WEEKLY REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001000030004-0
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 30
• Document Creation Date: December 21, 2016
• Document Release Date: April 21, 2009
• Sequence Number: 4
• Publication Date: February 22, 1974
• Content Type: REPORT

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RETURN TO 111-1107
Weekly Review
State Dept. review completed
Top Secret
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Top Secret
22 February 1974
Copy No
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Ilip: \VI I KI..Y Fl I: V11:.W, i',sued every I ridgy morning by the
(.rllir.u of Current Irtlotligt;nce, mports and analyzes signif-
u: utl drwVlopnicnt" of the week thrr_rugh noun on l hur.day.
It Iroclur.ntly include, nralprial coordinated wills or prep.'rect
by the Office fit I.cunornic Resecuch, the Office of Str..Itogic
16-,uarch, anr.l Me I)rrec:Ior,rle of Science and Technology.
I opic,. rptiuii in1J more comprehensive lreatnrcnt inct thole-
low puhli"Iled ,vpar.IInly w, Special Report; are lislod in the
ccnrlr,nls.
CONTENTS (February 22, 1974)
EAST ASIA
PACIFIC
6 Cambodia: The Government's Round
7 Laos: Pushing for a Coalition 25X1
8 Indonesia: Message In the Stars 15X1
9 South China Sea: Island Dispute
10 European Security: Inching Forward
11 Iceland: Wrangling Over the Base
13 Soviets Play Up Diego Garcia
14 Ceausescu's Middle East Gambit
15 Poland: Hierarchical Repairs
MIDDLE EAST
AFRICA
17 Oman?Iran: Mutual ...icurity
19 Islamic Leaders Meet in Lahore
WESTERN
HEMISPHERE
20 Cuba: Looking to Mexico City
20 Bolivia: More Cabinet Changes
21 Ecuador: Military Anniversary
SPECIAL
REPORT (Published separately)
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KOREA: Incident at Sea
The sinking of a South Korean fishing boat
off the west coast last week added a new clement
to the already tense relationship between the two
Koreas. Although the circumstances of the Feb-
ruary 15 incident remain somewhat obscure, it is
clear that the boat sank after being rammed and
possibly fired on by a North Korean patrol boat
in an area north of the Northern Limit Line
but--even by North Korea's tacit admission--in
international waters. Despite the loss of the boat
and all but one of the 12-man crew, the incident
is likely to prove a propaganda boon to the Pak
government and will complicate Pyongyang's
effort to portray the 'Jouth as the aggressive party
in their current propaganda exchanges.
The North Korean action was probably not a
deliberate pre' ocation but rather an effort to
discourage foreign--Japanese as well as South
Korean--fishing boats from operating so far north
in these contested waters. Like many other
nations, North Korea is turning increasingly to
the sea for protein; a Central Committee letter
issued in Pyongyang only the day before the
incident stressed the importance of the Yellow
Sea fisheries. There is also come evidence that the
North Koreans were initially uncertain of the
nationality of the sunken fishing craft, and their
subsequent actions indicate a desire to keep the
situation from escalating militarily. But the naval
incident has resulted in the most heated propa-
ganda exchange between the two Koreas since the
North-South negotiations began in 1971.
Seoul has condemned the sinking, while
Pyongyang claims that the South Korean craft
were engaged in espionage. Both sides are likely
to stick to these lines when the Military Armistice
as already broadcast an alleged spying confes-
sion by the captain of a second boat captured in
the incident.
For their part, the South Koreans are using
the incident to bolster their current anti-
Communist campaign; rallies on the issue have
been conducted in major cities and more are
planned. The government is trying to divert at-
tention from its own problems--particularly its
unpopular authoritarian policies--and apparently
is succeeding to some extent.
Like Pyongyang, Seoul probably wants to
keep the fishing incident within manageable
bounds, but the incident may well icinforce the
government's resolve to strengthen its military
position in the contested area. Seoul is already
planning to reinforce some of the islands it
occupies south of the Northern Limit Line and
has begun construction work. The present plan
calls for a buildup in men and material--including
large-caliber artillery and naval guns-to be com-
pleted by next autumn.
Pyongyang is certain to take a dim view of
such South Korean moves. Since December, the
North has been warning Seoul against bringing
military craft or equipment through the waters
surrounding the islands, which it claims are within
its 12-mile territorial limit. The North has not
protested this South Korean activity so far,
possibly because it is waiting to determine its full
extent, possibly because a verbal response would
be ineffective in any case. Pyongyang continues
to monitor Seoul's actions closely- how-
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The government changes announced this
week reflect a decision by President Thiou to
upgrade the status of Prime Minister Khiom and
to put greater momentum behind economic pol-
icies. The changes do not significantly alter the
government's political make-up, but Thiou hopes
they will improve the efficiency of the adminis-
tration,
Certain responsibilities have been transferred
from the president's office to that of the prime
minister, although Th;eu will remain the ultimate
authority for all major decisions. The naming of
controversial presidential aide Hoang Duc Nha as
information minister enables Thiou to formalize
Nha's recent authority over information activities
while moving him, at least ostensibly, under
Khiem. The latter has been unhappy over Nha's
extensive influence, but it remains to be seen
whether the change will weaken Nha's clout.
Two new deputy prime ministers have been
appointed to oversee welfare and development
activities. Pham Quang Dan, a cabinet holdover,
and Tran Van Don, a retired general and Lower
House deputy, are activists, who presumably are
expected to bring stronger direction to the eco-
nomic ministries, which are now headed by able
technicians and bureaucrats. A third deputy
prime minister, Nguyen Luu Vien, retains his post
and apparently will continue to serve as Saigon's
chief negotiator in Paris.
The cabinet shuffle offered Thiou an oppor-
tunity to drop a handful of ministers whose per-
formances he considers unsatisfactory. The chief
casualty was Pham Kim Ngoc, who has been re-
placed as commissioner of planning by Nguyen
Tien Hung. Nyoc had been retained last October
when other economic and financial officials were
changed, probably because of his good rapport
with Americans. Thiou's unhappiness with eco-
nomic polirv apparently centered on Ngoc, Inas- 25X1
much as the ministers appointed in October con-
tinue in the new cabinet.
Khmer Communist military pressure against
Phnom Penh slackened this week as the insurgents
continued to prepare for a heavier offensive
against the capital's defenses. Cambodian Army
units took advantage of the lull by moving out on
several battle fronts around the city. Government
troops scored their biggest success northwest of
Phnom Penh, where infantry and armor units-
supported by artillery and air strike!-forced in-
surgents from an area within four miles of
Pochentong airport. Local government com-
manders repot Led capturing significant numbers
of weapons, and prisiner reports indicate that the
Communists have taken sizable losses in this sector.
In the southwest, government troops near
Route 3 mounted a drive to erpand their holdings
on the south bank of the Prek Thnaat River. The
Communists are fighting to pevcnt the envelop-
ment of some of their units, inclirling the artil-
lery that has been shelling Phnom Penh. The only
major Communist initiative of the week came in
the Mekong River corridor, where insurgent
gunners carried out the heaviest shelling of the
dry season against resupply convoy.
Ir. the count 'yside, government units from
the isolated provint ial capital of Kompong Thom,
some 75 miles north of Phnom Penh, have re-
cently completed so-viral highly successful forays
into Communist territoi-,. Over 22,000 villagers-
resentful of oppressive (-t.rnmunist administra-
tion-have come out with the government troops
to resettle around Kompong Thom. The Commu-
nists have stripped their military forces in the
province as part of the buildup around Phnom
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2,
the entire membership of the new government.
Souvanna's offer to appoint one incumbent
assembly deputy from each province to the Joint
National Political Council, the principle dd"iso?y
body to the new coalition cabinet, may also have
enhanced the prospects for compromise. In addi-
tion, recent threats by student activists to make
the assembly a prima target of future largo-scale
demonstrations may also have helped reduce
legislative opposition to Souvanna's plans to form
the now govornment by direct royal investiture.
On February 20 the Sananikono clan, which
dominates the rightist-oriented assembly, publicly
endorsed Souvanna's efforts to form the now
coalition.
The Prime Minister has informed the US
ambassador that the last major impediment to
establishment of a coalition government has now
disappeared. Souvanna this week convened the
government's Council of Ministers, a high-levol
policy-making group of senior cabinet officers
that has long been inactive. The council was
tasked with making final selections of government
candidates for positions in the new coalition cabi-
net and the Joint National Political Council.
LAOS: PUSHING FOR A COALITION
Prime Minister Souvanna faiied to meet his
self-imposed deadline for forming a now coalition
government by the first anniversary of the Laos
peace agreement on February 21, but he appears
to be on the verge of at least naming its member-
ship. He has achieved significant progress in re-
solving the differing viewpoints of the King, the
National Assembly, and the Communists over the
proper p,oceduro for the coalition's investiture-
the last significant sticking point in the protracted
negotiations.
Souvanna claims that tie has the King's
agreement to formally invest the new government
even if the assembly has taken no legislative
action. The King previously had maintained that
the constitution required assembly approval of
the new cabinet prior to royal investiture. The
King has indicated to Souvanna that he was
willing to dissolve the assembly pending now
legislative elections.
The threat of such a move may in part
explain an apparent willingness by the assembly
to soften its earlier insistence that it must approve
Souvanna also met with chief Pathet Lao
negotiator Phoun Siprasouth this week to inform
him of the King's now position on investiture.
which is in line with the Communists' view that
the coalition represents a "special" government
requiring only royal approval. Whether this will
be enough to satisfy another important Pathet
Lao precondition for forming the new govern-
ment remains to be seen.
The Communists have steadfastly held that
effective neutralization of Vientiane and Luang
Praban5 must precede the now coalition's forma-
tion. While neutralization of the twin capitals is
proceeding smoothly, it will be some weeks
before the process is completed. The Lao Com-
munist leadership sn Sam Neua may therefore be
reluctant to send its ministers to the two cities
until their safety is assured.
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INDONESIA: MESSAGE IN THE STARS
One tenet of Indonesian political philosophy
holds that the fall of a dynasty is foretold by such
signs as divisions within the ruling elite, decline in
public morality, rising social discord, and the ap-
pearance of now prophets.
President Suharto, who in times of national
stress consults his spiritual teachers more often
than his cabinet, doubtless interpreted the up-
heaval in Jakarta last month as an ill omen in-
deed. His reaction has been to project a new
public image of firmness and authority in order to
restore confidence in his government's durability.
Suharto's new leadership style may also sig-
nify a shift in the power balance within the gov-
ernment. His position among the military elite has
long been characterized as that of primus inter
pares, but he is now behaving like a man who
believes he has supreme authority. I-le has re-
shuffled security and intelligence personnel, put-
ting men considered personally loyal to him in
key positions and removing those believed either
too independent-minded or too close to General
Sumitro, Suharto's most powerful subordinate.
Thi,; new presidential firmness is also being
exercised with the public at large. Reversing a
long-standing policy that allowed relatively free
expression, the government now intends to take a
hard line against critics because Suharto believes
that the former pcrm.~siveness contributed to
social and political instability. Under the new
policy, five newspapers and three weekly periodi-
cals have been closed, the;- publishers banned
from future publications, and their staffs provi-
sionally blacklisted. Officials have promised that
new papers will eventually be permitted, possibly
with government participation. All publications
must now conform to strict government guide-
lines designed to eliminate articles that could
"foment conflict between races, religions and
social forces" or "discredit national leadership.'
This new assertion of presidential authority
has already caused some grumbling within the
Suharto and wife
A new presideuriul stale
military establishment because Suharto failed to
consult them in advance. Although the defense
department has an ex officio representative on
the newly established political and security stabil-
ization council that ratified Suharto's measures,
the council is largely a rubber stamp. Since taking
over in 1966, Suharto has fostered greater cent.al-
izat ion of authority in the Jakarta bureaucracies.
His latest actions suggest he now wants to go one
step further and absorb all power into the presi-
dential palace, a move that could cause some
complications with his military colleagues
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SOUTH CHINA SEA: ISLAND DISPUTES
The offshore island disputes received verbal
attention during the past week, but military ac-
tion was limited to patrolling in the Spratly Island
waters by warships of some of the countries con-
cerned and to Chinese overflights of the Paracel
Islands. South Vietnam, Nationalist China, and
the Philippines all restated their various claims in
public statements but avoided any suggestion that
they were ready for a military confrontation.
Saigon softened its earlier statement, which
had promised to defend claims to both the
Spratlys and the Paracels, by noting that it is
"disposed" to settle territorial disputes by nego-
tiation. A South Vietnamese Foreign Ministry
spokesman declared that Saigon approves "in
rinciple" a Philippine proposal to discuss the
question of sovereignty over the Spratlys, but he
was careful not to commit South Vietnam to
consider any "pie splitting" arrangement with
Manila, much less with Peking. For its part, in an
apparent gesture toward defusing tension over the
islands, Peking on February 17 released all of the
remaining South Vietnamese prisoners ;c had
captured last month in th, Paracels.
Spratly Island
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Representatives from the 35 states partici-
pating in the Conference on Security and Coop-
eration in Europe held their breath as the drama of
Aleksandr Solzhenitsyn was played out last week.
When Solzhenitsyn arrived in the West, they
breathed a collective sigh of relief and resumed
their work. Most delegates from the Western and
neutral states believe that, in the long run, the
Solzhenitsyn affair could harden both Eastern
and Western positions. It app?ars likely, for
example, that the Western representatives will
press the Soviets harder than ever for an agree-
ment on freer movement of people and commu-
nication of ideas between East and West.
The Soviet delegates, also relieved that the
dissident author was expelled, reaffirmei; the
USSR's interest in detente. Although they have
suggested that Moscow might be willing to make
some compromises, the Soviets will continue to
probe the Western side for weaknesses and will
not make concessions until absolutely forced to
do so. Resolution of ~,;.abstantive differences prob-
ably is still several months off. In the meantime,
the conferees will continue the slow process of
drafting the final conference documents.
The problems to be resolved have not
changed. The Soviets hope to obtain multilateral
recognition of the permanence of Euro;. 2's post-
war borders, while the West hopes to gain ac-
ceptance of the possibility of peaceful changes of
existing frontiers. Despite some earlier hints that
they might be flexible on this matter, the Soviets
and their allies last week stubbornly resisted West-
ern formulas that would permit peaceful changes.
The Western delegates, especially the EC Nine,
have made it clear that they will not compromise
on this issue unless the Soviets make concessions
on the proposals for freer movement between
East and West.
In discussions of freer movement, however,
the Soviets and their allies continue to insist that
the Western allies agree to a declaration of rrin-
ciples that would serve as a preamble to any
specific agreements on humanitarian cooperation.
These principles of sovereignty, non-interference
in the internal affairs of states, and respect for
national laws and customs would have the effect
Solzhenitsyn
A collective sigh of relief
of emasculating the specific measures designed to
bring about freer movement.
Discussions of the military asp?cts of secu-
rity are now focused on a British draft resolution
on confidence-building measures-steps designed
to limit military activity. The British propose that
the participating states accept a non-binding
agreement to give prior notification of major mili-
tary maneuvers and movements in Europe and to
invite other states to send observers to maneuvers.
A Soviet delegate has suggested that Moscow
might be prepared to compromise on some
aspects of the proposal. This hint of flexibility
has intrigued Western delegates-and could cause
some problems for the US, which is opposed to
discussing military movements at the Security
Conference because this would make it harder to
obtain a binding agreement on the subject at the
force reduction talks.
Another of Moscow's major goals is to
institutionalize the Soviet voice in European
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developments through the adoption of some type
of post-conference political machinery. Acting at
Moscow's behest, the Czechoslovaks have pro-
posed creating a co, sultative committee that
would meet regularly, ostensibly to implement
the work of the conference. The EC Nine recently
agreed not to accept this proposal, however, and
will suggest instead that appropriate officials meet
after several years to determine whether the
agreements signed at the conference have been
carried out. The Soviets and their allies will
doubtless oppose this suggestion.
The Soviets continue to insist that the final
stage of the .,onference take place early this sum-
mer and at the summit. Party boss Brezhnev made
these points in recent letters to Chancellor Brandt
and President Pompidou. The Western representa-
tives maintain that the timing and level of'the
concluding stage deoends on the results of the
ICELAND: WRANGLING OVER THE BASE
Although differences still exir;, all three of
Iceland's governing parties, includi the Commu-
nist People's Alliance, are publicly backing away
from the coalition's previously expressed aim of
achieving total withdrawal of US forces from the
NATO base at Keflavik during the government's
current term. Youth groups in these parties, how-
ever, are criticizing their leaders and resisting this
shift in policy.
The government's temporizing attitude to-
ward the base issue probably is attributable to the
success of a pro-base signature campaign, which
reached the 46,000 mark earlier this week.
Politicians apparently view the drive's early
success as a good indication that a majority of the
people support the base.
Even Communist opposition is flagging.
Party chairman Ragnar Arnalds was forced to
stop a speech he was giving to a Communist-front
youth organization when the audience jeered his
rationalization of the party's new approach to the
base issue. The dissidents, the self-styled Military
Station's Opponents, then passed a resolution
criticizing the People's Alliance for "favoring a
continued NATO presenck.e in Iceland." The Com-
munist leadership faces a dilemma in dealing with
the base issue. As the architects of the agreement
among the governing parties that calls for troop
vv:thdrawal, the Communists are under extreme
pressure to uphold that line but, by doing so,
they risk toppling the coalitioii and being ex-
cluded from the successor government.
Young members of the Progressive Party, the
main component of the coalition, attacked their
leaders for violating the "will of the majority" by
calling for only a reduction in base personnel
rather than for complete troop withdrawal. Their
charge probably resulted from recent remarks by
party chairman and Prime Minister Olafur
Johannesson, who claimed that the coalition
platform agreement never specified that the
defense force must leave during the present
electoral period.
The third coalition partner, Hannibal
Valdimarsson's Liberal Left Organization, also is
split over the base issue. The party's Reykjavik
branch rejected Valdimarsson's recent comment
that it would be in Iceland's interest to retain the
base. The "generation gap" also extends to the
opposition Social Democratic Party, which has
generally supported the base. The party's youth
organization takes the position that party leaders
should be striving to rid Iceland of the defense
force, not supporting its retention.
After postponing the next round of base
negotiations three times, Foreign Minister
Agustsson recently told the US Embassy he has
no specific date in mind but would give seven
days' notice when the government was ready to
reopen the talks. The government, as well as the
political parties, currently is preoccupied with
efforts to avert a general strike and is unlikely to
address the base issue again until a wage settle-
ment is achieved and the strike threat has
passed.
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SOVIETS PLAY UP DIEGO GARCIA
Soviet propaganda has been highlighting the
danger to the littoral countries of the Indian
Ocean stemming from the US-UK agreement to
expand the naval base at Diego Garcia. Pravda, for
example, charged on February 10 that the con-
struction of another US base in the area was
proof that the Pentagon plans to intimidate Afri-
can liberation movements and countries striving
for their political and economic independence.
Moscow has also warmed up to the Ceylon-
ese proposal that the Indian Ocean be declared a
zone of peace and has pointed to the contrast
between Soviet support for the idea and the al-
leged bellicosity of the US move at Diego Garcia.
Moreover, the Soviets are getting one of their
front groups, the World Council of Peace, to play
host for a meeting on Madagascar in June, in
hopes of highlighting the littoral countries' oppo-
sition to foreign-i.e., Western-military activity
in the area.
There will be more along these lines. The
Soviets may, for example, revive Brezhnev's 1971
proposal to limit great power naval deployments
far from their own shores. The Soviets never
really followed up on Brezhnev's suggesti,n, but
they have kept the idea alive in various journals
and alluded to it in the central press last Novem-
ber when the US deployed a carrier task force
into the Indian Ocean after the Middle East war.
At a minimum, the Soviets will exploit the oppo-
sition of many littoral states to great power naval
rivalry in the Indian Ocean, hoping to increase the
political costs for the US of the decision to make
greater use of Diego Garcia.
The USSR may increase its efforts to per-
sua& India to grant the Soviet Navy privileged
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access to Indian ports, although it is unll,,oly that
Now Delhi will change its present ',von-handed
policy. The Soviets will probably also make new
attempts to got naval reconnaissance facilities in
the area. They are building an airfield for the
Somalis near Mogadiscio, fair example, which
could ultimately support Soviet naval reconnais-
sance aircraft.
Moscow is genuinely concerned that the US
decision presages a larger US naval presence in the
Indian Ocean. The Soviets are afraid that the US
eventually intends to move at least some of the
naval forces now off Vietnam to a permarent
station in the Indian Ocean, where they \.~ould
impinge more directly on Soviet interests.
Ir all likelihood, Moscow will increase the
size of its own naval forces in the area. It would
have taken this step no matter what the US did
since the Soviet force in the Indian Ocean is still
not as large as that of the Western riavios, but the
recent US announcement probably means that
Moscow will have to act sooner than it had
planned. Any permanent increase in the near
future will require the USSR to draw down forces
elsewhere.
In sum, Moscow's military optio.,s are not
attractive. Realization of this could cause the
USSR to givt serious attention to the various
Indian Ocean disarmament schemes rather than
simply trying to exploit them for propaganda
President Ceausescu's nine-day whirlwind
tour of Libya, Lebanon, Syria, and Iraq drama-
tized the flexibility of Romanian foreign policy,
but the tour was essentially a triumph of image
over substance. Nevertheless, the result is impor-
tant to Bucharest, which probably recognized
from the outset that Ceausescu's talks with some
of the Arab world's more immoderate leaders
would not produce significant results.
Ceausescu's firs( slop, in "f ripoli, brought the
most hospitable reception of the lour. Anxious to
improve his tarnished international image, Pre-,i-
dent Qadhafi overlooked Ceausescu's synipalhi,?s
toward Israel and warmly welcomed the Roma-
nian leader as the first Last European hand of state
to visit Libya. Six bilateraI cooperation agree-
ments were signed, and the establishment of dip-
r rrnatic ties was approved in principle. Rumors in
Bucharest also suggest that Ceausescu may have
engineered a substantial oil purchase.
In the other Arab capitals, Ceausescu re-
ceived more guarded treatment: Romania's diplo-
matic ties with Israel were clearly the sticking
point. In every in,tance, however, communirtue~
summarizing the talks managed to paper over
contentious issues and to call for increased eco-
nomic and political cooperation. The sensitive
matter of a threatened Arab boycott of Roma-
nian goods was studiously avoided in public, but it
doubtless came up during private talks.
Throughout the tour, Ceausesct, emphasized
that Romania stood behind the "just cause" of
the Arabs. Without showing any willingness to
alter his country's attitude toward Israel, he im-
plied a readiness to use his influence in let Aviv
in support of Arab interests.
Romania's capability to influence the Israelis
is evidently quite limited. A Foreign Ministry
official in Tel Aviv recently compar. d Ceausescu
to Tito by rioting that each had caught the "Bal-
kan megalomania bug." He added, however, that
Israel feels it necessary to be politely attentive to
Bucharest, because Romania is the only Commu-
nist state to ma'ntain diplomati- ties with Israel.
Yasir Arafat may have been similarly polite, but
he apparently declined Ceausescu's offer to set up
an office of the Palestinian Liberation Organiza-
tion in Bucharest.
On balance, the tour underscored Romania's
determination to continue to seek a constructive,
activist role in Middle East peace efforts. In that
context, the trip may help salve the bruism, pride
Romania suffered from the reiection last fall of
its efforts to participate in the UN's peace-
keeping force.
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POLAND: HIERARCHICAL REPAIRS
The changes in Poland's par :y and govern.
mont on -abruary 15 aru part -` ;,.,rty ct:ief
Gierek's continuing effort to improve administra?
live efficiency and tighten control over key
sectors of Polish life,
In the most significant moves, Katimiorz
Barcikowski replaced Join( Okuniewski as mirn-
istor of agricultuin, and Jozof Tejchma took over
from Stanislaw Wronski as minister of culture and
art. Both now ministers are 46 years old and
belong to the postwar generation of Polish of-
ficialdom -well-educated and ambitious-that
carne into its own under Gierok. Both men have
served as party experts in their fields --ind appear
well suited for posts that are destined to take on
added importance.
Gierok has recently been stressing that in.
r,oased agricultural production is the key to oco-
nomic success. In Barcikowski the party boss has
4 top-flight, experienced, and loyal administrator,
i ;ierok is also well aware of Moscow's push for
bloc unity on ideological matters- especially in
light of Solihenitsyn's exile and has apparently
given Tajchrna, a recognized liberal, the task of
tightening up Poland's pragmatic and flexible
cultural policy. Tolchma could be the man to
introduce low-key restraints without causing
and is alarm among Polish intellcIctualk.
These changes were accompanied by shifts in
the party designed to increase flexibility and ex?
pertiso. Tajchrna and Barcikowski remained on
the powerful Politburo, as full and candidate
members, respectively. Because of his ministerial
appointment, Barcikowski had to give up his post
as party secretary. Three newly appointed socro-
tarios, however, increased Gierek's pool of readily
available talent, Jotef Pinkowski is qualified to
carry some of the heavy burden in economic
planning, while Andrzoj Worblan is a veteran
theoretician adept at adjusting idcology to the
needs of the moment and to Soviet desires. Also
well grounded in ideology, Wincenty Krasko sup-
plies an added dimension as an expert in Western
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visits to military units, I hisayn has hecorne aware
of same of the enlisted men's legitimate yriev
once; and also that several officers have been
guilty of nrgligence. In some btstances, he has
already issuer) orders to rectify prohlemc and is
tepurledl; planning to take additional ',fells to
improve troop morale,
dent Bedouin soldiers severely for ,iirintl their
ifusayn reportedly intends simply to dis?
charge the train participants in the mutiny as
quickly and quietly as possible. fie may also rep
riming sc?nie negligent officers. This wotil.i' have a
salutary effect GO the array as .1 whale and would
please some important disaffected tribal "eaters
who fear that the King plans to punish the dissi?
JORDAN: i4USAYN IN CHARGE
King ilucayn consulted wilh parliamentary
aril Tribal leade.s this week ,and visited army units
throughout the country in under to demonstrate
that he ;s in full control in the wake of Iii(. recent
mutiny. Although t:)ete is still some yrumhling
and uneasiness among the ranks, the army appears
to have -aln.ed (town.
The. King is still being urged to dismiss Prime
Minister fUifai and army chief of staff fain Shakir.
who became the focus of much of the discontent
that surfaced dc;iwng the mutiny. 1-lusayn. how.
ever, s unlikely to replace either man soon tot
,e?r of giving the impression that he is giving in to
t:ie mutineers.
OMAN-IRAN: MUTUAL SECURITY
I allowing Several postponements, Sultan
Qabus of Oman and his foreign minister are
scheduled to; ? -A Tehran on March I to discuss,
among other things. an agreement for defense of
the eoliance to the Persian Gulf. The Shah wants
to conclude a security pact with Oman to ensure
that the Strait of Hormuz-- through which all on
exporlerl from Iran mu>t pass remains in friendly
hands.
Since August, the two countries have been
holding Intermittent secret talks in Geneva on
questions of a median line, territorial waters, and
the continental shell. Decisions on these -subjects
could have signify-ant implicatio is for defenmt of
the strait as well as for oil exploration.
The King no lonyar seems to believe-if he
over really did-that the army dissidence was the
work of disloyal conspirators or foreign agents.
As a result of the official inquiry and his own
Qabus is likely to be receptive to Iranian.
proposals. Last fall, the Shah authorized ) sub?
stantial increase in Iranian military assista,,ca for
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rt OATAQ
j ,MINI
1 uNITAD ,f1AM
\'. AMI~'~"y~~~r
r ~ - TM11ilArTE!
YEMEN
(Aden)
~MrtwN
the Sultan's continuing fight against leftist guer-
rillas in Ohofar Province. By the end of Decrm?
ben, the promised 1.?00-man Iranian force had
arrived in Oman to augment The 150.200 Iranians
who have served there since January 1973.
The dilemma Qabus will face in Tehran is
how to be cooperative with the Shah without
alienating the Arab states bordering the gulf.
Some Arab states-arid not just radical ones-have
already noted the large Iranian manpower corn-
mitrtnent and are ;uspiciiii, of the Shah'; irtten-
tions. I here have been , unions dernind by Oman
that, in nxchatnge for rt-ilitary a si;lance, the 5111..
tan has agrencl to cede to Iran several ;mall
islands, thereby ensuring Tehran'; c.nnI of rrf
access to the Gulf,
In t)hofar, rtteanwhile, fighting continuo';
between government force; and guerrilla hark of
the Popular Front for the Liberation of Oman
and the Arab Gulf. In late Decertnher, :he newly
arrived Iranian airborne brigade succeeded in
opening the only road frond the interior of the
province to the important coastal town of Sal-
alah. Although still subject to occasional attack,
military and supply vehicles can now move on the
road for the first time since 1970.
Because of Or"an's deltenclence on aircraft
for moving troops and supplies to isolated posts
in the mountain-, and for conducting strikes
against Popular Ftont units, the government is
moving to augment its helicopter fleet in 1974, In
recent weeks only two of Oman's seven heli?
copter s have been in operation; the 10-12 Iranian
helicopters in the country are used primarily to
support the 'ran ran aithotne brigade.
In late January, live Bell 205 A. I helicopie.rs
and spares valued at $3 6 million were Ordered
from the US. These helicopters, along with seven
A13.205 purchased from Italy in 1973, were
originally scheduled for shipment in 1975. but
will now be delivered later this year.
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liepresentaIive; ftorn almost all Muslim
I, oilrltries, including many chiefs of state, will
convene on I ebruary 22 in Lahore, Pakistan. A
preliminary meeting of foreign ministers began on
Iu';day. Largely a; a rr,sult of the efforts of King
1 aysal of Saudi Arabia, the chief promotyr of
Islamic coliclarity, annual foreign ministers' meet,
iog; have been held sioc.e 19 /0. 1 he only previous
surninit w.)-. at IL;,bat in 1969.
The Lahore conference was proposed by
Pakistani Prime Minister Bhutto shortly after the
latest Arab-Israeli war. Because of the reluc'ance
of some leaders to attend, it has been postponed
several tunes. President Suharto of Indonesia. the
Shah of Iran, and King Hassan of Morocco still
have doubts about the usefulness of a rneetinq at
this time and will not attend, although their coun.
tries will b(' represented.
The main points on the agend'r will be the
status of Jerusalem, a settlement in the Middle
feast, and several proposed joint projec is. such as
a development bank to be financed by the oil?
producing nations. King Faysal who is footing
much of the bill for the meeting is particularly
concerned about Jerusalem. He feels he has a
?.porial rmponcihiGly to con 111.11 the area of the
Dome of the Rock. the third holiest shrine in
Islarn, is returned to Arab control.
Saudi Arabian Minister of State Saqqaf has
flown directly from the US to Lahore, pro-
sum,ibly to report to Faysal and other Arab
leaders on his talks in Washington. Leaders of the
four countries that met in Algiers last week-
Saudi Arabia, Egypt, Syria, and Algeria--may use
the occasion for informal consultations on the
results of the mission undertaken by Saqqaf and
Egyptian Foreign Minister Fahmi.
The delegates to the summit will probably
make. an effort to avoid disagreement, at least in
public, and the final communique of the meeting
is likely to be little rnorca than a pro. or:~ra state.
inset. In ,;,:vale, however, there are a number of
issues that could prove divisive.
Oil could hn nor, such troublesome issue,
Although the continuation of the enlhargcs a;ainst
the US and other countries will probably came
up, the emphasis is more ;ikely to he on the
damage (tone to Muslim c:ountrin; that do not
produce oil by the sharp rise in thr price of crude.
These countries will be seeking an arrangement to
cushion the effects of their higher costs.
President Qadhafi of Libya had been ex-
pecled to lead the Arabs who oppose negotiations
with Israel. His recent reconciliation with Sadat
and his reported fence mending with F,lysal, how.
ever, suggest that he has become worried about
his isolation from the Arab mainstream, He may,
as a result, adopt a less radical stance. Moreover,
Sadat is probably right in expecting that :
moderate posito)n on negotiations will receive the
hacking of most non-Arab Muslims,
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CUBA: LOOKING TO MEXICO CITY
thr-n at ;ign; that ilavana is acutely in.
Iere;terl in the rneeting of foreign minister; now
takioq 1-larr0 in Mexic_c,, In light of time significant
pr ogre;, made recently by flee US toward solving
1 cog ;landing prol-Inrms with both Peru and Pan.
,)Ina, the Cast o) regirr-e is apparent pt,' wandering if
Washington may be willing to rnak" r tnt.essic-ns
at the meeting in order to maintain the momen.
turn of the present favorable trend In UJS - Latin
Attwtit an r"lation',
I eat till of rnissinq an c.;-;-orIunity to benefit
from that rnornentum of even worse, of being
bypassed by events, fill? Cubarr, have indicated
that they may be ready to respond in a positive
manner to any US initiative aimed at overcoming
the impasse. There is no evidence, however, Vat
i lav.;na has retreated on any of ill(! demands it
s.ly, must be satisfied before formal relations can
i-e tesIored. In fact, Havana has repeatedly
emphasized that the US must make the first move
and roust unilaterally terminate the so-called eco-
nomic: block.,tie before any negotiations.
During a monthly luncheon of the diplo-
matic club to Mexico City earlier this month, a
relatively obscure Cuban diplomat tpersistently
queried a LIS Embassy official on the Mexico
meeting. He repeatedly emphasized that Secretary
Kissinger's remarks at the conference would be a
key factor in determining the Cuban attitude
toward the US. The Cuban diplomat was appa-
rently will to Mexico specifically to cover the
foreign ministers meeting, and, in view of the
Castro regime's extreme sensitivity on the subject
of rapprochement with the US, it is likely that he
was speaking with Havana's authorization.
accnsrnodatiorr," t.ut then acknowledged that
this would plate the Cuban Government in the
dilemtmnn of having to r,aercome its conteotinn
that Cuba was illegally expeller) from the OAS.
Although Ibis may lip a serious Cohan initia-
live to bring about a thaw in relations with the
US, several other motives could al,o be involved,
1he Cubans may feel that thy are being left in
the backwash of event, and must give some evi-
dent.e of a willingness to negotiat.c in order to
avoid being ,ens. doted irrelevant in the ccxmtoxt
of US . Latin American diplomacy, they may
also hope to encourage speculation among other
nations in the hemisphere that a major change in
the Cuban-US relationship is irmrninent and thous
precipitate a rush of diplomatic activity by coun-
tries anxious to avoid the eobatrassrsent of being
the last to restore formal ties with Havana. Or the
Cubans may merely hope to raisa expectations so
high that when they are not realized, the meeting
will be considered a failure and the US can hu
made the scapegoat.
By adding fuel to the rumors of an im-
pending change in the US position, Havana Intly
be trying to encourage the foreign rinisters to
urge Secretary Kissinger to effect just such a
chcnge. In Cuba's eyes, a US refusal :-)uld antag-
onize many Latin Americans and would put the
US on the dofensivu. An acceptance, on the other
hand, could (u- portrayed by Havana as a victory
over "imperialism."
Despite receiving no encouragement to con-
tinue the conversation, the Cuban probed for a
reaction to US industrialist Cyrus L,itun's remarks
on the need for a change in US policy. He said he
thought the comments of the Cuban ambassador
to Mexico at a press conference last me nth -and a
subsequent clarification by Cuba's foreign
minister-were meant to signal the US that the
Castro government is interested in seeking some
kind of accommodation. He surmised that even-
tual reintegration into the Organization of Ameri-
can States "might perhaps be the ideal path to
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BOLIVIA: MORE CABINET CHANGES
Last week, President Banzr, reorganized his
administration in an attempt to shore up his
position and improve government efficiency.
Although Banzer has requently reshuffled his
cabinet, past shifts have involved individual posts
rather than structural change. This time, four
cabinet posts have been combined into two, and
have been filled by technocrats who can ac' as
buffers betweer. President and critics.
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( Inn of Ili , II nv+ Ili ,,f 11) 1111-.Ir r , ,Iorttinalr,r
trl the presider,, y, ha', Irr,tn fr'Ind by ltol)'rto
t;alrriln;, tine (if liar,znr'; aI' i~-nt I In aI>(ra
-(Inlly will he it) r I,arga ',f 'lay-toMday operation:,
thus finning (tamer t'r r onr''ntraln on major polit-
ical and military deveIol)rn?, t;. II)n President also
expanded flit, author ity III Minister of Agrir ultutn
Nato;( h Mosel by g,vin~t him ( onbol over canlpn.
sift() affairs. Ihis is .1 pat ticularly sensitive post in
light of peasant pretest;, which ten nutty posed
this most serious threat to Itanzer's regime so far.
ECUADOR: MILITARY ANNIVERSARY
The Rodriguez administration has quietly
celebrated its secant anniversary, bolylnq early
pessimistic forecasts by local observers of its lon-
gevity. Indeed, the military government has
become sufficiently Institutionalized to permit a
surprising degree of generalized criticism, al-
though criticism of individual members of the
administration remains tacitly proscribed. In an
anniversary Speech last weekend, the President
asserted the irreversibility of the military revolu-
tion and scorned any thought of a return to
democratic government.
The military coup of February 1972 coin-
cided with th' beginning of the country's petro?
leun) ,production, which has since brought income
arxt a certain amount of international leverage to
the government. Substantial economic agreements
nave been concluded or are in the offing with the
Soviet Union, Poland. Romania, North Korea,
Spain, Japan, and the EC. In addition, Ecuador
has managed to secure a preferential position in
the Andean Pact.
The country's stance in the Organization of
American States and at the foreign ministers'
r',nnlinq in Mexico this week has been generally
Meetly to the US. One longstanding problem in
US relations is (of) the verge of being settled with
I_clrador's agreement to pay its ottIslanding debt
for 1)S military sales. At the same Iirtiv, I oreign
Minister Lucia Parettes hill shown settle interest in
a n golialpd settlement of Ill.! pererwlial tuna
fish rug dispute, a11hough hit has implied that what
(.cuadm view, as restrictive US legislation- such
as the I isherrnen's Prsotective Act roust first hn
repealed. Meanwhile. US tuna loaf: fishing inside
Lcuador's claimed 200-mile territorial water;
remain liable to seizure and fines. The ahsence of
;ucii incidents this season can be credited largely
to the poor tuna run rather than to any major
change of policy.
the unfolding of the third year of military
rule. vi ill see a continuation of n,ltionalisrn, par?
Iic:ula,ly in iegard to oil. The governmer'. is likely
to rnaintail) its indapvnderx.e within OPEC,
retaining the option to disregard any future
policy of the group tha; rtti;ht be inconsistent
with Ecuador's desire to sell as much oil as pus.
Able at the highest price. As oil replaces tun,,?boat
seizures as a source of nationalistic pride, the
government's future interest in seizing boats is
likely to decline.
Domestically, there is more uncertainty.
Las' week, the almost routine character of stu-
dent dernonstiations suddenly altered with the
fatal shootiny of a respected professor. Also last
week, the government issued an order for the
arrest of the Socialist Party Ic ider for "injurious
expressions" favoring renewe,, political activity.
These two acts are likely to spark additional
protests. A more positive government re-
sponse-this one dealing with labor-was a recent
decree law closing a loophole in the Labor Code
by which m,,ri gement had been able to reopen
settled disputes arbitp irily. The question for
Rodriguez' third year in office 's whether he will
be able to translate to the domestic scene some of
the forward movement his government is eniovinn
in the area of foreign li
F 71
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~/rlGc / (I t '/~
Secret
OSB FILE COPY
RETI1"11 TO 111-1101
Weekly review
Special Report
ti c,,&,wla: Prarpccu Under Per z
Secret
N! 426
February 22, 1974
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VENEZUELA
Prospects Under Perez
1 uiiu-neulecIea
farm copulation,
hoping to make
agriculture an
''engine of de-
velopment."
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The landslide proportions of Carlos Andres Perez' victory in the presidential
election and the unprecedented majority his Democratic Action Party won in Congress
give his government the potential to be the strongest Venezuela has had since that of
Romulo be;1ncourt (1958-63). In contrast to President Caldera, who was short on
both public support and congressional backing throughout his term, Perez will begin
with a secure position of leadership and a generally free hand as president.
His chances to sustain this strength appear
good. Despite his background as a controversial po-
litical figure over the years, the vigor and de-
cisiveness he displayed in his bid for the presidency
clearly appealed to the electorate. During the pre-
inaugural period, he has worked to nurture the new
spirit of dynamism by conducting an intense round
of press conferences, TV appearances, newspaper
interviews, aid consultations with advisers and
experts. He means to give substance to his cam-
paign motto, "Democracy with Energy," through-
out the five-year term that begins on March 12.
He in+ ds to focus on domestic matters,
where his philosophy is mildly leftist and reformist.
Venezuela's oil boom and high per capita
income have created a picture of pros-
perity that is still unavailable to large
segments of the population. The con-
spicuous consumption of the privileged
has created severe social tensions,
which the new government is intent on
easing. Perez intends to build on the
industrial development
programs launched by his
predecessors and to as-
sist Vene711e1A'e
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SECRET
Special Report
Verur,uela's oil boons nul Itiglt per capita income hate created a picture
of prosperity that is still unarailable to larqe segments of the population.
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SECRET
Oil: A Tool and a Symbol
Perez feels that the domestic programs he
envisions can be realized only by better manage-
ment of the country's oil resources. He believes
that Venezuela's oil treasure represents a power-
ful tool from which he can extract both the funds
and concessions needed to implement his pro-
grams. His determination to make oil work more
effectively for Venezuela's needs is reinforced not
only by the heavy world demand fo petroleum,
but also by the political necessity to respond to
the nationalist mood in Venezuela.
For the Venezuelan public, the foreign-
operated oil industry has the same symbolism as
did copper in Chile. Besides their deep resentment
of the very visible role of foreigners in economic
and cultural affairs, Venezuelans at all levels of
society feel the need to express their new-found
sense of national identity, and are increasingly
protective of their national assets.
The rising spirit of nationalism has also fed
Venezuela's desire for a leadership role in the
hemisphere, and oil serves that ambition as well.
Perez has already put his prestige on the line by
annou icing that he will use his oil policy to break
dowr ' e "totalitarian" trade policies the indus-
trialized nations adopt in dealings with the devel-
oping countries. Perez told visiting economic min-
isters from oil-short Central America that his ad-
ministration plans to use its increased oil revenues
to help the less-developed countries. He ruled out
any special price on oil for these countries, but
indicated that he.. would consider providing long-
term, low-interest financing for petroleum sales at
market prices. He also guaranteed that Vene-
zuelan oil would be available to the Central
American states.
In protecting the country's independence,
particularly in oil matters, Perez must be even
bolder than his predecessor, who was able to
provide for government exploitation of gas re-
serves and to decree a host of minor controls over
foreign oil interests-despite their vigorous pro-
tests. In fact, because of accusations that he and
other Democratic Action administrations have
been friendly toward US business interests, Perez
may lean over backwards to avoid seeming to
favor US corporations operating in the country.
Caldera will not give Perez an easy starting
point. In his few weeks left as president, Caldera
has already expropriated two almost-defunct por-
tions of Creole oil concessions and plans other
nationalist measures, such as converting foreign-
owned milk and electric power concerns into
mixed enterprises with Venezuelan Government
participation. Party leaders are preparing a draft
bill calling for immediate nationalization of the
oil industry when the new congress convenes on
March 2. Complete nationalization at this time is
a highly unlikely possibility, yet an idea worth
plenty of political capital. In an action designed
in part to counter the opposition's political gam-
bit, Perez told a number of journalists recently
that present foreign oil holdings will revert to the
state within two years after his government takes
office.
In the new congress, Caldera's Social Chris-
tians, as the major op;-)osition party, will beat the
drums of nationalism whenever the new govern-
ment exhibits apparent weakness in its dealing
with the oil companies or the US. The party's
courses of action are somewhat circumscribed by
the fact that it is still in considerable disarray
following the elections. A party congress, report-
edly scheduled for June, has been put off until
later in the summer, presumably to give Caldera
time to orchestrate the conclave. This may avoid
a fractious session marked with recriminations
over the recent election and divisive debate over
the tactics and policies that the party should
espouse during Perez' administration.
Venezuela's Market: The US
It is with this set of convictions and pres-
sures that Perez will launch his effort to secure a
better deal from the US, Venezuela's traditional
and still-favored market. But his approach and
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Venezuela
caraw^
Nordn
blmaa
011
All. EI Pallto \Punrla Culplto ,
Special Report
Mene Grande NalaRn
El
Encoglradaa La Sal U ?na ? LeEl
Oilfield
Selected crude oil pipeline
Refinery
Petrochemical complex
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SECRET
style will be those of a pragmatic businessman,
not those of a demagogue or ideologue. Perez is
unencumbered with the ideological baggage of his
Social Christian predecessor, and lie senses no
practical or political advantage in joining the
ranks of Yankeo-baito,s. He has gone along with
Caldora''s decision to take a percentage of oil
royalties in kind, but has passed up opportunities
to threaten a forced lowering of production
during the oil crisis. In essence, Perez has no basic
disposition to be an adversary in relations with
the US, with which Venezuela-and his party par-
ticularly-has enjoyed cordial ties for a long time.
Yet Perez has expressed dissatisfaction over
what he sees as disequilibrium in US-Venezuelan
relations. Venezuela, he believes, should receive
more from the US in exchange for being a de-
pendable supplier of oil-more, that is, than high
prices and an assured o iarket. Specifically, Perez
hopes to achieve:
? the removal of trade barriers to non-
traditional exports that he hopes to develop,
such as metal products, chemicals, and petro-
chemicals;
? assured adequate supplies of industrial
raw materials and agricultural products (cot-
ton, black beans, wheat, soybeans, pulp and
newsprint, synthetic fibers, stainless steel, fer-
rous scrap, and equipment such as farm
machinery-all of which are in short supply
world-wide) ;
? technical and managerial assistance for
development projects at reasonable prices.
Perez will probably be most interested in
negotiating the general terms of an over-all eco-
nomic agreement that includes oil, trade, tariffs,
and other pertinent fields. He will be hesitant to
.iegotiate a gc:"ernment-to-government agreement
based strictly %n oil, having already expressed his
concern about the pitfalls of such an agreement.
Special Report
He will want to keep fairly open the range of
options he has in such matters as the nationaliza-
tion of the oil industry, a goal Venezuelans in
general want to achieve during the new presiden-
tial term rather than in 1983, as now officially
scheduled to begin. As a first step, Perez report-
edly plans to set up an autonomous government
organization that will he responsible for planning
and managing the early reversion to Venezuela of
foreign-owned oil companies. The organization
would be ;. cabinet-level office separate from the
Ministry of Minos and Hydrocarbons, which
would concern itself only with the day-to-day
short range management of petroleum matters
other than reversion.
Perez is likely to be a tough but not intract-
able bargainer. His hand is strong because he has
both alternative markets for oil and other sources
of investment as well as a huge budgetary leeway
for absorbing the initial losses that would prob-
ably follow any reorientation of Venezuela's mar-
kets and trade relationships. if, despite his prefer-
once for good relations, he eventually arrived at
an adversary relationship with the US, he could,
with Venezuela's resources, break past ties with
the US without risking an economic crisis. Perez
is confident, however, that the US urterest in
continuing good relations with an important
neighbor and in maintaining access to Venezuelan
oil will lead to eventual accommodaticn to Vene-
zuela's needs.
Venezuela has had oil development and mar-
ket offers from Japan, Romania, Western Europe,
and Brazil, but the US remains Venezuela's most
attractive economic partner. This partnership is
natural from a geographical standpoint and be-
cause of the history of a long political friendship
during which abundant and varied lines of contact
have developed. Because the great bulk of tech-
nical equipment throughout Venezuela's modern
sector is made in the US, it will be much easier
and less expensive for Venezuela to maintain its
ties with the US than to break them. The fre?
quent consonance of views in international a.fairs
reinforces the comfortable relationship.
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February 22, 1974
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Current oil production, around 3.2 mil-
lion barrels a day, is about 3 percent above
1972 levels but is very near c.apacily. 14".
Coolly lightened conservalinn restritlion%
could reduce 1914 production about 200.000
b/d, Production potential has declined be-
cause of limiter) ekploration, proved reserves
have declined and ate now equal to about 1 1
yriars' production at current rates. The con.
cession agreements call for reversion of con-
cessions to the state beginning by 1983 with-
out compensation. The net book value of US
investment in the Venezuelan petroleum sec?
tot declined from almost $2 billion in 1960 to
about $1.5 billion in 1972, Drilling activity
was down from 632 wells in 1970 to 490 in
1972, and of these only 64 were exploratory,
Petroleum generates about one fifth of
GNP, two thirds of government revenues, and
90 percent of export earnings. Revenues from
oil have risen from $1.8 billion in 1972 to an
estimated $2.8 billion in 1973. for the cur-
rent year, revenues could reach $8.11 billion.
In 1973, the government's budget amounted
to only $3.4 billion.
and to acquire complex new technology.
Development of the Orinoco Tar Belt,
which contains an estimated 700 billion bar-
rels of heavy oil (of which about 10 percent is
recoverable under current technology) will re-
quire estimated outlays of $4-6 billion to de-
velop production of one million barrels daily
Special Report
.6- February 22, 1974
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US nil conlpanip; are gpnp-ally opbrnistir.
about flip new p!la;e in relation; that they believe
is at hand. None realistically expert; a return to
the "good old days" of the eatly 19E%(.s when
Vp te;upla was content to play a secondary role in
reaping flip twnefit; from the exploitation of its
own basic natural -esourcgs Oil company official;
are convirlcprl that foreign firth; have a definite
role to play in the future of Venezuelan oil lint
riot to the Sarno extent as now, Venezuela, they
feel, rasp; not have the .:! ility to handle the enhrp
oil httlu;lry, including the development of the
Orinoco Tat Tat, by itself and will need foreign
know-how.
All company official-, accept flip irirvitabilily
of change in government-industry relation s, are
alive to the opportunities they helieve can lie
ahead, and have been seeking useful discussions
with prospective officials of the incoming govern.
ment. Different positions, scale of operations and
corporate philosophies have giver, rise to clrfferinn
tactical approaches. Although there are some (dif?
ferences of opinion as to the exact norm the new
cornpany?governrnent relations will assume, most
US companies believe the Perez administration
might promote a series of regional consortia, pus.
sibly with already established companies given 1
lead role, that would assimilate the existing patch.
work of roncessions. There is general belief the
the next atlnunistrafion will probably move tu?
ward some Iranian type arrangement whereby
Venezuela will assume full ownership of produc?
trig areas with private companies providing set-
Vices in exchange for assured punch ise rights.
Although Venezuelan national-
ism is worrisome, and tax and price conditions
can change overnight, several companies are pre-
pared to invest in a joint venture with the govern-
ment to exploit oil reserves in eastern Venezuela.
flip US Lmba;;y regards as a particutarlh
enr_ cluraging asfwct the widespread tendern.y
among the oil I otlipaoies to emphasize flexibility
in dealing with the emerging pptrolpurn ;iteiation
Therp is little of the pp;;ioli;oI and hat-, 14, to, flip!
wall philosophy that was prevalent only last year.
Whether the present optilthisrn is merely a
lingering) afterglow front the eleclion results, or a
realistic asap;;merit of their position vl;.a.vi; flip
new gnvprnment, is yet to be determined, fhp
first few months of the new atlrnin;tration will set
the tone. If the Venezuelans perceive a genuine
willingne;; on flip part of both the oil companies
and the US to establish a dialogue will, them on
nil polit y, then an important first step will have
been taken to settle an issue that has come to
cloud relations with the US.
The Generally auspicious outlook for US.
Venezuelan relations would probably change only
it Perez carne to believe that the US was unwilling
to crrl;rder and try to meet Venezuela's minimum
needs. Meeting Venezuelan demands will riot he
easy for a variety of reasons, including legislative
or treaty inhibitions on g1 sating certain privileges
and the scarcity of some i ,f the go`uls Venezuela
wants. Perez will probabl;, argue, as Venezuelans
have in the past, that "special relahunchil-s" like
those they believe the US has with Mexico and
Canada can be worked out.
Because of the highly charged environment
of the oil crisis and Venezuelan antipathy toward
the oil companies, frictions in bilateral relations
are inevitable, These probably will not pose a
serious obstacle to a working arrangement that
assures delivery of oil to the US, however, so Iona
as Perez and his negotiators believe tha US is
responsive to what thev see I% economic and
political necessities.
Special Report
SECRET
February 22, 1974
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