International Relations Within The Comecon - The Soviet Union and Eastern Europe

The Soviet Union and Eastern Europe

Since Comecon's creation in 1949, the relationship between the Soviet Union and the six East European countries had generally remained the same. The six countries were: Albania, Bulgaria, Czechoslovakia, Hungary, Poland, and Romania. The Soviet Union had provided fuel, non-food raw materials, airplane and helicopter designs and semi-manufactures ("hard goods") to Eastern Europe, which in turn, had supplied the Soviet Union with finished machinery, and industrial consumer goods ("soft goods").

This kind of economic relationship stemmed from a genuine economic problem within the Eastern communist states in 1950s. Eastern Europe has poor energy and mineral resources, a problem exacerbated by the low energy efficiency of East European industry. As of mid-1985, factories in Eastern Europe still used 40% more fuel than those in the West. Eastern European countries have always relied heavily on the Soviet Union for oil. During the 1950s, Eastern Europe supplied the Soviet Union with those goods, otherwise unavailable, because of Western embargoes.

Thus, from the early 1950s to the early 1970s, the Soviet Union inexpensively supplied its East European clients with hard goods in exchange for finished machinery and equipment. Soviet economic policies also brought with them, political and military support. During these years, the Soviet Union could be assured of relative political tranquillity within the bloc, obedience in international strategy, as laid down by the Soviet Union, and military support of Soviet aims. By the 1980s, both parties were accustomed to this arrangement, which was still particularly advantageous to The Soviet Union, as it could expand its energy and raw materials complex quickly, and relatively cheaply.

In the 1970s, the terms of trade for the Soviet Union had improved. The OPEC price for oil had soared, placing the oil-rich Soviet Union in an advantageous position. The soaring price increased the cost of providing Eastern Europe with oil at prices lower than those established by OPEC. In addition, extraction and transportation costs for oil, much of which originated in Siberia, was also rising. In response to the market, the Soviet Union decreased its exports to its East European partners, and increased its purchases of soft goods from these countries. This policy forced the East European countries to turn to the West for hard goods, despite the fact that they had fewer goods to export in return for hard currency.

Any hard goods supplied to Eastern Europe by the Soviet Union were sold essentially at a discount price, as Comecon prices lagged behind, and were lower than those of the world market. Developments in the 1980s made this situation even more complex. The 1983–84 decline in international oil prices left the Soviets with large holdings of oil that, because of the lag in Comecon prices, were still rising in price. The "non-market gains from preferential trade" became quite expensive for the Soviets. East European profits from the implicit subsidization were almost US$102 billion between 1971 and 1981.