolitical agenda firstly in the context of communist Russia and now in the contest of the capitalist Russia. As Russia has changed so too has the EU but the consistent factor that transcends those changes is the foreign policy of the United States.

What follows is the first part of a two-part article. The first part attempts to explain the way in which Europe dealt with its first experience of a US foreign policy that directly impacted European economic interests and the second part will look at the way in which the new Europe has responded to the recent manifestation of that foreign policy and its resultant impact on the European economy.

Early European use of Russian oil and gas

On 18 December 1958 a decision was taken at the 10th session of the Soviet Council of Mutual Economic Assistance (known as Comecon). The decision was that Soviet Russia and other members of the Soviet bloc construct what was to become one of the world’s longest oil pipelines. That pipeline continues to influence the situation in Europe over 65 years later.

The completion of the pipeline became part of the Soviet Union’s Seventh Five-Year Plan. However, at the time the Soviets continued to suffer from steel shortages and did not have the technical knowhow to build the wide diameter pipes and large compressors necessary for the transit of oil in such quantities through long-distance pipelines. In order to overcome those difficulties it was necessary to involve outside resources and expertise in the project. This resulted in the formation of Soviet partnerships with several Western governments and companies.

The entire pipeline became operational in October 1964. In the meantime Czechoslovakia was the first country to receive oil via the pipeline in 1962, Hungary was next in September 1963, Poland in November 1963 and East Germany in December 1963. By the time of its completion 40% of the requirements for large- diameter pipes had been purchased from West Germany and Sweden.

This pipeline, which was called the Druzhba (meaning friendship) pipeline soon became the means by which Russian oil also found its way to European markets and those markets became more demanding in the aftermath of the Arab oil embargo in the 1970s. But, as we shall see later, the pipeline and its involvement of European companies was a development which the United States did all it could at the time to sabotage.

Just as the involvement of the European market in Russian oil began with the development of the energy infrastructure for the Soviet bloc so too was the case with gas. Khrushchev’s Sixth and Seventh Five-Year Plans involved a need to invest more in the exploitation of natural gas. This was to result eventually in the construction of new and more extensive networks of gas pipelines to be built across the Eastern bloc, with the Trans-Siberia pipeline forming its basis. Before that however, there was the Soyuz pipeline which was built between 1974 and 1978 connecting the Volga region with the Bratsvo distribution network.

However, even before that the first shipments of gas from the Soviet Union had begun to reach Western Europe in 1969 through a range of shorter networks. Deals involving modest volumes of gas were struck with Italy in that year and West Germany in 1970, 1972 and 1974. The Trans-Austria Gas(TAG) pipelines connected Czechoslovakia with Austria and Italy in 1974 and the more ambitious MittelEuropäische-Gasleitungsgesellschaft (MEGAL) pipeline, constructed from 1974 to 1979, linked up with Austria, Germany, and France. By this point negotiations were already under way between France, Germany, Italy, and the Soviet Union for what was to become, and continues to be, the most controversial gas pipeline constructed in the Soviet era.

The proposal was mooted in 1978 to construct a gas pipeline linking Western European customers with the newly developed Urengoy gas fields in Western Siberia. It was known as the Trans-Siberian pipeline (also known as the Urengoy-Pomary- Uzhhorod pipeline). The proposal was to link it with the existing Bratsvo network via the Kursk Oblast and Sumy in Ukraine making a 4,500 km route from Western Siberia to Czechoslovakia, Poland, East Germany, Bulgaria, Hungary, Yugoslavia and Romania.

Just like the Druzhba pipeline was to form the backbone for the transit of Russian oil to wider Europe the Trans-Siberian pipeline was to serve the same purpose in the case of gas. And just like the Druzhba oil pipeline the Trans-Siberian gas pipeline would require the participation of Western investment and technical knowhow. In July 1981, a consortium of German banks, led by the Deutsche Bank, and the AKA Ausfuhrkredit agreed to provide 3.4 billion Deutsche Mark in credits for the construction of compressor stations. A group of French banks together with the Japan Export-Import Bank (JEXIM) later made finance agreements relating to the funding of the project. This funding enabled the Soviets to sign contracts with Creusot-Loire of France, John Brown Engineering of Britain, Nuovo Pignone of Italy, AEG- Telefunken, the German industrial conglomerate, for the supply of wide diameter pipes, as well as Dresser Industries of the US and Japan Steel Works. The Japanese company, Komatsu supplied the expert personnel relating to the pipe laying work (the appearance of which may have been the source of some US propagandists to claim that the Soviet Union was employing Vietnamese slave labour on the project).

And as was the case with the earlier use of Russian oil in western Europe the United States set out to do all it could to sabotage this development from the outset.

United States determines to disrupt Europe’s commercial relationship with Russian energy

The United States Government witnessed these developments at the time with profound anxiety. The fear was that the growing trade relationship between Europe and the Soviet Union would at some point lead to the emergence of a Europe with the potential to move away from US influence. Whereas the US had helped Europe to ward off the ideological influence of the Soviet Union it was no longer confident that it could prevent an influence that had its basis in commerce.

In fact US anxiety had become manifest at the outset of the construction of the Druzhba pipeline when it attempted to strong-arm Western companies from assisting in its construction.

“[The] tension between the United States and its European allies grew appreciably during the construction of the Druzbha pipeline. In 1962, three West German firms signed contracts to supply an estimated 163,000 tonnes of large-diameter pipe to the Soviet Union, a deal valued at$28 million. However,

the United States attempted to scuttle the Soviet project by pressurising its allies to cancel their shipments of pipes. At first, US policymakers channelled their complaints through the Coordinating Committee for Multilateral Export Controls (CoCom), a multilateral institution founded in 1949 to stop the transfer of dangerous technologies to the Communist bloc, but they were unable to create the necessary consensus to add pipes to the list of banned export items. Instead, the United States worked through the machinery of the North Atlantic Treaty Organisation (NATO), where a vote was not necessary. On November 21, 1962, the NATO Council passed a secret resolution that strongly encouraged member states to immediately halt the export of large diameter pipes to the USSR and its allies. The German government complied with the resolution but faced a political crisis at home for doing so. However, the embargo did not last long as Britain and Italy chose to interpret the NATO resolution as a recommendation rather that an order and fulfilled their contracts with the USSR. Non-NATO members Sweden and Japan also resisted American pressure. This incident demonstrated that although energy technologies were a source of leverage over the USSR and formed the basis of East-West cooperation, exercising it for political purposes was a challenge because it required unanimity among Western countries.” (“Pipeline politics between Europe and Russia: a historical review from the Cold War to the Post- Cold War.” By Jae-Seung Lee and Daniel Connolly. Published in The Korean Journal of International Studies, April 2016.)

Although the NATO embargo, because it proved ineffective, ceased to operate in 1966 the United States maintained its opposition to any significant cooperation between Europe and Russia particularly in the field of energy supplies.

Washington’s concerns gathered pace in the aftermath of the Soviet Union’s military involvement in Afghanistan in 1979. In response to that involvement the United States imposed sanctions on the Soviet Union which it expected its European allies to abide by. However, by 1980 the attractions of trade with the Soviet Union was proving too tempting for many European businesses and there was a gradual fraying of the US-imposed sanctions. In defiance of intense American opposition several contracts were signed by the end of July and late November 1980 between West German banks and businesses and the Soviet Union on the financing and supply of compressor stations as well as the price and amount of gas to be delivered to West Germany.

Initially, Britain attempted to offer some support for the US by at least partially abiding by the sanctions. However, in the face of the growing disregard for those US sanctions by many European businesses, British businesses found themselves in danger of being pushed out of the lucrative Soviet trade. The problem was summed up by Ronald Scrivener, head of the British-Soviet Chamber of Commerce:

“A factor in this process has undoubtedly been the sure knowledge that Britain’s political allies, but commercial rivals, have been less hesitant in resuming government contacts and filling the trade gaps left by the British and the more resolutely hard-line Americans who cut exports to Russia by 67% in the first nine months of 1980. Mr. Scrivener points to the activities of the West Germans, Italians, French and Japanese. The more diplomatic United Kingdom trade officials can only mutter darkly.

Each of these has retained or reestablished trade links with the Soviet Union. A number of large contracts have been signed or are in the offing. They include a

£33m heavy vehicle deal involving Fiat Allis; a trade agreement between the Russians and Rhone-Poulenc, the French chemicals group; and continuing negotiations on the Siberia pipeline project with groups such as ENI, of Italy and Rhurgas, of West Germany. Various Western nations have indicated their willingness to provide credit for the gas line.” (“Thaw begins in British-Soviet trade”, The Times, 23 January 1981.)

In the week previous to the warning issued by Ronald Scrivener, the Soviet deputy foreign trade minister, Vladimir Sushkov, addressed a conference organised by the London Chamber of Commerce. In the course of that address he said that “Moscow welcomed participation by British companies in offshore oil, coal, agriculture, synthetic fibres and machine tools. Machinoimports, the Soviet State trading organisation had already begun talks with Rolls-Royce, GEC, Davy International and constructors John Brown on a large pipeline project.” [an obvious reference to the Trans-Siberian pipeline – ED].

It was in reaction to the waning impact of US sanctions by European businesses and their trade with the Soviet Union that the Thatcher government dispatched Gavin Dick, the Under-Secretary for Trade to Moscow at the end of January 1981 in what was seen as an attempt to normalise the trading relationship between Britain and the Soviet Union.

Washington’s response was not slow in coming. Within a year, the United States found a new excuse to re-energise its sanctions policy on the Soviet Union. This took place in the aftermath of the imposition of martial law in Poland on 13 December 1981 for which Washington held the Soviet Union accountable and because of which it once more imposed sanctions. And as had previously been the case the main focus of these sanctions was European involvement in the Trans-Siberian pipeline.

While expecting its allies to maintain sanctions imposed because of Soviet actions on another continent in Afghanistan was always problematic the US felt that sanctions imposed because of Soviet actions in Europe was more likely to generate more commitment from its European allies. So, within a matter of weeks after the declaration of martial law in Poland Washington announced another effort to stop the development of the gas pipeline through sanctions. It was to justify these sanctions in

terms that continued to be used in the same context for the next 40 years – US concern that any further reliance on Russian gas would endanger the security of Europe.

In late December 1981 President Ronald Reagan announced sanctions prohibiting American companies from exporting oil and gas machinery and technologies to the Soviet Union. The immediate impact of this was to block the sale of 200 American- built pipe laying machines to the Soviet Union which had been procured for the construction of the Trans-Siberian pipeline.

However, there were other aspects of this prohibition that were to impact European industry. In a report with the heading “US threat to Siberia pipeline” The Times reported on the measures being taken by Washington to prohibit the issuing of export licences for components of the General Electric Company that were used in the construction of the pipeline. The company had been supplying compressor turbine parts to a subsidiary of AEG Telefunken of West Germany, John Brown of Britain, and Nuoro Pignone of Italy.

At this time John Brown Engineering had a contract to build 21 of the 125 gas turbines ordered by the Soviet Union for installation in 41 compressor stations (the contract was worth £104 million to the company). As for the impact of the US attempt to stifle American company involvement it appears that the subsidiaries of US companies undertaking that work in Europe decided to continue to operate on the understanding that the sanctions were not retroactive and so existing licences and contracts were unaffected.

“The British company [John Brown Engineering] said it understood that General Electric had not stopped production. Construction of the turbines was continuing. Only General Electric parts could be used in the John Brown turbines.” (“US threat to Siberia pipeline”, The Times, 9 January 1982).

And as far as the purchase of Russian gas was concerned:

“France will resume negotiations with the Soviet Union to purchase Siberian gas despite its concern over Poland. A delegation from Soyugaz Export is due to meet Gaz de France, the French gas utility in Paris on January 18 to discuss the purchase of 8,000 million cubic metres a year of additional gas.

“The French Government does not believe that the purchase will create any dangerous dependence on the Soviet Union.” (Ibid.).

The wider response among European governments was to question the American sanctions and an article in The Times even speculated about Washington’s motives in imposing those sanctions. It did so in the following terms:

“But if the Reagan sanctions order of December 29 was intended to set a worldwide example, it had a serious flaw. By cracking down on the exports of high technology goods and oil and gas equipment it appeared loaded against West European manufacturing and trading interests while leaving America’s huge grain business with the Russians virtually untouched.

Of the $3,700m worth of goods that America sells to the Soviet Union each year, about three quarters are agricultural products against only $300m worth of high technology exports.Although the President announced that he was postponing negotiations on a new long-term grain agreement, the administration has already allowed the delivery of 23 million tons of grain to the Soviet Union this year.

It has been suggested that a grain embargo should be imposed if conditions in Poland deteriorate but the US Department of Agriculture has been actively reassuring the Midwestern farmers since the Polish military takeover that they will not lose the lucrative Soviet market.

What, therefore, are the Europeans to make of the American sanctions policy? Is it a deliberate move to scotch European industries’ export opportunities while Midwest farmers continue to make hay? Or is the apparent inconsistency between the approach to sanctions on industrial and agricultural products just another instance of an administration rooted in middle America and on the West Coast picking up a blunt instrument in response to domestic pressure without thinking of the impact on the European allies? There is probably some truth in both these views.” (“How Reagan’s sanctions force Europe’s hand”, The Times, 11 January 1982).

Whether through default or design, just as today with the sanctions against Russia over Ukraine, the sanctions arbitrarily imposed by the US in December 1981 was seen at the time to have been done with no regard to the economic welfare of Europe. And just as today with Russia, the US was more concerned with weakening the Soviet Union’s capacity to commercially exploit its natural resources even if that involved a potential damage to the European economies.

Europe’s response to US sanctions in 1981-82

The main difference between the 1981 US sanctions and the sanctions imposed in the aftermath of Russia’s takeover of Crimea in 2014 (further expanded in 2022 after the incursion into Ukraine) was the way in which Europe responded to the former as against the latter.

Washington announced its sanctions against the Soviet Union at the end of 1981 and expected Europe to follow suit but West Germany, France and even Britain failed to do so. Nonetheless, while refusing to implement the 1981 sanctions Europe was eager to assure Washington that the refusal did not imply any divergence from the ideological position which they all shared when it came to the Soviet Union. Europe’s position was purely based on the disproportionate economic sacrifices which the implementation of Washington’s sanctions would demand.

As to its ideological position, Europe continued to assure Washington that it shared its antipathy to the totalitarian Soviet Union but it was unconvinced by the justification which the US used in the formulation of its sanctions policy. That justification rested on the claim that the Soviet Union was directly responsible for the imposition of martial law in Poland on 13 December 1981 and that this was something which required a response from the Free World. Both Germany and France refused to accept this interpretation of those events. At the time, a West German government spokesman, Kurt Becker, insisted that the government “did not share the American view that Russia was the instigator of martial law in Poland. The West German Government believed that the Polish authorities had acted autonomously.” (See: “Germany: angry it was not told”, The Times, 31 December 1981). The spokesman added that had the Soviet Union reacted to the crisis in Poland as it had been expected to act the previous year by directly intervening then West Germany would have implemented “joint contingency measures” but that was patently not the case.

Similarly, France’s socialist government under François Mitterrand argued that it was wrong to claim that the Soviet Union was directly responsible for the declaration of martial law in Poland and that sanctions imposed on the basis of that belief could not claim a level of commitment from America’s allies that would have been the case if that claim was shared. On the contrary, Jacques Huntzinger, the Deputy Secretary for International Affairs in the Socialist Party stated “Although there is an obvious Soviet involvement in the military coup d’état of General Jaruzelski, this is not the same as a takeover by the Soviet Government.” (See: “France baffled by US approach”, The Times, 31 December 1981).

It was this difference of opinion between Europe and the US on whether the Soviet Union could be directly held accountable for what had happened in Poland on 13 December 1981 that formed the political basis for Europe’s insistence on placing its economic welfare above what the US was demanding by way of sanctions.

In June 1982 Washington responded to this reluctance of Europe to fall in line with its sanctions policy by expanding the terms of those sanctions. The new

stipulation meant that any machinery supplied by European companies to the Soviet pipeline project which contained American components should be placed under embargo. This included any components made in Europe under licence from such American companies. A failure to comply with this new restriction would mean those companies being blacklisted by the US Government.

The three turbine companies affected by this were the West German company AEG- Kanis, a subsidiary of AEG-Telefunken, Nuovo Pignone, from Italy, and John Brown Engineering from Britain as all had contracted with the Soviet Union to supply turbines made under licence from General Electric of the United States. The total threatened losses to these companies if they were to abide by the sanctions was valued at nearly $1,000 million (£581 million) but the real loss to Europe was something which The Times commented upon when it said:

“The wider United States ban was aimed at delaying, if not rendering impossible; the building of the pipeline that will carry vast amounts of Soviet gas (40,000 million cubic meters a year for at least 20 years) to western Europe under long-term contracts.” (“UK group will lose $181 million Soviet contract”, The Times, 29 June 1982).

In terms of the implications for West Germany from any loss of the pipeline, the gas supplier, Ruhrgas, had committed to take more than 100,000 million Deutsche mark (more than £22,000 million) worth of gas over the following 25 years (taking it up to 2006) as part of the contract with the Soviet Union. Needless to say, such a loss would have had serious implications for the future trajectory of the West German economy and even that of Europe. Unsurprisingly, the West German Chancellor, Helmut Schmidt, was the most assertive of the European leaders in the face of this US threat. On a visit to San Francisco he declared that “The pipeline will be built.

And the British, the French, the Germans and other Europeans will stick to the agreements which their firms have been making with the Soviets.” (See: “US-Europe rift widens”, The Times, 24 July 1982).

Schmidt further described the American President’s actions as an “attempt to apply his own policy decisions to territories outside his jurisdiction”. This was a sentiment shared by Lord Cockfield, the British Secretary of State for Trade, when he said that the American embargo was “an attempt to interfere with existing contracts and is an unacceptable extension of American extra-territorial jurisdiction in a way which is repugnant in international law.”

Margaret Thatcher’s criticism of Washington’s actions while on a visit to Rome in July was a prelude to an order being issued on 2 August 1982 by the British Government to those companies located in Britain that had contracts relating to the Soviet pipeline. In all there were around a dozen British companies with contracts relating to the Soviet pipeline and those contracts were worth in total about £220 million. The Government order however only applied to the four main British registered companies and it forbade those companies from abiding by the terms of the American restrictions. The companies served with this order were John Brown Engineering, Baker Oil Tools, Smith International and American Air Filters. Three of those companies were subsidiaries of United States corporations but despite that they were all threatened with unlimited fines if British courts found that they deliberately failed to honour pipeline contracts because of American restrictions.

Later in August the French Government, in defiance of the US, ordered DresserFrance and Creusot-Loire, a main contractor for the Trans-Siberian pipeline, to load three compressors for the pipeline onto a Soviet bound cargo ship docked at Le Havre.

Washington responded to this by placing those two companies on a blacklist denying them future access to American goods and services.

The US introduces the prospect of a wider trade war with Europe

A couple of months later, in October, in an obvious attempt to make Europe see sense, the American International Trade Commission decided to begin the process of imposing a 40% import duty on five carbon steel products from six European countries, including Britain. The US government claimed that these five types of steel products benefitted from illegal government subsidies in Europe and therefore harmed the American steel industry.

This action on the part of Washington was viewed as it was meant to be viewed in Europe with even The Times Brussels correspondent, Ian Murray, writing “American determination to stop European participation in the construction of the Siberian gas pipeline lies at the heart of the current difficulty in reaching an agreement on steel exports.” (See: Transatlantic trade rift, The Times, 16 October 1982).The US threat of imposing tariffs had been initiated earlier in June but it was held in abeyance until the process began in mid-October with a deadline given as 21 October.

The US had carefully chosen the targets of the proposed tariffs. The countries to be subject to the new tariffs were Belgium, France, Italy, Luxembourg, West Germany and Britain. With this mixture of countries with contracts relating to the Siberian pipeline and those without such contracts the obvious object was to ensure that the likes of Germany, France and Britain would come under pressure from the wider EU to abandon their contracts regarding the Siberian pipeline.

As a result of this move the European Commission embarked on the task of constructing a proposal which it hoped would satisfy the United States. However, because those proposals contained a component which adversely impacted West Germany’s arrangements with the pipeline, the West German Government refused to accept the arrangement.

As the date for the introduction of the new US tariff regime approached, and as the US undoubtedly hoped, the West German Government came under increasing pressure from other European States to accept the US-imposed arrangement. In mid- October, 1982,

“Herr Hans Dietrich Genscher, the West German Foreign Minister, will come under intense pressure at an informal meeting of foreign ministers at Nyborg in Denmark to accept the package, which the [European] Commission is confident will satisfy the American administration.” (Transatlantic trade rift, The Times, 16 October 1982).

Despite Britain beginning to buckle at the prospect of its steel industry being hit with a 40% tariff, the West German Government held out and the European Commission abandoned its efforts to formulate an arrangement with the US in defiance of West Germany’s position. And then in May 1983 it was announced that a deal had been reached as a result of an arrangement with George Shultz, the US Secretary of State, the previous autumn when both sides had agreed to undertake an investigation into the means by which US concerns for the transfer of high technology to the Soviet Union could be prevented. However, by that point and as early as October 1982

“Despite the American sanctions, even some Washington officials concede that the compressors that are already being shipped by the Europeans, backed up by smaller Soviet compressors if necessary, may be sufficient to keep the pipeline on schedule. Gas throughput is not expected to reach its peak until 1987 or 1988. The Soviet Union meanwhile is rushing its own version of the 25 MW compressor into production.” (East-West deal: the pipeline that began a trade war, The Times, 6 October 1982.)

With the compressor capacity being one of the main examples of high technology exports to the Soviet Union already serving their purpose in the context of the gas pipeline and with the Soviet Union already on the road to manufacturing its own version, by May 1983 it had already become clear that there was little point in the US continuing to pursue its sanctions policy. The pipeline was constructed and its official inauguration ceremony took place in France in 1984.

Three years later, in 1987, a young writer by the name of Anthony J. Blinken published a book entitled: “Ally versus Ally: America, Europe, and the Siberian Pipeline Crisis”. And the now US Secretary of State Anthony Blinken has overseen the current US efforts to achieve that goal that the US had attempted to achieve in 1981-82 – the destruction of a mutually beneficial energy arrangement between Europe and Russia. This time round however, the US was dealing with a more pliable and less robust Europe and has been successful to an extent that was inconceivable in 1983, as we will see in part two.