NEAR EAST AND SOUTH ASIA REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP05S02029R000300880001-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 63
• Document Creation Date: December 22, 2016
• Document Release Date: July 23, 2012
• Sequence Number: 1
• Publication Date: January 16, 1987
• Content Type: REPORT

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Directorate of --SeeFet---'
Intelligence
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Near East and
South Asia Review
16 January 1987
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NESA NESAR 87-002
16 January 1987
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Near East and
South Asia Review
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16 January 1987
Page
Articles
Libya: Qadhafi on the Defensive in Chad
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Recent Chadian successes have significantly raised the
cost of the
war to Libya. Libyan leader Qadhafi has given top priority to
reversing these defeats and reestablishing control over northern
Chad, but he almost certainly realizes that a protracted
campaign risks a domestic political backlash that could
and costly
lead to his
removal.
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Libya: The Warfalli Affair (u) 7
Paul Draper, 482-8648
The killing of one of Libyan leader Qadhafi's most ruthless officials
by antiregime elements in Banghazi last August is having
significant political repercussions. It has heightened concern over
personal security among regime loyalists and is prompting Qadhafi
to weed out his most fanatic followers and rebuild domestic support.
Algeria: Growing Challenges for Bendjedid
The eight-year-old regime of President Bendjedid is both internally
factionalized and struggling to manage growing public
disgruntlement. Bendjedid's position appears fairly secure, but he is
likely to face economic and political difficulties this year that could
force him to compromise with his opponents.
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Youth in the Maghreb: A Growing Opposition
Students in the North African countries of Morocco, Algeria, and
Tunisia are an increasing social and political problem for their
governments. Government inability to meet student demands for
higher education and jobs almost certainly will lead to greater
political instability and further alienate these countries' youth.
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Egypt: The Threat of Labor Strife Grows
The Mubarak regime's efforts to restructure Egypt's antiquated
economy have ominous implications for organized labor, particularly
in the moribund public-sector industries. Serious labor strife in the
coming period of economic transition could provide a catalyst for
even more serious political instability in 1987.
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Sudan's Foreign Exchange Dilemma
Sudan's unrealistic foreign exchange rates have reduced remittance
transfers, export earnings, and critical imports. Failure to revamp
the exchange rate system will contribute to the Sudanese economy's
downward spiral.
Syria: Growing Burden of Military Spending
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The Syrian military is experiencing major economic problems and is
retreating from the growth of the early 1980s. Nevertheless, defense
spending will continue to dominate the government budget as Assad
seeks to pacify the professional military establishment, present a
strong front against Israel, and suppress internal opposition.
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Syria: Backlash in Air Defense Forces After Violation of Syrian 29
Airspace
President Assad took strong punitive measures following the failure
of his air defense units to react to foreign military aircraft violating
Syrian airspace last November. The violation almost certainly
increased Assad's resolve to strengthen Syria's coastal defenses and
may be used to justify requests for new Soviet air defense
equipment.
Lebanon: High Noon in West Beirut
The reentry of Syrian special forces into West Beirut last July has
done little to improve security conditions there. Damascus will most
likely maintain its current low profile in the Beirut area, resorting to
increasingly unreliable Lebanese surrogates to do its bidding.
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Lebanon: Sidon's Sunni Popular Nasirite Organization
The Popular Nasirite Organization and its military arm play a
pivotal role in Sidon, the port city fast emerging as the center of
Palestinian influence in Lebanon. The organization is ostensibly
neutral toward the conflict between the pro-Arafat Palestinians and
the Syrian-backed Shia Amal movement, but it secretly supports the
Palestinians.
Jordan: Gambling on West Bank Development
King Hussein's economic development program for the West Bank
and Gaza is aimed at improving the local quality of life and, more
important, establishing Jordan as the representative of the
Palestinians in the occupied territories. Severe cash shortages, PLO
opposition, and general skepticism challenge Amman's ability to
implement the plan.
Kuwait: The Diplomacy of Accommodation
Kuwait follows a nonaligned foreign policy designed to gain
maximum protection against regional threats and terrorism and to
support its aspirations for leadership among the Gulf states and the
nonaligned nations. Although nonaligned, Kuwait's economic and
cultural orientation is predominantly Western.
Qatar: The Elusive North Field Natural Gas Project
Qatar is likely to soon begin development of its large North Field
natural gas reservoir to meet growing domestic demand and to offset
declining gas output from currently producing fields. Doha probably
will be unable to export significant volumes of gas for many years,
however, because of weak foreign demand and high development
costs.
Omani-Soviet Relations: Life in the Slow Lane
Omani-Soviet relations will improve slowly in 1987, but Soviet
influence is likely to remain limited. Muscat wants to use its ties to
Moscow to exert pressure on the United States in the hope of
increasing financial assistance, but it would not cooperate with the
USSR at the expense of its relationship with Washington.
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North Yemen's Military Mishaps: The "Y" Factor
The North Yemeni Air Force and air defense forces have
experienced significant accidents with Soviet equipment in the last
month. These accidents probably have set back North Yemen's
efforts to improve its military defenses and also complicated Sanaa's
reliance on the Soviets for military expertise and sophisticated
weapons.
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India-Pakistan: Tensions Over Sikhs
Charges by India that Pakistan is supporting Sikh terrorists have
put an additional strain on bilateral relations already burdened by
touchy nuclear and border issues. Any Pakistani support probably is
relatively small, and New Delhi may be playing up the Pakistani
angle to deflect public frustration with the Sikh problem.
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Some articles are preliminary views of a subject or speculative, but the contents
normally will be coordinated as appropriate with other offices within CIA.
Occasionally an article will represent the views of a single analyst; these items
will be designated as noncoordinated views.
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Near East and
South Asia Review
Articles
Libya: Qadhafi on the
Defensive in Chad
The military situation in Chad has changed
dramatically since Libya consolidated its hold on the
north in 1983. Libyan garrisons and lines of
communication are being threatened for the first
time. The defection from the Libyan-backed Chadian
rebel forces of the Forces Armees Populaires (FAP)?
the faction loyal to ex-rebel chief Goukouni
Weddeye?paved the way for establishment of a new
coalition with the Chadian Government.
Recent successes achieved by the combined forces of
the new alliance have significantly raised the cost of
the war to Libya in terms of money and lives. The
collapse of the Libyan garrison at Fada in the face of
a Chadian Government offensive resulted in several
hundred Libyan casualties,
The debacle was the most costly
defeat for Tripoli since its ill-fated intervention in
Uganda in 1979. Libyan leader Qadhafi has given top
priority to reversing these embarrassing defeats and
reestablishing control over the north. He almost
certainly recognizes that a protracted and costly
campaign risks a domestic political backlash that
could lead to his removal.
The View From Tripoli
In our view, Qadhafi's determination to maintain
control over northern Chad is driven by a belief that
Washington and Paris intend to foster an insurgency
in southern Libya?an area inhabited by Toubou
tribesmen traditionally resistant to Tripoli's control.
Although Qadhafi probably recognizes that the
French have preponderant influence in Chad, we
believe he is especially worried about US intentions
there.
Qadhafi believes Washington's support for Habre is
part of a broader US plan to isolate Tripoli and
remove him from power.
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Qadhafi probably expects Washington to exploit
Habre's desire to go after Libyan forces and believes
that increased US influence in N'Djamena would
result in a more aggressive Chadian posture than that
tolerated by the French. Paris traditionally has sought
opportunities to negotiate an end to its confrontation
with Libya in Chad. Press reports suggest, for
example, that Paris was even willing to accept a
provision prohibiting intervention in Chad by a "third 25X1
country"?a euphemism for the United States?in its
abortive troop withdrawal agreement with Tripoli in
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The Military Option
Qadhafi regards a decisive military victory over the
Habre-Goukouni coalition as the quickest and
potentially most enduring means of securing Libya's
southern flank. He needs a quick military success in
Chad both to develop a strong bargaining position in
the war and to protect his regime from a domestic
backlash. Beginning last October, the Libyan force
began reinforcing and reorganizing. We estimate that
it now numbers between 7,000 and 8,000, compared
with about 5,000 last summer.
Qadhafi probably anticipated that this strengthened
force would quickly subdue the Chadians north of the
16th parallel. The Fada defeat, however, almost
certainly has prompted him to question whether the
Libyan force can hold its ground against what he
views as a heavily US- and French-supported Chadian
Government effort.
Tripoli is now taking the war more seriously:
? Libyan reserves have been mobilized, almost
certainly to make additional reinforcements
available for the Chad war.
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Garrisons
d) Libyan
Progoyernment
1:Z French
Guerrilla units
ItPro-Libyan rebels
Progovernment
Jet fighter airfields
Libyan
0 French
-?" Airfield
Tibesti
.Zouar mountains
.0uadi Daum
Faya-Largeau.& C4-9'
Kouba Olanga.
Bir Ka!aft
*Dom Chalouba
? Arada
?Bi!tine
N'DJAMENA
&C)
Central African
Republic
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The Libyan force, while too large for Habre and his
Chadian allies to evict from Chad, cannot suppress
quickly a well-led joint campaign by FAP and
Chadian Government fighters. Even with the aircraft
that have been dispatched to support the Libyan force
in the last few months, finding and striking units
scattered in the rugged Tibesti Mountains has proved
difficult. In addition, the guerrillas are avoiding
decisive combat against superior forces. They
abandoned villages in December when they faced a
Libyan assault. The Libyan force appears to be
organizing to find, trap, and destroy pockets of
guerrillas, but such a campaign could drag on for
months. In the meantime, Chadian raids and
ambushes are costing Libya over 100 casualties a
month, a rate that can be sustained for at least three
or four months, with the number dropping to perhaps
half that as the Libyans gain experience in guerrilla
warfare.
Qadhafi's Achilles' Heel
In the likely event Libyan forces cannot soon suppress
the insurgency, Qadhafi will reassess his options. The
more costly that military operations become?in
terms of money and lives?the greater will be the
likelihood that domestic opposition to Qadhafi's
regime will grow.
Qadhafi's military intervention in Chad has been
unpopular since the latest intervention by Libyan
forces in 1983.
desertions of military
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personnel stationed there have increased,
The Diplomatic Option
Increased domestic discontent over Chad could
prompt Qadhafi to seek a face-saving solution. He
may also move in this direction if he perceives the
likelihood of prolonged fighting. Qadhafi has always
been careful to avoid foreclosing the diplomatic option
in Chad.
Since
1983, Qadhafi at varying times has attempted to
engage Senegal, Congo, Gabon, Nigeria, and
Morocco in mediation efforts. In playing his
diplomatic cards, Qadhafi would hope to string out
negotiations to gain maximum relief from Habre's
campaign in the north.
Qadhafi's posturing may include an offer to withdraw
Libyan forces as part of a deal that reduced US and
French influence in N'Djamena. Qadhafi probably
would demand a withdrawal of French troops and
reestablishment of a Libyan diplomatic presence in
N'Djamena that could be used to monitor US and
French activities there as well as subvert Habre's
regime. He also would press strongly for a reduction
of the US presence in Chad. For example, he would
seek to limit the number and activities of US
Government personnel stationed there.
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As part of a cease-fire agreement, he might even
make token withdrawals of Libyan troops as far north
as the Aozou Strip to test French and Chadian
willingness to make concessions. In our view, he would
become more serious about negotiating if he detected
a willingness by France to agree to a demilitarized 25X1
zone between the Aozou Strip and the 16th parallel 25X1
that would be policed by a combined African and
Libyan peacekeeping force. We believe Qadhafi 25X1
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would strongly resist any proposal that weakens
Libya's ability to exert military control over northern
Chad as a buffer against external threats.
Qadhafi's Other Options
On the basis of his past behavior, we anticipate that
Qadhafi would combine diplomatic initiatives with
military and terrorist actions to raise the cost of the
conflict to Habre and his supporters. Among his
options are:
? Terrorism against N'Djamena.
? Threatening to widen the war by regularly using
Sudanese and Nigerien territory. Libyan forces
already have transited Niger during their
operations.
? Sponsoring a coup or terrorist activity against
moderate pro-Western regimes bordering on Chad
that traditionally have supported Habre, such as
Niger and Cameroon.
? Isolated bombing of Abeche, Biltine, or any
stronghold south of the 16th parallel not protected
by French air defenses.
Qadhafi would try to exploit any differences between
France and the United States on the Chad issue.
To increase the
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incentive for French support in limiting US activities
in Chad, Qadhafi may offer Paris lucrative
commercial opportunities in Libya.
We do not believe Qadhafi has the option at this point
of launching a major offensive across the 16th
parallel. As long as the Chadians are a viable
guerrilla threat to the Libyan rear, the Libyans in
Chad will be largely occupied with securing the north.
For the Libyans to begin seizing and holding territory
in southern Chad, they would need as many as 3,000
additional troops and at least 100 additional tank
transporters.
Implications for the United States
A protracted guerrilla campaign that bleeds Qadhafi
of both money and manpower could help to destabilize
the regime that has for years aggressively challenged
US presence and interests in the region. In this
scenario, increased opposition among military officers
and the public to Qadhafi's costly attempt to retain
hegemony over northern Chad would undermine his
ability to implement aggressive foreign policies in a
number of regions. Qadhafi's low-risk policies would
be designed to minimize the potential for US
retaliation until he shored up his domestic position. A
precipitate Libyan withdrawal to defuse domestic
opposition?which we consider unlikely?would
humiliate Qadhafi but probably not hurt his political
position as much as would a protracted Chadian
insurgency.
Our educated guess, on the basis of previous Libyan
military involvements in Uganda and Chad, is that
Chadian forces would have to inflict between 50 and
100 casualties per month for at least six months to
generate a significant domestic backlash in Libya. In
the absence of casualties at this level, we believe a
similar impact is possible through hit-and-run attacks
on Libyan garrisons and the interdiction of much-
needed supplies. This option, however, would require a
much longer period, perhaps over a year. If the
FAP?Chadian Government alliance breaks apart?a
real possibility, considering the 11-year-old enmity
between these parties?lesser guerrilla harassment of
the Libyans can continue from across the 16th
parallel but would have much less impact.
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Another key factor affecting US interests and
compelling Qadhafi to moderate his tactics will be
French willingness to pass up a potential deal with
Libya. The new equation in northern Chad does not
appear to have changed Paris's basic position on the
war. Paris continues to see a diplomatic settlement as
the best outcome short of a unilateral Libyan
withdrawal and believes such a settlement is
achievable.
A perception of Washington's reluctance to provide
substantial assistance to Habre could reduce the
willingness of other moderate regional governments to
support US policy in the region. Of particular concern
would be efforts by countries currently helping to
transport US equipment to Chad, such as Cameroon,
Niger, and Senegal, to terminate or dramatically
reduce their involvement.
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Algeria: Growing Challenges
for Bendjedid
The eight-year-old regime of President Chadli
Bendjedid is both internally factionalized and
struggling to manage growing public disgruntlement.
At the heart of Bendjedid's difficulties is the country's
oil-related economic crisis, which has hamstrung
government efforts to deal with serious social
problems. The economic downturn has aggravated
factionalism within the government, the ruling party,
and the military and has fueled personality clashes
and bureaucratic rivalry. The internal debate is a
battle over policy, pitting Bendjedid against old-guard
leftists opposed to the President's economic reforms
and opening toward the West. Bendjedid's position
appears fairly secure. Nevertheless, he is likely this
year to face economic and political difficulties of such
magnitude that they could force him to compromise
with his opponents. As a result, he probably will be
less able to promote closer ties to the United States.
Moreover, expanding US-Moroccan military
cooperation and Algiers's diplomatic courtship of
Libya will complicate relations with Washington.
The Economic Crunch
President Bendjedid is facing the most serious
challenge since he took office in 1979. The drastic
drop in world hydrocarbon prices last spring led to an
economic crisis because of the 50-percent reduction in
Algeria's oil income, according to the US Embassy.
Ninety-eight percent of the country's export receipts,
nearly 50 percent of government revenues, and about
25 percent of GDP come from hydrocarbons. To deal
with the financial shortfalls, the government cut its
operating budget, reduced development and
investment expenditures, and slashed imports.
Consequently, for the first time since independence,
economic growth in 1985 was less than the 3-percent
annual increase in population. The new round of
austerity measures has required the government to cut
programs addressing social problems. We believe
unemployment has reached 25 percent in many areas,
and unemployment and underemployment together
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may exceed 30 percent. Food, water, and housing
shortages?and their cost?also have become
increasingly burdensome to the rapidly growing
population. For example, the Embassy says a
kilogram of meat now costs $30
Economic strains seem to have increased social
tension. Last November, rioting by students and the
unemployed rocked Constantine, the third-largest
city, and minor disturbances occurred in other cities,
including Algiers. The violence appears to have
stemmed from poor living conditions and grievances
over corruption among government officials. These
incidents were the first serious outbreaks of violence
attributable to economic conditions since Bendjedid
took power. The regime also is concerned about the
growing assertiveness of Muslim Brotherhood
dissidents,
Internal Politics: From Consensus to Conflict
Public disturbances have encouraged fighting within
the regime. Bendjedid is most vulnerable to attack
from leftist ideologues of the ruling National
Liberation Front (FLN) and government bureaucrats
who want expanded welfare programs to meet the
needs of youth and the unemployed, and from
religious groups who claim that a return to the
country's Islamic roots will solve the country's ills.
Although the regime has featured a high degree of
collective decisionmaking incorporating the views of
these elements, bickering has intensified over the
allocation of resources.
Information on power centers within the government
is sketchy and often inconsistent, mainly because the
country's tightly knit, military-civilian oligarchy has
cliques that cut across clan and professional lines.
the most intense struggle is
between the Bendjedid group and leftists in the FLN
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and the Army, led by Permanent Secretary
Messaadia, who want to preserve the socialist aspect
of the Algerian revolution. They object to the
President's efforts to reform the economy by
encouraging privatization and local initiative. These
ideologues also oppose Bendjedid's diplomatic opening
to the United States and favor strengthened ties to the
Soviet Union, Libya, and other radical states.
Although these differences are largely concealed from
the public, the various sides have increasingly carried
the dispute into the national press.
The debate within the FLN is widening to include
broader segments of the military. The faltering
economy has delayed long-sought military
modernization and has led to morale problems within
the officer corps. These developments, in turn, have
strengthened the hand of those officers critical of the
President. Feuding between the President and officers
over promotions, strike activity within some units, and
the Army's response to austerity measures have led
Bendjedid to reassert his hold over the military. In
late November, following a rare meeting with the
senior echelon of the Army, the President fired Chief
of Staff Benloucif and reorganized the presidential
guard,
probably as a preemptive move against potential coup
plotters.
Bendjedid probably acted because he believed
Benloucif was attempting to challenge his authority.
Benloucifs replacement, General Belhoucet, probably
is less sympathetic to the idea of developing ties to the
United States.
Prospects for Bendjedid
In our judgment, Bendjedid remains first among
equals within the country's ruling military hierarchy
and is not in immediate danger of losing his position.
The President's opponents have yet to coalesce against
him. Bendjedid demonstrated in his removal of
Benloucif that he can have his way with the military.
He continues to hold firm on the need for economic
reform, and we believe his agenda is intact.
Nevertheless, Bendjedid's political position has
slipped over the past year, and he will face even
greater challenges unless he comes to grips with the
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deteriorating economy, in our view. For example, the
President made several senior personnel shifts in the
Cabinet and the FLN in 1985 and early 1986 in line
with his effort to revise the country's economic
policies and consolidate power, but he has not been
able to make other significant changes in nearly a
year. In addition, he failed to deliver what the US
Embassy was told by Algerian officials would be a
landmark speech on the economy in Oran in early
November. According to the US Embassy, the 17th
session of the FLN Central Committee in December
witnessed stiff resistance to Bendjedid's reforms.
the President is
increasingly frustrated by his inability to bring about
economic liberalization.
Given the likelihood of continuing financial austerity,
President Bendjedid probably will not make much
progress in achieving economic reform. Moreover, he
probably will be forced to divert resources from the
public sector to the military to placate officers and
burnish his tarnished image. We believe austerity will
encourage the government to continue traditional
socialist policies, even though reform probably would
alleviate some of the country's economic and social
problems.
Implications for the United States
Algeria's foreign policy probably will become more
ambiguous because of the government's political drift.
Bendjedid's weaker position and need to balance
political factions will result in inconsistent or even
contradictory decisions. For the United States, such a
course, in our view, would mean limited progress in
bilateral ties or even a deterioration of relations
because of the continuing importance of radicals in
the regime. In any event, Algiers will have fewer
funds available to purchase military equipment from
Washington, and US commercial firms will have
fewer business opportunities.
In addition, Algerian-US positions with regard to
North Africa are likely to diverge. Budding US-
Moroccan military cooperation will complicate ties
between Washington and Algiers, even though
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Algerian officials still hope that the United States will
play an intermediary role between Algeria and
Morocco in ending the war in Western Sahara.
Algerian leaders share
Washington's view of Libya, but they continue to
develop relations with Tripoli in ways that belie their
claim that they simply want to monitor Libyan
political developments. Bendjedid's sudden trip to
Libya in early December was his first and followed
several high-level contacts during the previous two
months
We believe that contacts, such as
the recent travel of Libyan Foreign Secretary Mansur
to Algeria following the summit meeting, confirm
progress in the relationship. Short of resolving serious
bilateral differences, Bendjedid probably hopes
expanded contacts with Tripoli will appease
hardliners within his government and dissuade
Qadhafi from meddling in Algerian affairs.
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Youth in the Maghreb:
A Growing Opposition
Students in the North African countries of Morocco,
Algeria, and Tunisia are an increasing social and
political problem for their governments.
Demonstrations or riots during the past few months
have focused on student issues such as inadequate
housing, declining student aid, and higher failure
rates. The underlying causes of student unrest,
however, are profound: a deteriorating economy, high
unemployment, and rapid population growth.
Government inability to meet student and youth
demands for higher education and jobs almost
certainly will lead to greater political instability and
further alienate youth?the largest segment of the
populations of these three countries.
A Troubled School Year
Student demonstrations have erupted in North Africa
in recent months. These incidents appear similar to
demonstrations in France because students in both
regions are protesting education issues.
Morocco. Student activism on high school and
university campuses has been building since last
October. Demonstrations have occurred in Rabat,
Casablanca, Tangier, Fes, and several other cities.
The most violent outbreak took place in Meknes in
mid-December, where 300 students rioted and clashed
with the police.
one to four students were killed and about
100 arrested.
reports renewed demonstrations in Meknes during
early January, including a student walkout.
These disturbances are attributable to student
grievances, according to the US Embassy in Rabat.
They include inadequate campus transportation,
expulsion of failed students, insufficient housing and
food facilities, police vigilantes on campus, tougher
grading policies, cramped classrooms, cutbacks in aid,
and the establishment of government-sponsored
student associations to replace a suppressed popular
student organization. Although the demonstrations
15
appeared to be largely apolitical, some incidents, such
as reported police clashes with students expressing
solidarity with the Palestinians, have political
overtones.
Algeria. Student militancy came to a head in Algeria
last November, when antigovernment disturbances
occurred in Constantine, Algiers, and Setif. The most
notable incident erupted in Constantine, where
several thousand students and other residents went on
a rampage, sacking the headquarters of the National
Liberation Front, the country's sole political party, as
well as the Algerian press service office and numerous
public buildings. The government announced that
over 100 persons were arrested and 56 imprisoned. In
Algiers, high school students boycotted classes for
several days, smashed windows, and shouted
antigovernment slogans. The Algerian students had
grievances similar to those in Morocco?poor housing,
inadequate food and water, stiffer exam requirements,
and lack of political freedom.
Tunisia. Although Tunisia has long been a hotspot in
North Africa for student demonstrations, there has
not been as much activity during this school year.
Following disturbances last spring, the government
rounded up approximately 1,600 students. Of these,
95 were conscripted into the Army and sent to work
camps for their participation in student
demonstrations at Tunis University,
In a preemptive move to intimidate
students, the Tunisian police arrested between 50 and
70 Islamic students in late December. They were later 25X1
released. Nevertheless, student boycotts by university
students in Tunis closed several campuses. Students in
Tunisia also are reacting to economic cutbacks on
campuses, but political factors, in our view, are the
driving force behind youth disturbances.
Demonstrations usually include either fighting
between Islamic-oriented and Marxist students or
antigovernment demonstrations by both groups.
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Broader Social Problems
Problems with youth and students in Morocco,
Algeria, and Tunisia reflect changing government
policies toward education in response to increasing
economic austerity and rapid population growth. The
governments, as part of their efforts to impose
economic austerity, are trimming outlays for
education, traditionally a large segment of
government budgets. Funds are being diverted from
higher education to vocational training to make
education more relevant for youth in a tighter
marketplace.
Governments in the region are taking these actions
because youth represents the largest segment of the
population in the Maghreb. A majority of the area's
53 million people are under 20. Algerian President
Bendjedid, following the Constantine riots, noted in a
speech to the country's governors that the student
population had risen from 57,000 in 1980 to 200,000
in 1985. Algeria will have to provide 275,000 jobs
annually; Morocco, 320,000; and Tunisia, 80,000.
This demand comes at a time when unemployment
throughout the region is about 25 percent of the work
force.
Implications for Political Stability
We believe the regimes in all three countries are
incapable of satisfying the rising expectations of the
burgeoning youthful population. Greater discontent
seems inevitable. Students are better educated than
their parents and view the governments with less awe
than their elders do. Spending cuts have forced
reductions in the numbers of pupils admitted to
universities?widely viewed by youth as the key to
better jobs and higher social standing. Vocational
programs are unpopular alternatives because most
youth want a general education and believe it is their
right. University graduates expect the government to
provide them with jobs if they cannot find suitable
employment themselves.
We believe that students and unemployed youths will
be increasingly willing to express their views through
violence. Rising prices and cuts in social services,
especially in education, are potential flash points for
further demonstrations. Some of these socially and
intellectually uprooted young people are starting to
Secret
Algeria's Generation Gap
Last fall, the Algerian weekly magazine Algerie
Actualite published an article on attitudes among
youth a few days before the 32nd anniversary of the
start of the country's insurrection against France. A
survey of 540 youths between 16 and 20 revealed:
? Only 29 percent of the respondents knew that the
negotiations for independence were concluded at
Evian, France. Forty-five percent said they did not
know the answer, and the rest listed a number of
Algerian cities, or Tripoli, Libya.
? Forty-six percent said that television was their
means of information about the war, while less than
18 percent referred to books.
? Only 21 percent considered that knowledge about
the war of liberation given by teachers was
sufficient. One-third believed the contrary, while 45
percent were undecided.
With regard to the heroes of the Battle of Algiers,
nearly two-thirds of the youths interviewed knew the
circumstances of the deaths of the Algerian martyrs
killed by the French. Most, however, admitted that
their knowledge was derived primarily from the
popular film "Battle of Algiers." Moreover, the
youths viewed the main Algerian antagonist in that
battle, Ali la-Pointe, as "a sort of James Dean "?a
view that reflects the enduring popularity of US
entertainment.
The director of the magazine lamented the poor state
of Algeria's "collective memory" and noted, for
example, that youths are ignorant that Boumediene
removed Ben Bella from power in 1965.
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turn their backs on modernization and, as a corollary,
to reject the United States, other Western countries,
and the Soviet Union, which they see as the principal
agents of change. This impulse has been the driving
force behind the recent spread of Islamic
fundamentalism in the Maghreb, according to
regional scholars. Fundamentalism, to these youths,
appears to be the only viable alternative to the
socialism of the East and the liberal capitalism of the
West.
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Egypt: The Threat of
Labor Strife Grows
Since President Sadat's assassination by religious
extremists in 1981, the attention paid to the role of
Islamic fundamentalists in fomenting political unrest
in Egypt has obscured the equally serious threat of
instability posed by labor strife. The cautious
Mubarak regime is already tentatively beginning to
restructure Egypt's antiquated economy?with
ominous implications for organized labor, particularly
in the moribund public-sector industries. With even
more reforms likely under an IMF-monitored standby
program, the pace of change in the economy and
pressure on labor will probably accelerate.
Any serious attempt to reorganize the way public-
sector companies do business risks a head-on collision
with Nasir-era labor practices, predicated on
guaranteed employment and automatic cost-of-living
pay increases. Organized labor's leadership finds itself
caught between a government that is no longer willing
or able to honor the implicit social contract that
bound the unions to the regime in the past, and an
increasingly disenchanted and militant union rank
and file in the factories. These trends may produce
serious labor strife in the coming period of economic
transition and could provide a catalyst for even more
serious political instability during 1987.
The Public Sector Under Assault
Egypt's rapidly deteriorating economy is placing
extraordinary pressure on the government to make the
public sector more efficient. Until quite recently,
public-sector companies, which engage in a wide
range of commercial, industrial, and agricultural
processing activities, have been operated more as
institutions providing guaranteed employment to
Egypt's exploding urban population than as cost-
conscious, market-oriented firms. These enterprises,
generously subsidized by the state, were allowed to
function in this manner, thanks to the buoyant
economy Egypt enjoyed through much of the 1970s
and early 1980s. Spurred by large inflows of foreign
assistance and sharply rising foreign earnings from oil
and worker remittances, the economy absorbed such
inefficiencies.
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The sharp decline in Egypt's economic fortunes over
the past year, however, has radically altered the
ability of the government to support a bloated and
inefficient public sector. A steep drop in oil earnings,
falling remittances from expatriate workers, and
declines in most other sources of foreign exchange
have led the official economy to the brink of
bankruptcy. Without a combination of major cuts in
imports, debt rescheduling, and significant increases
in external assistance, Egypt's economy is poised for a
tailspin.
The outline of an IMF standby program?which
would yield substantial new assistance and debt
rescheduling?remains to be hammered out, but it is
likely that such a program will be put in place within
the next few months and contribute to even greater
pressure on the government to reform public-sector
enterprises. Any standby program will almost
certainly call for significant cuts in the state budget,
with allocations for public-sector enterprises
experiencing a proportionate share of the expenditure
decline. Moreover, unification of exchange rates,
another IMF priority, will undercut business practices
in the public sector. The public enterprises have until
now benefited from overvalued exchange rates for
imports of industrial raw materials and equipment.
The Mubarak government has already begun to
restructure public-sector enterprises, albeit with only
limited results. Cairo's effort to collect a minimum
return of 2.6 percent on its equity investment in
nonfinancial public enterprises has proved largely
unattainable, however, since most enterprises are
simply not profitable enough. Moreover, frequent
exhortations directed at public-sector managers to
"boost productivity" have led nowhere. Government
intervention in pricing and investment decisions,
insufficient levels of working capital, and poor
management are all responsible for low performance
in the public sector.
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Regime efforts to deal with public-sector inefficiency
are unlikely to be effective,
without a concerted assault on
Nasir-era labor practices. The first signs of a
government attempt to challenge such practices are
beginning to appear and could alter dramatically the
government-labor relationship that has ensured labor
peace.
Organized Labor's Dilemma
The labor-government relationship during most of the
past 35 years has been characterized by an implicit
contract in which the government provided economic
security to workers in exchange for labor peace.
Mubarak's government, like its predecessors, uses
organized labor as a tool to facilitate and legitimize
government policies. Worker loyalties are ensured
through annual cost-of-living increases and bonuses as
well as an extensive structure of subsidies and price
controls. In exchange, labor has, until recently, been
generally quiescent. Wildcat strikes and slowdowns
have taken place periodically, but most have been
short lived and settled through arbitration.
This social contract is in danger of unraveling in the
face of constraints imposed by Egypt's acute economic
crisis. The extensive subsidies and price controls will
probably come under increasing assault. Moreover,
important changes in the way public-sector firms do
business appear inevitable?even with sizable new
assistance from the IMF and bilateral sources. One
method of change, apparently successfully introduced
in an Alexandria-area textile factory, involves large-
scale upgrading of capital equipment combined with
incentive pay for quality and productivity. In this
particular showcase, workers are apparently
unconcerned that the introduction of more capital-
intensive machinery has resulted in a company policy
of not hiring new employees to replace those who
retire or quit. Such labor quiescence may not be
representative of worker attitudes, however,
particularly in a low-growth, austere economic
environment that provides few alternative
employment opportunities.
the upgrading of
plant equipment may not yield the qualitative
increases necessary to improve public-sector
performance. labor laws that,
Secret
among other rules, permit workers up to 18
consecutive days of unexplained absence, lie at the
root of productivity problems. Although some
managers, with tacit government support, are
experimenting with incentives to instill greater
discipline, a strong argument can be made that the
laws themselves are badly in need of revisions that
would give plant managers more flexibility in hiring
and, when necessary, firing workers.
Caught in the middle of this struggle is organized
labor's leadership, closely linked to the government by
politics and patronage, yet aware that regime policies
are slowly undermining labor's previously privileged
status. The removal last November of Saad
Muhammad Ahmad, the president of the Egyptian
Trade Union Federation (ETUF), from his position as
Minister of Manpower in Mubarak's Cabinet has
further complicated the leadership's ability to control
the union movement. Although Saad Ahmad's
penchant for influence peddling and corruption were
as much to blame for his dismissal as his increasingly
truculent stand against government policies, his
removal was widely interpreted as a move by
Mubarak to cut the labor movement down to size. The
ETUF leadership issued an unprecedented protest
against his removal from the Cabinet, but the action
had no apparent effect on the government's decision
and badly embarrassed union leaders.
ETUF's old-guard leadership now finds itself
dangerously exposed. The labor movement's official
position that strikes and work stoppages are not
legitimate means of resolving labor disputes leaves it
with little bargaining power with a government that is
widely seen by workers as having ceased to deliver on
its promises. In January 1986, and again in April,
thousands of militant textile workers went on strike
after promised wage increases were delayed by the
government. The likelihood of more broken promises
by the regime will grow as the need for economic
austerity increases, and so will the probability of more
wildcat strikes and labor protests in 1987. Such
actions could grow even larger and more violent than
last year's demonstrations and may undermine the
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Secret
labor leadership's role even further as workers become
more disenchanted and younger, more radical leaders
emerge from the factories and barricades.
Outlook
The gloomy prognosis for Egypt does not mean that
labor unrest will be translated immediately into
regime-threatening instability. President Mubarak
remains basically committed to maintaining consumer
subsidies and will be reluctant to drop such supports.
The manner and timing of government reforms will
play a crucial role in determining how volatile the
labor element becomes.
Furthermore, the regime will continue to watch the
union movement carefully, sacking those leaders who
become too obstreperous, and monitoring closely
rank-and-file disgruntlement through the omnipresent
state security apparatus. Finally, even if workers
resort to violence at a few plants, the government has
already proved it can quell such disturbances, with
force if necessary.
Nevertheless, the danger remains that labor strife
could become a critical element in igniting more
general civil unrest in Egypt. If such strife is
effectively combined with other elements of discord,
including fundamentalist protests and popular
disgruntlement as subsidies are reduced, it could
provide the catalyst for a major political crisis for the
Mubarak regime. Although such a convergence of
opposition is unlikely over the near term, the threat
posed by labor strife bears careful watching during
1987.
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Sudan's Foreign Exchange
Dilemma
Sudan's practice of maintaining fixed foreign
exchange rates above the market value has reduced
remittance transfers, export earnings, and critical
imports. Meanwhile, with the government's poor
record on economic reform, balance-of-payment
support from aid donors has dropped off during the
last year. Failure to revamp the exchange rate system
will contribute to the Sudanese economy's downward
spiral.
Background
Before 1985 Sudan used three different exchange
rates, depending on the commodity or transaction.
The official rate, kept at 1.3 Sudanese pounds to $1,
covered cotton and gum arabic exports, petroleum
imports, and most government foreign exchange
receipts and payments. The second rate, at 2.1
Sudanese pounds to $1, was offered by authorized
banks and covered the rest of Sudan's exports, some
import payments, and receipts of aid. A third rate, left
to fluctuate in response to market forces, was offered
by authorized private foreign exchange dealers to
cover worker remittances and private-sector
payments.
In February 1985 the government reorganized the
foreign exchange system and set in place a dual
exchange rate: the official and the commercial rate.
With the reorganization, the government outlawed
private foreign exchange dealers and placed more
stringent limitations on foreign exchange accounts
held by residents. The result was a growth in the
unofficial or black-market handling of remittance
transfers and imported goods.
In January 1986 the government, acting through a
committee of bankers, devalued the Sudanese pound
to a new, supposedly "free" rate of 4.5 Sudanese
pounds to $1. This "free" rate was actually a
revaluation since the government closed down
unofficial foreign exchange markets (where the pound
was traded at 5 to $1), forcing remittance transfers to
be sent through the banking system at what amounted
23
to a higher "free" rate. As a result, total remittances
dropped. In addition, importers also were prevented
from buying hard currency on the black market and
then using the illegally obtained funds to buy letters
of credit from the official banks.
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Effects of Exchange Rate Tampering
By refusing to devalue the pound, Sudan is adding to
the woes of an economy already overburdened with 25X1
the southern insurgency and a massive foreign debt of
approximately $11 billion. Remittances, once
bringing in about $30 million per month, have
dropped to approximately $3 million per month.
Expatriate workers are bringing home their savings in
the form of consumer items or are holding their
money in foreign banks and sending it home illegally.
Exports of Sudan's key agricultural items?cotton,
gum arabic, and livestock?have been hurt by the
country's exchange rates. By forcing exporters to use
the official rate to export goods, the price of their
commodities in the world market is increased, thereby
decreasing the competitive edge. In addition, the
government adjusts the rates for selected exports to
enhance their competitiveness, creating daunting
administrative problems. This practice rewards
producers of Sudan's least competitive commodities
and fails to encourage production of its more
competitive ones.
On the other side, with hard currency in short supply,
imports have dried up. Industries cannot obtain the
machine parts and raw materials they require to run
their factories. According to a US Embassy report,
businessmen are complaining that the lack of hard
currency for purchasing raw materials is the major
obstacle they face. Some factories are idle, yet their
workers still receive regular paychecks.
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16 January 1987
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Each of the consequences of fixed hard currency rates
has had a negative influence on Sudan's economy,
while the overall effect has been to dampen the
willingness of aid donors to provide assistance,
especially in balance-of-payments support. Many
donors are eager to support Sudan's return to
democracy if the government initiates economic
reforms. The donors have continued to supply
piecemeal project aid but are withholding more
significant support until Sudan puts some reforms in
place.
Possible Solutions
Any long-term improvement will require a
comprehensive economic plan to deal with the
exchange rate, the budget deficit, growing inflation,
and poor productivity. Piecemeal reform will only
increase hardships and offer no relief in the long term.
The results may even be counterproductive
Aid donors, including the United States, the IMF,
and Saudi Arabia, are encouraging Sudan to improve
its foreign exchange position by devaluing the pound
and implementing one fixed rate. The government,
however, does not have the political will to enact such
a plan, which would risk adverse reactions by trade
unions and students. By devaluing the Sudanese
pound, the government would cause local prices to
increase, heightening the possibility of riots among
the poor.
An alternative approach, tried by Zambia, is the
auction system. Zambia's experiment allocates a
specific amount of foreign exchange and allows
interested parties to bid for the funds, setting a
foreign currency rate by averaging the bids. The
money is then disbursed to interested buyers until it
runs out. In Zambia the majority of the money in the
auction is supplied by aid donors, as would probably
be the case in Sudan.
The auction system has made foreign exchange
obtainable for importers in Zambia. Spare parts,
industrial inputs, and other goods are entering the
country and supporting production, which is
increasing. Another benefit has been the sharp
decrease in corruption that controlled the allocation of
foreign funds in the past. The parallel market is no
longer the primary source of hard currency.
Secret
On the negative side, inflation and unemployment in
Zambia have risen because of the government's
hesitation in enacting tighter controls over liquidity.
Nevertheless, although there have been complaints
against the system, the situation would have been far
worse had no initiative been undertaken.
Outlook
The government in Khartoum probably will continue
to stall on significant reform, allowing the economy to
flounder. Devaluing the foreign exchange rate would
be a key to attracting additional foreign aid, spurring
production, increasing remittance transfers, and
allowing exports to regain their competitiveness. An
auction system may present the best practical option,
but it appears unlikely to be tried in the foreseeable
future.
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Syria: Growing Burden of
Military Spending
The Syrian military is experiencing major economic
problems and is retreating from the growth of the
early 1980s, in our judgment. Domestic inflation and
the foreign exchange shortage have slashed military
buying power and reduced overall military strength.
Despite the military's favored status with President
Hafiz al-Assad, economic realities are forcing overdue
spending cuts in key areas. Nevertheless, defense
spending will continue to dominate the government
budget as Assad seeks to pacify the professional
military establishment, present a strong front against
Israel, and guard against internal opposition.
Budget statistics offer a useful guide to Damascus's
military objectives and political priorities. Although
Syria's published budget presents an incomplete
picture of total military outlays, official statistics
reveal the heavy burden of the military on the Syrian
economy. The sustained resource transfer to Syria's
defense establishment has weakened other sectors of
the economy and depressed living standards for most
of the population.
Syrian Objectives
Under Assad, Syria has traditionally allocated 50 to
65 percent of its planned current expenditures to the
military and has steadily expanded arms imports.
Damascus publishes an
aggregate figure for national security expenditures.
We believe this outlay represents domestic spending,
including salaries, training, and logistic support.
Defense-related imports, especially Soviet arms, are
almost certainly excluded from published figures and
are largely dependent on the level of aid from Saudi
Arabia and credits from Moscow.
Damascus's military spending strategy emphasizes
force strength and technology acquisition. Syrian
force strength has doubled since 1979 and tripled
since immediately before the 1973 Arab-Israeli war.
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Military Spending Buried Deep
Syrian official statistics do not reveal the full impact
of the military buildup. As a share of GDP, real
military outlays have remained between 14 and
17 percent since 1980. Despite the substantial
transfer of real resources to the military during the
1980s, budget data alone suggest that real spending
has fallen by 17 percent. It is more likely that
military expenditures were sustained by shifting
resources from unspecified civilian areas and
development projects. The Defense Ministry may
have absorbed a portion of budgeted investment
credits that were never implemented. Military
outlays were probably further supplemented by
"unallocated expenditures for the presidency"
amounting to about $25-53 million in 1985.
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by over $12 billion in Soviet military deliveries in the 25X1
1980s:
? Current authorized force strength is estimated at
404,500, with a wartime manning capability of
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eclipsed the military support structure, including
logistic and training facilities. Syria is also
underfunding the pay and allowances for its officer
corps.
Draining Domestic Resources
The Assad regime has consistently generated large
structural deficits because of high investment
spending, large subsidies, and a heavy defense burden.
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Syria: Public Finances, 1980-86 a
Million US $
1980
1981
1982
1983
1984
1985
(Budget)
1986
(Budget)
Current expenditure
3,999
4,376
4,883
5,496
5,834
6,000
6,244
National security
2,243
2,416
2,727
2,881
3,372
3,483
3,669
Investment expenditure
2,332
2,513
3,071
3,077
3,085
4,952
4,926
Total expenditure
6,332
6,889
7,954
8,573
8,920
10,951
11,170
Budget deficit
2,827
2,671
3,061
3,164
4,246
4,606
-4,426
GDP in current prices
13,197
16,940
17,969
18,611
19,141
21,317 b
a Converted at official exchange rate ($1=3.925 pounds).
b Government estimate.
Note: Because of rounding, data may not add to the totals shown.
Before 1982, deficits were largely covered by official
transfers or grants from Arab donors, which funded
53 percent of Syria's budget deficits from 1980 to
1982. Arab aid has fallen sharply since 1982, and the
drop in grants has been compensated by domestic
borrowing and increased net borrowing from external
sources. We estimate that, between 1983 and 1986,
official transfers covered less than 25 percent of
planned deficits.
Consequently, Damascus is relying more on domestic
resources to finance its military buildup. As grants
have fallen, Damascus has turned to borrowing from
the Central Bank to finance the budget deficit. In
1984 the net increase in bank lending to the
government totaled 14.1 percent of GDP at current
prices. The domestic financing component was only
2.7 percent of GDP in 1981:
? Damascus's deficit spending has proved highly
inflationary. The US Embassy estimates consumer
price inflation for 1986 at well over 100 percent.
? Damascus has been slow to cut the budget. National
security spending has grown by 9 percent annually
since 1982. Actual investment spending has
expanded at a much slower rate.
Military manpower requirements have aggravated
shortages of skilled labor and slowed implementation
of development plans. Population growth in Syria is
Secret
among the fastest in the Middle East-about 3.4
percent, with a median age under 16-and emigration
by the educated population is high. The armed forces
are absorbing a growing share of the male labor force,
about 17 percent of all males between 15 and 49, and
a higher percentage of those with technical skills
required to operate and maintain modern Soviet
equipment.
To minimize the burden of personnel expenditures,
Damascus froze government salaries and wages
between 1981 and 1985. Military personnel have
received only one pay raise-of about 20 percent-
since 1980, despite a 96-percent rise in the consumer
price index over the same period. A brigadier general,
for instance, earns only $1,800 annually, at the black-
market exchange rate. This partly explains the high
level of smuggling by military personnel, especially
those posted in Lebanon, who must supplement their
incomes to survive in Syria's inflationary
environment. Likewise, senior officers typically profit
from their positions by controlling lucrative civilian
housing projects and the importation of automobiles.
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Forced Retreat in Spending
Syria's economic problems have touched all levels of
Syrian society, including the defense establishment.
Real domestic defense expenditures have fallen by at
least 17 percent since 1980, after adjusting for
wholesale price inflation. The rapid deterioration of
the Syrian pound on the black market?now trading
at 25 per dollar?has further reduced the purchasing
power of military personnel.
Recent measures to curtail spending focus on
personnel.
The measure may significantly
reduce Syrian capabilities in technical fields?such as
air defense, electronic warfare, and
communications?where techically skilled reserve
officers were typically retained for one to two years
beyond their required terms of duty. Other measures
to reduce salary expenditures include:
? Lowering the mandatory retirement age for officers
of all grades, which will allow the release of older,
less effective officers, according to the
? Refusing funds to cover air fares for official visits
abroad, ending free medical care for the families of
officers, and denying special loans to officers with
financial hardships.
? Delaying meeting payroll commitments. Damascus
occasionally misses scheduled military payrolls
The foreign exchange shortage, coupled with high
seasonal demand, has produced electrical power
shortages and a scarcity of home heating and diesel
fuels, which is felt by both civilians and the military.
The US Embassy in Damascus reports that the
unexpected early curtailment of military exercises this
winter reflects the fuel shortages. We believe that a
yearend divisional exercise was canceled because of
the fuel problem. Given the severity of the crisis, it is
27
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possible that Syria has drawn down its emergency
stocks of fuel to meet civilian needs. Damascus will
probably press its radical allies, Iran and Libya, for
concessional oil shipments.
In addition, Syria faces great difficulty obtaining
desired Western-origin arms and equipment.
Syria's financial problems have also produced a
critical shortage of medical and pharmaceutical
supplies in both the civilian and military sectors. Basic
medical supplies such as X-ray film, antibiotics, and
intravenous solution packages are extremely limited,
and doctors are performing only the most critical
operations. The Ministry of Defense canceled all
pending medical supply contracts for the past two
years because of a lack of funds, according to an
informed source of the US Embassy in Damascus.
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Syria's largest corporation, which is deeply involved in 25X1
multiple military contracts, is also suffering from 25X1
spending cuts. The director of the Military Housing
Establishment, Milihouse, will soon be replaced,
according to the US Embassy in Damascus. The move
is probably part of Prime Minister Kasm's
anticorruption drive, which apparently has Assad's
sanction. Milihouse is notorious for its corrupt
management practices, including the diversion of
construction materials to the black market and the
addition of friends to the payroll. The company
employs possibly 100,000 persons, although many
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have not worked in the past year and workers have not
been paid since October. There have already been
substantial layoffs in the public-sector companies.
Outlook
Syria's economic problems will continue to affect the
military despite efforts to insulate this area. Sustained
growth in the military will be difficult without a
substantial boost in external support or a heavier
burden on the civilian population. Recent measures to
streamline armed forces personnel probably will
reduce near-term combat readiness, especially in
technical fields, but may improve overall efficiency in
the long run. Persistent shortages of fuel and medical
supples will limit the frequency and complexity of
military training in 1987, further degrading combat
readiness. Arms imports from the USSR are not
likely to fall further in 1987, but the volume and
composition of deliveries will be subject to
fluctuations as Moscow presses Damascus for
repayment of its estimated $7 billion debt.
Growing economic problems could have still broader
political and military implications for Damascus.
Assad may become more cautious in his approach to
Israel in Lebanon and elsewhere, knowing that he
cannot afford to risk even a limited clash at this time.
The rotations of military units into and out of
Lebanon?which were beginning to become routine?
may be postponed because the Syrian military may
not be able to send returning units through the usual
refit and refresher training cycles.
Even at its present strength, defense will probably
absorb a growing share of Syria's financial and labor
resources. The high rate of deficit spending will
almost certainly stimulate inflation and frustrate
economic development objectives. As in the past,
Assad will rely on a military-dominated government
to preserve his legitimacy and ensure domestic
stability. Meanwhile, economic deterioration in Syria
will increase pressure on Damascus to further cut
defense outlays and will pose new and unprecedented
challenges for Assad's regime.
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Syria: Backlash in Air Defense
Forces After Violation of
Syrian Airspace
President Assad took strong punitive measures
following the failure of his air defense units to react to
foreign military aircraft violating Syrian airspace last
November?underscoring the strain he has been
under because of domestic and international pressures
during the past year. US airstrikes against Libya last
spring touched a raw nerve in Damascus, aggravating
Syrian officialdom's long-lived fears that similar
attacks by Israeli or US aircraft would catch Syria
offguard. Soon afterward, the unfolding of the
Hindawi affair, which exposed official Syrian backing
of an attempt to destroy a crowded El Al airliner,
compounded jitters in Damascus about US or Israeli
reprisals and fueled speculation that Assad was losing
control of his government. By swiftly imposing harsh
disciplinary measures against several Air Force and
air defense officers in December, Assad probably
sought to refute rumors of his weakening control and
show he would not tolerate negligence in the air
defense sector. The airspace violation almost certainly
increased Assad's resolve to strengthen Syrian coastal
defenses and may be used to justify his periodic
requests for new Soviet air defense equipment.
Touch and Go?
The incident that infuriated President Assad occurred
while NATO exercises involving US and Turkish
forces were under way in the eastern Mediterranean.
Assad was already under
29
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domestic and foreign pressure, and the possibility of
Israeli or US airstrikes against Syrian targets almost
certainly was weighing heavily on his mind. The
Hindawi trial had concluded in London only two
weeks before?with British charges that Syrian Air
Force Intelligence Chief Muhammad al-Khuli was
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involvement indicated that Assad was losing control
of his lieutenants.
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Shortly after the trial's end, Assad made several 25X1
military decisions that betrayed his deep concern
about Israeli or US reprisals and some worry about
heightened domestic discontent.
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Assad Takes Charge
Assad reacted immediately and forcefully when he
learned that Syrian air defense units observed, but did
not counter, the intrusion by foreign military aircraft
into Syrian airspace.
In a nationally
televised speech on 16 November, Assad made an
apparent reference to the incident by saying, "He who
retreats before the enemy is a traitor and must die."
In his fury, Assad also fired the commander of the air
defense forces, Maj. Gen. Ali Salih,
Salih, who has been a
senior air defense officer since the early years of
Assad's regime and is a fellow Alawi, retained his
position as deputy commander of the Air Force.
In the weeks following the incident there were signs
that Assad had ordered air, naval, and, probably, air
defense forces to increase their vigilance against
another foreign military incursion. In December, for
example, the Syrian Air Force conducted
unprecedented defensive patrols over northwestern
Syria. Such patrols usually occur along the Syrian-
Lebanese border farther south. Syrian naval patrols
also exhibited unusual wariness that may have been at
least partly related to the incident. In mid-November,
a Syrian patrol boat intercepted a Soviet cargo vessel
off the coast near Tartus and be an escorting it into
port before releasing the vessel.
31
Chagrin Over a Missed Opportunity
Although primarily concerned about preventing
attacking US or Israeli aircraft from entering Syrian
airspace, the incident near Latakia also frustrated
Assad.
His humiliation over the
affair probably accounts in part for the harshness of
his reaction.
The incident almost certainly increased Assad's
resolve to continue strengthening Syrian coastal
defense capabilities and to avenge his embarrassment
by successfully defending Syrian airspace against any
such incursion in the future. The pattern of defensive
patrols conducted by the Syrian Air Force in the
northwestern sector during December probably will
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overwater activity. Assad may also use the incident to
justify his periodic requests for new Soviet military
equipment. He may convince the Soviets to accelerate
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occupy a new SA-5 site in the coastal area, which has
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The unexplained airspace violation has added to
Assad's troubles and may encourage personnel
changes in the President's inner circle. The US
Embassy in Damascus reports widespread rumors
that a broad realignment of power among those
traditionally close to Assad is under way, and several
reports link these rumors to the airspace violation and
the Hindawi affair. Even if no further personnel
changes occur, Assad's strong reaction to the
November air incursion underscores his sensitivity to
violations of Syrian airspace and to a possible airstrike
against Syrian territory.
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Lebanon: High Noon
in West Beirut
The reentry of Syrian special forces into West Beirut
last July has done little to improve security conditions
there. West Beirut still resembles Dodge City on
Saturday night with practically everyone in possession
of weapons. Kidnapings, arbitrary killings, extortions,
bank robberies, bombings, and intermilitia firefights
are rampant throughout the western sector of the city,
and Syrian intelligence and military authorities are
doing little to halt the area's daily security violations.
In East Beirut, the situation is somewhat better but
far from secure.
Economic conditions are a major factor in the
worsening security situation, making life dangerous
and difficult not only for the city's local inhabitants
but also for the remaining foreign residents, who must
brave street gunfights to survive. West Beirut is
increasingly suffering from periodic cutoffs of
electricity and water, forcing residents to rely on local
militias to provide them with fresh food and water at
exorbitant prices. The continuing devaluation of the
Lebanese pound, now standing at 96 to the dollar (it
was 20 to the dollar in early 1986), is making it
difficult for the lower classes to buy food and other
necessities, and many are resorting to criminal
activities that go unchecked because of the absence of
effective police authority.
We believe that the deteriorating security situation is
endangering the lives of all prominent figures and the
remaining Westerners in Beirut. Local gun battles are
likely to spread as fighting between militias escalates.
As the chaos continues, the likelihood that more
kidnapings will take place increases. Press reporting
indicates that kidnapings are already frequent. For
example, two weeks ago the Lebanese Dean of the
American University's School of Engineering foiled
an attempted kidnaping as he was traveling in the
direction of the airport with a Lebanese friend. In
mid-November the wife of a Lebanese Beth
commander was kidnaped; she is still missing. On 4
December the Lebanese head of the Engineering
33
Union was also kidnaped but was released after four
days. A British journalist narrowly avoided kidnaping
late last year.
The Syrian Factor
Syrian control of West Beirut is extremely limited.
According to
control of the various neighborhoods by
Lebanese factions remains essentially unchanged
since Syrian forces entered West Beirut last June and
July.
Palestinian infiltration into West Beirut is
increasingly taking place from Christian areas north
of the capital?a development that has angered both
Damascus and Tel Aviv. In response, Israel is
interdicting ferry service between Cyprus and the
Christian port of Juniyah, according to the US
Embassy in Tel Aviv. The Palestinians are entering
Lebanon with official Lebanese passports provided on
orders from President Gemayel. Christians view their
rapprochement with the Palestinians as a temporary,
financially lucrative arrangement designed to
undermine Syria's influence in Lebanon and to
weaken the growing power of the Shia community.
Although Palestinian infiltration from Beirut
International Airport has declined drastically, the
security situation there is chaotic, with Syrian
intelligence personnel sharing security duties with
other Lebanese officials and militias. Turf battles
between these security personnel often take the form
of fistfights and threats of armed violence. The
Syrians periodically harass travelers?often just to
shake them down.
Moreover, heavy shelling of the airport forced its
closure on 8 January?the first time since it reopened
in August 1985?after a parked Middle East Airlines
jet was destroyed. More such incidents are likely, as
Christians and Palestinians regularly shell the airport
to punish Syria and the Muslims.
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Aftermath of shelling of a West Beirut neighborhooei
The Syrian military and intelligence presence is at full
strength only at major locations and roads, with
Syrian security patrols into militia-held
neighborhoods having declined drastically over the
past two months. The Syrians are deferring security
duties to their main surrogates?the Shia Amal
movement, the Syrian Social Nationalist Party
militia, and the Lebanese Beth Party militia, also
known as the Assad Brigades?a situation that puts
these militias on a collision course with competing
Druze, Islamic fundamentalist, and pro-Palestinian
fighters in the city.
The inability of Ghazi Kan'an, Syria's chief of
intelligence for Lebanon, to bring the radical Shia
Hizballah and the pro-Arafat Palestinians under
control has put his security and intelligence personnel
on the defensive. Syrian security personnel are
increasingly confined to the Beau Rivage Hotel, near
Ramlah Al Baydah, a combined administrative and
interrogation center. Press reports indicate that
Syrian officers at the hotel are using torture and scare
tactics against Lebanese political prisoners and that
these officers and their subordinates are relying on
Secret
bribes and Lebanese patronage to support one group
against another. Damascus has all but given up
policing West Beirut, a situation that is leading
Syrian officers there to behave as barons exercising
arbitrary authority away from the watchful eyes of
the Syrian leadership or of General Kan'an, who no
longer resides in West Beirut but shuttles between
Anjar?Syria's main intelligence center in Lebanon?
in the Bekaa Valley, and Tripoli and Sidon.
Constraints on Syria
We believe that the preoccupation of the Syrian
regime with the camps war, with domestic political
turmoil, and with the publicity surrounding
Damascus's involvement in terrorism makes it
difficult for President Assad to alter the situation in
Beirut any time soon. We estimate Syrian forces in
Beirut at about 1,500. To impose order on the city
would require at least several thousand more troops,
which Syria is reluctant to commit to the debilitating
job of policing the city and which would have little
long-term impact in any case.
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Scene of car bombing in Christian East Beirut
Al Nahar
Water distribution in West Beirut becoming a
way of life following daily cutoffs
Al Nahar
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Palestinian fighters such as these are a common
sight in refugee camps in West Beirut.
AI Nahar
35
Typical of Syria's problems is the increasing incidence
of unchecked civil violence. In mid-December, Druze
and Shia Amal students at the local branch of the
Lebanese University drew guns on each other on the
campus, quickly prompting their respective militias to
engage in a gun battle. Explosives and handgrenades
are being thrown from speeding vehicles against both
military and civilian targets almost on a daily basis,
and Syrian forces cannot or will not halt this practice.
Car thefts are a daily occurrence in West Beirut, with
most cars wrested from their owners at gunpoint and
sometimes at midday. Last December armed men
hijacked a Red Cross transport pickup truck for the
handicapped.
Outlook
Civilian and military casualties will continue to rise in
West Beirut over the next few months. The US
Embassy reports that in 1986 there were 2,550
killings, 7,237 woundings, 42 political assassinations,
242 dynamite charges and booby-trapped cars, 33
kidnapings, and 37 executions. In addition, there were
hundreds of armed robberies and thefts, including
against institutional and civilian targets. The violence
in West Beirut is certain to persist in 1987. This
situation is likely to accelerate the departure of
Westerners from the city and add to the anarchy and
lawlessness.
We believe that the camps war will continue for the
next several months, assuring the continuation of
factional battles between pro- and anti-Palestinian
forces. In Christian East Beirut, an intra-Christian
power struggle for domination of the Christian
enclave remains a strong, near-term possibility.
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Damascus will most likely maintain its low profile in 25X1
the Beirut area, even as it tightens its control over
northern and eastern Lebanon, in keeping with its
policy of policing only those areas deemed essential to
Syrian national interests. The Syrian forces will be
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A Typical Week's Security Problems
Christian militias take to the streets following
intra-Christian skirmishes.
AI Nahar
The first week of January witnessed heavy fighting
between Druze and Shia Amal militias in West
Beirut, following the ambush and killing of two
Druze militiamen by Amal fighters near Khaldah.
The coastal highway linking southern Beirut to the
Druze heartland was closed for one day. Two Syrian
soldiers were killed following an attack by militant
Islamic militias on Syrian positions near the Beau
Rivage Hotel. This attack was the latest in a series of
attacks on Syrian and pro-Syrian Amal positions
throughout the city in the last few weeks. West Beirut
also experienced heavy fighting on 6 January between
the Druze militia and pro-Syrian gunmen belonging
to the Syrian Social Nationalist Party. On 8 January
Druze gunners began shelling Christian
neighborhoods along the line separating West and
East Beirut. Intense clashes between the Amal and
the Palestinians continued?as they have since
September?around the refugee camps.
In Christian East Beirut, fighting erupted on 5
January between Lebanese Army units and elements
of the Phalange Party militia loyal to President
Gemayel. Although the situation was brought under
control soon after the fighting started, the skirmish
aggravated an already volatile political climate in the
Christian enclave. On 6 January an assassination
attempt against former President Camille Chamoun,
the godfather of the Christian community and an
opponent of Syrian-Lebanese reconciliation,
heightened tension in the Christian community and
increased the probability of more violence in the near
future. The attempt on Chamoun's life was claimed
by a hitherto unknown splinter of the Christian
militias. Clashes followed between rival Christian
groups.
vulnerable to occasional resistance and armed
uprisings against their occupation from Islamic and
Christian militants. In such cases, Damascus will use
force in Tripoli and the Bekaa but will turn to
increasingly unreliable surrogates to do its bidding in
Beirut and South Lebanon.
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Lebanon: Sidon's Sunni
Popular Nasirite
Organization
Mustafa Sa'ad commands the most important Sunni
militia in Sidon, the port city fast emerging as the
center of Palestinian influence in Lebanon. Sead's
Popular Liberation Army, the 1,000-man fighting
arm of his Popular Nasirite Organization, plays a
pivotal role for the Palestinian movement, since the
militia controls Sidon and, potentially, the security of
the surrounding camps. Sa'ad has publicly assumed
neutrality toward the conflict between the pro-Arafat
Palestinians and the Syrian-backed Shia Amal
movement.
Mustafa Sa'ad the Man
Mustafa Sa'ad is the son of Maruf Sa'ad, a key Sunni
politician in Sidon and a deputy in Lebanon's
parliament. His main rival was Nazih al-Bizri, a
physician whose constituency came mainly from the
middle and upper classes of Sidon. Maruf was killed
in February 1975 during a lower-class
antigovernment demonstration in Sidon. The
assassination is generally regarded as the catalyst for
the Lebanese civil war. At the time of Maruis
assassination, his 26-year-old son, Mustafa, was
studying in a Soviet agricultural engineering college,
and he did not expect and was not prepared for the
succession. Although inexperienced at the time, Sa'ad
knew that, without the Palestinians and their
resources, his militia would be insignificant and
vulnerable to Christian militia attacks from the hills
overlooking Sidon. The Palestinians firmly controlled
key positions around Sidon and acted as a buffer
against outside attacks on the city.
In January 1985, Sa'ad was the target of an
assassination attempt when his residence was
destroyed by a car bomb that killed his 12-year-old
daughter and left him scarred and blinded by flying
glass. Lebanese across the board blamed Israel for the
attack, although he could have been the target of
37
al-Majalia
Mustafa Sa'ad
Shias, Christians, or Palestinians, or even the victim
of an intra-Sunni conflict. Sa'ad did not speak out
sharply against his attackers following his
recuperation.
Sa'ad is approximately 37 years old. He has a Soviet
wife, who was also injured in the bombing. Sa'ad
speaks Russian as well as a little English and French
in addition to his native Arabic. He has relatives in
West Virginia. Following the bombing, Sa'ad
underwent surgery and three months of medical
treatment in Boston.
History of the Popular Nasirite Organization
The Popular Nasirite Organization was established in
Sidon in 1976 by followers of the deceased Maruf
Sa'ad. The organization is predominantly Sunni
Muslim.
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early 1985, the organization has prospered and, 25X1
because of its rapid political growth, has attracted
considerable attention. Contributing to this was the
elimination by Syria in 1984-85 of the only other
secular Sunni Muslim organization in Lebanon, the
Independent Nasirite Organization (Murabitun), in
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street battles in West Beirut.
The Popular Nasirite Organization receives financial
assistance from Sunni organizations in Beirut, again
as a result of the decline of the Murabitun
organization.
In Sidon, the main Sunni elements have established a
joint leadership, the Political Council of Sidon, that is
supposed to coordinate key issues concerning the
town. Chief among the Sunni political leaders are
Mustafa Sa'ad, Sidon Deputy Nazih al-Bizri, and
Rafiq Hariri. Bizri leads the old famililies of Sidon,
while the Sead family represents the upstarts. These
two families have drawn closer during the Lebanese
civil war and the Israeli invasion.
Nasirist Ideology: A Sunni Cloak
Sead's political statements generally reflect an ill-
defined pan-Arab ideology that has its roots in
Nasirist thought. In the early 1950s, the Sunnis of
Lebanon derived much of their political clout from
Egyptian influence, and most Sunni activists today
belong to organizations advocating the ideology of
Egypt's late President Kamal Abd al-Nasir. Nasirism
as an ideology is anti-Western and pan-Arab, and
seeks to promote Arab socialism. In the 1970s the
Lebanese Sunnis made common cause with
Palestinian guerrillas?primarily Sunnis?in
Lebanon. Nasir's death in 1970, Egypt's signing of
the peace treaty with Israel in 1979, and Syria's
growing presence in Lebanon, however, have undercut
the Sunni position in Lebanon.
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We believe Nasirism is important to Sead and
perhaps his immediate followers, but it takes a back
seat to tactical alliances. We believe ideology is less
important for the average fighter in Sead's Popular
Liberation Army, whose primary motivation is
protection of Sunni privileges and Sunni turf. The
legacy of Nasir as a charismatic personality, however,
plays an important role in motivating Sead's militia
to remain loyal to the organization.
Allies and Enemies
Sead has close ties to Syria, is hostile toward Israel,
and is frequently called to Damascus to receive
instructions on issues of interest to Syria. Sead's
relationship with Damascus is complex, given his ties
to the Palestinians. Syria is attempting to court Sead
as a power in Lebanon's third-largest city but is
having difficulty maintaining his loyalty, mainly
because of Sead's special relationship with the PLO.
Both sides are playing a delicate balancing game.
Sead has close ties to Druze leader Walid Junblatt,
whose militia controls the Sidon-Beirut road.
Sead also collaborates with several Palestinian
organizations. His cooperation with the Syrian-
backed Palestine National Salvation Front (PNSF)
(which opposes Arafat) is at Syria's behest and
reflects the traditional cooperation in Lebanon
between the Sunnis and the Palestinians.
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There is also evidence of increasing cooperation
between Sa'ad and the pro-Arafat Palestinians over
the past year. As of April 1986 there was no
indication of direct and open cooperation, possibly for
fear of Syrian reaction. There were indications,
however, that Sa'ad was increasingly turning a blind
eye to the growing strength of Arafat loyalists,
Sa'ad and the Sunnis have a bitter feud with the anti-
Palestinian Shia Amal in Sidon. Amal influence is
based on a large Shia population in the southern and
eastern suburbs, control of several Christian villages
in the area, and growing Shia social and religious
activity in the city.
to win this support and reestablish themselves is
complicated by the struggle between the Palestinian
organizations in the PNSF and the Arafat loyalists.
The increased tension between the Shia Amal and the
pro-Arafat Palestinians (and Sa'ad's collaboration
with the latter) could in time increase tension between
the Amal and Sa'ad, and ultimately between Syria
and Sa'ad.
As an example of Sa'ad's tactics, following Syrian-
Lebanese discussions in Damascus on 10 January,
Sa'ad publicly announced that he had asked mediator
Hariri to press Arafat to withdraw his fighters from
Maghdushah. If the Fatah fighters withdraw, Sa'ad's
militia would be free to move in as a buffer between
the Palestinians and the Shias, gaining new turf.
We believe that Sa'ad has adopted an outwardly
neutral stance for political purposes?linking himself
publicly to the PNSF to please Syria, while secretly
forging a tactical alliance with the pro-Arafat
Palestinians against Amal (in defiance of Syria). As
the Palestinians grow stronger in Sidon, Sa'ad will
attempt to obtain their cooperation to strengthen his
own position.
Amal is opposed to the return of
the Palestinians to Sidon for fear the Palestinians will
reestablish their power there.
Outlook
The recent influx of Palestinians has affected the fluid
security situation in Sidon. In our judgment, the
Palestinians cannot operate effectively in the area
without Sa'ad's support. The effort of the Palestinians
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Jordan: Gambling on West
Bank Development
King Hussein's first economic development program
for the West Bank and Gaza is aimed at improving
the local quality of life and, more important,
establishing Jordan?in place of the PLO?as the
representative of Palestinians in the occupied
territories. Severe cash shortages, PLO opposition,
and skepticism on both sides of the Jordan, however,
challenge Amman's ability to implement the plan.
Without rapid and visible progress on the program,
Jordan runs the risk of losing its bid to become the
Palestinians' major negotiator in the peace process.
Hussein Bets on Development
Jordan's poor record in helping the West Bank and
Gaza has left it with substantially less influence than
the PLO among Palestinians. Development of the
occupied territories has languished as a result of
Jordanian policy restrictions and a legacy of outright
neglect. King Hussein did not help Jordan's
reputation when he broke off relations with PLO
Chairman Arafat last February, a clumsily handled
move that deeply disappointed Palestinians. Despite
Hussein's promise to step up aid to the territories, the
West Bank and Gaza continue to struggle with
stagnant growth, declining worker remittances, and
rising unemployment in the wake of a regional
recession brought on mainly by declining oil prices.
Rather than engage in direct political competition
with the PLO, Hussein has adopted a long-term
strategy designed to capitalize on disarray within the
ranks of the PLO and its inability to provide economic
and social support to the Palestinians. By providing
economic and municipal development aid, Hussein
hopes to reestablish a Jordanian political presence
among the Palestinians in the West Bank and Gaza.
He believes that improving economic conditions is the
best way to win Palestinian acceptance of Jordan?
and not the PLO?as their key representative in
negotiations with Israel, according to the US
Embassy.
41
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Hussein also has a more parochial desire?to head off
another potentially disruptive wave of Palestinian
emigration to Jordan. Amman expects new entrants to
Jordan's labor force to increase by at least 60,000
persons by 1990, in addition to the influx of returning
workers who are losing their jobs in the Persian Gulf.
The US Embassy in Amman reports that Hussein is
concerned that a mass migration of out-of-work West
Bank and Gaza Palestinians to Jordan?which has
serious unemployment problems of its own?
eventually would pose a security threat.
The development program, which Jordanian planners
expect to have a price tag of about $1.3 billion
through 1990, focuses on social projects that will give
maximum benefit to the general populace. Almost
three-fourths of the planned investments are
earmarked for education, social welfare, and
construction, according to the US Embassy. Spending
in these areas is designed to improve the quality and
skills of the West Bank and Gaza work force and to
stimulate employment opportunities. Outlays for
construction and infrastructure?more than 40
percent of the development budget?demonstrate
Jordan's desire to reduce the pressures to emigrate by
providing the Palestinians with adequate housing and
public services.
Jordan already has employed a variety of more overtly
political tactics to strengthen ties to the occupied
territories. Measures Amman has introduced so far
include reopening the Cairo-Amman Bank,
participating in the appointment of three Arab
mayors on the West Bank, and launching a public
relations blitz to improve its image.
Jordan, however, is reluctant to liberalize trade and
bridge-crossing procedures. Amman fears that easing
these restrictions would induce Palestinians to leave
the occupied territories for Jordan.
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JORDAN: WEST BANK & GAZA DEVELOPMENT PLAN
Housing & Infrastruc.
42.8%
Industry
6.2%
Agriculture
17.1%
Education
21.7%
Social Development
2.8%
Health
9.5%
But No Cash in Hand
The key obstacle to the development plan's success is
Jordan's inability to pay the bill. Worker
remittances?Jordan's most important source of
foreign exchange?tourism, and merchandise exports
continue to perform poorly, saddling Jordan with the
problem of financing another foreign payments gap
this year. Foreign exchange reserves of about $360
million?the equivalent of less than two months'
imports at current rates?are woefully inadequate to
cover these revenue shortfalls. Despite holding
expenditures at last year's level, the 1987 budget
projects a deficit of at least $188 million, according to
the US Embassy, and it may well approach the 1986
record of $644 million if overly optimistic revenue
projections do not materialize.
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Without foreign assistance, Jordan has no hope of
making the development plan work. As a result, senior
Jordanian officials have scrambled to obtain critically
needed financial aid, according to US Embassy
reports. Last September, Prime Minister Rifal
traveled to West Germany, France, and the United
Kingdom to seek subventions for the plan, and
followed that trip with a visit to Kuwait the next
month. Emphasizing the importance the government
places on the program, both King Hussein and Crown
Prince Hassan last year also visited Middle Eastern
and European capitals to make a pitch for funds.
Jordan's drive to attract international financial
support for the program culminated in November at
the Development Conference held in Amman.
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Donor response to the Jordanian initiative has been
unenthusiastic. Although participants at the
Development Conference gave a guarded
endorsement of the concept, nearly all countries
evaded bilateral financial commitments to Jordan.
The US Embassy reports that several members of the
European Community (EC), especially France, Spain,
and Greece, continue to believe that aid to the West
Bank and Gaza that is funneled through Jordan
would compromise their neutrality regarding the legal
status of the occupied territories. Some European
countries probably are concerned about the possibility
of a retaliatory Arab boycott should they assist
Jordan.
To avoid the adverse political implications of dealing
with Amman, the EC Commission has decided to
channel part of its $3.1 million commitment directly
to the West Bank and Gaza rather than through
Jordanian Government institutions or private
organizations?a decision that Amman vehemently
opposes. Only the United Kingdom has pledged direct
assistance?about $7.3 million through 1990?which
London intends to disburse with minimal fanfare to
avoid political controversy that might jeopardize
implementation of projects. West Germany intends to
follow the British lead, but German assistance is only
at the planning stage.
A major disappointment for Jordan has been the tepid
response from its traditional Arab benefactors. Saudi
Arabia, Qatar, and Oman?some of Jordan's most
important donors?sent only low-level representatives
to the Development Conference and have not
committed additional funding beyond their scheduled
Baghdad payments. Even the Baghdad grants are
likely to decline this year to about $450 million from
the 1986 level of $562 million. Saudi Arabia also is
insisting that Jordan pay $195 million for Saudi oil
deliveries in 1985, using a more favorable repayment
plan.
View From the West Bank and the PLO
Yasir Arafat has denounced Jordan's development
plan, declaring it would lead to a de facto
normalization of relations between Amman and Tel
Aviv, according to Palestinian media reports. He has
cautioned Arab countries not to support the plan,
43
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contending that such assistance would prolong Israeli
occupation of the West Bank and Gaza. Arafat
instead has called for adherence to the 1978 Baghdad
resolutions, a clear signal for a return to the PLO-
Jordan Joint Committee as the official conduit of
development funds to the occupied territories. For
now, Arafat probably wants to avoid risking a more
direct confrontation with Jordan in order to
concentrate on reconciling with rival Palestinian
factions in Syria and Lebanon.
Most Palestinians apparently are willing to give
Hussein a chance to make good on his commitment,
but even the staunchest supporters of the plan are
skeptical of long-term Jordanian objectives and
capabilities. Many Palestinians fear the development
plan is a veiled strategy for Jordan to supplant the
PLO as the legitimate representative of the
Palestinians in the occupied territories. At the same
time, many Palestinians retain unpleasant memories
of Jordanian rule, when Hussein's minions brutally
suppressed opposition to the King's policies.
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View From Jordan and Israel
In principle, Israel supports the development program,
including quality-of-life improvements for the
Palestinians. Tel Aviv much prefers an increase in
Hussein's moderate influence to the PLO's continued 25X1
sway in the occupied territories. Reflecting its
common interests with Jordan, Israel has cracked
down on PLO militants, closed radical newspapers,
and deported some activists, according to the press
and US Embassy. Israeli participation was
instrumental in arranging the recent appointment of
the mayors in three West Bank towns and the opening
of the Cairo-Amman Bank. Much to Jordan's
irritation, however, Israel has attempted to link itself
publicly to the implementation of the development
plan. Moreover, Tel Aviv has insisted on vetting
proposed development projects and would veto any
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interests in the occupied territories. 25X1
Although most key officials in the Jordanian
Government support the development plan, some
misgivings exist among political conservatives. These
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Jordan-firsters are pressing Amman to abandon the
development plan because they believe the country's
scarce financial resources should be used at home.
Moreover, they have allies in the government who
share their concerns about the security and
unemployment implications of closer ties to the
occupied territories, according to the US Embassy.
Jordan has yet to decide how it will represent the
Palestinians in the peace process and, by implication,
what role, if any, the PLO will play. Hussein still
insists that, if the PLO recognizes UN Resolution
242, it will retain its right to represent the occupied
territories, according to the US Embassy. But Prime
Minister Rifal?with the King's quiet support?is
encouraging the Palestinians to consider alternative
leaders, including Abu Zaim, a PLO dissident based
in Amman. With Palestinian support at stake,
Hussein is keeping his options open while seeking to
strengthen Jordan's political influence in the West
Bank and Gaza.
An Uncertain Payoff
Jordan's chances of keeping the development plan on
schedule or gaining political advantage in the
territories at the PLO's expense are not good. Any
failure to make rapid and coordinated progress will
cost Jordan some credibility by making it appear too
weak to represent Palestinian interests. Many public
and private Palestinian officials in the West Bank
already are complaining about the lack of discernible
progress, according to the US Consulate General in
Jerusalem.
A lack of money is the major roadblock to Jordan's
timetable. Financially strapped, Amman has allocated
only $64 million in 1987 for the development
program, which has an average annual cost of about
$250 million.
Foreign donors will continue to be tightfisted.
Riyadh told Hussein it cannot provide more aid
because of its own cash problems, according to the US
Embassy. Other Arab oil states are sounding the same
theme and are unlikely to help Jordan substantially.
In any event, the Saudis and other Arabs will be most
reluctant to assist a perceived Jordanian-Israeli
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strategy to circumvent the PLO. As a result, we
estimate that total Persian Gulf aid in 1987 will
continue last year's decline, falling to about $542
million from $690 million in 1986. EC members will
probably also drag their feet until they are more
certain that no negative political fallout will ensue.
The best we believe Jordan can expect is enough
money to start a few smaller projects that
demonstrate to the Palestinians that the program is a
viable method of improving their standard of living.
This might give the Jordanians a chance to line up
additional funding, especially from the EC. Jordan
also is likely to launch an aggressive public relations
campaign touting existing projects to maintain
Palestinian confidence in the program. Still, Amman
has promised much and faces an uphill battle to
maintain the program's momentum. New money
probably will come too late to give Jordan the
opportunity to make much headway on larger projects
this year.
Regardless of the financial outcome, Jordan cannot
discount the prospect that the PLO will attempt to
undermine the plan if Arafat or local supporters
believe they are losing political ground. The Embassy
reports some evidence that pro-PLO Palestinians are
noting the threat the Jordanian strategy presents to
Arafat and themselves. A PLO counteraction almost
certainly would include increased violence and acts of
intimidation against Palestinian participants in the
development plan. The recent stabbing of a Jordanian
Government employee on the West Bank is a
harbinger of what the PLO would be likely to do to
derail the program.
Implications for the United States
Jordan knows the constraints on US foreign aid this
year and, as a result, will look to the United States for
support, principally on the diplomatic front. Amman
believes that US approval could spur the EC countries
to boost their assistance to the development effort.
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Jordan also will look to the United States to intercede
on its behalf with the Israelis and, perhaps, the
Saudis. If Hussein's plan falls, Amman may lose the
opportunity to create a Jordanian-Palestinian
negotiating team that eliminates the PLO?and
thereby forfeit the chance to remove a major obstacle
to the peace process.
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Kuwait: The Diplomacy of
Accommodation
Kuwait follows a nonaligned foreign policy designed
to gain maximum protection against regional threats
and terrorism and to support its aspirations for
leadership among the Gulf states and the nonaligned
nations.' The wisdom of this policy has been
confirmed by experience, in the view of the Kuwaiti
Government. Kuwait's economic and cultural
orientation is predominantly Western, and its
nonalignment arises from its defenselessness and
proximity to an area of strategic significance and
chronic political and military conflict. The disclosure
of US arms transfers to Iran has primarily hurt
Kuwaiti and other Arab moderates who have argued
for the benefits of cooperation with the United States,
according to diplomatic sources. Nevertheless, the
United States remains a critical and central factor in
Kuwait's foreign policy equation.
Balanced Relations With the Superpowers
Kuwaiti leaders have carefully cultivated ties to both
the United States and the USSR to ensure that each
has a stake in the regime's survival and to maximize
Kuwait's bargaining position, according to US
diplomatic reporting. They believe these ties can be
useful in deterring regional threats and obtaining
support against terrorism but fear that granting
significant concessions to either superpower?for
example, by offering military access or permanent
bases?could ultimately trigger a superpower military
confrontation in the region.
Despite a concern to appear balanced in its foreign
relations, Kuwait's economic and cultural orientation
is toward the West:
? Kuwait's history and mercantile traditions have
given it a cultural affinity with the West, including
the United States.
? Kuwaitis have wide-ranging business and technical
ties to the Western world.
47
KUWAITI STUDENTS ABROAD BY REGION OF STUDY
1982/1983
Other West--8%
Middle East--32%
U.S.--54%
Total Kuwaiti Students in Higher Education
Abroad in 1982/1983 - 2682
Source: Kuwaiti Yearbook of Statistics
Other --6%
East--0%
? Over one-half of Kuwaiti students abroad attend
schools in the United States. Almost none attend
schools in the USSR or Eastern Europe.
? Kuwaiti trade is overwhelmingly with the West.
? Kuwait has benefited from many infrastructure
development programs run by US agencies.
? Kuwaiti planners are seeking US advice on
privatization, deregulation, and the budgetary
process.
? Over one-half of Kuwait's large petrodollar
investments are held in US institutions or dollar
instruments.
('PA
In nurturing its nonaligned image, however, Kuwait
often takes diplomatic positions at variance with those
of the United States. It generally sides with other
Third World countries in forums such as the United
Nations, the Nonaligned Movement, and the Islamic
Conference Organization.
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90
Bo
70
60
50
40
30
20
10
100
90
so
70
ao
50
40
ao
20
10
0
1979
1980
1981
1982
1983
III1Developed Economies
1111Other LOCa
III1Middle East
III1Communist
Illkot Specified
1979 1960 1981 1982 1983
Source: IMF Direction of Trade Statistics
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III1Developed Economies
1111Other LOU
IIIIMiddle East
III1Communist
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The range of Kuwaiti-Soviet ties is narrow, confined
mostly to diplomatic and journalistic exchanges and
some economic and military transactions.' Kuwait has
developed its Soviet ties for tactical and defensive
reasons, according to US Embassy reports:
? To enhance defense against an Iranian threat.
? To take advantage of Moscow's influence in
Baghdad, Damascus, and Tripoli.
? To reduce the risk of Soviet or Soviet-sponsored
subversion against Kuwait.
Kuwait also cultivates Soviet ties as part of its role in
the Gulf Cooperation Council (GCC), a key element
in Kuwaiti security policy.' Specifically, Kuwait
seeks:
? To demonstrate its leadership in the GCC vis-a-vis
Saudi Arabia and the other Gulf states.
? To gain Soviet acceptance of the GCC as a
genuinely independent regional body.
? To strengthen the Gulf voice in Moscow on the
issues of Afghanistan, the Iran-Iraq war, and South
Yemen?areas where they believe the Soviets have
influence.
For their part, the Soviets court Kuwait with high-
level visits and red-carpet treatment, apparently
because they wish to use Kuwait as a bridgehead to
other Gulf Arab states and because these ties have
economic as well as political benefits. The Kuwaitis
pay cash for their military equipment and have
offered the Soviets sizable loans and cooperation on
joint development projects, according to the US
Embassy in Kuwait.
The Kuwaitis believe that this Soviet interest
promotes moderation in Soviet policy on the Arabian
Peninsula, according to diplomatic reporting. They
hope, for example, that it will motivate Moscow to
ensure that the new regime in South Yemen respects
its predecessor's pledges not to threaten neighboring
states. The Kuwaitis probably realize, however, that
friendly relations with Moscow will not inhibit Soviet
Kuwait established relations with the Soviet Union in 1963 in
return for Moscow's withdrawal of its veto over Kuwait's UN
membership.
' Kuwait, Saudi Arabia, Oman, Qatar, the United Arab Emirates,
and Bahrain formed the GCC in 1979, primarily in response to
security concerns generated by the Iranian revolution.
49
disinformation campaigns or Soviet efforts to
introduce more personnel into Kuwait in connection
with technical, commercial, or military missions.
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Challenges to the Regime
Of the range of problems facing the ruling Sabah
family?including the decline in oil revenues,
potential subversion from the large expatriate
population, threats from powerful neighbors and from 25X1
terrorists?we believe regional security and terrorism
are the regime's top priorities. We believe the US
arms transfers to Iran damaged US credibility in
Kuwait because they cast doubt on the sincerity of
stated US policies in both of these critical areas.
Regional Security. Protection from external threats
has been an important motivation for closer Kuwaiti
cooperation with the superpowers, according to US
Embassy analysis. As a small, vulnerable state in a
volatile region, Kuwait has sought security largely by
adjusting to the political realities of its situation,
propitiating its neighbors, and buying off other
potential threats?a consistent, longstanding policy of
the Sabah family:
? The Iran-Iraq war poses the greatest threat to
Kuwait since its independence. Iran has attacked
Kuwaiti facilities several times, frequently hit oil
tankers leaving Kuwaiti ports, and threatened to
escalate its activities should Kuwait give Iraq direct
military support.
? Kuwait probably believes that Iraq will resume its
claims on Kuwaiti territory once the need for
Kuwaiti financial support has passed.
? Kuwait also probably worries that the Arab-Israeli
dispute may once again erupt into a war that could
spread more widely through the region than before,
and even directly involve the superpowers.
Like Jordan, Kuwait's domestic and foreign policies are closely
linked. For example, its well-educated elite is tied in with regional
Arab opinion through the media; 20 percent of its population is
Palestinian; 20 percent is Shia; and its aid programs have been
important to the economic well-being of numerous regional states,
including Jordan, Syria, and Sudan.
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The Kuwaitis probably hope that a US presence "over
the horizon" will deter Iran or other regional states
that might wish to press the Gulf states militarily, as
well as the Soviets. They also believe that the United
States?along with the West Europeans?can help
keep the Strait of Hormuz open to ensure the flow of
oil.
These regional security concerns have encouraged
closer?though still limited?Kuwaiti cooperation
with US military forces in the area, according to US
Embassy officials. Kuwait is the only regional source
of the specific kind of diesel fuel essential to the
operation of US carrier task forces in the Indian
Ocean and benefits indirectly from the Saudi-US
AWACS program by virtue of information sharing
with Riyadh.
We believe that problems in US-Kuwaiti cooperation
on regional security arise from doubts about US
reliability as a defender, fear that too close an
association with the United States might provoke
retaliation from radical terrorists and incite domestic
critics, and concerns that too close a relationship with
one side might upset regional power balances. Kuwaiti
leaders probably question whether the United States
will protect those who link themselves openly to its
interests and fear the United States will take for
granted an ally that is dependent. They believe that
the United States abandoned the Shah of Iran and
Lebanon's President Gemayel after cultivating them
openly as allies and clients. The US Embassy in
Kuwait reports that recent revelations about the US-
Iran arms arrangements confirmed the Kuwaitis'
most cynical judgments about the pitfalls of relations
with the United States.
The Arab-Israeli conflict could again become a source
of friction between Kuwait and the United States in
the event of renewed military strife, although it does
not affect relations as much today as in the early
1980s. Then, Kuwait appeared to be drifting away
from the United States and closer to the Soviets,
advocating expanded ties between Moscow and the
Arab Gulf states and opposing closer regional security
cooperation. The Israeli raid on Iraq's nuclear reactor
in 1981, its invasion of Lebanon in 1982, and the US
denial of Stinger missiles in 1984 marked a nadir in
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Kuwait's US ties. They have since improved as the
Iranian threat to Kuwait has intensified.
Nevertheless, US policy on Israel and the peace
process still generates criticism in the influential
Kuwaiti press and regional media and creates
opportunities for Soviet disinformation efforts,
according to diplomatic reporting.
In our judgment, the Kuwaitis take a pragmatic
approach to Soviet ties and are cynical about the
Soviet record in the region. The Soviet invasion of
Afghanistan is still a concern of the Kuwaiti
leadership, although perhaps less central to their
everyday interests than in the years immediately
following the incursion. Afghanistan reinforced
existing Kuwaiti doubts about Soviet intentions and
deepened distrust of the Soviet presence. The Soviet
role in South Yemen has always troubled Kuwaiti-
Soviet relations, according to US Embassy officials.
The Kuwaiti press was highly critical of the Soviet
role in the overthrow of the regime in South Yemen in
early 1986.
Nevertheless, we believe the Kuwaitis appreciate the
assistance Moscow is providing Iraq against Iran and
often call on the Soviets?as well as the United
States?to restrain both Baghdad and Tehran. They
rely, moreover, on Soviet diplomatic support for the
Arabs against Israel.
Terrorism. Terrorist attacks have shaken the Kuwaiti
leadership in recent years. Incidents in 1985 included
a car bombing that nearly killed the Amir in May,
followed by bombings at two cafes that killed 10
persons. Shia terrorists supported by Iran have been
arrested, and about 18,000 foreign-born Shias were
deported, according to Kuwaiti Government figures.
In addition, Kuwaitis also worry about the potential
for radical Arab sponsorship of Palestinian terrorist
attacks?particularly by the Abu Nidal organization,
In dealing with its terrorism problem, Kuwait has not
looked primarily to the United States or the Soviet
Union for counterterrorism assistance, but to the
British and the Yugoslays, according to diplomatic
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reporting. The Kuwaitis discuss terrorist incidents
forthrightly with US officials, however, and have
often expressed interest in US training programs but
hesitate to enter into a formal relationship.
Military Assistance
In line with its nonaligned posture, Kuwait has
purchased military equipment from both the Soviets
and the United States, as well as from West European
states. We believe that the Kuwaitis consider the
political benefits of these relationships to outweigh the
military problem of maintaining diverse maintenance
and support systems.
West European countries, especially France, supply
most of Kuwait's arms, while the once substantial US
share has been declining over the past few years. The
United States has supplied A-4 aircraft, I-Hawk
surface-to-air missiles, and logistic support programs.
The Kuwaitis will probably be choosing a new fighter
in the next year or two and are considering US as well
as French and British aircraft. We believe that they
will select a West European fighter because the
Kuwaiti military has generally been satisfied with
51
European arms and because Kuwaiti political leaders
have little confidence that the US Congressional
review process will grant them what they want.
We believe Kuwait's purchase of small quantities of
Soviet military equipment?primarily surface-to-air
missiles?reflects a politically based desire for
evenhandedness rather than a military decision. The
Kuwaitis are considering Soviet as well as US and
British armored fighting vehicles for a large purchase
that would probably bring more Soviet trainers to
Kuwait, according to diplomatic reporting. Before
1984, the Kuwaitis avoided taking Soviet military
training personnel. About 20 are currently stationed
in country, according to US Embassy estimates.
Outlook for Kuwaiti-Superpower Relations
Kuwait's policy of balancing its relations with the
superpowers will almost certainly continue, with the
specific application of that policy depending on the
Kuwaitis' immediate threat perceptions.
Nonalignment allows Kuwait to obtain benefits from
both sides without becoming dependent on?or too
beholden to?either superpower. Heightened tensions
in the Gulf will warm US ties; a reawakening of the
Arab-Israeli dispute will chill them. The promise of
US over-the-horizon protection against Iranian
threats sustains US-Kuwaiti bonds, while Kuwait's
pursuit of nonaligned support encourages a more
critical posture toward Washington.
Kuwait is also likely to continue its emphasis on
regional security through the GCC. This trend may
favor US involvement because of Washington's
existing military cooperation with Riyadh, a key GCC
leader. GCC members' efforts to coordinate on
regional defense and to develop a rapid deployment
force will rely on the United States to counter major
Iranian or Soviet threats to the Gulf, according to US
Embassy officials.
Kuwait's Western economic and cultural connections
are not likely to diminish. We believe Kuwaiti
investments abroad will remain predominantly in
Western hands. Concerns about new US tax
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KUWAIT: MILITARY ASSISTANCE AGREEMENTS AND DELIVERIES, 1980-84
Percent
100
90
80
70 fr-
60 F
SO
40 f-
E
30 [-
20
10
0
1960 , $330.4 1981 ,
1982 =
083 - 1.98A
MILITARY ASSISTANCE AGREEMENTS
:U.S.
ommunist
France
!U.K.
Percent
100
90
80
70
60
50 -
40 -
30
20
10
MILITARY ASSISTANCE DELIVERIES
her
1980 = $81 ,
OBI 1982 ? $152.8 1983 ? $144.6 1984
Sources:
U.S. Data - Foreign Military Sales 1985 DSAA
Other Data - FOMA, Vol V. 1985 DIA
Dollars in U.S. Millions
Secret
52
1 M Communist
France
U.K.
Other
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regulations have so far not provoked movement of
Kuwaiti capital from the United States to Western
Europe.
We believe Kuwait will continue to criticize the
United States for Israeli attacks on Arab states and
lament the lack of US initiatives for progress on the
Palestinian question and the Iran-Iraq war. In our
judgment, it will continue to promote progress on both
of these issues by working to heal divisions between
the Arab states. This policy will entail maintaining
good communications with Arab radicals associated
with the Soviet Union as well as with moderates closer
to the United States.
The more limited Kuwaiti-Soviet relationship will
focus on economic cooperation, with limited Kuwaiti
purchases of Soviet weapons likely to continue.
Cooperation with Moscow on internal security
matters will probably remain at a modest level,
although Kuwait may look to Moscow for additional
counterterrorism assistance. Moscow could improve
its image with Kuwait and other moderate Arabs by
reaching an accommodation that would allow it to at
least appear to withdraw from Afghanistan.
Reverse Blank
53
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Qatar: The Elusive North Field
Natural Gas Project
Qatar is likely to soon begin development of its large
North Field natural gas reservoir to meet growing
domestic demand and to offset declining gas output
from currently producing fields. Doha probably will
be unable to export significant volumes of gas for
many years, however, because of weak foreign
demand and prohibitive development costs. Without
development for export, North Field gas will not fully
replace dwindling oil revenues.
Prospects for Exports
Discovered in 1972, the North Field is the world's
largest natural gas reservoir, with reserves estimated
at 4,000-11,300 billion cubic meters. The Qatari
Government has stessed the need to develop the North
Field for domestic consumption, but Doha would
prefer to develop the field for export. This would
ensure that the country's petroleum resources
continue to provide foreign exchange earnings and
would stimulate the local economy.
The most recent plan to develop the field for export
came in late 1985, when the government called for
bids on a three-phase development scheme for the
North Field, including:
? Developing the field for domestic consumption.
? Supplying a gas grid for the Gulf Cooperation
Council countries.
? Exporting gas to East Asia or Western Europe.
The proposed gas grid was to connect Qatar and the
United Arab Emirates with chronically gas-short
Saudi Arabia and Kuwait. Spur lines to Jordan and
Syria have also been considered,
The grid would allow
these countries to meet seasonal demand for gas and
electricity without switching to oil to generate
electricity. Kuwait began importing gas from Iraq last
September, however, and we do not expect either
Kuwait or Saudi Arabia to seek significant quantities
of Qatari gas in the near future.
55
Qatar has considered liquefied natural gas (LNG)
exports as a viable option for North Field
development.' In 1984 the government set up the
Qatar Liquefied Gas Company to produce, market,
and export LNG from the North Field. A majority
share in the company is owned by Qatar General
Petroleum Company (QGPC); British Petroleum,
CFP, and Japan's Marubeni each own 7.5 percent
shares.
The lack of available markets has been the main
stumblingblock for LNG exports. Gas markets in
Japan, South Korea, Taiwan, and Western Europe
have soured with falling crude oil prices. According to
Embassy reporting, Marubeni promised to market 2
million tons of LNG in 1992, 4 million tons in 1994,
and 6 million tons in 1996. A Marubeni official told
Embassy officials, however, that the company regards
its equity participation simply as an investment, in
anticipation that the Japanese market for LNG will
improve in the 1990s. Doha would like other Japanese
trading firms to help market Qatari gas in Japan, but
Mitsui, Mitsubishi, and C. Itoh doubt that even
Marubeni's pledge is possible,
In 1984 Amir Khalifa began considering a Turkish
proposal to build a pipeline through Turkey to
Western Europe, with Turkey taking a share of the
production. The proposed pipeline would follow the
Saudi Gulf coastline and traverse Iraq, Turkey, and
Greece before passing through an underwater line to
gas terminals in southern Italy. Political and
economic obstacles had previously stymied plans to
enter the European gas market, but, with Turkish 25X1
support, Doha formed a committee in 1985 to review 25X1
the feasibility of the project. The Turks, however,
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' Liquefied natural gas is natural gas that has been liquefied by
severe cooling (to -160 degrees Celsius) for shipment and storage in
high-pressure cryogenic tanks.
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Oil and Gas Operations in Qatar and the North Field Project Stage 1
Hawar Island ,
Dulchan
P
North ROO
Qatar
Halul
North
Gas re-injection -----
into Clukhan Muff
- ure
- - LNG Plant
"(L* -- tential gas exports
Saudi Arabia
Secret 56
Umm Said
Loading jetties
Edd El Shargl
Sul Hankie
El Eiunduq
Maydan Mahzam
Gas liquid pipeline
? Existing
--- Proposed
Gas pipeline
? Existing
--- Proposed
Oil pipeline
North Field
Oil fields
Oukhan Field
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may have been using the Qatari gas pipeline proposal
as leverage in negotiations with Moscow. A gas
pipeline that has been under construction since
October 1986 will carry enough Soviet gas to Turkey
to meet its demand.
Although Doha is preoccupied with the political
problems of a pipeline that crosses so many borders, it
faces additional problems in marketing its gas in
Europe, where there is an abundance of North Sea,
Algerian, and Soviet supplies. Moreover, the cost of
such a pipeline?estimated at about $12 billion
L?would be prohibitive. Doha
probably would have difficulty securing foreign
financing for the project because of the gas glut in
Western Europe and the political risk of building a
pipeline across so many hostile borders.
Domestic Development Outlook
Because of the bleak prospects for gas exports, Doha
is considering plans for domestic development. The
project would produce 6-8 billion cubic meters per
year of natural gas, the energy equivalent of about
100,000-130,000 barrels of oil per day. The gas would
be brought ashore by pipeline to Ras Laffan and
processed at the new Umm Said facility, where the
natural gas liquids would be extracted for export and
the dry gas would go to local industries.'
Qatar has not yet named a management consultant
for the project, but it is considering offers by a US
firm and a partnership of a US and a French firm.
The US firm has offered to produce 6 billion cubic
meters per year of gas from the field at its own cost
and supply it free of charge to Qatar if Doha agrees to
share condensate output with the company. The US-
French partnership has reduced the proposed cost
from $1.2 billion to $950 million, according to
Embassy reporting, with QGPC developing the field.
The general manager of QGPC told Embassy officials
that the consortium has lined up financing for the
project, which includes funding from the US Export-
Import Bank, several major Japanese trading houses,
and local banks.
Natural gas liquids are heavier hydrocarbons such as propane,
butane, pentane, and ethane.
57
Marubeni has offered to arrange all financial loans
and credits to suppliers for development provided
Qatar buys all equipment and machinery from
Marubeni, according to press reports. Marubeni also
has offered to market the natural gas liquids produced
along with the output of gas.
Doha still faces many problems and delays in the
development of the North Field. These include:
? Revenue shortfalls caused by the oil price decline,
which limit Doha's ability to initiate large
development projects.
? Difficulty in obtaining private financing under
acceptable terms.
? Fiscal conservatism that hinders investment.
? Infighting among Qatari Government officials over
the allocation of funds and the mode of
development.
Implications for the Qatari Economy
We believe that Qatar will develop the North Field
for domestic use but will be unable to export
significant quantities of gas for many years. The
increased availability of gas for local industry will
alleviate the economic recession and ease reliance on
dwindling oil reserves. Sales of natural gas liquids will
replace some of the revenue lost because of reduced
oil exports. Unless Doha develops the field for export,
however, Qatar will be unable to fully offset the
revenue decline as oil reserves are depleted.
Although Qatar's economy is relatively healthy, it is
subject to fluctuations in the world oil market.
Moreover, without North Field gas, Qatar would
become more reliant on associated gas, making its
petrochemical and related industries increasingly
vulnerable to oil market conditions. Qatar uses
natural gas as fuel for electricity generation and water
desalination, and in the production of iron, steel, and
cement. It is also used as a feedstock in the production
of petrochemicals and chemical fertilizers.
The drop in the availability of associated gas caused
by lower oil production has already hobbled some
domestic industries and has led to reduced exports of
fertilizer and ethylene. Qatar's petrochemical plant
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has been running at one-half to one-third capacity for
the past year because of shortages of associated gas.
In 1985 the Qatar Petrochemical Company suffered
the worst loss in its five-year history.
When the North Field reaches the production stage?
possibly in three years?Qatar will earn additional
funds from condensate sales.
the production of 8 billion cubic
meters per year would yield about 30,000 barrels per
day of condensates. This new production combined
with current condensate production of 600 barrels per
day would supply about $117 million per year in
revenue for the Qataris at current prices,
Moreover, condensate production is
not subject to OPEC quotas or official prices, which
would increase Qatar's marketing flexibility.
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Omani-Soviet Relations:
Life in the Slow Lane
Omani-Soviet relations will improve slowly in 1987,
but Soviet influence is likely to remain limited.
Muscat established diplomatic relations with the
USSR in 1985 as a means of balancing East and West
in its foreign policy, but it has delayed exchanging
resident ambassadors or signing significant
agreements with the Soviets. Although Moscow has
added another conservative Gulf state to its
diplomatic list and will push for closer ties, its
relationship with Muscat will continue to have more
style than substance.
Going Nowhere Fast
Muscat's surprise announcement of the establishment
of diplomatic relations with Moscow in September
1985 attracted considerable attention in the region, as
Oman was only the second Gulf state to make that
move. The opening of relations was followed by
Oman's acting as host to the sixth Gulf Cooperation
Council summit meeting in Muscat and an
extravagant celebration of the 15th anniversary of
Sultan Qaboos's rise to power in what Muscat called
its "Year of Diplomacy." Although it would have
been an appropriate occasion for a first Soviet public
appearance, according to the US Embassy, a Soviet
representative was not invited to the National Day
celebrations. Moreover, the Soviet nonresident
Ambassador to Oman, Aleksandr Zinchuk, did not
present his credentials until May 1986 and had to cut
short his courtesy calls because of the Muslim
celebration of Ramadan. Zinchuk returned to Oman
for the National Day celebrations last November and
met several high-ranking Omani officials, including
Minister of State for Foreign Affairs Yusuf bin
`Alawi, the primary architect of Omani foreign policy.
According to US Embassy reporting, the Ambassador
discussed increasing agricultural cooperation with
Oman, but no agreement was signed. Ambassador
Zinchuk, apparently resigned to the glacial pace of
Oman-Soviet relations, told the US Ambassador on
leaving Oman that it would be "some time" before
there would be a permanent Soviet presence in
Muscat.
59
The Diplomats
Khamis bin Hamad bin Say! al-Battashi
Omani Ambassador to Jordan since 1982, Khamis
bin Hamad bin Say! al-Battashi became nonresident
Ambassador to the USSR in May 1986. He is
an expert on
African affairs. Battashi is the brother of the
prominent Foreign Ministry Under Secretary Sayf
bin Hamad al-Battashi.
Aleksandr Zinchuk
Soviet Ambassador to Jordan since March 1985,
Aleksandr Zinchuk became nonresident Ambassador
to Oman in February 1986.
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Zinchuk, who will be 25X1
67 this year, is a US specialist and has had three
tours in Washington. He also served as Consul
General in San Francisco from 1971 to 1979.
Zinchuk is Ukrainian.
Motivations for Relations
The underlying reasons for Oman's decision to
establish diplomatic relations with the USSR in 1985
were a decline in the perceived security threat from
South Yemen and frustration with the United States
following the contentious review of the Omani-US
access agreement in May 1985. According to the US
Embassy, Oman had refused to establish relations
earlier because of Soviet support for the Popular
Front for the Liberation of Oman (PFLO), an
insurgent group that used bases in South Yemen to
stage cross-border raids into Oman and had been an
irritant to Muscat for years. Qaboos moved to
establish relations after he was convinced that Soviet
support for the PFLO had lessened.
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Muscat believes that better relations with the USSR
will discourage Aden from renewing support for the
Front, although Aden's support has been minimal
since Oman and South Yemen established diplomatic
relations in October 1982. Support for the Front did
not increase following the coup in South Yemen in
January 1986, and the threat of a rejuvenated PFLO
has declined. Muscat also wants to reduce the threat
from South Yemeni military forces along their
common border, which were deployed to counter the
Omani military buildup against the PFLO. The
Omanis probably believe that the Soviets can press
Aden not to deploy additional units to the area.
Muscat probably also hoped that the announcement
of formal Omani-Soviet relations would shock
Washington into increasing financial support for
Oman. Muscat has experienced decreasing levels of
US financial assistance under the Economic Support
Fund (ESF) program and probably questions the US
commitment to Oman. In 1985, ESF loans and grants
to Oman totaled $20 million and were reduced to
$19.5 million in 1986. Even less?$15 million?is
budgeted for 1987. Muscat probably also believed
that Omani-USSR ties would boost Muscat's claim of
nonalignment and soften Arab criticism of the
recently renewed access agreement with the United
States.
Moscow has long sought increased influence in the
Gulf and probably hopes Omani and UAE recognition
will encourage Qatar, Bahrain, and Saudi Arabia to
follow suit. Moscow probably also anticipates that
formal Soviet-Omani relations will improve its image
in the region?tarnished by the Soviet invasion of
Afghanistan and Moscow's stance during last year's
coup in South Yemen. Better relations might also
discourage increased military cooperation between the
Gulf states and the West.
Although the USSR probably realizes that significant
expansion of its influence in Oman is many years
away, Moscow's nearer term objective will be to
encourage Muscat to adopt a less pro-Western
posture. The Soviets will continue to try to exploit
perceived policy differences between Washington and
Muscat to discredit the United States. Their influence
with Muscat, however, will not necessarily increase as
a result of weakened Omani-US relations.
Secret
Striving for Independence
Muscat's decision to establish diplomatic relations
with the USSR is in part a reflection of the rise to
prominence of a new set of advisers to Qaboos. From
the time Sultan Qaboos came to power in 1970 until
the early 1980s, Oman was governed by the "Muscat
Mafia"?a small group of Omanis and British
expatriates intensely loyal to London. Since 1982, a
younger, more nationalist group has emerged as the
dominant force behind the Sultan, including Yusuf
bin `Alawi and Maj. Gen. Ali Majid al-Maamari,
President of the Palace Office. Both favor balanced
relations with the Soviet Union and the United States
as a way of reducing British influence and enhancing
Omanization?replacing expatriate workers with
Omanis. The Soviets will have little influence on the
pace of Omanization, but Muscat probably believes it
sent a signal to the West that alternative suppliers of
equipment and advisers are available.
The nationalists are worried that too close an
association with the United States will jeopardize
their efforts to develop closer ties to other Arab states.
They want Oman to be more influential in regional
and Arab politics. The nationalists probably believe
that relations with the USSR will enhance Muscat's
claim of nonalignment and help to avoid the charge
that it allowed Washington to establish permanent
bases in Oman.
Prospects
Omani-Soviet relations are likely to improve slowly,
with the first agreements probably expanding
agricultural trade or extending fishing rights. Oman's
financial problems may accelerate economic
cooperation as Muscat seeks new customers for its oil
and minerals. The likelihood of exchanging resident
ambassadors is slim because Muscat probably sees
little benefit to be derived from that step.
Improving relations between Muscat and Moscow
probably will not jeopardize the US-Omani
relationship. Muscat wants to exert pressure on the
United States in the hope of increasing financial
assistance, but it would not cooperate with the USSR
at the expense of its relationship with Washington.
The United States will continue to have basing rights
in Oman until 1990, under the 1980 access
agreement.
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North Yemen's Military
Mishaps:
The "Y" Factor
The North Yemeni Air Force and air defense forces
have experienced significant accidents with Soviet
equipment in the last month. These accidents
probably have set back North Yemen's efforts to
improve its military defenses against South Yemen
and also complicated North Yemen's reliance on the
Soviets for military expertise and sophisticated
weapons. Moscow, however, may take steps to defuse
growing anti-Soviet sentiment in the North Yemeni
armed forces.
A Long Month
lost four of its Soviet-built MIG-21 fighter
aircraft in accidents in December 1986. A MIG-21
conducting a training mission on 24 December
crashed outside Hodeidah, but the pilot escaped
injury. Another training mishap involving a MIG-21
occurred in the same area, killing the pilot and the
flight instructor. Another MIG-21 crashed at Taiz
airfield on 14 December, and one was lost and another
damaged in a midair collision near Hodeidah during
an air defense exercise. The North Yemenis also lost
one of their highly regarded US-trained F-5 pilots
who was providing North Yemeni MIG pilots training
that the Soviets Ipparently were unwilling to offer.
North Yemen has lost at least 15 Soviet-built military
aircraft since 1984, without losing any of its US-
supplied aircraft,
North Yemen's Aircraft Losses
Since 1984
Aircraft
Type
Number of
Pilots Lost
1 April 1984
3 May 1984
SU-22
MIG-21
14 August 1984
MIG-21 1
13 May 1985 SU-22
14 December 1985 MIG-21
9 February 1986 MIG-21
1 March 1986
MI-8 1
17 April 1986 SU-22 Soviet
instructor
3 May 1986
MI-8 1
12 October 1986
2 November 1986
1 December 1986
SU-22 0
SU-22 1
1 MIG-21 lost/ 1 a
1 damaged
14 December 1986
MIG-21 1
20 December 1986
MIG-21 2b
24 December 1986
MIG-21 0
a Two planes collided in midair.
b North Yemeni pilot and instructor.
because they probably were attempting to fire the
missile without Soviet assistance,
North Yemeni air defense forces deployed to guard
the Marib oilfields were recently involved in a
disastrous training mishap
reported that
on to lecember North Yemeni air defense personnel
misfired an SA-2 surface-to-air missile that nearly
struck an oil rig operated by US workers from the
Hunt Oil Company. North Yemeni air defense
personnel were killed in the SA-2 training mishap
61
These incidents probably have further undermined
the already poor cooperation between North Yemeni
military personnel and their Soviet military
instructors, the
accidents have reinforced the belief of many North
Yemeni Air Force personnel that US equipment and
training are superior.
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Near Miss at Marib
On 16 December 1986, workers at one of the drill
sites in the Hunt Oil concession in Marib reported
seeing two extremely-low-flying missiles that
exploded in midair just above their work site. The
explosions damaged lights on the oil rig where they
were working, but no one was hurt. North Yemeni air
defense personnel initially claimed to have fired
several missiles at intruding South Yemeni fighter
aircraft, according to the US Embassy in Sanaa.
Subsequent
however, that North Yemeni air defense units in the
Marib area were conducting a training exercise at the
time and that one SA-2 surface-to-air missile battery
accidentally fired two missiles. Two men were killed
by backblast from the launched missiles. The SA-2
crew failed to use proper safety procedures during the
exercise, and the battery commander was arrested.
Soviet advisers apparently were not at the site when
the accident occurred.
Salih has received offers of military assistance for his
air defense forces from the East Europeans and from
friendly Arab states that have Soviet-equipped forces.
reports that the East Germans agreed in late
November to provide maintenance technicians for
North Yemen's Soviet-built aircraft.
North Yemen has made overtures to Egypt, Iraq, and
Jordan for similar aid, and an Egyptian air defense
team arrived in North Yemen in early December,
Secret
Outlook
Continuing misfortunes with its Soviet equipment
probably have eroded the morale and readiness of
North Yemen's Air Force and air defense units, while
frustrating Salih's efforts to encourage his armed
forces to reduce their reliance on Soviet advisers and
technicians. The Air Force probably will be forced to
reduce the number of aircraft sorties for training and
patrol of the South Yemeni border, as Soviet-
equipped squadrons are more likely to be idled by
stepped-up aircraft inspections. Yemeni pilots also
may evidence increased reluctance to fly Soviet
aircraft. In addition, Salih may reduce training for his
air defense forces?particularly the SA-2 and the SA-
3 surface-to-air missile units?until he can obtain
reliable foreign training.
North Yemen's near total reliance on Soviet military
aid probably will continue, but Moscow may
encourage the Warsaw Pact countries to provide more
maintenance and training support. The Soviets
probably have been encouraged by Sanaa's continued
failure to secure major military assistance from
Western and moderate Arab sources. They mai be
concerned, however, that the influence of pro-Soviet
elements in North Yemen's armed forces is being
undermined by the poor safety and performance
record attributed to Soviet military advisers in North
Yemen by Salih and his supporters. Moscow may
encourage and subsidize the presence of technicians
and advisers from East European countries such as
East Germany, which has a reputation in the Third
World of providing effective Soviet equipment
maintenance and operational training. The Soviets
also probably are eager to discourage further North
Yemeni overtures to the West and other Arab
countries and to preserve their credibility and
influence in Sanaa.
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India-Pakistan: Tensions
Over Sikhs
Charges by India that Pakistan is supporting Sikh
terrorists have put an additional strain on bilateral
relations already burdened by touchy nuclear and
border issues. The Indian allegations of training and
shelter provided by Pakistan stem largely from
confessions by captured Sikhs. Islamabad has
consistently denied New Delhi's charges while
publicly insinuating that India provides aid to
Pakistani dissidents. We have little evidence to
corroborate India's allegations but suspect that
Pakistan is providing low-level assistance to Sikhs
agitating for independence from India. Even so, we
believe that any Pakistani support is relatively small
and that New Delhi is playing up the Pakistani angle
to deflect public frustration over the Sikh problem.
Indian Charges, Pakistani Denials
India charges Pakistan with sheltering, arming, and
training Sikh extremists who seek to create their own
Sikh state?Khalistan?that would include the
Indian state of Puniab
'[he US
Embassy in New Delhi reports that India believes
Pakistan provides weapons training and money to
Sikhs and encourages them to preach Sikh separatism
in Punjab.
Pakistan regularly denies involvement with the Sikhs,
often characterizing the Indian allegations as
"baseless propaganda." A Pakistani Foreign Ministry
spokesman said last October that the government has
made "detailed investigations" along the Indo-
Pakistani border and that there was not "one iota" of
truth in the Indian charges. He said New Delhi is
trying to shift the blame to Islamabad for what is an
internal Indian problem.
Where Does the Evidence Fall?
India backs up its accusations against Pakistan with
"confessions" allegedly obtained from Sikhs who have
been captured and interrogated by Indian police.
69
These confessions give details on the assistance
extended by Pakistani officials to Sikh extremists. We
are skeptical, however, of these admissions, given the
strong possibility that the Sikhs may have been forced
to make them under pressure from the Indian
authorities.
The Indians also claim to possess videotapes that show
Sikh militants being trained by Pakistanis. A source
of the US Embassy in New Delhi told US diplomats
that Indian officials showed the tapes to Pakistani
authorities during bilateral meetings in Lahore,
Pakistan, last December. The source said the
Pakistanis accepted the authenticity of the tapes and
that New Delhi might make the tapes available to US
officials.
A source of the US Consulate in Lahore alleged in
July 1986 that Pakistani police intelligence recruits
Sikhs in India and that Pakistani border rangers
facilitate the crossing of Sikhs from India into
Pakistan. The source also said that Pakistani military
intelligence trains Sikh activists in northern Punjab
Province and in Azad Kashmir. The source said the
training of the Sikhs is directed by Lt. Gen. Akhtar
Abdur Rehman, the head of Pakistani military
intelligence and a close adviser to President Zia.
At a minimum, the Pakistanis probably do not try
hard to control Sikh dissidents.
In
In our view, other recent activities by Pakistani
officials contribute?perhaps unintentionally?to
Indian suspicions. According to press reports,
President Zia met in June 1986 with a delegation of
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Indian Sikhs who were making a pilgrimage to Sikh
shrines in Lahore. Pakistani authorities have also
been slow in prosecuting six Sikh activists accused of
assaulting an Indian diplomat in Lahore last June,
although this is probably due to the glacial pace of
Pakistan's judicial system. New Delhi has complained
about Islamabad's granting of appeals to 10 Sikhs
convicted in 1986 of hijacking Indian airliners to
Pakistan in 1981 and 1984. US diplomatic reporting
indicates that Indian officials regard these issues as
proof of Pakistan's complicity with Sikh terrorists.
Why Would Pakistan Support Sikh Militants?
Although we view the available evidence as
inconclusive, the Pakistanis have several possible
reasons for aiding and assisting Sikh activists.
Islamabad might believe that an Indian government
preoccupied with domestic problems would not want
to engage in military action against Pakistan. Should
the Sikhs succeed in establishing an independent Sikh
state in what is now Indian Punjab, Pakistan would
have a friendly buffer between itself and India.
Another reason would be to retaliate against what
Pakistan alleges to be longstanding Indian support for
Pakistani dissident and terrorist groups. Pakistani
press accounts charge India with financing and aiding
separatists operating in Pakistan's Sind Province.
India's Response
New Delhi's security crackdown in Punjab has
focused heavily on the arrest of Sikhs infiltrating from
Pakistan. According to press and US Embassy
reports, Indian border security forces routinely
capture Sikhs attempting to infiltrate Punjab from
Pakistan.
New Delhi has deployed as many as
19,000 paramilitary troops to Punjab districts
bordering Pakistan.
Secret
New Delhi is also pursuing a public campaign against
Islamabad. The US Embassy in New Delhi reports
that Indian officials have been disclosing to the Indian
press detailed information from interrogations of
captured Sikh extremists, revealing alleged Pakistani
aid. Statements by Gandhi and members of his
Cabinet name Pakistan as the principal instigator of
violence in Punjab. We believe the emphasis on
Pakistan's involvement in Punjab will help Gandhi
retain political support?especially among Hindus?
for his policy in Punjab, and will provide a convenient
scapegoat to blame for future extremist activity or the
reimposition of New Delhi's direct rule.
In any event, we do not believe Pakistani aid to Sikhs
is a major source of instability in Punjab. Sikh
alienation after the 1984 Indian Army assault on the
Golden Temple and anti-Sikh riots, in our view, have
done the most to encourage Sikh extremism.
Expatriate Sikh contributions, profits from narcotics
trafficking, and thefts of Indian Army stocks provide
the bulk of Sikh extremist resources.
Impact on Foreign Relations
The Sikh issue has become an increasing irritant in
bilateral relations. After the attempt on his life in
October 1986 by a Sikh, Prime Minister Rajiv
Gandhi publicly insinuated that Pakistan may have
been involved because of Islamabad's alleged support
to Sikh extremists. He cited rumors in Pakistan of his
death 24 hours before the assassination attempt.
Gandhi also brought up the Sikh issue when he
criticized Pakistan's handling of the attempted
hijacking of a Pan Am airliner in Karachi in
September 1986, saying that encouragement of
terrorism begets more terrorism.
Meetings in December 1986 between the Pakistani
and Indian Interior Secretaries on border problems,
including the Sikhs, began a dialogue on the issue.
According to a joint statement issued after the
discussions, the two delegations discussed ways to
establish a mechanism "against allowing the use of
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their respective territories for . . . activities directed
against internal peace, stability, and territorial
integrity of the other state." The two sides also agreed
to form two bilateral committees to further discuss
the Sikhs and other border problems, such as
smuggling and narcotics.
Prime Minister Gandhi's public accusations of
Pakistani training, support, and sanctuary to Sikh
extremists, in our view, have left the United States
vulnerable to Indian domestic suspicions?fueled by
Soviet disinformation?of US aid to Sikh extremists.
According to the US Embassy in New Delhi, senior
Indian officials do not give credence to periodic
Indian press allegations of US support to Sikh
extremists in Pakistan.
Outlook
Pakistan will probably continue its low-level support
for Sikh extremists regardless of the recent Indo-
Pakistani border talks or US expressions of concern.
The large Indian military exercises taking place near
the Pakistani border are more likely to reinforce than
discourage such a policy.
We believe Pakistan would significantly increase its
support to the Sikhs only if hostilities were breaking
out with India over other issues, such as Kashmir. In
this case, Pakistan would see the Sikhs as a potential
fifth column that could carry out terrorist activities in
India and interfere with Indian military efforts.
New Delhi would be skeptical of signs that Islamabad
had ended its assistance to the Sikhs. Moreover, the
Indians would probably still feel compelled to accuse
Pakistan of providing support. Such accusations, in
our view, help deflect domestic Indian criticism of
New Delhi's handling of Sikh-Hindu tensions in
Punjab.
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