CURRENT INTELLIGENCE REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79S01060A000100100001-3
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 22
• Document Creation Date: December 22, 2016
• Document Release Date: June 18, 2012
• Sequence Number: 1
• Publication Date: August 29, 1951
• Content Type: CIAPER

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Copy No.
VOL. I Noo 3
29 August 1951
CURRENT INTELLIGENCE REVIEW
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DOCUMENT NO.
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THE SOVIET WORLD ------------------------------------------------
WORLD COMMUNISM. COMMUNIST CHINA AND THE "LIBERATION" OF ASIA - Page 5
Mao Tse-tung's "theory of the Chinese revolution" is not
a Chinese Communist heresy but is the official Stalinist program
for the "liberation" of East Asia. The Chinese Communists have
clearly received Soviet sanction for assuming the principal role
in Asia's "liberation."
THE CHINESE COMMUNIST THREAT TO SOUTHEAST ASIA ----------------- Page 7
Persistent reports of a coming Chinese Communist invasion
of Southeast Asia emphasize the continuing vulnerability of this
area to conquest. There is no firm evidence that the Chinese at
this time intend to intervene directly and in force in Indochina
or Burma. The Korean experience is a reminder that the Communist
practice of assisting'irdigenous "liberation movements" by covert
means is not inflexible.
CAPABILITIES OF THE EUROPEAN SATELLITE ARMIES ^------ ------ Page 9
Combat capabilities of the Eastern European Satellite armies
developed markedly during the past twenty months. Their total
strength increased from 607,500 to 895,000 and from 54+ to 65 line
divisions.
MERCHANT SHIPS IN THE CHINA TRADE ------------------------------ Page 12
China's foreign commerce continues to be carried largely
by ships of Western registry. Recent measures to embargo ship-
ping to, Communist China have not been fully effective because
of failure to secure joint action by the principal Western
maritime countries. Communist purchase and charter of Western-
flag vessels and the diversion of Orbit shipping to the China
trade have also helped the Chinese counterbalance the effects
of Western shipping controls.
SOVIET ORBIT ATTEMPTS TO DESTROY WESTERN EXPORT CONTROL PROGRAM -Page 15
Recent developments point to a concerted Soviet effort to
destroy the effectiveness of the Western export control program
and to drive.an economic wedge between the'US and its allies.
The disruption of reestablished East-West trade patterns as a
result of US imposed export controls has provided the Soviet
Orbit with effective economic' warfare weapons.
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POSSIBLE NEW TROUBLE SPOTS FOR T1 BRITISH --------------------- Pagel?
The British position in a number of areas invites attack
from rising nationalist sentiment like that now threatening it
in Iran and Egypt. Over the next year or so Great Britain
seems capable of containing such threats in its own colonial
territories, except Hong Kong, but may encounter serious dif-
ficulties in a number of independent countries where it has
special interests.
THE IRANIAN SITUATION ------------------------------------------ Page 20
With the suspension of Anglo-Iranian negotiations, the Iranian
Government faces increasing economic and political pressure. Should
the present Prime Minister withdraw or be removed in a manner which
does not lend itself to extremist exploitation, a capable, moderate
government might be installed. Failure to settle the oil issue
and the resulting political and economic deterioration would be an
invitation to the Communists to take over.
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THE SOVIET WORLD
With the San Francisco Conference less than a week away, Soviet
propaganda continues to obscure Russians precise intentions when dis-
cussion of the draft peace treaty for Japan begins. The tone of Commu-
nist comment,: however, is one of assurance, and contains no hint of a de-
fensive attitude.
Moscow originally commented that 11a1l meth of good will" desire a.
multilateral treaty, a statement which the Liter ,r gazette expanded by
quoting Western and Indian opinion to prove the "extreme unpopularity"
"revival of militarist forces in Japan and the permanent US occupation
of that countrye90
Most Satellite commentary follows the parent line. The Paris paper
Fuma.nite, however, asserted that Gromyko will arrive "equipped with pro-
posals for a veritable peace treaty," and Hungarian propaganda media
added that Soviet participation "will turn the conference into a power-
ful forum of the peace fight;"
Gromyko himself, upon arriving in New York, stated only that the
USSR has Oita own proposals," and expressed the hope that "they will be sup-
p dtbjk a l those who are really interested in o 0a peace treaty for
Japan which would lay the foundation for o , . normal relations between
Japan and other countries, especially those who suffered most from
Japanese aggression0"v
His statement was an obvious appeal to those Asian nations that
will come to the conference after experiencing varying degrees of dif-
ficulty in accepting the prindiples of the draft treaty, and, beyonO
them, to the two Asian 'nations, India and Burma, that declined invita-
tions. It also was a clear indication that when the conference opens
Gromyko will promptly bring up the question oft Chinese Communist par-
ticipation. It seemed highly probable that the breakdown of the Kae-
song negotiations would be one of the most potent weapons in his arse-
nallo
f US policy vis-a-vis Japan. Other Moscow comment has rejected the
The breakdown may have been designed in part to strengthen the
USSRas attack on the Japanese treaty draft as a cover, for US aggression
in the Far east, since the Soviet delegates could accuse the United
Nations in general, and the US in particular, of lacking good faith to-
ward the Korean peace nnegotiaations o
The talks could also hors 'been broken off as a necessary preliminary
to placing the conference under the stress of military events. The
launching of a full-scale Communist offensive prior to the conference, if
it resulted in serious setbacks to the UN forces, might supply the Soviet
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Union with an effective weapon to disrupt the program for the Japanese
peace treaty.
More probably, failure to reach a Korean peace settlement will be
portrayed by the USSR as an object lesson to the conference that Far
Eastern questions cannot be solved without being discussed in their full
context with the participation of Communist China and North Korea, Mos-
cow would therefore propose that the Peiping and Pyongyang regimes be
invited to send delegations,, and the suggestion might be revived that a
Big Four or Big Five meeting which included Communist China should en-
deavor to reach a general settlement.
If Soviet proposals at San Francisco were to be rejected,, a final
breakdown of the Kaesong talks,, to be followed by a renewed offensive
or actual expansion of hostilities, could be timed to.coincide with a
Soviet walkout from the conference,
In any event,, Moscow has retained for itself almost complete free-
dom of action. Although probably in substantial control of decisions
taken in Peiping and Pyongyang, the USSR enters the conference still
technically a neutral party, In regard to its part in the Kaesong
negotiations, the Kremlin appears in fact to be channeling directives
through a Soviet military mission in the area to the North Koreans.
Thus,, the more stubborn position taken by Nam Il may, in the final'
analysis, prove to be a more correct reflection of Soviet policy than
that of the Chinese Communist delegates, who have maintained direct con-
tact with Peiping.
As the climax to the international Five Power Peace Pact signature
campaign, the Soviet Government is finally beginning to collect signa-
tures throughout the USSR. Another plank in the program proposed by
the Soviet-controlled World Peace Council last February is expected to
find expression in an international economic conference in Moscow later
this year. Invitations will be issued to foreign businessmen,, with
practical spadework for reopening East-West trade the principal purpose
of the conference.
A significant trend in Eastern Europe is.the continued stress on
overcoming popular resistance and on realigning the people behind the
Communist regimes, Poland is the most recent Satellite to resort to the
mass deportation of political unreliables from its capital. The victims
are reported to be officers of the Polish Armed Forces who were members
of the wartime underground, relatives of political prisoners, and
businessmen deprived of their enterprises. Although most of.the "un-
realiableslB are being relocated within the country, ex-members of the
anti-Nazi underground are being moved to undetermined destinations out-
side of Poland.
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Mao Tse-tung?s "theory of the Chinese revolution" is not a Chinese
Communist heresy but the official Stalinist program for the "liberation"
of East Asia. Sino-Soviet theoretical agreement on the strategy and tactics
to be employed in the Stalinist conquest of Asia. is demonstrated conclusively
by the pronouncements of an international Communist conference at Peiping
in late 1949 and by the republication of Mao?s "theory" in the Soviet
domestic press and in the Cominform journal in the summer of 1951. The
Chinese Communists have clearly received Soviet sanction for assuming the
principal role in Asia?s "liberation."
Mac Tae-tung?as "theory" is summarized for popular consumption in
a recent article composed by Lu Ting.-'yi, the Chinese Communist Party0s
propaganda director,, and reprinted and implicitly endorsed by the Comin-
form journal. Lu takes the approved line that the Soviet October Revolu-
tion is mankind?e greatest event and the "classic type" of revolution in
an "imperialist" country, while the. ascendancy of the Chinese Communists
is history?s second greatest event and the classic in a "colonial or
semi-colonial' country.
Lu explains that a colonial area, as a result of imperialist exploita-
tion and oppression, is necessarily backward and ill-prepared to struggle
against the ruthless and well-armed imperialist enemy and his local lackeys.
Lu asserts that it was Mao Tse-tung who showed Asian "liberation" movements
how to win against such heavy odds.
Lu?s article re eats Mac?a own definition of the "essence" of Ohineee
Communist suooessa (l) the creation of a disciplined Communist Party
"armed with the theory" of Marx, Engels, Lenin and Stal inj (2) the organiza-
tion of armed forces controlled by the Party and possessing a territorial
base and (3) the formation of a "united front of all revolutionary strata."
With the achievement of national power through military action, this move-
ment establishes a "people's demooratio dictatorship led by the working
clans," and this dictatorship "unites with all international revolutionary
fosses."
In other words, Maas?s program envisages the leadership of the revolu-
tion by an orthodox Stalinist Party, relying primarily upon its armed
forces and willing to work temporarily with all disaffected elements
of society, The state established by this movement is to be an orthodox
Stalinist dictatorship by the Party, which by definition is the "most
advanced" segment of the "working claas*A" even when its members, as in
China, are predominantly of peasant origin, This state uses the
bourgeoisie for its purposes for an indefinite period9 but emphatically
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discredits the concept of "bourgeois democracy." Finally, this state is
to be allied with, and in international affairs subservient tog the
Soviet Union. Mao?s "theory of the Chinese revolution" is thus an act of
assent in the Stalinist capture and perversion of genuine revolutionary
movements in Asia.
International Communist strategy., was publicly outlined in an
International Communist conference at Peiping in November 1949. That
strategy, recommending Chinese` Communist tactics for liberation movements
throughout Asia, divided Asian countries into three blocs. Bloc I comprises
countries or areas under Communist control, regarded as "base areas"' for
future comapigns8 Communist China and North Korea, Bloc II includes
countries judged vulnerable to Communist conquests South Korea, Indochina,
Thailand, Indonesia, Malaya and the Philippines. The Bloc III countries
are those in which Communist victory is recognized as far distant.: India,
Pakistan,'Japan and Burma. This grouping should probably now be altered
to place the Viet Minh in Bloc I and Burma in Bloc II.
The Peiping conference statement assigns to the Bloc I 'dbase areas"
theiask of assisting, by all practic able means, the Bloc II 4liberation?
movements. In the Bloc II countries, Communist-led military operations
are given the highest priority. Bloc III nations are scheduled for the
early stages of political division and isolation, rather than for conquest
by either internal or external military forces. The conference statement
leaves obscure the question of whether the armed forces of the "bass areas"
would directly support each other or the "liberation' movements of Bloc`II.
The Korean Communist invasion of South Korea in June 1950 was not
technically an alteration of the November 1949 strategy, as North Korean
forces could be regarded as an indigenous 'liberation' movement engaged
in the first phase of the revolutionary effort, the struggle for total
military power in a single country. Neither did Communist China?s inter-
vention in Korea in late 1950 necessarily indicate that international
Communism had abandoned its policy of placing primary reliance upon native
Communist forces. These developments made clear, however,. that the strategy
permitted the provision of direct military support by Bloc I countries to
"liberation?' movements of Bloc II countries suffering serious reverses or
in danger of extinction, and raised the possibility of outright military
aggression by Bloc 'I countries. In any case, the leading role in East
Asia devolved upon Communist China.
It has thus been apparent for some time that Asian governments contiguous
to Communist China would be obliged indefinitely to resist strong diplomatic
pressure from Peiping, intensive Chinese Communist-subversive activities,
and substantially Chinese-supported native ?8liberation" movements. The more
ominous possibility was and is that of a Chinese Communist invasion of
Southeast Asia.
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CHINESE COMMUNIST THREAT TO SaJTHEAST ASIA
a coming Chinese Communist invasion of South-
east Asia emphasize the continuing vulnerability of this area to conquest*
The 200,000 Red Chinese troops within striking distance of the Indochina
border are capable of inteening decisively against French-Vietnamese
forces in Tonkin] and the 30,000 Or more now assembled along the Since
Burmese frontier can easily destroy the defense forces in northern Burman
Although there are no firm indications of an imminent Communist drive to
the south, the Commu.riists maintain the capability of overrunning in a short
time most of the Asian mainland,
Thus far, Communist China u s involvement in the Southeast Asian power
struggle has been almost entirely indirect and covert.. Aid to the rebel
regime of Ho Chi Minh in Indochina has included the training in China of
possibly 30,000 of Hoes troops, the provision of large amounts of arms
and ammdnition, and the loan of an estimated 10,000 advisers and tech-
nicians. Less evident, but no less ,ominous, is the Chinese ,Communist
program for Burma,
Peiping is committed to aiding the Burma Communist 25X1
Party the steady 25X1
movement of Burmese Communist forces from central Burma car the fron-
tier,, where Chinese aid and guidance will be readily available. 2.5X1
acme aid has airfbady been ILLEGIB
Provides4 ~n the form of trai ii g, supplies. and possibly teohnicianso
operations in Burma, is wider the direction of a Chinese guerrilla leader
who is thoroughly familiar with the rugged terrain of northern Burma,
International Communist strategy in the Par East has preferred to
rely primarily on the efforts of indigenous Communist forces, but events
in Korea have sham that this strategy is not inflexible, There is,
therefore, the distinct possibility, if covert Chinese aid to Communist
forces in Southeast Asia appears inconclusive, that Peiping will inter-
vene directly,
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the-Chinese.,
with-'the cooperation of Burmese and Vietnamese Communist forces, are
preparing to penetrate northern Burma., Taos, and, finally, Thai.land6
Military penetration of the last country is allegedly to be undertaken
to eliminate a supply base of the Chinese Nationalist forces recently
defeated by the Communists in Y nana Even though Chinese Communists
might have only limited present objectives 9 the temptation to press
their gains would be strong once they were committed to overt action,
Peiping and Moscow propaganda has frequently called attention to
the activities of the French "imperialistsg"in Indochina and thus pre-
pared a pretext for entry into that country. In addition, three routes
of access to Indochina have been fairly well developed.
A pretext is likewise provided for entry into Burma by the presence
of remnants of the--defeated -Chinese Nationalists, who the Communists
charge were armed grid sent into Yunnan under Western directian. It is
evident that a conquest of Burma, which could presumably be accomplished
in a- single short campaign., would virtually assure to extention of
Communist control over- Thailand, The strong French forces in Tonkin
could then be easily outflanked.
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CAPABILITIES OF THE EUROPEAN SATELLITE ARMIES
Combat capabilities of Eastern European Satellite armies developed
markedly during the past twenty months. During this period., their total
strength increased from 6079500 to 8959 0OIT`and from 54 to 65 line divisions.
Intensification of training in Soviet tactics and ideology, reorganiza-
tion to conform to the Soviet pattern, the presence of large numbers of
Soviet advisers., and accelerated deliveries of Soviet materiel are steadi-
ly bringing all of the Satellite armies., except the Albanian., closer to
combat readiness.
This process., which would better enable them to conduct coordinated
operations by themselves or in support of Soviet units, now approaches
completion only in Bulgaria and Rumania. The organization of tank and
mechanized divisions, the lack of defensive fortifications, and the
nature of the training program indicate that the present military ex-
pansion program is primarily for offensive purposes.
The rate of Sovietization and expansion of Satellite armies ap-
parently is governed by the degree of political reliability of each states
and does not in itself reveal plans for war against any specific country.
The current stress on the reorganization and reequipment of the Satellite
armies strongly indicates preparations for eventual rather than imminent
hostilities.
The effectiveness of the Satellite armies will continue to increase
throughout 1951 with the formation of possibly eight additional divisions
for a total of 73. At the current rate of expansion it is estimated
that all the Eastern European armies, except that of Albania, will have
completed their expansion and Sovietization programs by the end of 1953.
At that time Satellite armies may total 115 to 117 line divisions, some
of them armored or mechanized, totaling 1,500,000 men under arms and with
additional trained reserves.
The Satellite military picture looks as followed
Bulgaria
Bulgaria currently possesses the best trained army of all the Eastern
European Satellites. It is composed of 165,000 men, organized into 13
line divisions, two of which are tank divisions. A historic orientation
toward Russia, and repeated postwar purges have made the Bulgarian Army
relatively amenable to Soviet direction. The advanced state of its train-
ing, including army level:.maneuvers, as well as its nearly complete rem
equipment with Soviet arms, gives the Bulgari4n Army a high degree of
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combat readiness. Two additional divisions may be added this year.
Bulgaria is the only Satellite with major troop.-;concentrations on the
Yugoslav border,
&Mania
The Rumanian Army comprises 13 line divisions of 230,,000 men, It
is generally considered second to Bulgaria in degree of Sovietization,
and probably has attained a relatively advanced 'state of combat readiness.
Except for Bulgaria, Rumania was the only Satellite where the building
of an effective army was well under way prior to 1950. Reports indicate
that throughout 1949 and 1950 new units were being established, training
in Soviet doctrine was being intensified,, and a continuous flow of Soviet
equipment was arriving in Rumania,
The Rumanian Army?s mec~anized equipment is now believed-to be al
most totally of Soviet origin, except for its motor transport, which is
Czechoslovak. Upon the completion of the 1951 training,,-the army will
be capable of offensive operations. At the present rate, the expansion
program will have been completed by the spring of 1953, and the army will
probably consist of 18 to 20 divisions,
Hun ar
The Hungarian Army in less than one year has expanded from 359000"to
1009000 men and from three to nine divisions. Corps headquarters,,, which
will, enable the high command better to utilize existing troop strength,
have been established. In addition to its great expansion,, reorganiza-
tion along Soviet lines., an accelerated training program, and increasing
availability of Soviet, equipment are all contributing to a marked im-
provement in Hungarian Army capabilities,
The training of large numbers of signal,, anti-aircraft, and engineer-
ing troops indicates an effort to create an army of relatively high tecbmi-
cal skill. Combat effectiveness has improved rapidly since the expansion
program started in October 1950, and an intensification of the program
could make the Hungarian Army capable of joining in joint Satellite-Soviet
combat operations by the end.of this year. It is estimated that the cur-
rent expansion program will be completed by the end of 1952,, when the
&-my will consist of 12 divisions,
Czechoslovakia
The Czechoslovak Army includes 10 line divisions,, embracing 15c5,000
men, It is a second-rate army hampered by poor morale,, the absence of
strong leadership, lack of standardization, obsolescence of equipment,
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and questionable reliability. Its incomplete reorganization to conform
to the Soviet pattern., and its only rudimentary training in Soviet tactics,
would render the Czechoslovak Army ineffectual in Joint operations at this
time.
Any appreciable expansion of the Czechoslovak Army would be at the
expense of industrial and military production., since the economy is al-
ready suffering from a manpower shortage, The present army is incapable
of successful aggressive action and it is unlikely that it would be en-
trusted with any major combat assignment.. It is estimated that two more
divisions will be added this year and an additional six by the end of,
1953, at which time the current expansion program will have been com-
pleted.
ola.
It is currently estimated that the Polish Army is composed of 200,000
men., comprising 16 line divisions, a figure which may be increased to 18
this year and to 22 by the end of 1952. The reorganization of the army
closely follows the Soviet pattern; four corps headquarters were newly
identified during 1951, and four infantry divisions were converted to
Soviet-type mechanized divisions. Of the 16 divisions, an estimated six
have been effectively trained in Soviet tactical doctrine and furnished
with Soviet equipment. By the and of 1951 limited offensive capabili-
ties are expected, provided that the soviet Union continues to give large-
scale logistic support,
Albania
The Albanian Army consists of 45,000 men organized in four divisions.
It is being trained as a defensive force and remains weak because of poor
leadership, low morale, and questionable loyalty. Its present hetero-
geneous collection of equipment is gradually being replaced by Soviet
materiel. It is incapable of launching a successful attack against any
of its neighbors.
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Communist Chinas dependence on Western-flag shipping to transport her
foreign commerce constitutes a major vulnerability that has thus far been
only partly exploited by the West. vessels in
the China and Yellow Seas last Februarys considered typical of recent months,
about two thirds were identified as Western=flag ships. The remainder were
largely of unidentified registtyy only five per cent were known to be Soviet
or Satellite.
Current figures show no decline in the number of Western=flag ships in
the China trade. In June 19519 over Z50 vessels of 19000 tons or more, total-
ling about 1.3 million gross tons, were engaged in the China trade (that is,
called or were scheduled to call at a Chinese Communist port or at Hong Kong,
which has served as an important transshipment point for goods going to the
Communist mainland). These figures approximate those of the preceding month
and are in excess of those of earlier months of the year. Preliminary esti-
mates for July and early August indicate Western-flag tonnage in the China
trade at approximately the June level.
British-flag vessels in this trade are more numerous than those of any
other nationality. Panamanian-flag vessels, the next largest category, have
figured prominently in recent months, their number more than doubling during
the year ending in June. British and Panamanian vessels combined have con-
stituted the majority of the ships in the China trade.
American-flag ships, which were about as numerous as the British in
trade with mainland China when the Nationalists were in control,, have been
forbidden to call at any Chinese Communist port since December of last year.
With continued access to ships of other Western registry, the Communists
have not been effectively handicapped by American shipping controls. Recently,
however, there have been further Western restrictions on ships in the China -
trade. A Pauamaniaz,decree of 18 August 1951 forbids Panamanian-flag ships
from calling at Chinese Communist ports. Still more recently, the Costa
Rican Government cancelled the registry of a tanker en route with a load of
kerosene to China.
In an effort to meet their shipping requirements, the Chinese Communists
have followed an active policy of purchasing or chartering Western-flag ves-
sels. Some of the recent acquisitions are ships which formerly carried
Chinese Nationalist registry and then transferred to Panamanian registry
after the Nationalists withdrew from the mainland.
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Vessels transferred to Communist control frequently continue under the
nominal ownership of Panamanian or British corporations,, with the real owner-
believed to be controlled by Chinese Communist interestsq acts as registered
owner for several-vessels in the China trade, The shipping firm of Wallem
& Goa Ltd. of Hong Kong also acts as registered owner of vessels whose bene-
ficial owners are not known, The Far Eastern and Panama Transport Company
is an example of a 10paper" Panamanian corporation set up by concealed inter-
ests to serve as registered owner of vessels in the China trade.
ship. concealed. The Far East Enterprise Co, Ltd. of Hong Kong, for example,,
The decree forbidding Panamanian-flag ships from calling at Chinese; ,
Conist ports will probably force a modification of some of the methods
of concealing ownership. Recent reports indicate that shipowners plan to
transfer their vessels from Panamanian to other registry. It is expected
that new firms will replace the old 60paper' Panamanian corporations,
The USSR has attempted to supplement the limited facilities of the
Chinese Communists by increasing its own shipping in Far East waters. In
November 19509 Soviet merchant shipsq which had discontinued calls at Chinese
ports at the outbreak of the Korean conflict, resumed voyages to Chino In
additionq the Soviets have chartered Western-flag ships., being reimbursed in
turn by the Chinese for the coats of charter.
Soviet commitments to step asp sharply the delivery of petroleum to China
have resulted in active efforts recently to charter Western-flag tankers.
The two Western tankers no far chartered this year may be withdrawn from
their contracts if US pressure i$ successful. Despite all obstructions,, the
USSR is continuing its efforts to charter other tanker tonnages
The Eat European Satellites have also been active in chartering Western-
flag ships. for the China trade. The Poles,, in addition- have been able to
assign soma of their own ocean-g.ing fleet to the Far East, The present
ability of the Chinese to count on Polish shipping may enable them to lift a
cargo of rubber from Ceylon which Western shipowners'had refused to handle.,,
Although Polish ships en route to China are being handicapped by the refusal
of oil companies at intermediate ports to supply bunkers, the Poles are making
persistent efforts to overcome this difficulty.
Although assured of cooperation from other Communist countries., China
is largely dependent on Western shipping a vulnerability which has not
been effectively exploited by the West because of the failure io secure
joint action by the principal maritime countries. The withdrawal of US
vessels from trade with mainland China did not effectively handicap the
Communists., who had continued access to British and Panamanian ships, Pan-
ama?s decree will be largely circumvented by the transfer of Panamanian-flag
vessels to other registry. British merchant ships,, free from official re-
striotion9 continue to call at Chinese Communist ports.
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Western effozta"to deny to er tonnage to the Communists have met with
some suooeas: Because of the shortage of Soviet and satellite tanker ton-
nagea however,, the Qommuniats are persisting Am negotiations to, acquire
western tankere0
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SOVIET ORBIT ATTEMPTS TO DESTROY WESTERN EXPORT CONTROL PROGRAM
At the current UN=sponsored East-West trade meeting in Geneva the
Soviet Union has intensified its efforts to break up the Western export
control program by demanding strategic commodities in exchange for
materials sorely needed by Western Europe, The USSR has already proposed
in Geneva a revival of the 1949-1950 pattern of East-West trade, The
Soviet Orbit is offering coal, grain and timber for traditional imports
from Western Europe which include a wide variety of strategic items on
Western embargo lists.
Evidence is available that Soviet efforts to split the West on the
export control program might meet with some success, The Western Euro-
pean countries are showing signs of increasing restiveness under Ura;'o
pressure for greater restrictions on strategic exports to the Orbit.
Although trade with the Orbit amounted to.only 303 percent of Western
Europe?s overall international trade in 1950,, the commodities involved
(grain and coal) are much more important than this figure would indi-
cate. The newly imposed restrictions are disturbing historic trade
patterns which were again forming under Western Europe's postwar eco-
nomic rehabilitation under the Marshall Plan.
The US observer at the Geneva meeting considers that close col-
laboration among the Western countries is highly desirable in order to
avoid the danger of blackmail inherent in the Soviet position, which
bears the earmarks of a major Soviet trade and propaganda offensive,
The Russians have mounted a heavy propaganda campaign charging the US-
with erecting artificial East-West trade barriers which are disrupting
the normal flow of world commerce in order to build up a militarized
economy of scarcity. This theme fits into the overall :Soviet Peace
Campaign.
The Satellites rather than the Soviet Union have borne the chief
burden of the shortages resulting from the US sponsored embargo which
has resulted in a widespread resort to clandestine trade. The Orbit
has apparently' been able to procure some of the strategic items it needs
via covert channels, but only at exorbitant cost and great effort,
The Soviet block in addition has used items in short supply in
Western Europe as a bargaining weapon in trade negotiations. The most
specutacular example of hard trade bargaining by the Orbit has been
Poland's exploitation of its coal surplus in negotiations with coal-
hungry Western European countries. The Polish trade agreement with
Austria was made contingent upon continuing Austrian deliveries of
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substantial amounts of ball bearings on the Western embargo list. Polish-
Norwegian trade negotiations broke down recently because of excessive
Polish demands for strategic goods in return for coal. Current Swiss
trade talks with Poland are in difficulties over Polish insistence on the
exchange by Switzerland of large quantities of ball bearings and aluminum
for coal and foodstuffs. Poland is reluctant to deliver coal and coke
to Finland because of the latter?s refusal to import aluminum and cobalt
for resale to Poland.
The usefulness of coal as a bargaining weapon against Western Europe
is indicated by the fact that during 1950 some 8.5 million tons were ex-
ported to Western Europe at a total value of approximately 112 mission
dollars. Since then the European rearmament effort has increased that
regionQ.s need for coal without a corresponding growth of the available
supply, Italy, France, Austria, Switzerland, The Netherlands and the
Scandinavian countries will most quickly feel the pinch of curtailed
coal exports from the Orbit,
Eastern Europe has traditionally been an exporter of foodstuffs.,'
and specifically grain. This is another potent weapon in its economic
arsenal against Western trade controls. England, Belgium and The Nether-
lands are primarily susceptible to the use of food as an economic weapon
against Western Europe. The Soviet bloc has thus far been non-commital
at the current East-West trade meeting as to the overall amount of grain
available for export to Western Europe. Soviet representatives pre-
viously asserted that the USSR would be able to export 1.5 to 2 million
tons of grain annually for 'a period of five years. The favorable crop
prospects throughout Eastern Europe should currently give the Soviet
Orbit at least this capability..
Differences of opinion on dealing with the Soviet bloc have already
appeared at the current East-West trade negotiations. A redirection of
Western European trade away from the Soviet Orbit is opQn to serious
economic and political doubts.
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POSSIBLE TROUBLE SPOTS FOR THE BRITISH
Recent plows to ?the British from the rising nationalism of Iran and
.ggest the existence of similar situations elsewhere wh .oh,during
r
the next yearn,mi_ght seriously pair Britain's position as world p `er,
A rapid survey indicates no threats in the dependent territories,
except Hong Kong, that the British are not capable of containipg$ more se-
rious?itish vulnerabilities to nationalist agitation are, horever, to be
found in a x maber of, independent countries where' ? he UK has special inter-
ests- notably Burma, the India p subcontinent'. Jordan and Iraq,
Trouble at any of these points would arise against the background of
a British economic outlook much'less favorable than that of six months ago
when the-Iranian crisis began. Worsening trade, falling gold and dollar
reservesa and varied domestic infTtionary pressures have all reduced
Britaings ability to shoulder a substantial new rearmament program in Europe.
while continuing to maintain a aeries of military commitments elsewhere in
the wore
The immediate dangers to Britain's position in, Asia lie mainly in in-
dependent countries-where the UT, retains important interests of a milit447
and economic nature, bent can no longer give these interests direct protec-
tion as it can in its oven dependent territorigsa If Indian Pakistani. na-
tionalist rivalries should erupt into war, it would mean not onlya serious
loss of prestige for the Commonwealth but great economic lose to the UK
and a wakening of its strategic position in the -whole Indian Ocean - the
area in which these two powers with British military advice and assistance,
have been counted on to maintain stabili'ty$
Further east,: in Burma, other dangers threaten both the still-sizeable
British .investments and the UK .general position.. Geogrraphieal .y9 Weis
important as a buffer between the Chinese Communists and the I diaan Ocean
area, -Its rice exports are important to the economies of Malaya, India,
East Paakistaan and Ceylon. Brit ;inps capabilitae s for assist rig Burma against
outright aggression by the Chinese .Communists are in any case very ' limited,;
its ability to assist irith military and administrative advice in the. more
inediaate problem of Burma's chaotic internal conditions is instriusically
much greater, but largely nullified in effect by Burmese nationalist sensi-
tivitiepe
There are some i ,dications that these sensitivities have been a;Eggr^av
ted rather than allayed by Burma ? s current difficulties, Relations between
the Burmese military authorities ..sand the British Service Mission continue
bad- tbo 1948 Defense 4greementhas been subject since January to denuncia-
tion by either party oi 12 months notice; and the Burmese Government has
recently made certain, .proposals looking toward total or partial 'nati nv i
nation of the Burmah Oil,. Company, at affiliate of- the Anglo-Iraq is h Oil
Company. The former companyae present production, unlike its pre-war out-
put, represents no sigp,ificant part of the sterling areass present oil
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joupplies; but British resistance to the nationalization proposals is another
irritant to Burmese nationalist senti Tents a. possible excuse fear Burmese
action against mining companies and other British enterprises, and a further
obstacle to Burmese acceptanop of British advice for coping with the country's
problems Q
In the Middle East the danger 'to Britain centers in the states with
-which the UK has special treaty relations, Jordan, Iraq% and the Persian Gulf
sheikdoms of Kuwait Bahrein and tarp The three minor sheikdoms are too
primitive to present any current nationalist threat to British control of
their foreign relations,: The "Kuwait Oil Company- Jointly owned by British
and American capital. - is unlikely to encounter in its current negotiations
any difficulty like that experienced in Ir?ar Q
In Jordan,. where the British military treaty still has twelve years to
run before being lepily open to renegotiation by either party the British
have not yet experienced any of the troubles widely anticipated at the time
h
t
is
of King Abdullahas *.esassinat,on in mid-July.. There is strong anti-Bra.
feeling among the P~leetinian' gabs however,, and,
So long an the Jordanian constitutional sit t&on remains fluid; the British
position there cannot be regarded as secure
In Iraq the British face no immediate d.fficulties,but their basic po-
sition has disturbing analogies with that in both Egypt-and Irani. The present
military treaty which becomes formally open to renegotiation in 1952, is
roughly comparable to the 193? -Treaty under which Britain now maintains bases
in Egypt. In 1948,, when the 10ritish worked out with Iraq a new and more
flexible military treaty a sudden upsurge of Iraqi nationalist feeling forced
the resignation of the Prime Minister who had negotiated it, and the question
has not since been reopened,
Oil contract ' negotiations have recently been concluded for a new agree-
ment between the government and the la ely:Aritish_Iraq-Petroleum.Company,
and the terms of this agreement are far more, favorable to Iraq than any pre-
vious arrangement. Press reports stated on 24 August- however, that the
three opposition parties in the Iraqi Parliament had come out against rati-
fication of this agreement. Here,; as elsewhere, the more extreme nationalists
take encouragement from Egyptian and Iranian examplese
are for the Brltisa colonial, pmpiret on the other hand., nationalist. threats
the most part a post -'war minimums. -owing in par, t recent British
ar
concessions to nationalist feeling. Native nationalist movements in British
West Africa., the Union of South Africa's nationalist aspirations for certain
British dependent territories and agitation in Cyprus for political union
with Greece all present difficult problems to London, but not immediately
pressing ones. In Malaya, progress at eradicating the Communist guerrillas
continues slow and there are some indications of widespread resentment that
the areans vast dollar earnings are so much under the control of London;
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but there is as 'et nothing approaching an anti-British nationalist move-
ments, and the local, Communists seem to be no longer a rising force.
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THE IRANIAN SITUATION
The breakdown of the Anglo-Iranian negotiations on 23 August was
caused-in large part by Prime Minister Mossadeq's fear of extremist re--
action, coupled with his .conviction that a British-controlled agency
operating in Iran would exert undue influence in internal affairs.
The Iranians may also have been influenced by a belief that the United
s would eventually come to their aid by providing personnel to oper-
ate the oil industry.
While there is some sentiment in Iran for a negotiated settlement,
nationalism is still in control;,., There is no indication that the'present
government will become more yielding on the oil issue at any early date.
M.ossadeq s i ntransioence on the oil issue has, for the time being,
assured him of popular support. The government's position; however, will
weaken as political and economic pressures intensify. Revenues from the
oil industry constituted about forty percent of the government's annual
income.- There is no adequate long-range substitute for this source t: the
government is' not likely to find either sufficient foreign technicians
or adequate transportation facilities in the West to operate the industry
at anywhere near past levels. -For the present, the government will not
be inclined to seek or to accept Soviet help in operating the oil instal--
lations, but may modify this attitudex,as internal pressures build up...
Breakdown of the discussions will encourage those who have been
working to remove Mossadeq and to install a new government headed by
Seyyid Z3aj. either of whom would Presumably be more ame-
Ahmed vam or
.
nable to British interests.
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it is quite
possible that certain tribal leaders have reached some understanding with
the British on -action to be taken in case the Tehran government collapses
from internal or ' etern$l pressure.
The UK has indicated that it does not intend to use military force
to retain the oil properties. The British Government, however, is under
pressure from the public and from the opposition to take a firm line,,,
and it cannot be assumed that the British would not consider drastic ac-
tion before accepting outright Iranian confiscation.
Any effort to install a government recognized by the Iranians as
more amenable to settling the oil dispute would be followed by widespr
internal disturbances. Any British display of strength in the Persian
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Gulf or an ostentatious readiness to apply military force is also likely
to aggravate the situation. British effort to use military force to pro-
tect its nationals in the oil fields would be considered armed invasion
by the Iranians.
Should the present Prime Minister resign or be removed in a manner
which does not lend itself to extremist exploitation.,, a more neutral
government supported by the Shah and by the more moderate elements might
be achieved. Such a government would have to give considerable lip ser-
vice to nstior lism and would have to be able to adopt a tough policy
against the extremists. Aged ex-Prime Minister Ahmed Qavamj, an astute
and able politician,, might be the man to step into the breech, His long-
standing bitter quarrel with the Shah., however., provides an almost insur-
mountable block.
Unless the oil issue is settled in the relatively near future, there
is a very grave possibility that the internal situation in Iran will de-
teriorate to the extent that the pro-Soviet Tudeh Party will succeed in
establishing a Communist-influenced or Communist-controlled government in
Tehran. Such a development would encourage widespread tribal revolt., es-
pecially in the southwest, where influential Bakhtiari and Qa.shgai chief-
tains., presumably counting on British support,,, would probably attempt to
establish an independent state.
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