REVIEW OF THE WORLD SITUATION AS IT RELATES TO THE SECURITY OF THE UNITED STATES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP67-00059A000500070013-5
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: November 11, 2016
• Document Release Date: August 20, 1999
• Sequence Number: 13
• Publication Date: February 12, 1948
• Content Type: REPORT

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CENTRAL INTELLIGENCE AGENCY
Review of the World Situation
as it Relates to the Security
of the United States
CIA 5
Published on
12 February 1948
Copy No. 4
CENitR(BRAe1
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1. This copy of this publication is for the information and use of the recipient
designated on the front cover and of individuals under the jurisdiction of the recipient's
office who require the information for the performance of their official duties. Further
dissemination elsewhere in the department to other offices which require the informa-
tion for the performance of official duties may be authorized by the following:
a. Special Assistant to the Secretary of State for Research and Intelligence, for
the Department of State
b. Director of Intelligence, GS, USA, for the Department of the Army
c. Chief, Naval Intelligence, for the Department of the Navy
d. Director of Intelligence, USAF, for the Department of the Air Force
e. Director of Security and Intelligence, AEC, for the Atomic Energy Com-
mission
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2. This copy may be either retained or destroyed by burning in accordance with
applicable security regulations, or returned to the Central Intelligence Agency by
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This document contains information affecting the national
defense of the United States within the meaning of the
Espionage Act, 50 U.S.C., 31 and 32, as amended. Its trans-
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REVIEW OF THE WORLD SITUATION AS IT RELATES TO THE SECURITY
OF THE UNITED STATES
1. The European Communist Parties, with Soviet approval, appear to be reverting,
at least temporarily, to electoral processes to obtain their immediate objectives. The
targets are the forthcoming Italian and Czechoslovak elections.
2. There appears to be a justification for considering the possibility that the
Kremlin may revise its policy (but not its ultimate objectives) and seek an accommo-
dation with the west.
3. Assuming the implementation of the European recovery program, the produc-
tion and distribution of essential commodities are likely to continue to improve in
most countries in 1948. There is little prospect, however, that world trade can shift
from rigid controls to multilateralism during the year.
4. Italy appears to hold the key to Communist prospects of disrupting the European
recovery program. Here the Communists have the best chance of regaining admission
to the Government by electoral processes or of overthrowing it through armed insur-
rection. The Communists in France will probably subordinate any plan for serious
disruptive activities to the exigencies of the Communist program in Italy.
5. Only the timely approval by the US Congress of an adequate European recovery
program will prevent a further weakening in both the domestic and international
position of the UK.
6. Determined Arab resistance to partition, British refusal to facilitate any action
not acceptable to both Arabs and Jews, and the actual state of disorganization in
Palestine render the task of the United Nations Commission virtually impossible of
fulfillment.
7. Unless the Interim Committee of the United Nations quickly instructs the UN
Commission in Korea to proceed with elections in South Korea alone, the US Military
Government may be faced with serious outbreaks of violence.
Note: The information in this report is as of 9 February 1948, at which time the report was
submitted to the member agencies of the Interdepartmental Advisory Council for
information and comment.
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REVIEW OF THE WORLD SITUATION AS IT RELATES TO THE SECURITY
OF THE UNITED STATES
1. POLITICAL.
In our last report we reaffirmed the basic analysis of the world situation presented
in CIA 1 (26 Sept. 1947). We also reiterated our previous estimate that the immediate
and overriding objective of Soviet policy was to defeat the European recovery program
without incurring the risk of war and estimated that the USSR, operating through local
organizations of militant Communists, would resort increasingly to direct action in
pursuit of this objective.
While there is as yet no clear justification for rejecting our estimate of immediate
Soviet objectives and tactics, there have been indications which suggest that it should
be modified, at least in part. There are also certain considerations bearing on the posi-
tion of the USSR vis-a-vis the Western Powers, particularly the US, which might induce
the Kremlin to revise its basic policy (not its ultimate objectives) toward the west and
some indications that such a revision of policy may be under consideration.
Developments in recent weeks suggest that the Western European Communist
parties are reverting to electoral processes and the exploitation of genuine economic
grievances. The targets are the approaching Italian and Czechoslovak elections.
Whether the USSR will permit the Communists to accept an unfavorable electoral
verdict or will insist upon a subsequent resort to violence will probably depend upon
what decision the Kremlin will have made at that time with respect to its basic policy
toward the west.
The focal point of any major revision in Soviet policy toward the west will prob-
ably be the Soviet estimate of the prospects of the European recovery program. Assum-
ing that the USSR concludes that the recovery program will be implemented and that
it will have a reasonable chance of success, the following basic considerations might
strengthen the Kremlin in the belief that its present tactics and policy are no longer
realistic: (a) the unlikelihood-now admitted by the USSR-of an imminent economic
collapse in the US or of US reversion to isolationism; (b) indications, such as the Presi-
dent's Air Policy Committee report and the statements before Congress concerning
the alternatives to the European recovery program, that a continuation of present
Soviet policies will lead to the rearmament of the US; (c) Bevin's proposal for a Euro-
pean union, with its implications of a western bloc, bound by military as well as eco-
nomic ties and supported by the US; (d) the basic economic weakness of the USSR
relative to the US in terms of military potential for a global war.
In choosing to pursue a policy of noncooperation with the US after the war, the
Kremlin clearly committed the USSR to a substantially slower rate of economic recovery
and development than would have occurred under a policy of cooperation. The Polit-
buro, in making this choice, was taking a calculated political gamble on the possibilities
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of a general communization of Europe in consequence of post-war economic chaos and
of a depression in the US that would induce US withdrawal from Europe. Under these
circumstances, the USSR could afford to retard its economic recovery, even though its
existing industrial potential was vastly inferior to that of the US. If, however, the
Kremlin should estimate that its immediate post-war political objectives in Europe were
incapable of achievement as a result of the European recovery program and that the
USSR would shortly be faced with a rearmed and determined US with military bases
in Europe and Africa, the fundamental economic weaknesses of the USSR might con-
stitute the most compelling reason for a change in policy. It might appear to the
Kremlin that, under these conditions, it would be imperative to attempt, by allaying
US fears and suspicions, to stop US rearmament and obtain the economic assistance
required to develop the Soviet Union's industrial potential.
The most significant indication that the Kremlin may actually be considering a
basic change in policy is General Malinin's approach to Ambassador Murphy in Berlin,
suggesting a conference between President Truman and Stalin to settle outstanding
differences between the US and the USSR. This approach appears to have been an
officially sanctioned "feeler." There have been other indications which tend, in varying
degrees, to suggest an incipient modification of Soviet tactics and policy. These
include: (a) failure of the Balkan states to recognize the Markos regime in Greece;
(b) the substantial concessions made by the USSR in its new proposals on the Austrian
treaty; (c) the announcement by Poland that the bulk of the anticipated increase in its
coal production will be available to the western democracies; (d) PRAVDA's rebuke to
Dimitrov, the leading Balkan Communist, for advocating a Danubian-Balkan Federa-
tion; and (e) the recent conciliatory attitude of Moscow toward the Czechoslovak
and Polish Socialists.
It must be re-emphasized that there is as yet no conclusive evidence for rejecting
the currently accepted estimate of immediate Soviet objectives and tactics, except inso-
far as it now appears probable that the USSR will support a Communist effort to win
the spring elections in Italy and Czechoslovakia instead of immediately resuming the
direct-action techniques of last December. However, there appears to be adequate
justification to consider, for planning purposes, the possibility that the Kremlin may
revise its policy and seek an accommodation with the west. It seems unlikely that the
Kremlin will commit itself definitely in this respect until the US Congress approves the
recovery program and until the Kremlin is convinced that the Communists cannot
gain control of Italy either through legal means or armed insurrection.
2. ECONOMIC.
The production and the distribution of essential commodities are likely to continue
to improve in most countries of the world in 1948, notwithstanding the probable recur-
rence of political and other disturbing influences such as those experienced during the
past year. Increased supplies of most basic commodities, particularly rubber, fats, oils,
and many of the metals, and the prospective increase in the harvest of the principal
grains will bring a halt to the upward movement of prices which reached a peak early
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in 1948. In the absence of further inflationary monetary and wage influences in the
major producing countries, moderate price declines during the year may be expected.
Price declines, however, are not likely to be so severe as to disrupt post-war economic
recovery which for the year as a whole should show definite improvement over 1947 in
nearly all countries of the world. Implicit in this analysis of the economic outlook
is the stabilizing influence of the adoption and implementation of the European recovery
program.
The over-all world production of foodstuffs in 1948, assuming average weather
conditions throughout the remainder of the growing and harvesting season, will be
significantly greater than in 1947 and should reach the equivalent of the annual average
for the period 1935 through 1939. Production on a per capita basis, however, will be
somewhat below prewar levels. In Western Europe (the European recovery plan coun-
tries), cereal grain production is expected to increase more than 11 million metric tons,
or 21 % above the 1947 harvest. Considerable progress has been made in rehabilitating
fishing fleets, particularly in Western Europe, which will result in larger fish catches in
1948 than in 1947.
The world outlook for minerals and metals presents a mixed picture. Lead and
antimony will continue in very short supply while tin and asbestos will not meet all
essential requirements. Reasonably adequate supplies of mercury, copper, zinc, alu-
minum, and mica are expected to be available. Steel production should continue to
expand in all countries in 1948 as compared with 1947, but world-wide requirements
for steel will continue to exceed availabilities.
World coal production, although expected to be larger than in 1947, will fall short
of requirements. Moreover, bottlenecks in transportation will interfere with coal
movement in some areas.
The extraordinary post-war demand for petroleum will continue through 1948.
Crude oil production is expected to increase by as much as 10%, but availabilities,
while probably adequate for most essential purposes, will fall short of total requirements.
Rubber supplies during 1948 will be sufficient to meet world demand. Recovery of
crude rubber production is rapidly reaching the stage where continuation of synthetic
production in the United States remains important only from national security con-
siderations. Fertilizer nitrogen will continue in short supply throughout the year, but
new facilities, which are expected to come into production during the year, should meet
world requirements for other basic chemicals.
There is little prospect, however, that world trade can shift from rigid controls to
multilateralism during the coming year. Most countries of the world have little or
no gold or hard currencies and will be forced to restrict their imports to the amount of
export earnings plus loans and gifts. The result will be smaller volume of US exports
in 1948 as compared with 1947. The principal escape from an even greater degree of
bilateralism lies in the possibility of increased US imports and the provision for off-shore
purchases in the European recovery and other foreign aid programs.
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3. INTERNATIONAL LABOR.
The conflict between the Communist and non-Communist elements in the World
Federation of Trade Unions (WFTU) is rapidly approaching a climax over the issue
of the European recovery program. The British Trade Union Congress (TUC), until
recently reluctant to force the Communists' hand, has now issued an ultimatum to the
WFTU stating that if the Executive Bureau does not proceed immediately with the long-
discussed meeting to consider its position on the European recovery program, the TUC
will participate in the separate labor conference of the 16 ERP countries called by the
Belgium Confederation of Labor. This ultimatum has been rejected by the WFTU.
The Communist leadership of the WFTU has been trying to evade the issue in order to
prevent the disruption of an organization which afforded the Communists an oppor-
tunity for influencing and infiltrating labor movements throughout the world. The
disruption of the WFTU now seems inevitable.
THE SITUATION IN EUROPE
4. THE UNITED KINGDOM.
Bevin's proposals for a union of Western European powers and the genuinely
forthright attitude of the UK Government toward the USSR reflect the disillusionment
of all but the insignificant group of fellow-travelling back-benchers of the Labor Party
with the possibility of cooperation with the USSR or of following a middle-of-the-road
policy vis-a-vis the US and the USSR. As long as Soviet intransigence continues,
Bevin should have no further difficulties in aligning UK foreign policy with that of
the US.
Although industrial production figures continue favorable, UK official circles are
increasingly concerned over the dollar amount of the European recovery program and
the timing of its implementation. UK economic plans are based upon the assump-
tion that US assistance will commence before UK's expendable gold and dollar reserves
are depleted. The drain on UK gold and dollar reserves continues at an alarming
rate, which may be accelerated by the recent devaluation of the French franc. Any
substantial delay beyond 1 April in the US Congressional vote, or a serious reduction
in the amount of aid, will leave the UK little choice but to initiate further retrench-
ments which would have seriously adverse effects on both the domestic and interna-
tional position of the UK.
The program of the Schuman Government for the devaluation of the franc and the
establishment of a "free" gold market has brought to the surface the latent antagonisms
between the economic policies of the Socialists and of the "liberals" in the Cabinet.
The Cabinet probably survived the devaluation crisis only because neither the Socialists
nor the Gaullists were prepared to face the consequences of an overthrow of the present
Government. Under these circumstances, the life of the Schuman Government is
peculiarly dependent upon the success of its financial measures and upon the timely
passage by the US Congress of the European recovery program. The Communists still
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possess the capability of retarding French economic recovery through strikes and
sabotage, but it now seems probable that they will subordinate any plan for serious
disruptive activities to the exigencies of the Communist program in Italy, unless dis-
sensions within the present French Cabinet should provide them with a fortuitous
opportunity.
6. ITALY.
Italy appears to hold the key to Communist prospects of disrupting the European
recovery program. Here the Communists have the best chance of regaining admission
to the Government through the electoral process or of overthrowing it through armed
insurrection. Following unsuccessful probing experiments with political strikes in
France and Italy in December 1947, the Italian Communists abandoned political strikes
and now appear to be making a determined effort to win a plurality for the "People's
Bloc" in the April elections. Were the elections held today, the Communists would
probably fail in this objective. A further reduction in rations or the failure of the US
Congress to implement the recovery program prior to the expiration of the interim aid
grant on 1 April might give the "People's Bloc" a plurality in the new assembly.
A Communist insurrectionary attempt remains a continuing possibility. It now
seems probable that such an attempt, if made, will not take place until after an
unfavorable election result, and, in any event, will occur only on orders from the
Kremlin. The Government's capabilities for putting down a general insurrection
remain uncertain, unless in the meantime the Italian armed forces are adequately
equipped and supplied.
7. GERMANY.
The USSR has continued to consolidate its political, economic, and administrative
control in the eastern zone of Germany and by March may have eliminated practically
all overt opposition to the Soviet-installed regime. The strong control exercised by the
Social Democratic trade union organization has prevented the Communists from using
the widespread food demonstrations as occasions for inciting civil disorders or pro-
longing work stoppages beyond their scheduled duration. However, unless the food
shortages are quickly alleviated, continued strikes may seriously affect industrial pro-
duction in the western zones.
8. AUSTRIA.
The recent Soviet proposals for the settlement of the problem of German assets
in Austria represent a substantial modification of the previous Soviet position and may
indicate a genuine desire on the part of the USSR to effect a settlement of the main
economic issues involved in the Austrian treaty. It seems probable, however, that the
USSR will protract negotiations, at least until the prospects for the European recovery
program are more clearly defined, and will seek to gain concessions on other outstand-
ing issues from the western allies and the Austrian Government. In any event, the
USSR will not agree to terms acceptable to the western powers unless : (1) it decides
that present conditions of quadripartite occupation constitute a block to the com-
munization of Austria; or (2) it makes a major policy change toward a general accom-
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modation with the western powers. The Austrian Government, in its anxiety to be
rid of the Soviet occupation troops, will probably exert pressure on the western powers
to reach agreement with the USSR even at the expense of permitting the USSR to
retain considerable influence over the Austrian economy.
9. SATELLITE STATES.
There are increasing indications that Soviet policy in the Balkans and Central
Europe does not envisage the establishment in the near future of either a Balkan or a
Balkan-Danubian Federation. PRAVDA may have taken occasion to disavow Dimitrov's
public announcement of the imminent formation of a Balkan-Danubian Federation (in-
cluding Czechoslovakia and Poland) because the scope of the proposed federation might
arouse the apprehension of the Czechs and the Poles. It seems likely, however, that
the USSR will oppose any kind of federation whose leaders might develop a dangerous
degree of independence and will continue, for security reasons, to exercise its control
over the Satellites through direct economic and Party ties with each individual state.
The recently concluded long-term trade agreements with Poland and Czechoslovakia
and the tightening of direct Soviet economic controls in Hungary and Rumania indicate
clearly that inter-Satellite trade is being subordinated to Soviet-Satellite trade. The
system of Satellite mutual assistance pacts, therefore, appears to be designed primarily
to coordinate and integrate the Satellites' armed forces with those of the USSR and to
bind together the Satellite States for unified action in the event of war, rather than to
provide the machinery for political federation.
THE NEAR AND MIDDLE EAST
10. GREECE.
It remains probable that the Satellite States will withhold formal recognition of
the Markos "Government" until it is firmly established on Greek soil. Nevertheless,
they are increasing their moral and material aid to Markos. Their support is openly
manifested in vitriolic propaganda against the Athens Government and its "imperial-
istic" US supporters and in public drives to collect clothing and supplies for the "demo-
cratic" army. Meanwhile, there are further indications that greater Satellite military
aid will be forthcoming, particularly with reference to the supply of technical
equipment.
The guerrillas have made no recent attacks on the scale of the December Konitsa
battle. However, they have retained the offensive and have made sharp attacks over
wide areas. The army, hampered by winter weather and uncertainty resulting from
recent changes in the high command, has remained on the defensive. Stronger guer-
rilla attacks may be expected before the Greek Army can begin a spring offensive.
In Athens intense partisanship, despite the continuing national danger, renders
uncertain the stability of the existing coalition government.
11. PALESTINE.
Determined Arab resistance to partition, British refusal to facilitate any action not
acceptable to both Arabs and Jews, and the actual state of disorganization in Palestine
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render the task of the United Nations Commission virtually impossible of fulfillment.
The Commission, in its first report to the Security Council, has recognized that parti-
tion cannot be imposed without the use of an international armed force. It is doubtful
that an effective force could be formed for this purpose, in view of the announced
unwillingness of the US and the UK to participate and of their presumptive unwilling-
ness to permit the Soviet Union to obtain a military lodgment in that area. The
Commission may well find itself compelled to refer the problem back to the Assembly.
12. THE ARAB STATES.
The fall of the Iraqi Cabinet, as a result of popular outcry against the terms of the
proposed Anglo-Iraqi treaty, is a sharp setback for British efforts to conclude a series
of military agreements with the Arab states. British influence with the Arab govern-
ments, greatly enhanced by British policy with respect to Palestine, remains strong,
however. Eventual completion of the projected series of agreements is still possible.
The incident in Iraq will make all Arab governments more sensitive to public
opinion (or to the clamor of the mob). This consideration will tend to preclude
compromise with respect to Palestine and to drive these governments eventually toward
an aggressive solution of that problem.
Current developments-attempts to undermine the US gendarmerie mission, oppo-
sition to the acceptance of US arms credit, and agitation for the recovery of Bahrein-
are the work of both Iranian Leftists and Nationalists hostile toward all foreign influ-
ences. Intensified Soviet propaganda is attacking the US missions and arms credit
as dangerous to both Iranian independence and Soviet security. Soviet propaganda
is also featuring the "deplorable conditions" in Azerbaijan. Under these pressures, the
weak Hakimi Government, fearful of Soviet displeasure, is tending toward a policy of
balance between the US and the USSR which may lead to a reduction of US influence
and thereby to the promotion of Soviet objectives.
The immediate effect of Gandhi's assassination has been quieting rather than
explosive. For the time being, the anger of the Hindu community is directed inward,
against the extremist faction considered responsible for the tragedy. However, the
basic causes of Hindu-Moslem antagonism have not been removed and the Kashmir
dispute remains as a potential cause of general conflict. In the absence of Gandhi's
moderating influence, an eventual renewal of tension between the Hindu and Moslem
communities, and between India and Pakistan, must be expected. Meanwhile, fac-
tional disputes within the Congress Party and the Government of India are already
developing and may in time seriously affect civil authority throughout the country.
15. CHINA.
The increasing insecurity of the National Government is reflected in the recent
reports that some Nationalist officials have been considering the possibility of a nego-
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tiated peace in the Chinese civil war, perhaps through the good offices of the USSR.
The prospects of a negotiated peace at this time, however, appear remote. It does
not seem likely that the USSR would be willing to help negotiate a peace that might
alter present trends in China which are favorable to Soviet interests. Moreover, the
Chinese Communists would probably insist upon terms which the National Govern-
ment would be unwilling to accept so long as a US aid program remains a possibility.
16. KOREA.
Unless the Interim Committee of the United Nations quickly instructs the UN
Commission in Korea to proceed with elections in South Korea alone, the US will be
subjected to an intensified propaganda attack from both the South Korean Left and
Right for causing an "unwarranted" delay in the achievement of Korean independence,
and the US Military Government may be faced with serious outbreaks of violence. An
early election in the south will undoubtedly result in an overwhelming rightist victory,
in spite of the recent formation of a coalition of moderates. It still seems improbable
that any South Korean Government can maintain its independence after a US
withdrawal.
17. INDONESIA.
The current political discussions between the Netherlands and the Indonesian
Republic, which are based on principles laid down by the UN Good Offices Committee,
may be jeopardized by renewed suspicions that have arisen between the parties to the
dispute as a result of : (a) the premature, Dutch-inspired plebiscite on Madura; (b) the
repeated violations by both sides of the recently signed military truce; and (c) the
reservations of the Republic regarding its future conduct of foreign affairs and other
attributes of sovereignty. If the discussions are protracted with little prospect of
obtaining conclusive results, the Dutch will accelerate the formation of a United States
of Indonesia, regardless of the attitude of the Republic.
LATIN AMERICA
18. GENERAL.
The majority of Latin American countries continue to oppose US trade objectives
in the International Trade Organization meeting at Havana by 'insisting on complete
freedom of action for underdeveloped countries with respect to preferential tariffs and
quotas. At the same time, these countries tend increasingly to seek, or virtually
demand as a right, US economic assistance, in spite of US commitments to the Euro-
pean recovery program. These attitudes are expected to persist at the forthcoming
Inter-American Conference at Bogota.
The potentially revolutionary situation in the Caribbean-deriving largely from
the armament purchases by the Dominican Republic-is not expected to develop into
open revolutions in the immediate future. However, should the tension among the
Caribbean republics lead to intraregional groupings, formalized by treaty, the effective-
ness of the hemisphere military defense program might be impaired.
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The President
Secretary of State
Chief of Staff to Commander in Chief
Secretary of Defense
Secretary of the Army
Secretary of the Navy
Secretary of the Air Force
Executive Secretary, National Security Council
Chairman, National Security Resources Board
Chief of Staff, US Army
Chief of Naval Operations
Chief of Staff, US Air Force
Director of Plans and Operations, General Staff, US Army
Deputy Chief of Naval Operations (Operations)
Director of Plans and Operations, US Air Force
Special Assistant to the Secretary of State, Research and Intelligence
Director of Intelligence, General Staff, US Army
Chief of Naval Intelligence
Director of Intelligence, US Air Force
Secretary, Joint Chiefs of Staff
Secretary, Joint Intelligence Group
Executive Secretary, Military Liaison Committee to the Atomic Energy Commission
Director of Security and Intelligence, Atomic Energy Commission
Chief, Acquisition and Distribution, OICD, Department of State
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U. S. GOVERNMENT PRINTING OFFICE
2162-$-1948
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