Oil Crisis’ Timing Couldn’t Be Worse for Eastern Europe : Reform: Rising crude prices deal a severe setback to the nations’ moves toward market-oriented economies. Three of the countries have already asked the U.N. for help.

Czechoslovakian Finance Minister Vaclav Klaus didn’t need any more grief, but he got it when Saddam Hussein invaded Kuwait.

Even before the Middle East crisis, Klaus, a former dissident economist, was already the butt of jokes in Prague for his sweeping new moves to impose discipline on the Czechoslovakian economy during its shift from Communism to a market-oriented system.

Many Czechs were blaming Klaus, rather than his Communist predecessors, for the rapid deterioration in their living standard.

Then the oil shock hit just as Klaus was trying to prepare the country for his most unpopular plan of all: a program aimed at lifting controls on prices and ending many government subsidies.

“This oil crisis has come at the worst possible moment for us,” Klaus said in an interview at an economic seminar in Wyoming late last week. “Now, we (the reform government) will be blamed for this.”

Klaus is hardly the only East European economic official to despair over the Middle East crisis and the resulting oil price shock.

Already, three Eastern European countries--Bulgaria, Yugoslavia and Romania--have filed documents with the United Nations declaring that their economies are starting to suffer as a result of the crisis and the worldwide oil and trade embargoes imposed on Iraq and Kuwait. They have asked the international community for relief.

Indeed, the surge in oil prices has come just when Eastern Europe’s economic reformation may be at its most vulnerable point--when many of the countries in the region are facing both recession and inflation resulting from their efforts to rapidly embrace free-market economics.

Thus, the oil shock is bound to intensify Eastern Europe’s pain.

“The situation is aggravated still more, because the (oil shock) coincides with a deepening economic crisis in our country, coupled with a course of thorough economic and political transformations,” the Bulgarian government wrote in its plea to the United Nations for help.

“I can definitely say that next to the victim of the aggression, Kuwait . . . Bulgaria is the most affected country,” a senior Bulgarian official said.

The oil price pressures on the region have been complicated by the fact that the Soviet Union, which traditionally has provided the Eastern Europeans with subsidized oil, has already announced that it will begin charging them world prices--and demanding payment in hard currency instead of bartered goods.

Now, the world prices themselves have been pushed higher, making the transition all the more precarious.

“The danger of a serious recession in Eastern Europe has been increased by the oil shock,” said John Williamson, an economist at the Institute for International Economics, a Washington think tank.

“There is also a danger that the people will see this external shock as the fault of the reform movements in their countries,” Williamson said. “It obviously makes life much more difficult for Eastern Europe.”

The earlier willingness of the Soviet Union to accept barter deals in return for oil effectively meant that the Soviets were subsidizing their satellites with cheap energy, partly to keep them in line politically.

Western analysts say that earlier this year the Eastern European nations were paying the equivalent of $12 a barrel in the barter goods that they shipped to the Soviets--at a time when world oil prices were at $18 per barrel.

Now that Moscow’s old trading system with Eastern Europe is breaking down, however, the Soviet shift in policy represents “a double whammy for Eastern Europe,” said Robert Hormats, vice chairman of Goldman Sachs International.

To top that off, the region’s emerging democracies have also been hurt by the worldwide embargo on trade with Iraq, which had been a significant source of crude oil for the entire area. One oil refinery in Romania has already been forced to shut down because its crude oil supplies from Iraq have been cut off, Foreign Ministry officials say.

Ordinarily, the Eastern European countries paid for their Iraqi oil by shipping weapons and other manufactured products to Baghdad. But with the embargo in effect, their long-term contracts have been frozen, leaving them with massive bills left unpaid by the Iraqis.

Romania, for instance, said the trade sanctions have jeopardized the repayment of $1.7 billion in debts it is owed by Iraq, while Bulgaria said it still is out $1.2 billion, which it had hoped would be repaid with Iraqi oil.

At the same time, declining investment in the region’s own oil industry--particularly in Romania, the largest oil producer in Eastern Europe--has resulted in a steep plunge in oil production within the former Eastern Bloc.

Eastern European oil production declined from 359,000 barrels a day in 1985 to just 301,000 barrels a day in 1989--making the region all the more vulnerable to price hikes for imported oil.

As a result, Western economists estimate that the surge in oil prices will cost each Eastern European nation between $1 billion and $2 billion during the next year. By contrast, the Soviet Union, the world’s largest oil producer, should reap a $10-billion windfall.

Those added energy costs will come just as inflation is mounting in much of Eastern Europe as a result of the lifting of price controls on a wide range of consumer goods. Much of the region’s plethora of shortages had stemmed from the fact that prices had been kept so low.

At the onset, such reform packages tend to be highly controversial, since they allow prices to surge at a time when wages are being held down by the anti-inflation policies of the central government.

As Klaus is finding in Czechoslovakia, the oil shock thus makes it harder to sell economic reform to the public.

Hormats, who consults for Western corporations studying investments in the Soviet Union and Eastern Europe, pointed out that almost all of the Eastern European nations, with the possible exception of Hungary, are already in recession and will need more assistance from the West as a result of the oil shock.

He added, however, that Western companies will become more wary of investing there as higher oil prices push up the trade deficits and inflation rates of the nations in the region.

Joseph Stanislaw, managing director of the Paris office of Cambridge Energy Research, an energy consulting firm, agreed. “This makes a difficult situation all the more difficult,” he said.

Still, few analysts believe that Eastern Europe’s economic reforms will be permanently sidetracked by higher oil prices--if only because the urge for Western-style standards of living is too strong.

Times staff writer Karen Tumulty contributed to this article.

HOW THE OIL CRISIS HAS EASTERN EUROPE OVER A BARREL

Sources: British Petroleum Co., Central Intelligence Agency