INTERNATIONAL ECONOMIC & ENERGY WEEKLY 26 AUGUST 1983

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84-00898R000300070007-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 28
• Document Creation Date: December 22, 2016
• Document Release Date: November 26, 2010
• Sequence Number: 7
• Publication Date: August 26, 1983
• Content Type: REPORT

Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
x111 -&'N I l-a'tnrata nt UGL.l GL
Intelligence
Weekly
International
Economic & Energy
26 August 1983
Secret
DI IEEW 83-034
26 August 1983
954
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Secret
International
Economic & Energy
Weekly
26 August 1983
iii Synopsis
1 Perspective-Third World Arms Exporters
25X1
25X1
3 Briefs Energy
International Finance
Global and Regional Developments
National Developments
13 Third World Arms Exporters: Developments and Patterns
25X1
25X1
25X1
25X1
27. Iraq: Postwar Role in the World Oil Market
25X1
25X1
Comments and queries regarding this publication are welcome. They may be
directed to --]Directorate of Intelligence,
Secret
26 August 1983
25X1
25X1
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
aCCIRM
International
Economic & Energy
Weekly
Synopsis
Perspective-Third World Arms Exporters
As Third World arms suppliers gain the ability to provide a wider range of
arms-either from domestic production or by transferring arms purchased
from developed countries-the ability of major powers to control arms flows
will diminish.
Third World Arms Exporters: Developments and Patterns) 25X1
Third World arms suppliers have traditionally held 3 to 5 percent of the
international arms market. We expect they will maintain this market share
through the mid-1980s, with annual sales in the $3 billion range.
Internationalization of Commercial Aircraft: A Growing Security Issue) I 25X1
The dominance of US aerospace firms in the commercial aircraft market is be-
ing steadily eroded by firms in Western Europe and Japan. Foreign govern-
ments are funding the development of indigenous aeronautics sectors and are
using their leverage as owners of airlines to gain contracts for domestic firms.
Iraq: Postwar Role in the World Oil Market
Once the war with Iran ends, Baghdad should be able to increase oil exports by
2-2.5 million b/d within one year. With petroleum demand expected to
increase slowly over the next several years, however, oil market price stability
would be threatened by large Iraqi sales.
iii Secret
DI IEEW 83-034
26 August 1983
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Secret
Perspective
International
Economic & Energy
Weekly
26 August 1983
Third World Arms Exporters
Recent international conflicts have highlighted the role of Third World
countries as arms producers and suppliers. Israel's successful use of domesti-
cally produced drones in Lebanon, Libya's transfer of SA-9 surface-to-air
missiles to Syria, and Argentina's attempts to obtain Exocet missiles from
other LDCs during the Falklands war attracted much attention. As Third
World arms suppliers gain the ability to provide a wider range of arms-either
from domestic production or by transferring arms purchased from developed
countries-the ability of major powers to control arms flows will diminishF_
commitments that often accompany arms sales.
Traditionally, Third World arms suppliers have held only a 3- to 5-percent
share of the international arms market. One-half of Third World sales are
relatively unsophisticated items such as rifles and ammunition. We do not
expect Third World suppliers to make major inroads into the global arms
market because their arms manufacturing capabilities are limited. Most
remain heavily dependent on US, Soviet, and West European industries for
designs and production technology. Moreover, most Third World suppliers
have not been able to provide the follow-on support, financing, and security
Third World suppliers will, however, continue to play several important roles:
? Supplying used and new military equipment to rebuild the armed forces of
belligerent nations.
? Helping LDCs modernize their arsenals with moderately sophisticated
weapons.
? Providing Third World countries with experienced military advisers and
instructors.
? Supporting both insurgents and governments combating insurgents with
weapons and support.
In particular, several countries bear watching:
? Israel will continue to combine foreign technology with indigenous design
efforts and a skilled labor force to produce high-quality weapons systems.
? Brazil should move beyond the production of light armored vehicles and
trainer aircraft to the manufacture of fighter aircraft and tactical missiles.
? Singapore will complement its small arms industry with the assembly and
refurbishment of jet attack aircraft, missile patrol boats, and armored
vehicles.
? South Korea will energetically seek exports of small arms and crew-served
weapons to sustain its underutilized defense industries.
1 Secret
DI IEEW 83-034
26 August 1983
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
We doubt that these or other Third World suppliers will produce sophisticated
weapons that are directly competitive with advanced US systems. Neverthe-
less, they will export weapons that give recipients new capabilities to threaten
their neighbors, and thus have the potential to affect US interests.
Secret 2
26 August 1983
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
25X1
^
25X1
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
secret
Energy
Higher Iraqi Oil Output Recent information indicates that Iraq was able to increase its crude oil
exports to 700,000 b/d and production to 900,000 b/d in the second quarter of
this year by discounting some sales. Baghdad reportedly has arranged for an
oil firm to take discounted crude that Iraq cannot market itself at official
prices, which the company resells in the spot market. This arrangement helped
the Iraqis boost both exports and output by 100,000 b/d over first-quarter
levels. Since late June, Iraq has further increased oil shipped to the Mediterra-
nean through its pipeline in Turkey-Iraq's sole remaining export route-to
about 800,000 b/d by injecting chemicals to enhance the flow. We believe
Iraqi output, including deliveries to domestic refineries, currently may be more
than 1 million b/d for the first time since the Syrian pipeline was closed in
April 1982. Iraqi officials reportedly expect that new pumps being installed
along the pipeline in Turkey will be in place and operating by mid-October.
The pumps will allow Iraq to further increase throughput to 950,000 b/d. F_
Saudis Establish Oil- The trade press reports that a new Swiss firm, Norbeck, Ltd., has been
Marketing Firm handling sales of an estimated 200,000 to 500,000 b/d of Saudi crude oil since
early this year. he firm in 25X1
fact is a front organization established by the Saudi Petroleum Ministry to
assist in the marketing of its crude oil. With the Ministry's authority, crude is
provided directly to the firm by Aramco, bypassing Petromin-the state oil-
marketing company-which had been responsible for handling all Saudi oil
not taken by the former Aramco partners. Norbeck reportedly sells oil through
either spot deals or term contracts up to a year in length at official government
prices and on 30-day credit. The firm appears to be the result of Riyadh's ef-
forts over the past year to adopt more imaginative sales methods to counter the
current soft oil market and gives the Saudis greater flexibility in marketing
crude. Existence of Norbeck also represents a major change in Saudi 25X1
marketing strategy; by allowing oil to be sold semiofficially on the spot market,
Riyadh now has the ability to directly influence spot prices.
Japan Revises A draft report by the Ministry of International Trade and Industry's Energy
Energy Outlook Study Council places total energy requirements for 1990 at 19 to 23 percent
below the last official forecast made in April 1982. The revision was largely
the result of a reduction in the forecasted rate of annual economic growth from
3 Secret
26 August 1983
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 1982 b
April 1982
forecast for
Revised Forecast
1990 b
1990 b
1995 b
Oil
4.4
5.3
4.4-4.6
4.4-4.6
Coal
1.3
2.1
1.5-1.6
1.6-1.9
Gas
0.5
1.2
1.0-1.1
1.2
Nuclear
0.5
1.2
0.9
1.4
Other
0.4
0.9
0.6-0.8
0.9-1.1
a Forecasts have been adjusted on the basis of the fact that 1 barrel
of oil equivalent equals 5.62 million Btu. MITI assumes that 1 boe
equals 5.93 million Btu.
b Fiscal year (1 April through 31 March).
5 percent to 4 percent. Given these prospects, planned Japanese projects to
develop and import liquefied natural gas are expected to be delayed by about
four or five years, and coal imports-the largest component of US coal
exports-will be 25 to 30 percent less than earlier expected. The report's
emphasis on energy cost minimization and the sharp reduction in future
energy requirements will probably be used to counter US pressure to import
additional US energy supplies in the upcoming meeting of the Japan-US
Energy Working Group.
Indonesian Oil After more than a year of informal talks, Pertamina and Caltex, Indonesia's
Negotiations largest oil producer, held their first formal negotiating session on 15 August to
set the terms of a production-sharing contract. The contract will become
effective when Caltex's current concession-type arrangement expires in No-
vember. Although the Indonesians have somewhat softened their previous
stance, they are still demanding over 90 percent of Caltex's production,
compared to the 85715 percent split in force for all other production-sharing
contractors. Caltex is offering an 86.5-13.5 percent formula. The US firm
expects to reach agreement fairly easily on other issues, such as depreciation
schedules and incentives for enhanced oil recovery operations, but the outcome
of the production-sharing split remains in doubt. A tough stance by Jakarta
could damage the climate for exploration by other foreign oil companies.
Secret
26 August 1983
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Secret
Brazilian Pressures for Discontent with the government's new austerity measures and the suspension
a Debt Moratorium of foreign loans are increasing popular support for a debt moratorium, but key
economic officials remain opposed to such a drastic step. The US Embassy
reports that there is a growing political backlash against the protracted IMF
negotiations, with influential businessmen warning the government that
further retrenchment will accelerate bankruptcies. The working class is
complaining about high unemployment and substantial reductions in real
wages. Early this month slightly more than half of Brazil's federal deputies pe-
titioned the government to break its tentative agreement with the IMF and de-
clare a debt moratorium. A recent poll indicates that most of the middle class
favors some form of moratorium.
Polish Rescheduling
Agreement With Banks
would curtail their lending to Brazil.
Senior economic officials are resisting the pressure, hoping it will ease soon.
An IMF announcement of support for Brazil's revised austerity program,
followed by foreign bank moves to resume lending, probably would undercut
popular agitation. The government has already imposed a limited de facto
moratorium by deferring interest payments up to 60 days. It recognizes that
more radical steps would jeopardize new loans and vital trade credits. If
Brasilia does not obtain more foreign financial support, it probably will be less
willing to honor its debts. Central Bank President Langoni has cautioned US
officials that the IMF accord could unravel. Langoni said the government may
not be able to muster enough backing in Congress to support IMF-mandated
austerity. Without an IMF-approved program, however, most foreign banks
Poland and Western banks agreed on terms for rescheduling 1983 debt during
the banks in 1983 over 10 years, including a five-year grace period. The banks
insisted that the interest on unrescheduled debt and the remaining 5 percent of
principal be paid by the end of the year, but they agreed to relend to Poland 65
percent of the interest payments as trade credits. Terms for this year are
somewhat more generous than in 1982 but much tougher than the 20-year
rescheduling of all debt service that Warsaw proposed when talks opened in
February.
e memorandum of understanding reschedules 95 percent of principal due
Warsaw will have trouble paying by the end of the year the estimated $700
million required by the agreement in addition to meeting some $900 million in
payments due to the banks under the agreements concluded in 1981 and 1982.
Poland apparently is falling $300-400 million short of its originally projected
payments capacity of $1.9 billion because new credits are less than expected.
5 Secret
26 August 1983
25X1
2bAl
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Poland: Bank Rescheduling Agreements
Date of Date of
Agreement Signature
on Terms
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Obligations Amount of
Covered Debt Relief
Interest Repayment
Rate Period
August 1981 6 April 1982 95 percent of pay- $2.3 billion
ments on medium-
and long-term debt
due during 26
March 1981-31
December 1981
95 percent of prin- $2.2 billion
cipal on medium-
and long-term debt
due in 1982
LIBOR plus December 1981 interest payments
1.75 percentage 1985- completed in March
points December 1988 1982.
LIBOR plus September Interest paid in three in-
1.75 percentage 1986- stallments, November
points September 1982, December 1982,
1989 and March 1983. Sepa-
rate agreeement provid-
ed that 50 percent of in-
terest payments be
relent in the form of six-
month trade credits,
rolled over for three
years at an interest rate
of 1.5 percentage points
over LIBOR.
August 1983 November 1983 95 percent of prin- $1.3 billion LIBOR plus January 1988- Principal repayment
(planned) cipal payments on 1.875 percent- June 1992 schedule is graduated:
medium- and long- age points 10 percent due in 1988,
term debt due in increasing 5 percent an-
1983 nually to reach 30 per-
cent in 1992. Separate
agreement provides for
65 percent of interest
payments to be relent in
the form of six-month
trade credits, rolled over
for five years at an inter-
est rate of 1.75 percent-
age points over LIBOR.
The agreement will give the banks a further lead over government creditors,
who expect to begin Paris Club negotiations in October. The governments have
not rescheduled since 1981 as a sanction against the martial law regime, and
Warsaw has made virtually no payments to them in the meantime.
the banks may propose in October or November to reschedule
Secret
26 August 1983
the efforts of Paris Club creditors to receive Polish payments.
1984 obligations under the same terms-a move that could further complicate
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
9 X1
25X1
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Secret
but, to placate industrialists, the value-added tax was slightly reduced.
Argentine Economic Argentina's IMF financial package came close to unraveling two weeks ago
Moves because of the junta's reluctance to lift foreign exchange controls on British
firms in the country. Once the government agreed to end the discriminatory
loan practice, however, the IMF approved Buenos Aires's second draw on loan
funds. The leadership also approved a new set of economic measures designed
to curb inflation, which is now at an annual rate of over 300 percent. The
measures include restraints on wage, price, and interest rate hikes as well as on
new government investment. A steep surcharge was placed on income taxes,
25X1
Reconciliation with the IMF has paved the way for new funds necessary to
sustain the recovery program. In addition, bankers should now be willing to re-
schedule Buenos Aires's large short-term debt. Although price controls will
repress inflation for now, the market distortions they create will set the stage
for substantial jumps later in the year. Interest rate ceilings and reduction in
the value-added tax also will work to restrain near-term inflation, but they will
discourage savings and spur capital flight. Moreover, the tax package will not
prevent higher deficits. This will add to the inflationary pressures that will be
one of the early challenges facing the civilian administration. Labor is already
pressing the regime to back away from the austerity measures, and we expect
the unions to increase their pressure on the new government. 25X1
Soviet Participation in The Soviet-owned bank in London reportedly will commit $11 million to the
Aid Package for $600 million in new credits that Western banks are providing to Yugoslavia.
Yugoslavia The bank also agreed to participate in refinancing the medium-term principal
payments that Yugoslavia owes. Yugoslavia's debt to Soviet banks in the West
is about $250 million, or little more than 1 percent of Belgrade's total hard
currency debt. It owes about $130 million to the Soviet bank in London; while
its assets with the bank total only $20 million.
The amount of Yugoslav debt the Soviet bank intends to refinance probably is
roughly $27 million, falling due over one year. The USSR's contribution to the
package is small, but it is commensurate with its share in the total debt.
Moscow may calculate that this contribution will improve its image in
Belgrade and enable it to claim some credit for helping Yugoslavia avoid a fi-
nancial crisis.
0.500 percentage point or higher on their most recent foreign loans.
Thailand's Strong (Thailand's international credit- 25X1
International Credit worthiness now exceeds that of any borrowing country in Asia. They cite as an
Rating example the Bank of Thailand's recently arranged eight year, $200 million
standby loan at a spread of only a 0.375 percentage point over LIBOR. Thai
private-sector borrowers with government guarantees are also having little
trouble arranging foreign borrowing. Spreads have risen recently for other 25X1
Asian borrowers; both Malaysia and South Korea are paying spreads of a
7 Secret
26 August 1983
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Bangkok's improved creditworthiness is a result
of its relatively strong economic performance during the global recession, its
conservative economic policies, and its manageable debt service ratio of about
16 percent. Moreover, unlike most Asian borrowers, Thailand-helped by a
smaller current deficit last year-has slowed the growth of its foreign
borrowing. The $200 million standby credit is the only large commercial
syndicated loan the Thai Government plans for this year, according to the
financial press, although state corporations will take out several small yen-
denominated loans.
Global and Regional Developments
Brazilian-Iranian The reported signing last month by Brazil and Iran of a protocol for some $1.2
Trade Agreement billion in total trade over the next 12 months may encourage Brasilia to begin
sizable arms sales to Tehran.
high-ranking Iranian mission, including four military personnel, arrived last
week in Brazil under the guise of an economic delegation.
25X1
25X1
The trade deal, which would permit Brazil to save at least $400 million in for-
eign exchange for oil imports, probably is closely linked to progress on arms
sales. Late last month all three Brazilian service chiefs recommended that
Acting President Chaves approve. weapons shipments to Iran, which has been
urging Brasilia to conclude an arms accord.
25X1
25X1
Developed Countries
New Israeli Austerity The Israeli Cabinet on Sunday approved, in principle, a package of austerity
Program measures that we believe will have minimal impact on the economy. The
package includes spending reductions of 3 percent in real terms, but the
Cabinet must still decide which ministries will absorb one-fourth of the cuts.
Almost half of the $500 million expenditure reductions will come from the
defense budget; manpower and construction in the Negev will bear the brunt
of these cuts, according to a press report. In addition, the purchase tax on luxu-
ry goods will be increased by 10 percent, the travel tax will be doubled to $100,
and a new tax on educational allowances for large families will be imposed in
order to increase government coffers. The three-member TAMI Party is
threatening to leave the government-which would leave the government with
Secret 8
26 August 1983
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Secret
a one-seat majority in the Knesset-because it apparently believes the
austerity program comes down too hard on the party's relatively less affluent
Sephardi constituency. 25X1
We are skeptical that the budget cuts will actually be implemented; in FY
1982, which ended on 31 March, civilian expenditures rose 2.6 percent in real
terms based on Finance Ministry estimates despite "cuts" approved last
August to help finance the invasion of Lebanon. Ministers are adept at using
"unanticipated" price hikes to justify their actual outlays. Even if the budget
cuts materialize, the impact on the economy will probably be minimal because
real wage gains are fueling private consumption growth; real wages increased
7 percent in the first quarter of this year compared with the same period in
1982, according to Bank of Israel data. The outcome of the recent doctors'
strike, now in arbitration, will probably generate heavy pressure for large wage
increases in other sectors. 25X1
Greece To Break Athens early this month announced plans to uncouple the drachma from the
Drachma-Dollar Link US dollar and link it instead to a basket of unspecified West European
currencies. The US Embassy believes the decision will mean a drachma
devaluation of 10 to 15 percent against the dollar, on top of the 15 percent de-
valuation implemented in January. Much of the impact of the earlier
devaluation was lost, however, because the subsequent strengthening of the
dollar caused the drachma to appreciate against the currencies of many of
Greece's major European trading partners. 25X1
Although the devaluation will force up domestic prices-at a time when
inflation is already running at over 20 percent-it should improve the overall
competitiveness of the Greek economy and provide at least some balance-of-
payments relief. Greece reportedly is also considering joining the European
Monetary System in order to qualify for a $1-2 billion balance-of-payments
loan, but it is by no means certain that the current EMS members will be will-
ing to take on the task of supporting the drachma
Possible Expansion A Canadian parliamentary committee is examining the possibility of allowing
of Foreign Bank foreign-owned banks to expand their Canadian operations. Canada's Bank Act
Operations in Canada of 1980, which for the first time allowed foreign banks to incorporate in
Canada, limits the aggregate domestic assets of these banks to 8 percent of to-
tal banking assets. In addition, individual bank assets are limited to 20 times
their initial authorized capital-which in turn is held to $4.5 million-
although increases can be authorized by the Minister of Finance. The
parliamentary committee, which appears to favor raising the foreign-bank
ceiling to 10 to 12 percent, plans to make its recommendations by the end of
September. 25X1
9 Secret
26 August 1983
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
The current 8-percent ceiling was instituted to guarantee Canadian control of
the banking system while still allowing foreign banks to expand along with the
Canadian banking sector. There has been no growth in domestic assets of
Canadian-owned banks for more than a year, however, and as a result the
growth of many foreign banks, which are at or near their statutory limits, has
been constrained. Total assets of the 18 US banks operating in Canada amount
to over $7.3 billion-47 percent of aggregate foreign bank assets in Canada.
US banks are among those most affected by the current ceiling on operations.
In support of raising the ceiling, the chairman of the parliamentary committee
points out that the foreign banks have targeted as customers small and
medium-size businesses, not well served by Canadian banks. A June report on
the banking sector maintains that foreign banks have made a "significant
contribution to competitive banking" by bringing in $455 million in new
capital and investing $972 million in Canada. Of the five major Canadian
banks, two strongly support increased foreign bank participation, two are
somewhat less committed, and the other-Toronto Dominion-is steadfastly
opposed.
Less Developed Countries
Mexican Government A tripartite agreement signed in mid-August reaffirms qualified labor and
Accord With Business business backing of President de la Madrid's tough stabilization policies. A
and Labor similar pact was signed last December when de la Madrid offered new fiscal
incentives and a six-month price freeze on basic commodities and public
transportation fares in return for support from labor and business leaders. The
new accord suggests that belts must be tightened further but again pledges to
distribute burdens evenly and reduce the impact on the poor by providing basic
consumer goods. According to Embassy officials, the new pact commits
businessmen to preserve jobs, improve work conditions, boost investment and
foreign trade, and hold down price increases. In exchange, labor promises to
moderate wage demands.
Crucial labor support for austerity, however, is not unconditional. After
signing the accord, union chief Velazquez said that while workers will continue
to sacrifice, the tripartite pact does not mean that labor demands will end. Ac-
cording to press reports, he linked holding up labor's end of the bargain to gov-
ernment and business success in slashing triple-digit inflation. On balance, the
pact will probably boost foreign and domestic confidence in de la Madrid's
ability and mandate to stabilize the economy. We believe formal recognition of
the key role of business in reversing the economic crisis will help reduce
concerns over creeping socialism, while wage restraints will help cash-short
private-sector firms ipaintain current employment. Government promises to
support basic consumer items, however, preclude cutting subsidies-and the
public budget-as fast as international financiers have expected.
Secret
26 August 1983
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Secret
Saudi Arabian Saudi Arabia's public announcement last week that government spending is
Spending Cuts lagging behind budgeted levels probably is intended to prepare businessmen
for the possibility of more austerity. Finance Minister Aba al-Khayl says
government expenditures of $20 billion for the first four months of the fiscal
year, which began last April, were behind the budget plan. He also notes that
the spending rate is below that for 1982, when total spending reached $71
billion. At the time the budget was presented, King Fahd tried to reassure the
population that falling oil revenues would impose no hardships on the private
sector. Since then, however, Riyadh has delayed payments to both foreign and
Saudi contractors and has declared a moratorium on new contracts. To
cushion the impact of the spending slowdown on the business sector, the
government recently issued a decree requiring foreign companies to subcon-
tract 30 percent of their contracts to Saudi firms.
The budget still will be in deficit this fiscal year by an estimated $8 billion,
even in the likely event oil sales pick up later in the year. To cope with the
shortage, Riyadh has been delaying payments and drawing on reserves. Aba
al-Khayl's announcement alerts the private sector that the government is
serious about fiscal discipline, but cash-short Saudi businessmen are unlikely
to be mollified. As oil revenues continue gradually to increase later this year,
the private sector and key ministries will urge the government to raise
spending to budgeted levels.
Chinese Looking at The Chinese are once again showing interest in the Hungarian economic
Hungarian Economic reform program:
Reforms
? Chinese bankers, who visited Budapest in May, were particularly interested
in the way the Kadar regime successfully used fiscal and credit regulations in
1978-82 to control investment funds held by free-spending enterprises-a
problem Beijing has been grappling with since 1978 when its own limited fi-
nancial reforms were first introduced.
? In June a group of Chinese Government economists looked closely at
Budapest's latest experiments in allowing a small private sector in domestic
trade and services.
? Most recently, Finance Minister Wang Bingqian, speaking to foreign
diplomats in Beijing, singled out Hungarian management reforms as those
which China is examining in its search for an improved management
structure for industry.
We doubt that Beijing will find much in Hungary that can be directly
transplanted in China-the countries are simply too diverse in size, population,
resources, economic structure, and stage of development. The continuing
interest in Hungarian reforms more likely reflects Beijing's desire to learn how
to avoid unwanted side effects of altering economic management systems
11 Secret
26 August 1983
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Secret
Third World Arms Exporters:
Developments and PatternsF_
Third World arms suppliers ' have traditionally
held 3 to 5 percent of the international arms
market. We expect they will maintain this market
share through the mid-1980s, with annual sales in
the $3 billion range. The bulk of Third World arms
exports consist of unsophisticated ground forces
equipment, but they have also transferred modern
weapons purchased from the West or the Bloc to
other Third World customers.
After record sales of almost $7 billion in 1981-
when the Iran-Iraq war boosted the Third World
arms suppliers' market share to 17 percent-sales
in 1982 slipped to less than $3 billion, returning
Third World arms suppliers to their traditional
5-percent market share. During 1976-82:
? Middle Eastern countries purchased 60 percent
of known Third World arms sales as Brazil,
Yugoslavia, North Korea, and Egypt cultivated
ties with wealthy oil-producing states.
? Latin American buyers turned to Brazil and
Israel for ground forces equipment and aircraft,
absorbing 20 percent of all sales.
? Asia and the Pacific became primary arms export
markets for South Korea and Singapore, account-
ing for 10 percent of all Third World sales.
The bulk of Third World arms exports consist of
unsophisticated products such as ground forces
equipment, consumables such as uniforms and am-
munition, and spare parts. High-priced items such
' "Third World" refers to all countries except members of the
Warsaw Pact and NATO as well as Australia, Austria, China,
Finland, Ireland, Japan, New Zealand, Switzerland, and Sweden.
"Arms sales" refer to all agreements to provide arms, support
equipment, military construction, training, and related services.F_
as aircraft and naval vessels account for less than
25 percent of total Third World arms sales. Most of
the value of these sales is made up of propulsion,
electronic, and weapon systems, many of which
have been purchased from Western suppliers and
installed by Third World manufacturers in the
equipment they export. Only a handful of indige-
nously designed aerospace and naval weapons sys-
tems have been marketed:
? Israel and Yugoslavia have exported locally de-
signed jet combat aircraft. The Israeli Kfir and
Yugoslav Gastreb contain, respectively, US and
British engines.
? Israel, Singapore, and South Korea export fast
missile attack boats, and Yugoslavia offers a
locally designed submarine.
? Israel and South Africa offer the Shafrir and
Kukri air-to-air missiles and the Gabriel/
Scorpion antiship missile.
The quality of Third World military manufactures
varies considerably. Well-designed and carefully
produced weapons are available, as are cheap imi-
tations characterized by shoddy workmanship:
ammunition pro-
duced in South Korea is of such high quality that
it is used by Colt Industries to test M-16 rifles,
ammunition
manufactured by Charter Industries of Singapore
causes breech explosions, the result of repacking
used cartridges.
? Trade publications acknowledge that pistols pro-
duced by Taurus of Brazil are high quality copies
of Italian models, but imitations produced by
Egypt are poorly manufactured.
9 X1
25X1
? Attache reports indicate that the light armor and
limited mobility of armored vehicles designed and 25X1
Secret
DI IEEW 83-034
26 August 1983
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898ROO0300070007-0
United States
50
30
36
32
28
43
Non-US NATO
13
25
24
32
18
23
Other developed a
2
2
2
2
3
1
USSR
28
36
27
28
21
21
Non-Soviet Warsaw Pact
5
5
3
5
4
China
NEGL
1
1
8
3
Third World
2
5
2
17
5
a Austria, Ireland, Finland, Sweden, Switzerland, Japan, New
Zealand, Australia.
produced in Brazil make them capable of per-
forming only internal security missions, while
Israel's Merkava tanks have been designed to
survive on modern battlefields.
? Fighter aircraft like the Indian Marut have been
produced in limited numbers because of their
relatively poor performance; conversely, the Is-
raeli Kfir has performed well in combat and has
been successfully exported.
In addition to equipment produced domestically,
Third World suppliers sell used equipment. We
estimate transfers of such equipment, mostly so-
phisticated weapons produced in the United States,
the USSR, and Western Europe, account for 10
percent of all sales by Third World suppliers. Used
equipment is often attractive because of its relative-
ly low cost, short delivery time, proven perform-
ance, and compatability with existing inventories.
Even in small quantities, such weapons can have an
immediate impact. Israel, Libya, and Saudi Arabia
have transferred used aircraft-Mirage Ills,
MIG-23s, and F-5 Tigers-from their own inven-
tories to Argentina, Syria, and North Yemen,
respectively, during times of crisis.
Secret
26 August 1983
Role of Third World Suppliers
Third World countries provide an alternative
source of war supplies, equipment for military
modernizations, support for insurgent groups, and
training. Many customers, like Argentina, Libya,
Iran, and Iraq, have turned to Third World arms
suppliers in order to diversify their sources of
armaments and circumvent restrictions and embar-
goes imposed by traditional suppliers. Indeed, we
have only a few indications that Third World
suppliers attach broad restrictions to their arms
sales. Brazil's Foreign Minister recently stated in a
press interview that Brazil never supplies arms if
doing so would upset a local balance of power.
Almost all arms exporters make this argument
publicly, however, and Brazil's sales to Iraq and
Libya underscore Brazil's overriding commercial
interest.
War Supplies. Third World suppliers play an im-
portant role during and after conflicts by supplying
new and used military equipment and consumables.
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898ROO0300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Secret
Third World Arms Sales,
by Equipment, 1976-82
Assistance to Insurgent Groups
by Major Third World Arms Suppliers
Egypt Islamic National Insurgency (Afghanistan)
India South-West African People's Organization
(Namibia)
African National Congress (South Africa)
Israel Cabinda Liberation Front (Angola)
Phalange (Lebanon)
Libya Polisario (Western Sahara)
Somali Democratic Salvation Front
Various Chadian factions
Palestine Liberation Organization
South-West African People's Organization
North Korea Palestine Liberation Organization
Pakistan Palestine Liberation Organization
Saudi Arabia Palestine Liberation Organization
Singapore Kampuchean People's National Liberation
Front
South Africa National Resistance Movement (Mozambique) 1
Union for the Total Independence of Angola 25X1
25X1
Deliveries have helped belligerents both to continue
fighting and to quickly rebuild their inventories.
According to attache reports:
? During the Iran-Iraq war, Egypt has supplied
Iraq with over $300 million worth of largely
Soviet-built aircraft, ground forces equipment,
and spare parts. South Korea has also sold nearly
$300 million worth of consumables to Baghdad,
while Brazil has found an Iraqi market for ar-
mored vehicles, ammunition, and artillery rock-
ets. North Korea and Libya have provided Iran
with $750 million and $300 million, respectively,
worth of Soviet ground forces equipment.
? During the Falklands war, Peru sent several
Mirage fighters to Argentina while Brazil loaned
Buenos Aires a few maritime patrol aircraft.
After the war, additional Mirage aircraft were
bought from Israel and Peru as Argentina rebuilt
its Air Force.
Defense Modernizations. Most Third World sup-
pliers sell weapons of moderate sophistication that
are attractive to many poorer Third World coun-
tries seeking to upgrade their arsenals. Brazil has
marketed its lightly armored vehicles in Chile,
Colombia, Ecuador, Libya, and Paraguay. Israel
has sold over 35 used A-4 aircraft to Indonesia and
12 new Kfirs to Ecuador. Yugoslavia has provided
light attack aircraft to Libya and Zambia, and
attache reports indicate that Argentina is attempt-
ing to sell its TAM tank to Peru and its Pucara
light attack aircraft in Central America.
Insurgencies. Third World suppliers have become 25X1
actively involved in providing military assistance to
insurgent and dissident groups, according to atta-
che reports. Incomplete data suggest this assistance
amounts to several hundred million dollars each
year. We estimate that Libya alone spent $200
million on military assistance and training for
subnational groups between 1978 and 1981.
Secret
26 August 1983
25X1
25X1
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Third World suppliers also provide arms and assist-
ance to governments combating insurgenices. Ac-
cording to military attache reports:
? Israel has sold small arms and ammunition to
Guatemala.
? Saudi Arabia has provided North Yemen with
F-5 aircraft, armored vehicles, and other equip-
ment to combat insurgents backed by South
Yemen.
? Libya has sent Nicaragua light attack aircraft
and helicopters, probably for use in combating
insurgents.
? North Korea has provided small arms and advis-
ers to Uganda to help combat the Ugandan
Liberation Movement.
Training. We estimate that Third World arms
suppliers have traditionally held some 20 percent of
the global training market, a disproportionately
large share compared with their share of the arms
market. We believe that Third World training
assistance is in demand because:
? Many military officials are impressed by the
successful combat records of some Third World
military forces facing security threats and en-
vironments similar to their own.
? Joint training can be used to demonstrate region-
al solidarity. Military attache reports note that
Peru began training programs with Argentina in
the aftermath of the Falklands war.
? Some Third World countries fear the domestic
presence of large numbers of Soviet or Western
advisers will lead to charges of neocolonialism
and domestic instability, according to State and
attache reporting.
Prospects
Throughout the mid-1980s we expect the size of the
international arms market to remain constant or
decline slightly in real terms, largely as a result of
the present global economic slowdown and the
completion of military modernization programs by
Secret
26 August 1983
Foreign Students Training
In-Country'
a Data rounded to nearest 100.
b Austria, Ireland, Finland, Sweden, Switzerland, Japan,
New Zealand, Australia.
Non-US NATO
Otherb
Non-Soviet
Warsaw Pact
China
Third World
wealthy oil-exporting states. In this environment,
competition among the major suppliers will in-
crease; we expect them to pay greater attention and
offer better terms to even minor customers in order
to secure sales for domestic industries. Although
this competition will probably prevent Third World
suppliers from expanding beyond their traditional
market share, they are likely to have annual sales
in the $3 billion range over the next few years.
We believe Third World military suppliers will be
able to compete in the market because their
weapons:
? Do not carry the stigma of great power
intervention.
? Are of appropriate cost and sophistication for less
wealthy Third World states.
? Can be purchased through barter agreements
unacceptable to traditional suppliers.
? Can be obtained when traditional suppliers im-
pose embargoes.
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
0CC1 Vt
Some Third World suppliers will fare better than
others. Brazil, North Korea, South Korea, and
Yugoslavia will probably be able to preserve some
of the recent gains they have made, in part because
they produce ammunition and ground forces equip-
ment compatible with Soviet and US weapons.
Egypt and Israel should be able to maintain their
current sales levels, partly by disposing of surplus
Soviet and US equipment. Sales by other suppliers
are likely to slip. Overall, we expect competition
among Third World suppliers exporting the same
type of equipment to increase. Those that lose out
may be forced to close inefficient defense indus-
The technological sophistication of some arms of-
fered by Third World suppliers will improve over
the next few years as additional manufacturing
technologies are acquired, primarily through licens-
ing agreements. For example, according to trade
journals:
? Brazil will begin producing jet attack aircraft and
possibly antiship missiles.
? Israel will upgrade its tanks, drones, missiles, and
aircraft.
? India will launch its first indigenously designed
frigate.
? South Korea plans to develop an antiship missile.
? South Africa will probably begin producing re-
placements for its jet combat aircraft
Implications for the United States
The slow diffusion of military production technol-
ogy to the Third World and the resulting prolifera-
tion of conventional arms suppliers will reduce the
ability of the United States and other developed
states to influence regional arms races and con-
flicts. Iran and Iraq, for example, have been able to
carry on their fighting despite sales embargoes and
reductions in deliveries by the United States, the
USSR, and some West European states, in part
because of arms delivered by Third World states.
Similarly, the potential of Third World states to
supply arms will impede US efforts to use the
provision or denial of security assistance as a
foreign policy instrument.
this potential danger
It is doubtful that Third World industries will
produce much in the way of sophisticated weapons
that will compete with US aircraft, naval systems,
and ground forces equipment at the high end of the
capability spectrum. Third World nations, however,
will retain an ability to threaten US and allied
forces by transferring sophisticated arms, pur-
chased from the West or the Soviet Bloc, to
potential Third World adversaries. British worries
about third party transfers of Exocet missiles to
Argentina during the Falklands conflict highlight
Secret
26 August 1983
25X1
25X1
25X1
25X1
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Iq
Next 7 Page(s) In Document Denied
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Secret
Iraq: Postwar Role in the
World Oil Market
Once the war with Iran ends, Baghdad should be
able to increase oil exports by 2-2.5 million b/d
within one year. With petroleum demand expected
to increase slowly over the next several years,
however, oil market price stability would be threat-
ened by large Iraqi sales. Under these circum-
stances, continued price stability would require
substantial production cutbacks by other major
producers as well as some restraint by Iraq. Iraqi
insistence on rebuilding exports at the same pace as
its facilities can be restored would soon impose
unacceptable sacrifices on other producers, would
sharply intensify pressure on oil prices, and would
probably result in greater friction throughout the
Persian Gulf and within OPEC.
the reopening of the Iraq-Mediterranean pipeline
system would also add immediately to Iraq's avail-
able export potential. Problems in Lebanon and
Syria's reluctance to allow Baghdad to restore the
Baniyas export terminal to full operation, however,
could limit throughput to about 400,000 b/d.
We believe the lessons learned from the Iraq-Iran
war will encourage Baghdad to continue develop-
ment of a highly redundant export system. Full
implementation of all planned export facility pro-
grams would provide export capacity of over 9
million b/d within three years of the end of the
war. Even if the expansion program is delayed, we
believe that Baghdad will develop sufficient export 25X1
capacity to have some flexibility in meeting export i
requirements. 25X1
Export Facility Restoration
Before the war, Iraq's crude oil export system was
the most flexible in the Middle East. Total capacity
was more than 5 million b/d-well in excess of
Iraq's prewar productive capacity of about 4 mil-
lion b/d. When the war ends, we expect Iraq to
begin immediate repair of its Persian Gulf termi-
nals and to install four single-point mooring buoys
(SPMs) that it has stockpiled in Bahrain since
1981. Installation of the first two buoys should
allow export of 1 million b/d within four to six
months. The remaining two buoys should be in-
stalled within eight to 12 months of the end of the
war. Once all four SPMs are installed, Iraq's
Persian Gulf export capacity will increase to 2-2.5
million b/d.
Export pipelines to the Mediterranean will provide
at least 1 million b/d of capacity. Regardless of the
course of the war, we believe work on expanding
the capacity of the Iraq-Turkey pipeline will con-
tinue. If the end of the Iraq-Iran war also eases
politicalatensions between Baghdad and Damascus,
Production Facility Restoration
The damage inflicted on Iraqi oil production and
processing facilities will probably not constrain
output significantly in the war's immediate after-
math. Indeed, productive capacity will probably
exceed export capacity for the first year. Iraq
should be able to restore all damaged oil production
and transmission facilities within 12 to 18 months,
as excellent preparatory work will eliminate post-
war delays in repairing critical oil facilities. Indus-
try sources report that the Iraq National Oil
Company (INOC) has already stockpiled, ordered,
or submitted design specifications for bid on many
of the custom components that would normally 25X1
have long lead times. These preparations should
save Iraq anywhere from 3 to 18 months depending
on the type of units involved. 25X1
The loss of most of the storage capacity at the Al
Faw tank farms will be a serious constraint on
Secret
DI IEEW 83-034
26 August 1983
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Current Six Months Eighteen Three Years
Months
5.1
1.6
Gulf single-point moorings
1.0
2-2.5
2-2.5
Turkey pipeline
0.7
0.7
1.0
1.0
1.0
Iraq-Mediterranean pipeline
system
1.2
0c
0.4-1.2
0.4-1.2
0.4-1.2
a Assuming the war ends without significant additional damage to
Iraqi oil facilities.
b Temporary repairs could allow some limited capacity within a few
months of war's end.
c The existing 1.2-million-b/d pipeline capacity will not be available
until political differences between Syria and Iraq are resolved.
d A final decision has not been made on the construction of this
pipeline through Saudi Arabia.
Iraq's production and export capability. Although
Iraq needs only a limited amount of storage
capacity to resume exports, its ability to sustain
large-volume loading operations will be restricted
without additional tankage because oil production
would have to be substantially reduced, if not
stopped, in the event of bad weather or tanker
scheduling problems. We believe the additional
tankage necessary could be available within 12 to
18 months of war's end. The postwar availabilty of
other damaged facilities will depend in large part
on Iraq's ability to perform repairs while the war
continues.
Long-Term Oil Plans
We believe that with effective postwar develop-
ment, overall sustainable productive capacity could
climb to 5 million b/d-more than 20 percent
above prewar levels-within three years of war's
end. Capacity from developed fields in southern
Iraq could be increased from its prewar level of 2.3
million b/d to about 2.8 million b/d. An additional
Secret
26 August 1983
500,000 b/d of capacity could also be brought on
stream from southern fields currently under devel-
opment. Capacity in the northern oilfields could be
maintained at about 1.7 million b/d. Oilfields in
central Iraq will probably add only marginally to
productive capacity in the first three years of
postwar development.
In the longer term, Baghdad's plans call for devel-
opment of three new potential supergiant fields '-
Majnun, West Qurnah, and East Baghdad-as
well as seven smaller fields. Although the complex-
ity of these fields makes performance difficult to
predict, Iraq claims production from these fields
could ultimately reach 2 million b/d. Development
of the new and existing reservoirs could enable Iraq
to achieve and maintain a productive capacity of 6
million b/d or more without relying on the West
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Secret
Boundary representation is
not neossearily authoritative.
ayir OHemrin
Khinagrn
Na(t Kh3neh
East
Baghdad
Iraq
Oilfields and Pipelines
O Developed oilfield
0 Undeveloped oilfield
Oil pipeline
Oil flow direction
on major pipeline
Oil terminal
Majnun
~ `IlNahr
Quma ..maw
Secret
26 August 1983
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Iraq: Projected Maximum Sustainable Oil Production Capacity a Million b/d
1980
Current b
Total
4.1
3.0
Developed fields
4.1
3.0
Northern Iraq
1.8
1.0
Karkuk
1.4
0.9
Bay Hassan
0.3
NEGL
Southern Iraq
2.3
2.0
South Rumayla
1.4
1.4
North Rumayla
0.7
0.4
Zubayr
0.1
0.1
Luhays
0.1
0.1
Nahr'Umr
NEGL
NEGL
Maysan (three fields)
Undeveloped fields
Northern Iraq
Six
Months
Three
Years
Seven
Years
3.5
5.0
5.9-6.7
3.5
4.5
4.4-4.8
1.3
1.7
1.4
1.2
1.4
1.0
NEGL
0.2
0.2
2.2
2.8
3.0-3.4
1.4
1.4
1.1
0.6
0.9
1.2
0.1
0.2
0.3
0.1
0.1
0.1
NEGL
NEGL
0.1-0.5
Southern Iraq 0.5 1.3
Majnun 0.1 0.9
Central Iraq
East Baghdad
West Baghdad
a Assuming the war ends without further significant damage or
deterioration of existing oil facilities and reservoirs.
b Assumes the maximum loss of productive capacity probable from
currently known damage.
Secret 30
26 August 1983
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Secret
Baghdad region, an area of unknown potential west
of the Euphrates River. The West Baghdad re-
gion's oil potential has been preliminarily assessed
at as much as 25-30 billion barrels. Should even 10-
15 billion barrels of the region's potential reserves
prove to be available, Iraq could extend its produc-
tion plateau well beyond the turn of the century.
To facilitate its complex development program, we
believe Iraq will increasingly turn to Western oil
equipment manufacturers and engineering compa-
nies to help carry out the projected export and
production capacity restoration and expansion. Iraq
has recently shown an increased willingness to seek
technical assistance from Western firms. A critical
factor for obtaining Iraqi contracts, however, will
be the willingness of Western companies to offer
favorable credit terms or accept payments made in
oil through long-term contracts.
Oil Market Implications
Short-Term Risks. Should Iraq be able to expand
its exports substantially in the next two to three
years, soft oil market conditions would pose serious
problems for producers attempting to maintain oil
prices. According to most industry observers, the
demand for OPEC oil is likely to increase slowly
during the next few years, perhaps rising to only
about 22 million b/d by 1985. Under such condi-
tions, the chances of an oil price decline will be
quite high if Iran and Iraq attempt to increase
postwar exports. Indeed, oil prices could drop
sharply if Baghdad alone were to attempt to in-
crease exports by 2 million b/d or so without
offsetting reductions by other OPEC members.
Avoiding this outcome will depend largely on Saudi
Arabia. Riyadh has two policy options available to
influence Baghdad's postwar oil policy and its
effect on the market:
? Increasing financial aid to Iraq as an inducement
to limit any postwar increase in oil exports.
? Reducing Saudi oil output to make room for
increased Iraqi oil sales.
The cost to Saudi Arabia of maintaining price
stability could become too great if Iran also at-
tempts to increase its postwar oil exports substan-
tially. Despite three years of fighting, Iranian oil
production and export facilities have suffered rela-
tively little damage. On the basis of what we know
of the condition of the facilities, we believe the
Iranians could raise production by more than 'l
million b/d within two years of war's end.
Long-Term Stability. If OPEC countries can coop- 25X1
erate enough to avoid serious market instability in
the short run, the availability of Iraqi and Iranian
capacity over the longer term will be a stabilizing
influence on the market. Most industry forecasts
project a gradually tightening oil market beginning
late in the decade with the possibility of real oil
price increases during the 1990s. Additional pro-
ductive capacity in Iraq and Iran could be a key
factor in minimizing or avoiding these price pres-
sures, particularly if the present soft oil market
causes some other producers to trim their produc-
tive capacity levels. The Saudis, for example, are
already trimming sustainable capacity by 2.5 mil-
lion b/d from a current level of 10 million b/d.
Beyond this, the availability of 5 million b/d of
Iraqi capacity along with some extra Iranian capac-
ity would provide an important cushion against
supply disruptions from other areas. As a result,
although an early end to the Iraq-Iran war could
create some instability in the oil market over the
next few years, long-term stability may depend
heavily on the increased availability of Iraqi pro-
ductive capacity.
Secret
26 August 1983
2.5X11
25X1
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Iq
Next 1 Page(s) In Document Denied
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
 Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0
Secret
Secret
Sanitized Copy Approved for Release 2010/11/26: CIA-RDP84-00898R000300070007-0