Recycling Showdown

Like stubborn generals squabbling over strategies, U.S. and European leaders have been divided as to just how to deal with Middle Eastern oil producers. The U.S., which is relatively rich in energy resources and thus only moderately dependent on foreign oil, favors an adversary approach; it hopes to weld the world's most important oil users into a united front facing the 13-nation Organization of the Petroleum Exporting Countries in a long-term effort to drive down oil prices. Western Europe, which gets most of its oil from the Middle East, is wary of schemes that would anger OPEC and possibly precipitate another oil crisis. It favors a policy of cooperation, drawing OPEC into negotiations with oil consumers and avoiding a confrontation atmosphere.

In Washington this week the conflicting philosophies will be put to a crucial test. In a series of meetings, U.S. and European policymakers will begin mapping strategies for dealing with one of the more disruptive issues in the sudden shift of wealth to oil-producing countries. That is, how to recycle some $60 billion a year in surplus Middle Eastern oil revenues to economically strapped consumer nations so that they can better finance their massive oil import bills.

Expanded Version. The Europeans have firm ideas as to how recycling should be accomplished. Hammered out only last week in London and agreed to unanimously by finance ministers of the nine Common Market countries, the European scheme calls for direct participation by OPEC producers in a recycling "facility" run by the International Monetary Fund that would receive and re-lend $10 billion to $12 billion in oil-country surpluses this year. Essentially, this would be an expanded version of the so-called Witteveen plan, a much smaller recycling facility, named for IMF Managing Director Johannes Witteveen, that has been in operation since last June. Witteveen II, as the bigger model is already known, would be funded by borrowing from OPEC nations at commercial bank rates. Countries having trouble paying for the oil they import would be given three-to seven-year loans at interest rates varying with ability to pay.

Besides endorsing Witteveen II, originally drawn up by British Chancellor of the Exchequer Denis Healey, the Europeans have made known their dislike of the U.S. recycling plan: the $25 billion "safety net" proposed in November by Secretary of State Henry Kissinger. In contrast to the European plan, Kissinger's oil facility would keep the OPEC governments at a distance; it would not borrow directly from the oil producers, but would draw instead on the OPEC billions already deposited in the Western banking system. The money would come chiefly from the economically stronger countries, meaning, in practice, the U.S. and West Germany. Since Bonn usually finds it hard to stray very far from a Washington lead in matters of international politics and finance, the U.S. would probably end up holding most of the strings of the safety net.

Because Washington would thus have a big say in who would get loans and under what terms, the Europeans see the safety net as a vehicle for allowing the U.S. to dictate world energy-conservation policies; borrowers would have to cut back on oil consumption to qualify for loans. The Europeans also regard the $25 billion net as part of the overall U.S. plan to unify oil users against OPEC. They note that the Kissinger plan would require approval by Congress, the West German Bundestag and other parliaments, a process that could take more than a year. Proponents of Witteveen II, which already has support among some OPEC regimes as well as the consuming countries, believe it could be in operation by Easter.

Terms of Debate. U.S. officials have no objection to the IMF's lending role, noting that it has been making loans to needy nations since World War II. But they do object to borrowing directly from oil producers. In any event, the recycling debate need not be cast in either-or terms. The safety net could survive this week's negotiations if the U.S. were to agree to some compromise that would give the shaky economies most likely to need help some day--Italy, Britain, France, Ireland and Denmark--less reason, real or imagined, to fret about American domination.

Ideally, the negotiators will agree to setting up both recycling facilities to operate in tandem--Witteveen II handling most financing of consuming countries' oil deficits, the bigger safety net acting as a backup to be used only in cases of dire economic emergencies. With any luck, State Department officials were pointing out last week, the net may never have to be hauled out.

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