INTERNATIONAL ECONOMIC & ENERGY WEEKLY 30 SEPTEMBER 1983

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84-00898R000300120009-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 44
• Document Creation Date: December 22, 2016
• Document Release Date: October 28, 2010
• Sequence Number: 9
• Publication Date: September 30, 1983
• Content Type: REPORT

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Directorate of I Secret
Intelligence
International
Economic & Energy
Weekly
Secret
DI IEEW 83-039
30 September 1983
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International
Economic & Energy
Weekly
30 September 1983
iii Synopsis
1 Perspective-The Soft Oil Market in Near East-South Asia
3 Briefs Energy
International Finance
Global and Regional Developments
National Developments
15 Middle East-So h Asia: Re ional Interdependence and the
Soft Oil Market
23 Persian Gulf Oil Still at Risk: Some Economic Implications
35 OPEC Persian Gulf States: Reduced Foreign Aid
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Comments and queries regarding this publication are welcome. They may be
directed toDirectorate of Intelligence, telephone
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30 September 1983
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International
Economic & Energy
Weekly
Synopsis
Perspective-The Soft Oil Market in the Middle East-South Asia
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Lower oil revenues are forcing a more tight-fisted attitude toward government
spending throughout the Middle Eastern-South Asian region. Even the oil-
rich OPEC states, ever mindful of the need to maintain sufficient economic
momentum to forestall political and social unrest, have begun to adopt some
restraint. 25X1
Middle East-South Asia: Regional Interdependence and the Soft Oil Market
Because of the close interdependence among countries in the Middle Eastern 25X1
South Asian region, the economic effects of a prolonged soft oil market will be
widespread. Although financial reserves will cover the loss of income for the
major oil exporters in the short term, they face tough spending cuts if the soft
oil market persists beyond the middle of the decade. 25X1
Persian Gulf Oil Still at Risk: Some Economic Implications
The delivery of five French Super Etendard aircraft to Iraq-which we believe
is likely-increases the possibility of an escalation of the Iran-Iraq war tha25X1
Iraq: Economy Under Siege
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With major oil export facilities inoperable and Damascus refusing to allow oil
deliveries through the Iraq-Syria pipeline, Iraq's oil revenues have plummeted
to less than one-third prewar levels. The Iraqis already have virtually shelved
their development program, and Baghdad has been forced to slash imports this
year for the first time since the war began in 1980. 25X1
OPEC Pesian Gulf States: Reduced Foreign Aid
Aid disbursements by four OPEC Persian Gulf states-Saudi Arabia, Kuwait,
the United Arab Emirates, and Qatar-declined by over 20 percent in 1982 to
$11.4 billion. First-half 1983 aid transactions indicate OPEC states have be-
gun to limit new aid pledges and are slowing transfers on previous pledges.
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Perspective
Weekly
International
Economic & Energy
30 September 1983
Perspective-The Soft Oil Market in the Middle East and South Asia
Lower oil revenues are forcing a more tightfisted attitude toward government
spending throughout the Middle East and South Asia region. Even the oil-rich
OPEC states, ever mindful of the need to maintain sufficient economic
momentum to forestall political and social unrest, have begun to adopt some
restraint.
Y~ ..
? Slowdowns in spending for military imports.
? A squeeze on foreign aid expenditures and less timely disbursements.
Thus far, cutbacks are particularly noticeable in:
? Reduced spending for development projects.
? Cuts in social programs-including generous subsidies for petroleum prod
25X1
ucts e1ectricit and water
We believe that the wealthier OPEC states will be able to weather some
reforms-including reductions in benefits to their populations-without undue
hardships. They can use their financial reserves and borrowing power to reduce
the severity of the reforms. For some of the more financially troubled OPEC
members in the region, however, reduced revenues present major difficulties.
For example, Iraq's conduct of its war is ham ered by finan 'al problems, and
Libya has been forced to slash imports. 25X1
The slowdown in economic activity in the OPEC states will reduce the growth
or even cut the size of their foreign work forces. For many of the African and
Asian countries, a return of migrant workers or lower remittances would
exacerbate the economic and social problems already present. Most labor-
exporting countries-particularly Egypt, North Yemen, and Pakistan-have
limited employment opportunities for even a small fraction of migrant workers.
We believe that a large-scale return of workers employed in the Gulf would in-
crease frustration and heighten political tension, particularly in urban areas.
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Reduced revenues are likely to limit the influence of OPEC states with other
LDCs. With the prospect that Arab aid programs are likely to be cut-
particularly to those countries less vital to the security of the aid donors-
potential recipients will have less incentive to support Arab issues. Some
African countries, for example, are already more receptive to reopening
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While lower oil revenues are posing political challenges to the oil producers,
the reduction in oil prices has not given a major boost to Middle East and
South Asia oil importers. For the most part, the countries' oil bills are small,
and, in any case, savings are threatened by the remittance, aid, and export
flows that are now at risk.
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Energy
interest for some time in US and other Western equipment for this and other25X1
he Soviets have expressed
Barents Sea. the project would be roughly
equivalent to the $25 billion Siberian gas pipeline to Western Europe.
Soviet Oil Production Jhere
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Plans could be a "dramatic decrease" in domestic oil production after 1985 unless
offshore resources in the USSR are exploited. As a result, the Soviets are
seeking help from Western oil companies in preparing feasibility evaluations, 25X1
beginning in early 1984, of a large offshore development program in the
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Soviet planners apparently are considering actions that they hope will offset a
probable leveling off or decline in oil production after 1985. The USSR lacks,
however, the manufacturing capability and experience in using machinery
suitable for use in the severe climate of the Barents Sea. Moscow would
depend heavily on the West for such equipment, and it appears to be laying the
groundwork to get US or other Western firms interested in such sales. Even if
Western assistance were obtained, the USSR would be unlikely to extract oil
commercially from the offshore reserves before the early 1990s.
Canadian Oil Sands Following major tax and royalty concessions by both Ottawa and Alberta, 25X1
Project Wins Imperial Oil Limited (Exxon's Canadian subsidiary) has announced it will
Concessions proceed with a $245 million oil sands project in northern Alberta. The project
is expected to produce 19,000 b/d of very heavy crude oil beginning in 1985
and, with additional investment, total output could rise to 57,000 b/d by 1990.
Both the federal and provincial governments have been looking to Canada's
vast oil sands deposits for additional oil production to help meet the projected
shortfall in Canadian requirements in 1990. This project is part of a trend to
replace large projects that have failed-such as Alsands, which was to have
produced 140,000 b/d-with smaller, more easily financed facilities that can
later be expanded.
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Strong Dollar The continued strength of the US dollar has partly offset lower OPEC crude
Holds Up Foreign oil prices in Western Europe and Japan. The average official price of a barrel
Oil Costs of OPEC crude oil dropped nearly $6 per barrel, 17 percent, between
December 1981 and June 1983. Because crude oil prices are denominated in
US dollars, the cost of French crude imports increased by 10 percent during
the period, reflecting the sharp appreciation of the dollar vis-a-vis the French
franc. In West Germany and Japan the cost of imported crude oil has declined
only 8 percent and 11 percent, respectively, since yearend 1981. During the
same period, the average US imported price declined by nearly $7 per barrel
or 18 percent to $29.33 per barrel.
1981
December
1983
June
Percent
Change
France (francs)
208.89
230.3
10.2
West Germany (deutsche mark)
83.84
76.8
-8.4
Japan (yen) /
7,862.0
7,003.0
-10.9
United States (US $)
35.95
29.33
-18.4
Dutch Authorize The government's energy policy for 1984 outlined this week reverses its
New Gas Exports previous policy of restricting natural gas export sales and authorizes
Gasunie-the state gas distribution monopoly-to negotiate new export
contracts. According to government officials, the policy change is due to a
decline in Dutch gas sales and a worsening domestic fiscal situation. State gas
revenues, which account for 18 percent of the national budget, are expected to
fall 25 percent over the next four years. Extra gas volumes will be offered to
customers in exchange for higher minimum offtake levels and higher prices to
bolster the Dutch position in upcoming contract renegotiations. An immediate
increase in gas export sales is unlikely because of sluggish demand growth. By
giving in to the Dutch terms, however, customers may assure themselves of
some additional volumes in the late 1980s and early 1990s.
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South Korea Delays
Nuclear Power
Program
South Korea has postponed plans to purchase up to four additional nuclear
power plants until at least 1986, according to officials at the Ministry of
Energy and Resources. Reduced growth rates for electricity demand, improved
conservation, and government efforts to hold down foreign debt all contributed
to the postponement. The announcement caught the Korea Electric Power
Company in the process of preparing to solicit bids later this year for two 1,000
megawatt-electric (MWe) nuclear power plants. Bids for two follow-on 1,000
MWe units were planned for 1985. Electricity demand growth stagnated in
1980-81 and actually declined in 1982. Despite the current delays, we believe
Korea will remain a strong market for nuclear reactor sales later in the decade.
25X1
Romanian Drive For Romanian President Ceausescu reportedly has authorized imports of Western
Oil Independence oil equipment to facilitate the drive for petroleum self-sufficiency. Minister of
Petroleum Vlad cited Romania's failure to persuade Moscow to sell oil for soft
currency-and his own success in convincing Ceausescu that high-pressure oil
tools were the key to increasing domestic output-as reasons for the decision.
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quickly.
The purchases would be consistent with Ceausescu's effort to free Romania
from dependence on imported energy by 1985. Domestic oil production peaked
in 1976 at 294,000 b/d and dwindled to an average of 232,000 b/d in 1980-82.
Imports, meanwhile, rose from 170,000 b/d in 1976 to an average of 265,000
b/d in 1980-82. In response to hard currency constraints, Romania has
reduced oil imports for the last two years and has cut the domestic consuption
of oil and petrochemicals by more than 10 percent this year. These cuts have
already led to transportation problems, factory closings, and fuel shortages for
agricultural machines. Even if the oil equipment is purchased this year,
however, it would take several years before oil output would increase because.
Romania lacks the geological and drilling expertise to exploit the technology
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Mexican Debt Mexico City has rescheduled the bulk of its public debt and is releasing foreign
Rescheduling exchange to reduce private-sector arrearages. International commercial bank-
Developments ers, nevertheless, still project substantial defaults in privately held, nonguaran-
teed debt. Mexico City signed agreements to restructure $8.6 billion in
principal obligations of five large government agencies this week. This brings
the total of the restructured debt of the eight largest government agencies to
$20 billion; payments will be stretched over eight years. We expect the 20
remaining public agencies negotiating relief on some $2-4 billion to work out
agreements by the end of the year. The Central Bank announced plans to
release $280 million by the end of this month to cover one-half of the past due
private interest held in escrow accounts. The balance, with accrued interest, is
to be paid by the end of 1983. Earlier this month, Mexico City released $185
million to cut private-sector arrearages on overdue suppliers' credits.
Restructuring privately held commercial debt, however, continues to be a slow
and difficult process. Less than one-fifth of the $10 billion non guaranteed
private debt maturing by yearend 1984 has been negotiated.
Many international financiers
believe that these problems will restrict private Mexican business access to new
foreign lending for at least the next two years. Guarantees from foreign official
agencies or the Mexican Government, however, could regain some private
businesses access to foreign funding somewhat sooner.
Brazil's Letter of Brazil's signing of a letter of intent in mid-September agreeing to IMF terms
Intent Brings for a revised stabilization program has not yet led to an easing of the country's
Little Relief foreign exchange crunch as earlier expected. A usually reliable source reported
that international banks, following the lead of the IMF, do not now intend to
release their long-delayed payments-up to $1.9 billion-under existing
medium-term loan commitments until the Brazilian congress approves a
crucial anti-inflationary wage decree. Bankers almost certainly were unnerved
last week by the defeat of a different but analogous wage decree by an
increasingly rebellious congress. Although the Brazilian administration contin-
ues to press for support for the IMF-sought salary decree, which comes up for
vote late next month, prospects for the decree's rejection and a breach of the
letter of intent clearly have increased.
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The continued withholding of foreign bank disbursements is severely eroding
Brasilia's ability to service debt obligations and to import needed goods.
Arrears in interest payments have mounted to nearly $1.5 billion, according to
the press, and could result in some US bank loans being declared non-
performing assets. Meanwhile, the government's inability to purchase ade-
quate supplies of fertilizers and industrial materials from abroad is threatening
major production declines in agriculture and such basic industrial sectors as
steel and chemicals. because Brazil's 25X1
foreign exchange needs have become so acute, early this month Petrobras-the
state-owned oil company-began selling its accounts receivable to foreign
creditors at discounts up to 25 percent.
Portugal's Financial IMF assistance and commercial loans should cover most of Portugal's 1983
Outlook financing needs, but Lisbon will have to sell gold beyond what it has already
sold recently. The IMF Board is likely to approve a new standby loan at its 7
October meeting, and according to the US Embassy, Lisbon expects to receive
the first tranche of about $100 million at the end of October. Portuguese
officials also expect to receive $250 million under the Compensatory Financing
Facility for shortfalls in 1981 export earnings. Immediately after the IMF
meeting, the Portuguese will begin seeking a second $300 million Eurodollar
syndicated loan. Although bankers have expressed confidence in the Soares
government's economic policies, they probably will raise the spread on the loan
to close to 1 percentage point over LIBOR-twice the spread on Portuguese
loans last year. While these funds will cover most of Portugal's needs, Lisbon
probably will have to sell gold to repay a $300 million loan from the Bank for
International Settlement (BIS) that falls due early in December
imports.
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World Bank Project Hungary has obtained more than $500 million in loans from Western
Loans for Hungary commercial banks and the World Bank to finance development projects
intended to improve its hard currency trade performance. The World Bank in
June authorized development loans of $130 million for grain storage facilities
and agricultural mechanization and $109 million for energy. diversification
and conservation. On 26 September a group of European, Middle Eastern, and
Japanese banks provided Hungary with a $200 million Eurodollar loan to
cofinance the projects while a group of Japanese banks are completing a yen-
denominated loan worth $72 million. The World Bank is contributing $45
million to the two commercial syndications in addition to its original commit-
ments. The Hungarians claim, probably optimistically, that by 1985-86 the
agricultural projects will generate $100 million annually in additional exports
and by 1987 the energy projects will save $300 million annually in energy
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Although World Bank support was crucial, completion of the commercial
loans demonstrates that Hungary enjoys a better standing with Western
bankers than the other East European countries. Despite the reluctance of
banks to extend new loans to financially troubled countries, Budapest has
raised more than $725 million in syndicated credits over the past year. The
new loans will not help the Hungarians cover large debt service obligations
coming due next year because funds are tied to project imports and the payoff
from the investments is several years away. Budapest, nonetheless, hopes that
these credits will encourage bankers to extend other loans needed to meet its
obligations.
Global and Regional Developments
Big Six Trade The Big Six countries as a group boosted their merchandise trade surplus to a
Surplus Grows seasonally adjusted $4.3 billion in second-quarter 1983, continuing the steady
improvement that began in mid-1982. The growing surplus is largely the result
of import cuts outpaced declining export sales by these countries. Compared to
1982 Big Six imports in second-quarter 1983 were off 10.5 percent while
exports were down 8.4 percent in nominal terms. Among the Six, Japan,
France, Italy, and Canada improved their trade balances during the second
quarter while the United Kingdom and West Germany experienced a deterio-
ration. Japan's surplus was $5.9 billion, West Germany's $4.0 billion, and
Canada's $2.0 billion. The United Kingdom, France, and Italy recorded
deficits of $3.7 billion, $3.1 billion, and $1.2 billion, respectively
I II III IV I II
Exports (f.o.b.) 171,791 167,796 159,293 154,971 162,351 153,708
Imports (c.i.f.) 172,207 166,947 158,836 153,685 159,346 149,384
Trade Balance -417 849 457 1,286 3,005 4,324
Trade Balance with 3,155 2,018 3,882 5,404 3,179 5,023
the United States
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Continued strength of the dollar and increased import demand in the
recovering US economy helped to boost the Big Six surplus. Big Six exports to
the United States have been on an upward trend over the past year and
imports have dipped. Following a first-quarter 1983 drop, the surplus with the
United States rebounded to $5.0 billion in the second quarter; only Canada
and Italy failed to improve their US balances. For the near term, a sizable Big
Six surplus is likely to persist because of continuing strong Japanese export
performance and slack import demand in the major West European countries.
National Developments
Developed Countries
25X1
East German Trade Business at the Leipzig Trade Fair held earlier this month appears to have re-
Possibly Returning to turned to near normal after two years of slow sales. Reduced credits from
Normal Levels Western banks and East Berlin's severe austerity measures last year were
responsible for the earlier decline. According to the Embassy in Berlin, many
West European firms that attended the fair made trade credits available to
East Berlin because they believe East Germany's general economic conditions
have improved slightly and that it can continue to retire its external debt on
schedule. Even Western firms that did not conclude deals appear optimistic
about future sales. East Germany's buying practices at Leipzig-it bought
more spare parts and luxury consumer items-and its continuing hard
currency trade surpluses suggest that East Berlin is not as close to financial
crisis as some Western observers have maintained. The Embassy also reported
that East Germany was successful in selling to West German companies,
indicating a possible reduction for the year of West Germany's large surplus in
Australia's Wage With the support of the Hawke government, the Australian Arbitration
Freeze Ends Commission last week ended Canberra's nine-month wage freeze by granting a
4.3-percent increase in wages, representing full indexation with inflation for
first-half 1983. The wage increase is consistent with the incomes policy agreed
to at last April's economic summit of business, labor, and government leaders
and will cover nearly 90 percent of the Australian work force if adopted by
state commissions as expected. The Commission also announced that wages
will be fully indexed with the CPI for at least the next two years, which will
make it difficult for Canberra to sharply lower inflation any further from the
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Less Developed Countries
Mexico Expands Mexico City began depreciating its "free" exchange rate last Friday for the
Crawling Exchange first time since December 1982. The "free peso"-currently at 150 to the
Rate dollar-now will slide by 13 centavos a day, matching the daily decline in the
controlled exchange rate. During the past nine months, the controlled rate
droped from 95 to 132 pesos to the dollar, while the "free" rate remained
steady.
International financiers applaud the move as a step in the right direction,
demonstrating that Mexico City is controlling, not reacting to, economic
developments. Government financial authorities, who plan to continue this
policy until economic circumstances change markedly, believe that the parallel
depreciation of the exchange rates will discourage currency speculation and
ensure continuing large central bank profits on exchange transactions. The
narrowing of the "free" and controlled exchange rates had gradually lowered
the Bank of Mexico's gains from purchasing most foreign exchange at the
cheaper controlled rate and reselling a substantial portion at the more
expensive "free" rate. We believe the current 18 peso differential will allow the
Bank of Mexico to net about $600 million from exchange transactions during
the next 12 months, compared with some $1 billion during the past nine
months.
The policy initiative, however, does not address costly trade inefficiencies and
will probably be insufficient to keep the exchange rate competitive for trade
purposes, because we expect inflation to continue outpacing exchange adjust-
ments. Until further exchange adjustments are made, we see only a small
chance that ambitious government export expansion goals will be met or that
the money Mexicans sent abroad during the last few years will return. The ex-
change differential has also generated widespread smuggling operations, and
aggravated official abuses, despite President de la Madrid's anticorruption
campaign.
Deepening Bolivian Economic conditions in Bolivia have worsened considerably since President
Economic Problems Siles took power a year ago. The new administration's expansionary policies,
including increases in the money supply and a burgeoning fiscal deficit, have
driven inflation from about 200 percent in 1982 to a current annualized rate of
some 350 to 400 percent. Rapidly rising costs, declining private investment,
and labor agitation for major wage increases have hobbled national output.
Mineral production-the mainstay of the economy-dropped about 10 percent
during the first six months of 1983 because of work stoppages and insufficient
spare parts for mining equipment. We estimate that these trends coupled with
the devastating impact of adverse weather on agricultural output will lead to a
5-percent drop in GDP this year.
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Major declines in mineral exports and increases in food imports, meanwhile,
are boosting Bolivia's current account deficit from $355 million last year to an
expected $450 million for 1983, causing a severe drain on reserves and
increasing La Paz's difficulties in meeting foreign debt obligations. To relieve
its acute foreign exchange pressures, Bolivia continues to seek to reschedule its
nearly $4 billion foreign debt, subject to reaching an agreement with the IMF.
An IMF agreement, however, will be difficult because of strong labor
opposition to further politically sensitive austerity measures. If La Paz accepts
IMF demands to drastically cut the fiscal deficit, enforce tight monetary
policy, and close the gap between the official and the market exchange rate,
these measures will likely heighten social and political pressures and provide
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Thailand Cuts According to the local press, the Thai Cabinet decided in early September to
Tin Royalty reduce the royalty on tin by 18 percent to about $1.10 per pound in an attempt
to curb the widespread smuggling of tin ore from the south of Thailand to
smelters in Malaysia and Singapore. Before the cut, Thailand's combined
royalty and taxes on tin averaged about $1.40 per pound, compared with about
25 cents in Malaysia. As a result of this differential, about 5,700 tons of tin
worth about $50 million-15 percent of official exports in 1982-were 25X1
smuggled out of the country between October 1982 and A ril of this year ac-
cording to the Thai Department of Mineral Resources.
The cut was probably made because of pressure from the International Tin 25X1
Council, which in August warned Thailand to step up its suppression of
smuggling activities before they further depress the world price of tin. The
royalty cut is too small to have a major impact on the volume of smuggling,
however, and additional substantial cuts are unlikely. The Finance Ministry,
concerned about the country's large budget deficit, will fight any attempt to
reduce revenues further. 25X1
Mauritanian Economy Faced with serious economic difficulties as a result of weak iron ore prices, a
Under Strain significant decline in fishing revenues, and worsening drought conditions,
Mauritania has appealed for emergency food aid and has sent emissaries to
OPEC countries to ask for budgetary support loans. Several countries have
agreed to supply Mauritania with 30,000 metric tons of food aid, most of
which is wheat from the United States. Arab and OPEC multilateral
organizations have provided some limited relief, but bilateral assistance from
traditional Arab donors has dropped off this year, probably as a result of
growing dissatisfaction with Mauritania's management of past funds, annoy-
ance over President Haidalla's failure to reestablish relations with Morocco,
and because of lower oil revenues of the donors. Assistance from the IMF is
not likely in the near future unless Mauritania takes steps to devalue the
ouguiya.
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East European Data for first-half 1983 show that Eastern Europe's trade with non-Commu-
Trade Trends nist countries is declining for the third consecutive year. Although the region's
efforts to raise exports finally paid off in a small gain, the continuing
reluctance of Western banks and governments to extend credits has forced
more cuts in imports. Eastern Europe's 1983 trade surplus with the West will
likely surpass last year's $1.7 billion figure by at least $400 million, but the cut
in imports will further depress economic performance and living standards
Delays in disbursing-the Western financial rescue package forced Yugoslavia
to make the deepest cuts in imports in first-half 1983, reducing its hard
currency trade deficit by $1.3 billion. Romania's export performance fell far
short of expectations, forcing Bucharest to abandon its plans for reviving hard
currency imports. Although Hungary posted respectable gains in exports,
Budapest also reduced imports sharply to keep its financial recovery on track.
Bulgaria and Czechoslovakia do not face the financial difficulties of the other
East European countries, but slumping exports and conservative policies on
hard currency trade led both regimes to limit imports from the West. Only
Eastern Europe:
Trade With Non-Communist Countries,
January-June
1982
1983
1982 1983
Percent
Change
From
Previous
Year
1982
1983
Percent
Change
From
Previous
Year
Total
-80
1,210
15,849 16,20
1
2.2
15,929
14,991
-5.9
Bulgaria
311
293
1,454 1,31
9
-9.3
1,143
1,026
-10.2
Czechoslovakia
365
498
1,998 1,99
1
-0.4
1,633
1,493
-8.6
East Germany a
394
23
2,508 2,59
5
3.5
2,114
2,572
21.7
Hungary b
-370
-86
1,576 1,73
1
9.8
1,946
1,817
-6.6
Poland
800
732
2,418 2,75
1
13.8
1,618
2,019
24.8
Romania
671
740
3,150 2,90
4
-7.8
2,479
2,164
-12.7
Yugoslavia c
-2,251
-990
2,745 2,91
0
6.0
4,996
3,900
-21.9
a Does not include trade with developed countries.
b Import data on a c.i.f. basis.
Includes hard currency trade with socialist countries.
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30 September 1983
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Secret
Poland and East Germany posted increases in both exports and imports.
Poland's gains are somewhat deceiving, however, because trade was extraordi-
narily low during first-half 1982. East Germany has used its special relation-
ship with West Germany to full advantage, increasing imports from its
neighbor by 33 percent in the first six months of 1983. Since trade with West
Germany is conducted on a clearing basis, East Germany can save scarce hard
currency by buying more from the West Germans and reducing purchases
from other Western countries
Hungarian Harvest This year's summer drought has taken a heavy toll on several of Hungary's key
Shortfalls export crops. The US agricultural counselor estimates that the overall grain
harvest will slump from 14.8 million tons last year to 12.7 million tons, almost
entirely as the result of a drop in corn production, which fell from 7.8 million
tons to 5.5 million tons. Production of sunflower seed-another important hard
currency earner-will be 12 percent below planned levels. The poor weather
also thwarted Hungary's plans to increase soybean production and thus reduce
expensive imports of soybean meals from the West. Small grains (wheat,
barley, rye, and oats), which are harvested earlier in the year, were less
affected by the drought.
Budapest is especially concerned about the impact that the mediocre harvest
will have on its hard currency trade balance this year and next. The Chairman
of the National Planning office predicted earlier this month that the shorfall in
grain production alone could cost Hungary as much as $300 million in hard
currency earnings, mainly from traditional CEMA markets. Shortages of corn
for winter fodder will also require a slowdown in Hungary's livestock
expansion program and could even result in some herd reductions in the
hardest hit areas in the southeastern part of the country. We believe that the25X1
regime is counting on higher food prices-effective in mid-September-to
dampen domestic demand and free additional goods for export
25X1
Hungary Establishing estern firms will be able to build facilities in
Free Trade Zones Hungary for coproduction, contract work, and export sales. Foreign managers
initially will run the individual firms in these zones. The firms will be expected
eventually to train Hungarian managers to assume that responsibility. If
adopted, the free trade zones-areas free from customs duties-will be the
first in a country belonging to the Warsaw Pact. Budapest is mainly interested
in attracting the technologies needed to modernize its heavy equipment
industry and in increasing hard currency earnings. 25X1
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The zones are likely to give Hungary an opportunity to gain access to
COCOM-controlled manufacturing technologies. There are currently no
COCOM procedures specifically governing free trade zones in proscribed
countries. Shipments to free trade zones in non-Communist countries are not
considered exports, which may cause some confusion within Western indus-
tries concerning the need for COCOM review of controlled equipment
shipments to such zones in Hungary. By simply working in the plants,
moreover, the Hungarians are likely to gain valuable practical experience in
advanced manufacturing techniques.
Vietnam Projects According to the official media, Vietnam has reached self-sufficency in food
Self-Sufficiency and next year will have a small food surplus with which to reestablish a
in Food reserve. The improvement in food production is a result of incentive programs
instituted in 1979 that slowed collectivization of the south and allowed
peasants nationwide to retain increases in grain output for sale on the free
market. These policies boosted grain output 21 percent between 1979 and 1982
to reach 10.8 million metric tons. Official trade data show no food imports so
far this year. Food imports had been declining for several years, from 1.4
million tons in 1978 to 310,000 tons in 1982.
Self-sufficiency will be difficult to maintain. The policies that encouraged
increases in grain output are already being rescinded by officials concerned
about the growing free market. In addition, agriculture remains as vulnerable
to drought as before because there has been little expansion of irrigated areas.
Finally, the population is growing by about 1.4 million a year. To maintain
self-sufficiency at the 1983 level, grain production must increase by about 3
percent a year.
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Secret
The Middle East and South Asia:
Regional Interdependence
Because of the close interdependence among coun-
tries in the Middle East and South Asian region,
the economic effects of a prolonged soft oil market
will be widespread. Although financial reserves will
cover the loss of income for the major oil exporters
in the short term, they face tough spending cuts if
the soft oil market persists beyond the middle of the
decade. Of the region's net oil-importing countries,
only India and Israel, with large oil import bills and
little dependence on worker remittances or Arab
aid, are already benefiting from the oil market
downturn. Those countries that depend heavily on
the major oil exporters for expatriate worker re-
mittances and/or aid-including key US allies
such as Pakistan, Jordan, Egypt, and Morocco-
face mounting financial, and possibly political,
difficulties if the soft oil market persists beyond a
year or two. These nations will look increasingly to
the United States and Western financial institu-
tions for support to cover foreign exchange deficits.
Segments of their population that suffer from
austerity measures will be more susceptible to
political manipulation.
Oil Producers: The Big Money Losers
Most of the region's producers have already begun
to make adjustments to cope with lower incomes.
Revenues in 1982 of $163 billion were more than
$60 billion below peak revenues in 1980, and we
expect income to decline by an additional $25-50
billion this ear.
some
payments to foreign contractors have been put on
hold, and new investment for oil facilities and other
capital projects has been slowed or halted. Several
of the Gulf states also have tightened new employ-
ment opportunities for expatriate laborers, cut do-
mestic subsidies on petroleum products, and are
considering cuts in social programs. We expect the
major Arab oil exporters to take a harder look at
aid requests but believe that they will be discour-
aged from making sizable cuts because their securi-
ty and influence abroad rests heavily on cash
transfers.
The impact on military spending has been mixed.
According to the Defense Minister and other Saudi
officials, the military is committed to stepped-up
purchases of equipment. On the other hand, UAE
officials have reported to the US Embassy that the
high cost of military equipment and maintenance
combined with lower oil revenues is likely to slow
future purchases.
Although there has been some belt tightening and
will be more, we believe that most of the OPEC oil
producers can weather the effects of the oil price 25X1
cuts because of their large reserves. Combined
foreign official assets at the end of 1982 were about
$300 billion. We expect all of the OPEC states to
continue to draw on foreign reserves to forestall 25X1
political and social unrest. We believe that, among
the OPEC states, the governments of Libya and
Iraq are least likely to meet domestic expectations
because their financial reserves are already limited
and they have been least able or willing to give
consumer welfare a high priority.
We believe that a further deterioration in economic 25X1
conditions in Libya or in the other OPEC states
could set the stage for political instability. Addi- 25X1
tional cutbacks in the availability of basic goods in25X1
Libya, for example, could increase popular discon-
tent with the regime. If the soft oil market persists
beyond two or three years, we believe that cuts in
domestic spending could even foster internal dis-
content and assist Iranian recruitment of dissident
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Middle Eastern and South Asian Oil Producers:
Production and Revenue
1980
OPEC 20,760
1,700
1,195
50
1981
1982
17,160
14,020
805
700
995
970
1,130
820
1,135
1,185
405
330
9,810
6,485
1,500
1,250
1,250
1,310
45
45
a Does not include natural gas liquids. Based on industry and US
Embassy reporting from producing countries. Data rounded to
nearest 5,000 b/d.
Algeria 1,020
Iraq 2,515
Kuwait c 1,660
Libya 1,830
Qatar 470
Saudi Arabia c 9,905
2.8 2.9
3.3 3.1
0.6 1.1
0.6 0.6
b CIA estimate. Includes revenue from exports of crude oil, products,
and natural gas liquids.
Includes one-half production from the Neutral Zone.
Shias in politically stable countries such as Saudi
Arabia and Kuwait. We believe reduced spending
on foreign aid could result in retaliation from aid
recipients in the form of support for terrorist
activities in the major donor countries of Saudi
Arabia, Kuwait, and the UAE
The non-OPEC oil producers, while also suffering
from lower prices for their oil, are taking less severe
revenue cuts because they have cut prices to main-
tain sales. In most cases, they have maintained or
even increased production to compensate for lower
per-barrel revenue. Output in Egypt and Oman, for
example, has reached record levels as they have
undercut the terms adhered to by OPEC countries.
The non-OPEC states cannot, however, count on
Secret
30 September 1983
growing oil revenues to alleviate tight foreign ex-
change situations and stimulate economic develop-
ment because most are already producing near
capacity.
Among the non-OPEC producers, we believe that
Egypt and Bahrain face the greatest political threat
from lower oil earnings. In Egypt, we believe that
austerity measures enacted to cope with financial
shortfalls could cause political problems for Presi-
dent Mubarak. In Bahrain, we expect the economic
slowdown to exacerbate the government's problems
in dealing with a large and often restless Shia
population.
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14.9 12.2 10.7
12.9 11.3 18.7
1980 1981 1982
18.5 13.3
22.8 15.2
5.4 5.5
99.2 110.7
18.7 19.0
7.3 8.5
1.2 1.2
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Oil-Importing Countries
The countries in the Middle Eastern and South
Asian region that are net oil importers have re-
ceived immediate benefits from lowered oil import
bills. We expect the OPEC price of $29 per barrel
combined with interim cuts in spot and unofficial
prices to cut about $2 billion this year off the
combined 1981 bill of nearly $13 billionF
India, which has accounted for 40 percent of
regional oil imports, has the most to gain. If oil
prices remain stable, India will save about $600
million in 1983-roughly equivalent to one-sixth of
its projected current account deficit. Jordan and
Bangladesh, also will benefit from lower oil prices;
Jordan's oil bill has been roughly three-fourths of
its exports
Job Prospects in the Middle East Threatened. The
tight job market in the major oil-exporting coun-
tries will have a major impact in the region.
According to US Embassy reporting and academic
studies, approximately 5 million Middle Eastern
and South Asian expatriate laborers currently work
in the oil-exporting states-more than 80 percent
of the total expatriate work force there. They
annually remit to their home countries more than
$10 billion, which is significant in meeting their
hard currency needs.
We expect that if oil prices remain depressed,
South Asian worker recruitment and their remit-
tances will slow or even fall in absolute terms.
Officials in three Gulf countries-the UAE, Qatar,
and Iraq-have already reported a net reduction in
the number of expatriate workers. According to US
Embassy reporting, however, labor importing coun-
tries overall have not reduced the size of their
expatriate labor forces
A leveling or decline in remittances from workers
in the major oil-exporting countries will have im-
portant implications for hard currency earnings in
South Asia. On the basis of official government
statistics, we estimate that remittances from the
Middle East totaled $3-3.5 billion last year and
Middle Eastern and South Asian
Oil Importers: Oil Imports ,1981
25X1
25X1
Net Oil
Imports
(thousand)
Net Oil
Import Bill
(million
Savings a
in 1983
(million
b/d
us $)
US $)
Middle East and
North Africa
410
5,055
755
Israel
160
2,050
310
Jordan
40
540
80
Lebanon
60
700
105
Mauritania
5
65
10
Morocco
95
1,070
160
North Yemen
15
170
25
South Yemen
10
115
15
Sudan
25
345
50
South Asia
570
7,900
945
Afghanistan
10
175
25
Bangladesh
35
460
70
India
400
5,600
600
Pakistan
95
1;260
190
Sri Lanka
30
405
60
a Assumes imports maintained at the 1981 level and a 15-percent cut
in oil prices except for India, where increased domestic productio12 5X 1
has allowed for a reduction in oil imports.
constituted 60 to 70 percent of total South Asian
worker remittances. Pakistan, which has supplied
nearly three-fourths (1.5 million, 5 percent of its
labor force) of the South Asian workers to the oil-
exporting states, has the most to lose if a persistent
soft oil market begins to limit jobs
We also expect the soft oil market to contribute to 25X1
the leveling off or even a decline in absolute 25X1
numbers of expatriate Arab workers. If there is a
further drop in oil prices and a large expulsion of
foreign workers, however, we would expect the
Arab laborers to fare better than the Asians. As
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Official Foreign Exchange Earnings
From Worker Remittances'
Arabic speakers and the original migrant workers,
they stand a better chance of keeping their jobs. In
addition, the host governments would face political
pressure from other Arab states if Arab "brothers"
were sent home before Asians.
Cutbacks in Arab Aid? Although we do not expect
a dramatic cutback in Arab aid unless depressed oil
prices persist beyond another year or two, some
cutbacks already have been made and more are
expected. Preliminary evidence indicates that eco-
nomic assistance is being hit harder than military
assistance. Some of the aid, especially from Saudi
Arabia and Kuwait, is now being paid in the form
of oil rather than money.
The Gulf Arab oil exporters have paid out an
average of $13 billion annually in bilateral aid, the
bulk of this went to fellow Arab states. Saudi
Arabia normally disperses $7-8 billion annually,
Kuwait and the UAE most of the rest. Libya, while
frequently associated with financing radical causes,
has not been especially generous with economic aid.
25X1
0 1978 79 80 81 82 83b
a Fiscal years.
b Projected.
cIncludes estimate of earnings only from other Middle Eastern countries;
total remittances reached an estimated $3 billion in 1982.
300758 9-83
Secret
30 September 1983
In our view, if the major Arab oil exporters find
that additional cuts in aid disbursements are neces-
sary for domestic reasons, they will look first to cut
the states least vital to their security-first the
countries outside the Middle East and South Asia,
followed by India and Bangladesh, Pakistan, and
Morocco. We believe that support to the Arab
confrontation states and to Iraq would continue
relatively unscathed. We expect, however, that aid
payments from some of the states may not be as
timely as they were in the past.
Foreign Trade Only Slightly Affected. We believe
that the oil importers will be only marginally
affected if, as we expect, reduced revenues to the
oil exporters result in cutbacks in their merchandise
imports. Merchandise exports from the region's oil
importers to the oil exporters total only $3.5 billion,
12 percent of their total exports. Much of this is
foodstuffs that are unlikely to be cut off. India
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stands to be a loser because construction materials
and equipment for development projects make up
about 30 percent of the value of its exports to the
Middle East.
We expect that, at least for the next two years or
so, the populations of most major oil-exporting
states, will be sheltered from the adverse impact of
the soft oil market by the surplus revenues accumu-
lated throughout the 1970s. Possible exceptions are
Libya, already in economic trouble because of
bureaucratic mismanagement and questionable
military spending, and Iraq, in financial straits
because of the war with Iran and the loss of oil
production and facilities. In our view, most of the
non-OPEC oil producers will not face severe finan-
cial hardships from the soft oil market so long as
prices remain stable.
On balance, we expect the oil-importing countries
in the region to benefit from a soft oil market for
the next two years or so. Lower oil prices will
provide immediate relief on import bills. The need
for foreign workers is not likely to decline apprecia-
bly over this period. Aid donations from the oil
exporters are lagging behind last year's pace, but
we do not believe there will be a dramatic cut from
previous levels because of the donors' concerns for
their own security if they reduce aid.
In our view, a soft oil market that persists for more
than two or three years would raise the risk of
political instability even in Saudi Arabia and the
Gulf sheikhdoms. Although their small populations
could be cared for with financial reserves and
revenues from limited oil production, we believe
that even the threat of austerity measures could
significantly heighten discontent, particularly
among the Shias
In the long term, diminished opportunities for
foreign workers in the oil-exporting states would
eliminate the major employment outlet for the
rapidly growing labor forces in the labor-surplus
Secret
30 September 1983
countries of the region. We expect that the accom-
panying slowdown in the growth of remittances
would adversely affect economic development, es-
pecially in Pakistan, Jordan, Egypt, and North 25X1
Yemen. A sharp decline in hard currency from
remittances, particularly if accompanied by a cut-
off in Arab aid, would force many to adopt unpopu-
lar austerity measures. If the governments failed to
meet the economic and social expectations of re-
turning migrants, a likely event under such a
scenario, we expect that forces opposing the govern-
ments would pick up additional political support
and provide opportunities for Soviet or other out-
Implications for the United States
We believe that, if the soft oil market persists, the
United States will be faced with increased demands
for financial assistance. With a reduction in worker
remittances and aid from the oil-exporting states,
the oil-importing nations will look increasingly to
the United States and Western financial institu-
tions for support to cover projected deficits in
We believe that the United States faces a special
problem with Pakistan and Egypt on financing 25X1
their future military purchases and development
projects. If Cairo and Islamabad are not successful
in soliciting additional funding for their military
modernization programs from the Arab oil export-
ers, we expect them to look to the United States.
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Secret
Persian Gulf Oil Still at Risk:
Some Economic Implications
The delivery of five French Super Etendard air-
craft to Iraq, which we believe is likely, increases
the possibility of an escalation of the Iran-Iraq war
that could disrupt Persian Gulf oil exports. We
estimate that for each 1 million b/d net loss in oil
supplies for one year, oil prices would rise by about
$8 per barrel and OECD GNP growth would be
reduced by 0.3 percentage point. Under a worse
case scenario, closure of the Strait of Hormuz and
the Iraq-Turkey pipeline could remove some 13
million b/d of Free World productive oil capacity
and reduce net oil supplies to consumers by 5-9
million b/d over the next year. Despite the Strate-
gic Petroleum Reserve and relatively small amount
of US oil imports from the Persian Gulf, the United
States would not be insulated from the adverse
effects of a major disruption in Persian Gulf oil
flows
Western Dependence on
Persian Gulf Oil
Persian Gulf countries ' currently account for
nearly 30 percent of non-Communist oil supplies.
We and many oil industry analysts expect this level
of Free World dependence to continue and perhaps
increase through the late 1980s because of the Gulf
countries' vast oil reserves. This year US imports of
Persian Gulf oil have been reduced to about
200,000 b/d-only 5 percent of total imports and 1
percent of domestic consumption-largely because
of conservation and stock drawdowns. Other
OECD members last year relied on Persian Gulf oil
for about 55 percent of oil imports and 40 percent
of consumption. Although the United States could
draw on non-Gulf surplus capacity to cover a loss in
Persian Gulf imports, it probably would be required
to share the burden of any OECD net supply
reduction either through the formal IEA program
or adjustments in company distribution systems.
25X1
25X1
Growing economic pressures on Iraqi President
Saddam Husayn, together with an enhanced mili-
tary capability from scheduled delivery of French
fighter aircraft, increase the probability that Irag25X1
will take action to cut the flow of Iranian oil
exports.
retired senior military officers are advising Saddam
to use French-supplied Super Etendard aircraft to
attack tankers transporting Iranian oil from Khark
Island. If tanker owners were unwilling to load
from Khark Island, nearly all of Iran's current oil
exports of 2 million b/d would be lost.
25X1
In our judgment, an Iraqi attack on Khark Island
would almost certainly lead Iran to retaliate by
shutting down the Iraq-Turkey pipeline, Iraq's only
remaining oil outlet. It would probably lead to
attacks on Kuwaiti ports that receive Iraqi imports
or tankers serving Kuwait. In addition, Tehran
could selectively harass tankers serving Iraq's other
Gulf allies. Indeed, Ayatollah Khomeini and other
Iranian officials have threatened to retaliate
against all oil shipping in the Gulf if its exports are
cut off. Under this worse case scenario, we estimate
that 13 million b/d in Persian Gulf productive
capacity would be lost to the market if the Gulf
were closed and exports were restricted to 2 million
b/d through the Saudi pipeline.
Secret
DI IEEW 83-039
30 September 1983
25X1
25X1
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Middle East: Major Oil Pipelines
7a9-Turk a 01
r, Syria
Tripoli
Lebanon
Mediterranean BEIRU
T
Sea Sidon,
Tel Aviv-Yafo' I '
*AMMAN
.J c~nj~~ t
Israel~$1 Jordan
lArmistice
r Line
A yn S/ioe r
SuNled~ipeline
to Sidi kr rir /Egypt/
Saudi
Arabia
Secret
30 September 1983
KUWAIT?. wr al Antaya
4-* Mina at Pakr
O Oilfield Oil terminal
- Oil pipeline ^ Pump station
1.85 Pipeline capacity (million b/d)
Note: Pipeline alignments are approximate.
0 300
Kilometers
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No-South
P kene
Ile.
PPe Qre
Iraq-Saudi Arabia
Neutral Zone
*DAMASCUS
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Secret
Projecting the Net Reduction
in Oil Supplies
The magnitude of the net reduction in Free World
oil supplies that could result from a disruption of
Persian Gulf oil flows depends largely on estimates
of oil demand, surplus oil productive capacity, and
the level and behavior of stocks.
Oil Demand. Based on oil industry estimates, our
low oil demand case assumes average annual
OECD growth of about 2.5 percent in 1984 and
1985 with ample nonoil energy supplies and pro-
jects Free World oil consumption at 44-45 million
b/d at current prices. Under a high demand case
with average annual growth of nearly 4.5 percent in
1984 and 1985 and reduced availability of nonoil
energy supplies, Free World consumption could run
to 48-50 million b/d at current prices.
Surplus Oil Capacity. Currently, we estimate that
the surplus of available oil productive capacity in
the Free World stands at 8 million b/d, 3 million
b/d of which lies outside the Persian Gulf. Because
most industry analysts believe at least a 2-million-
b/d cushion of surplus capacity is needed for
market stability-and historical data substantiate
this point-the effective level of surplus ca acit is
probably about 6 million b/d.
Stocks. While our projected net reductions in oil
supplies do not take into account the behavior of
inventory holders, stock levels can be critical in
shaping the impact of a supply disruption. Price
runups following the 1973/74 Arab oil embargo
and the 1979 Iranian revolution were due in part to
demand pressures from efforts of government and
commercial stockholders to rebuild and add to
inventories. In contrast, the oil market remained
fairly stable following the outbreak of the Iran-Iraq
war and the initial 3-4 million b/d loss of exports.
This largely reflects weak oil demand and the
willingness of commercial stockholders to deplete
excess stocks. With current commercial stockpiles
near normal levels, we would expect stockholders to
be less willing to sharply deplete inventories if
supplies were interrupted. In our judgment, there is
CIA Projections of Net Reductions
in Free World Oil Supply From
Disruption of Persian Gulf Oil Supplies
Low demand case
44
45
High demand case
48
50
Available surplus capacity
Low demand case
8
7
High demand case
4
2
Persian Gulf capacity
17
17
Pipeline export capacity
3
3
Saudi Arabia
2
2
Iraq
1
1
Strait of Hormuz
12
12
Net reduction from closure of Strait
Low demand case
High demand case
a good possibility that attempts would be made to
add to inventories because of prospects for higher
prices and the uncertainty surrounding the dura-
tion of the disruption. Under our assumptions,
effective surplus productive capacity outside the
Gulf over the next two years would be insufficient
to offset losses incurred from the closure of the
Strait of Hormuz.
Impact on Oil Prices
and OECD Growth
Based on historical time series, we calculate that
for every 1 million b/d net reduction in Free World
oil supplies for one year, prices would increase
approximately $8 per barrel to clear the market
and OECD growth would be reduced by about 0.3
percentage point, assuming unchanged monetary
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OECD: Economic Indicators and
Oil Price Trends
300773 (A035(4) 9-83
Secret
30 September 1983
and fiscal policies in the major developing coun-
tries. Policy responses, however, will be an impor-
tant factor in determining exactly how oil prices
will affect growth, inflation, and trade. If most
Western governments opt for restrictive policies in
the short run to reduce inflationary pressures and
ease balance-of-payments problems, as they have in
previous oil price runups, real economic losses
would be substantially greater than calculated. On
the other hand, attempts to offset the contraction-
ary impact of higher oil prices with traditional
macroeconomic remedies would increase energy
demand and drive oil prices up even further
Impact on the International
Financial System
We believe a major runup in oil prices resulting
from an interruption of Persian Gulf oil supplies
would have severe adverse repercussions on the
international financial system. While on balance,
commercial lenders would be trading the recovery
of one group of troubled debtors-non-Persian
Gulf oil producers-for worse conditions in anoth-
er-net oil importers-the initial oil price shock
would be destabilizing in our judgment, particular-
ly for those banking centers and countries with high
loan exposure to nonoil exporting LDCs. Moreover,
recent banker experience with LDC debt moratori-
ums and reschedulings could hamper smooth recy-
cling of surpluses elsewhere to the nonoil LDCs. In
addition, unlike the last two major oil price in-
creases, financial surpluses would accrue largely to
those countries with high propensities to spend,
currently running balance-of-payments deficits, in-
stead of the wealthy Persian Gulf countries who
have large asset holdings and are more likely to
deposit their excess funds with international banks.
OECD governments, faced with the prospect of
severe recessions, are unlikely to increase aid sub-
stantially. At the same time, the prospects for
increasing IMF resources to handle lar a new loan
requests would dim.
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Secret
OPEC Members. We project that even a moderate
disruption of Persian Gulf oil leading to a
1-million-b/d net decline in Free World supplies
would result in a near balanced current account to
a $30 billion surplus depending on the import
behavior of non-Gulf members. This would be in
sharp contrast to the $20-30 billion deficit we
currently project for 1983 and 1984 with current
oil prices remaining stable.
The combined current account surpluses for the
seven non-Gulf members-Nigeria, Ecuador, Ven-
ezuela, Indonesia, Algeria, Libya, and Gabon-
would more than offset the limited oil earnings
accruing to the Persian Gulf members. While a
1-million-b/d net supply decline would help Lagos
to forego rescheduling arrangements and IMF
loans, Venezuela and Ecuador would still require
some debt rescheduling or large new credits in
1984. A larger windfall, resulting from a complete
cutoff of Persian Gulf supplies, would solve their
debt problems and allow import growth and the
lifting of unpopular austerity measures. In the case
of Libya, a Hormuz closure would give Qadhafi
unprecedented financial surpluses.
Of the six Persian Gulf producers, Saudi Arabia
could experience financial gains from the closure of
the Strait of Hormuz provided the current operat-
ing pipeline continues to function and major oil
price increases occur. Iran and Iraq would be
hardest hit by the closure of the Hormuz Strait and
the Iraq-Turkey pipeline. Faced with a loss of
income and large import needs, Tehran would be
forced to draw down foreign assets, which we
estimate at $13 billion at yearend 1982, and cut
imports, including those needed to fulfill the Kho-
meini regime's first five-year development plan.
With foreign assets nearly depleted closure of the
pipeline would make Baghdad even more depend-
ent on foreign financial assistance
Large foreign asset holdings and modest import
needs would enable, Kuwait, UAE, and Qatar to
absorb the loss of oil revenue from the Hormuz
Strait closure over the short term. We estimate that
these governments would have to draw down $15
billion in foreign assets to maintain current import
levels and cover projected current account deficits
over 12 months. Private capital outflows, which we
believe would be high in this pessimistic climate,
would force even larger asset drawdowns. Private
outflows could also erode any surplus the Saudi 25X1
Government may accrue. Despite large foreign
reserves, the need for economic stringency under
these circumstances will pose difficult questions for
these governments concerning domestic spending,
asset management, and foreign aid levels.
Non-OPEC LDC Oil Exporters. The economies of 25X1
Mexico, Egypt, Malaysia, Cameroon, and Peru
would benefit from substantially higher oil reve-
nues, and in the case of Mexico and Egypt a large
oil price windfall would alleviate current debt
servicing problems and substantially reduce the
possibility of political or social unrest. Emerging oil
exporters, Ivory Coast and Zaire, would gain only 25X1
if the price hike spurred exploration effort,.
could boost net oil exports at a later date.
Oil Importing LDCs. In our judgment, major 25X1
debtors, Brazil, Chile, Philippines, Pakistan, Mo-
rocco, Sudan, India, and South Korea would have
trouble meeting scheduled external payments even
assuming a moderate rise in oil prices. Without
liberal rescheduling arrangements from private and
official creditors, the odds would greatly increase
that they would be forced to declare a debt morato-
rium. Closure of the Strait of Hormuz-unless
resolved quickly-would make such an event al-
most a certainty.
Higher oil prices would also create payments prob-
lems for many smaller Central American, African,
and Middle Eastern oil dependent economies with 25X1
limited financial reserves. Potential debt troubled
and even financially sound LDCs would have to
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Persian Gulf Oil Exporters:
Foreign Exchange Impact of a
Closure of the Hormuz Strait
Projected Projected Projected
Oil Oil Current
at Account
R
E
t
Estimated
1983
Im
orts
Official
Foreign
Assets
Estimated
Export
Capability
Loss/Gain if Oil
Price Rises to
evenue
xpor
s
1983 Current Balance
(thousand b/d) Prices 1983
(billion (billion)
US $) US $)
p
(billion
US $)
Yearend
1982
(billion
US $)
if Hormuz
Strait Closed a
(thousand b/d)
$70/b
(billion
US $)
$100/b
(billion
US $)
Saudi Arabia 4,415 44.8
-14.2
39.0
153
1,900
3.7
24.5
Kuwait 730 7.4
4.5
7.0
73
0
-7.4
-7.4
United Arab 1,120 12.3
Emirates
1.7
8.0
35
0
-12.3
-12.3
Iran 1,945 20.2
4.5
12.0
13
0
-20.2
-20.2
Iraq 600 6.8
-14.8
16.0
8
0
-6.8
-6.8
Qatar 290 3.2
2.0
1.5
15
0
-3.2
-3.2
Major LDC Debtors and Net Oil Exporters:
Foreign Exchange Impact of a
Major Oil Price Increase
Net Oil
Exporters
Projected
Net Oil
E
t
Projected
Net Oil
R
enues
Proj
Curr
Acco
ected
ent
unt
Estimated
Debt Due
in 1983 a
Estimated
Surplus
Productive
Additional Oil Revenues at Full
Capacity if Prices Rise to
xpor
s,
1983
(thousand b/d)
ev
at $29/b
(billion
US $)
Bala
1983
(billi
US $
nce,
on
)
(billion
US $)
Capacity
(thousand b/d)
$37/b
(billion
US $)
$70/b
(billion
US $)
$100/b
(billion
US $)
Mexico
1,500
15.5
2.
5
23.0
400
9.1
30.6
50.2
Argentina
10
0.1
-1.
1
3.8
NEGL
NEGL
0.1
0.2
Venezuela b
1,570
15.2
-1.
1
22.5
430
9.4
31.3
51.2
Indonesia b
930
9.9
-4.
8
7.5
200
5.5
19.3
31.8
Egypt
200
2.1
-3.
0
5.9
NEGL
1.0
3.5
6.0
Algeria b
855
9.0
-2.
4
6.7
140
4.3
16.2
27.0
Nigeria b
1,090
11.7
-1.
9
5.7
880
15.2
39.1
60.9
Peru
60
0.6
-0.
6
5.4
NEGL
0.2
0.8
1.5
Malaysia
120
1.5
-3.
2
3.4
NEGL
0.4
2.1
3.7
Ecuador b
100
1.0
-1.
6
2.6
0
0.3
1.4
2.4
a Includes short-term debt maturities, principal payments on
medium- and long-term debt, and interest due on all debt maturi-
ties but does not include interbank debt. For Mexico, Argentina,
Nigeria, Peru, and Ecuador any debt rescheduled through 14
September 1983 is not included in the total debt service figures.
b OPEC member.
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Secret
Major LDC Debtors and Net Oil Importers:
Foreign Exchange Impact of a
Major Oil Price Increase
Net Oil Importers
Projected Net
Oil Imports,
1983
Projected Net
Oil Import
Bill
1983
Projected
Current
Account
Estimated Debt
Due in 1983 a
(billion US $)
Additional Foreign Exchange
Requirement if Oil Price Rises to
(thousand b/d)
,
at Current
Prices
(billion US $)
Balance, 1983
(billion US $)
$37/b
(billion
US $)
$70/b
(billion
US $)
$100/b
(billion
US $)
Brazil
700
7.6
-7.5
31.0
2.0
10.5
18.1
South Korea
530
6.1
-2.3
19.1
1.5
7.9
13.7
India
335
4.1
-3.4
2.7
1.0
5.0
8.7
Chile
58
0.8
-1.6
6.7
0.2
0.9
1.5
Philippines
200
2.2
-3.0
7.6
0.6
3.0
5.2
Morocco
95
1.0
-1.8
4.9
0.3
1.3
2.2
Taiwan
340
4.1
4.0
6.1
1.0
5.1
8.8
Thailand
230
2.6
-2.0
4.1
0.7
3.4
6.0
Pakistan
105
1.1
-1.3
2.0
0.3
1.6
2.7
Sudan
45
0.5
-0.7
0.4
0.1
0.5
0.8
Ivory Coast
20
0.2
- 1.1
1.5
0.1
0.3
0.5
a Includes short-term debt maturities, principal payments on any debt rescheduled through 14 September 1983 is not included in
medium- and long-term debt, and interest due on all debt maturities the total debt service figures.
but does not include interbank debt. For Brazil, Chile, and Sudan
either dramatically cut back oil use, crippling their
economies, or greatly increase their borrowing,,
which could quickly move them into the ranks of
the debt-troubled LDCs.
As things now stand, we believe that many of these
LDCs would have difficulty obtaining loans to
finance their much higher oil bills. Because of this,
we expect that many would turn to Washington for
funding and leadership in handling an oil price
crisis. Lacking adequate financing, they would face
severe recessions and growing unemployment,
which for many governments have the potential for
stimulating serious political and social unrest.
Secret
30 September 1983
25X1
25X1
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Secret
Iraq: Economy Under Siege
Iraq's war of attrition with Iran is strangling its
economy. With major oil export facilities inopera-
ble and Damascus refusing to allow oil deliveries
through the Iraq-Syria pipeline, Iraq's oil revenues
have plummeted to less than one-third of prewar
levels. The Iraqis already have virtually shelved
their development program, and Baghdad has been
forced to slash imports this year for the first time
since the war began in 1980.
The next year will be critical for Iraq. We do not
believe it will be able to obtain the amount of
financial assistance in 1984 that it received this
year, and the private sector, particularly consum-
ers, will bear the brunt of new austerity measures.
Some slowdown in military spending might also be
required. Under these circumstances, the Iraqis will
feel increasingly compelled to carry the war to
Iran. An attack on Iran's oil facilities could easily
lead to an escalation of the war throughout the
region, putting Gulf oil exports at risk
Tightening Financial Squeeze
We estimate that Iraqi oil revenue will plunge to
about $7 billion in 1983 compared to more than
$9 billion last year and a peak of $26 billion in
1980. The loss of its Persian Gulf oil export
terminals at the outset of the war and the closure of
the oil pipeline across Syria in April 1982 leaves
Baghdad with the 700,000 b/d pipeline across
Turkey as its sole route for oil exports. Moreover, a
$5 per barrel price cut to meet OPEC guidelines
last March is costing Iraq $100 million a month in
lost oil revenue
Iraq is taking steps to increase oil sales. Expansion
of the Turkish pipeline-by about 200,000 b/d
could be completed by yearend
Meanwhile, Iraq now is 25X1
using flow-enhancing chemicals to squeeze an addi-
tional 100,000 b/d of oil through the pipeline. Iraq
also is arranging for the transport of small amounts
of oil by truck. 25X1
More importantly, Baghdad is arranging oil barter 25X1
deals involving Saudi Arabia and Kuwait who in
turn are selling their oil on Iraqi account. These oil
sales to Iraq's customers probably will average up
to 400,000 b/d for the year, worth about $3-4
billion. 25X1
We believe that declining revenues will force Iraq
to reduce import spending this year to $14-16
billion, compared with $19 billion last year. Early
1983 trade data for some of Iraq's most important
trading partners indicate that imports of heavy
industrial machinery, electrical equipment, and
construction materials are well off last year's pace.
Imports of most consumer goods and raw materials 25X1
for the light industrial sector are also being re-
duced. Consumer goods imports from Japan, Iraq's
second-largest trading partner, were down 85 per-
cent during first-half 1983 from the same period
last year. The regime has constrained private-sector
imports by delaying import licenses and, cutting-
total value to 30 percent of 1982 levels.
We estimate Iraqi imports from the West in 1983 25X1
will reach only some $10-11 billion compared with
$14 billion in 1982. OECD trade data indicate that
Iraq's imports from the West fell by over one- 25X1
half-to $3.5 billion-in the first six months of
1983 from the same period last year. The big losers
were Japan, West Germany, and France, which
accounted for 60 percent of the drop.
Secret
DI IEEW 83-039
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fI
Oil barter deals, however, probably will allow an
increase in imports in second-half 1983. France and
the USSR-Iraq's two largest arms suppliers-
have agreed to take oil to help pay for about $1
billion owed each country for military hardware
this year. Saudi Arabia is providing oil to the
Soviets on Iraqi account. Iraq also is striking oil
barter arrangements with civilian trading partners,
including Japanese trading companies.
Imports from the USSR this year probably will
approach last year's $1.4 billion despite a slow
start. Soviet deliveries to Iraq-plummeted to $75
million in first-quarter 1983 compared with about
$580 million for first-quarter 1982, according to
Soviet trade data. The drop probably resulted from
a temporary difference between Moscow and Bagh-
dad over a payments scheme for Soviet military
deliveries. The USSR is Iraq's most important
arms supplier; last year, Baghdad signed arms
deals with Moscow valued at about $3 billion.
We believe Iraq will have a roughly $14 billion
deficit on its current account this year, down only
slightly from the levels of the last two years. The
trade deficit will reach $7-9 billion and other
foreign exchange outflows will total about $6 bil-
lion-most of it in remittances by Iraq's still
sizable foreign labor force. With the labor market
already tight because of draft callups-approxi-
mately 600,000 men are in the regular armed
forces and tens of thousands more in militia and
security units-Iraq has not been able to signifi-
cantly reduce its foreign labor force.
Covering the Current Account Shortfall
Iraq is closing the current account gap with de-
ferred payments, Gulf aid, and reserve drawdowns.
We project it will negotiate deferred payments-or
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Secret
Iraq: Current Account Balance and
Financing Arrangements
-7.0
-9.0
-3.7
-3.7
7.0
7.0
7.3
9.3
6.7
6.7
7.0
9.0
0.3
0.3
0.3
0.3
Imports (c.i.f.)
20.1
19.4
14.0
16.0
11.0
13.0
Net services and private
transfers
-6.0
-7.1
-6.0
-6.0
-4.3
-5.3
Freight and insurance
-4.0
-3.5
-2.6
-2.7
-1.5
-2.1
Investment income d
3.2
1.6
0.6
0.7
0.3
0.3
-5.2
-5.2
-4.0
-4.0
-3.1
-3.5
-2.0
-1.0
Current account balance -17.1
-17.8
-13.0
-15.0
-8.0
-9.0
Financing the current account 18.0
18.5
13.0
15.0
8.0
9.0
8.0
5.2
1.2
1.2
1.0
1.0
3.0
3.5
2.0
3.0
Commercial loans
0
0
0.5
0.5
0.5
0.5
Arrearages
0
0
4.8
5.8
2.0
3.0
Reserves
10.0
13.0
3.5
4.0
2.5
1.5
a Estimated.
b Alternative scenarios for import spending and current account
balances depend on our assumed levels of foreign assistance and
reserve drawdowns.
c Assumes Turkish pipeline expansion completed in early 1984.
d Represents earnings on official foreign assets only.
simply be late in paying-some $5-6 billion owed
foreign companies for project-related and other
imports in 1983. Iraq generally is demanding that
payments begin in 1985 with interest rates below
commercial levels. Many firms are under tremen-
dous pressure to come to terms with Iraq to protect
their investments. Prospects for participation in
postwar development also motivate the companies
to accede to Iraq's demands. To avoid piling up its
own debt, Baghdad is requiring foreign firms to
find their own financing for the deferred payments.
So far, Iraq has obtained a $1 billion credit to cover
the deferral of payments due French civilian con-
tractors this year, according to press reports, and is
negotiating with other foreign firms, including Jap-
anese, West German, Italian, and British compa-
nies. We estimate the Iraqi 1983 obligation to firms
from these five countries alone is at least $3 billion.
We believe other OECD countries will follow suit,
and several Third World countries, including Jor-
dan and Turkey, also are deferring payments due
this year. 25X1
We estimate Gulf state aid-including oil sales on
Iraq's behalf-will contribute approximately $4-5
billion to Baghdad's foreign exchange needs, com-
pared with $5.5 billion in direct financial assistance
25X1
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last year. As they cope with their own revenue
problems because of the soft oil market, the Gulf
states are unlikely to increase direct aid much
above the $1.2 billion they already have provided
this year.
Commercial loans from the international banking
community in 1983 probably will not substantially
exceed the present level of about $500 million. In
out judgment, many Western banks, already con-
cerned about their overexposure in other LDCs,
will be reluctant to lend to Iraq until the war is
over. Arab financial institutions-which may be
more willing-probably have fewer funds available
than in the past because other OPEC countries are
withdrawing deposits to cover their own financial
needs.
We estimate Iraqi foreign exchange reserve draw-
downs could reach $4-5 billion in 1983 assuming no
other assistance is forthcoming. Although Iraq
drew down its assets by $3-5 billion during the first
quarter suggests
that Saudi oil sales and deferred payments have
enabled Iraq to temporarily reverse this trend. In
any event, the reserve position has deteriorated
markedly in the last few years; foreign exchange
assets amounted to about $35 billion before the
war; they were only $8 billion at yearend 1982.
Underscoring the severity of Iraq's financial condi-
tion, the government is conducting a "voluntary"
drive to collect gold from the citizenry.
Domestic Impact
The war has been responsible for a sharp slowdown
in the economy. Agricultural and industrial pro-
duction are stagnating or falling because of the
shortages of equipment and raw materials, and the
government has virtually abandoned its economic
development program. Baghdad has canceled al-
most all new contracts not related to the military
effort or the petroleum sector and postponed work
on several nonessential projects already under way.
These developments represent a sharp reversal
from the guns and butter approach the government
Iraq: Official Foreign Exchange Assetsa
0 1974 75 76 77 78 79 80 81 82 83b
a End of year data.
b Estimated.
The Iraqi consumer is increasingly feeling the
effects of the import cuts. Imported staples, espe-
cially fresh food, and luxury goods are either in
short supply or available only at exorbitant prices.
The shortage of imported goods has fueled an
inflation rate that we estimate is as high as 50
percent and has encouraged black-market activity.
We believe the remainder of this year and 1984 will
be a critical period for the Iraqi economy. The oil
export outlook remains gloomy. The 1.2-million
b/d Syrian pipeline is likely to remain closed as
long as Iran provides Damascus with oil, and the
Iraqis are unlikely to be able to resume exports
from the Gulf as long as the war continues. In-
creased exports through the expanded Turkish
maintained during the first two years of the war.
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Secret
pipeline could add as much as $2 billion to revenues
in 1984, but Saudi Arabia and Kuwait may reduce
their oil sales accordingly to keep Iraq within its
OPEC production guideline. Moreover, foreign ex-
change reserves will, at best, allow a drawdown at
Implications of the Conflict With Iran
The tightening economic vise is forcing Baghdad to
seriously consider desperate measures to bring an
end to the war with Iran. Iraq's efforts to acquire
French Super Etendard aircraft armed with Exocet
antiship missiles and public threats to use them
against oil tankers in the Gulf servicing Iran
represent a major attempt to break the economic
stranglehold. The Iraqis could well make good their
threat in the hope that it would cut off Iranian oil
exports and force Iran into negotiations to end the
war. More realistically, however, the Iraqis proba-25X1
bly would count on major Western powers to
intervene and enable Iraq to resume exporting oil
2 A11
the 1983 rate
As a result, Baghdad faces the prospect of obtain-
ing foreign financing for another large current
account deficit in 1984-on the order of $9 bil-
lion-even if it makes additional sharp import cuts.
The Gulf states' oil sales are not likely to recover
enough in 1984 to prompt them to increase their
aid to Iraq; they may even cut back. Commercial
banks probably will refrain from giving major loans
to Iraq while the war continueda
Iraq thus will have to defer again a sizable share of
1984 payments-probably including some 1982-83
payments-or slash imports. Should Baghdad re-
nege on deferred payments due in 1984, bank
financing for essential commodity purchases also is
likely to be adversely affected. Moreover, Baghdad
probably will encounter greater resistance from
foreign contractors and suppliers who are less able
or willing to finance delayed Iraqi payments. Sever-
al West German firms, for example, have stated
they anticipate serious obstacles to financing in
1984, according to the press.
The Iraqi populace will tolerate the stoppage of the
development program-few Iraqis directly feel the
effect-but a substantial reduction in imports of
food and other basic commodities probably will
heighten discontent. Iraq depends on imports for
about one-half of its grain consumption alone,
according to agricultural trade statistics. To ease
the burden on the population, the government may
attempt to reduce defense-related spending. Mili-
tary contracts signed last year for nearly $5 billion,
however, ensure continued high levels of arms
spending.
Meanwhile, Baghdad's threats also serve as a form
of blackmail to force the Gulf states to increase
substantially their subsidies to Iraq. If this
works, the Iraqis might hold off escalation.7
Iranian retaliation for an Iraqi attack on Tehran's 25X1
oil export facilities could have a profound impact
on world oil supplies and the world economy. A
successful Iranian attack on Gulf state oil facilities 25X1
or the mining of the Straits of Hormuz, for exam-
ple, would sharply reduce Free World oil supplies.
Secret
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Secret
OPEC Persian Gulf States:
Reduced Foreign Aid
Aid disbursements by four OPEC Persian Gulf
states-Saudi Arabia, Kuwait, the United Arab
Emirates, and Qatar-declined by over 20 percent
in 1982 to $11.4 billion. Iraq was by far the biggest
loser; its aid receipts fell by $2.5 billion. First-half
1983 aid transactions indicate OPEC states have
begun to limit new aid pledges and are slowing
transfers on previous pledges
Aid commitments by the four OPEC Persian Gulf
states-Saudia Arabia, Kuwait, the UAE, and
Qatar-reached a record $20 billion in 1982. Of
the new commitments, military aid to non-OPEC
LDCs totaled $7.6 billion, economic assistance to
non-OPEC LDCs was $5.1 billion, and $7.4 billion
was co lance-of- payments
support.
A major element of OPEC security-related aid in
1982 continued to be the Baghdad Pact Subven-
tions (BPS). Instituted in 1978 to help defray
military and development expenditures of the con-
frontation states and the PLO, the BPS remained
the single largest channel for aid to Jordan and
Syria. As much as 60 percent of BPS funds have
been defense related; the rest helped to underwrite
development projects and other economic pro-
grams. In 1982 reliable sources confirmed that all
' Gulf states' aid channeled to LDCs via multilateral institutions-
a flow that recently has averaged about $1 billion-is not ad-
dressed. We have made no attempt to categorize Gulf states' aid to
Iraq either economic or military assistance. Therefore, references to
economic or military aid do not include aid to Iraq except where
of the Gulf states met their Baghdad Pact obliga-
tions, although several payments were delayed for
up to six months for political or economic reasons.
25X1
Lagging Disbursements. Overall aid disbursements
of $11.4 billion lagged far behind commitments.
While military aid transfers rose slightly in 1982, 25X1
they were more than offset by a $2.5 billion
decrease in flows to Iraq and a $600 million decline
in economic disbursements. We estimate that the
combined military and economic assistance dis-
bursed to Syria reached a one-year high of $2.0
billion, while total financial assistance to Jordan of
$1.0 billion remained close to the 1981 level. These
two countries accounted for one-half of the total
non-Iraqi aid disbursed
Military Aid Jumps in 1982
The four Persian Gulf states pledged about $7.6
billion to non-OPEC LDCs for direct military
assistance in 1982, more than twice the 1981 level.
More than three-fourths of the 1982 commitments
were directed to cover current or planned arms
purchases. The preponderance of OPEC military
aid commitments in 1982 was directed toward
friendly Arab and non-Arab Islamic regimes:
? Long-term GCC commitments totaling $3.7 bil-
lion were provided to strengthen the armed forces
of Bahrain and Oman, according to senior offi-
cials of both governments.
? Western military attaches in Cairo reported a $1
billion pledge by the four states to underwrite the
modernization of Egypt's fighter aircraft inven-
tories with French Mirage 2000s. 25X1
Secret
DI IEEW 83-039
30 September 1983
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 Sanitized Copy Approved for Release 2010/10/28: CIA-RDP84-00898R000300120009-2
OPEC Persian Gulf States: Donor Shares of Aid Commitments
and Disbursements, 1982
Syria, almost half of it as war aid in the after-
math of Syrian losses at the hands of Israel and
the rest as continuine aid under the BPS.
Almost as noteworthy as the new pledges in 1982
were appeals for aid that the Gulf states either
refused outright or only partly fulfilled:
? Although Riyadh and Kuwait transferred $600
million to Syria during the Lebanese crisis, Da-
mascus failed to convince the Gulf countries of
the need to underwrite a new multibillion-dollar
Soviet arms agreement.
over $250 million was spent by Saudi
Arabia and the UAE to pay the expenses of
foreign Islamic forces stationed on their soil.
? Saudi Arabia has sent several million dollars
worth of military hardware and munitions to
Chad.
? A $2 billion Jordanian request made to the
Saudis to finance arms modernization was turned
down because of oil revenue shortfalls, according
to senior Jordanian officials. Several transfers
observed in 1983 indicate, however, that Riyadh
may have since agreed to a modest new
commitment.
Secret
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Secret
OPEC Persian Gulf States:
Bilateral Official Development Assistance
Disbursements to Non-OPEC LDCs
Saudi
Arabia
Kuwait
UAE
3,175
2,280
440
345
2,645
1,870
360
305
380
195
90
60
390
255
65
45
Morocco
565
560
5
0
Syria
705
395
115
145
Others
605
465
85
55
Non-Arab Islamic countries
410
345
45
20
135
110
25
NEGL
Pakistan
35
25
10
0
Turkey
150
150
0
0
Others
90
60
10
20
120
65
35
20
Qatar
Total
Saudi
Arabia
Kuwait
UAE
Qatar
2,615
1,730
565
210
110
1,975
1,295
385
185
110
405
230
85
55
35
140
5
65
45
25
450
335
115
0
0
575
325
115
85
50
405
400
5
0
0
480
355
110
15
0
55
55
0
NEGL
0
215
105
110
NEGL
0
15
15
0
0
0
195
180
0
15
0
160
80
70
10
0
? Saudi Arabia refused to fund North Yemen's
arms bills due to the USSR, according to the US
Embassy.
In 1982 our estimates indicate that economic aid
transfers fell by $600 million, to $2.6 billion, the
lowest level since 1979. This drop is consistent with
the pattern that prevailed during 1978-79, when
the Gulf states, facing a decline in oil revenues,
chose to maintain highly political military aid
programs but cut economic aid programs. In 1982,
about 95 percent of the Persian Gulf economic aid
disbursements went to Islamic states compared
with the 1979-80 average of 70 percent. Jordan,
Lebanon, Morocco, North Yemen, and Syria con-
tinued to absorb the bulk of the assistance-$1.7
billion of the total $2.6 billion disbursed in 19825X1
Gulf state bilateral economic assistance:
? Covered at least 25 percent of the current ac-
count deficits (before official transfers) of Moroc-
co, Jordan, and North Yemen.
? Covered 15 percent or more of the current
account deficits (before official transfers) of Paki-
stan, Syria, Turkey, Somalia, Sudan, South Ye-
men, and Sri Lanka.
Saudi Arabia dis-
counted substantial quantities of crude oil to select-
ed LDCs in 1982 as a form of economic assistance.
Somalia received financial assistance equivalent to
more than $100 million in the form of discounted
Secret
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OPEC Persian Gulf States: Economic and Military Aid to LDCs
OPEC Persian Gulf States: Recipient Shares of Aid Commitments
and Disbursements, 1982
US $20.0 billion Islamic Arab
Confrontation Statesa
ajordan and Syria 14
300760 9-83
Secret
30 September 1983
Non-Islamic Arab
States /- Other
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secret
OPEC Persian Gulf States:
Military Aid Commitments to Non-OPEC LDCs
Bahrain
Egypt
Jordan
Morocco
Oman
Syria
Others
Non-Arab Islamic countries
Bangledesh
Pakistan
Somalia
Others
Total
Saudi
Arabia
Kuwait
UAE
Qatar
3,645
145
3,645
145
0
0
0
0
0
125
125
0
0
0
545
290
120
85
50
320
320
0
0
0
70
70
0
0
0
1,785
1,325
175
190
95
800
665
20
115
0
NEGL
NEGL
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
NEGL
NEGL
0
0
0
NEGL
0
0
NEGL
0
Total
Saudi
Arabia
Kuwait
UAE
Qatar
7,565
3,270
1,830
1,690
775
6,885
2,880
1,830
1,400
775
1,760
615
440
440
265
1,000
500
200
200
100
555
300
120
85
50
325
300
0
25
0
1,935
680
485
485
285
1,080
325
555
125
75
230
160
30
40
0
680
390
0
290
0
200
200
0
0
0
380
130
0
250
0
100
60
0
40
0
0
0
0
0
0
NEGL
NEGL
0
0
0
Saudi crude oil. In addition, Embassy reporting
indicates that in late 1982 a similar agreement may
have been signed between Saudi Arabia and the
Sudan. On an annual basis, the discount may be
worth $10 million to $20 million
Iraq: The Special Case
Although $7.4 billion was committed to Iraq in
1982, OPEC financial assistance actually disbursed
fell to $5.5 billion from the $8 billion recorded the
previous year. Saudi Arabia had prepaid $1 billion
of its $3 billion commitment in 1981 and together
with the other three countries transferred an addi-
tional $5 billion to Iraq in the first four months of
1982. We believe that Qatar and the UAE, collec-
tively, failed to pay some $500 million of their 1982
commitments. After April the only new commit-
ment of financial assistance to. Iraq was a fourth-
quarter $400 million loan from Saudi Arabia.
25X1
Based on reduced and delayed payments observed
so far this year, OPEC financial assistance trans-
fers of all types are likely to be down at least $1.5-
2.5 billion from the 1982 level. This year much of
Saudi and Kuwaiti aid to Iraq is taking the form of
crude oil sales to Iraqi customers. At current levels
of 300,000 to 500,000 b/d, these sales would
amount to $2 to $4 billion if maintained throughout
the year. In addition, another $1 billion in direct
financial assistance has been disbursed to Iraq. As
a result, Gulf state aid to Iraq in 1983 probably will
amount to at most $5 billion, down from last year's
Secret
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 Sanitized Copy Approved for Release 2010/10/28: CIA-RDP84-00898R000300120009-2
OPEC Persian Gulf States:
Military Aid Disbursement to Non-OPEC LDCs
Total
Arab countries
Jordan
Morocco
Sudan
Syria
Others
Non-Arab Islamic countries
Pakistan
Others
Other countries
Total
Saudi
Arabia
Kuwait
UAE
Qatar
3,110
2,105
295
515
195
2,715
1,785
295
465
170
795
440
120
185
50
225
225
0
0
0
250
210
0
40
0
1,085
625
175
190
95
360
285
0
50
25
395
320
0
50
25
325
250
0
50
25
70
70
0
0
0
NEGL
0
NEGL
0
0
OPEC Persian Gulf States:
Bilateral Official Development Assistance
Commitments to Non-OPEC LDCs
Total
Saudi
Arabia
Kuwait
UAE
Qatar
3,225
1,905
750
385
185
2,910
1,665
750
335
160
625
370
120
85
50
185
160
0
25
0
175
125
0
50
0
1,380
625
555
125
75
545
385
75
50
35
315
240
0
50
25
215
140
0
50
25
100
100
0
0
0
NEGL
NEGL
0
0
0
Total Saudi Kuwait UAE Qatar Total Saudi Kuwait UAE Qatar
Arabia Arabia
Total 5,095 3,520 1,060 390 125 5,055 3,315 1,110 520 110
Arab countries 3,510 2,485 550 350 125 3,295 2,110 695 380 110
Jordan 575 240 160 140 35 670 270 220 145 35
Lebanon 390 255 65 45 25 250 115 65 45 25
Morocco 600 500 10 80 10 610 500 80 30 0
535
Syria 610
Others 800
920
240
225
5
210
240
665
535 0 0
360 115 85
595 200 0
670 230 20
180 60 0
105 120 0
5 0 0
210 0 0
170 50 20
365 280 20
585 535 50 0
560 310 115 85
620 380 165 75
1,160 845 185 130
130 105 0 25
170 150 15 5
230 130 65 35
165 125 40 0
465 335 65 65
600 360 230 10
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Secret
Commit- Disburse-
ments ments
Commit- Disburse-
ments ments
Commit- Disburse-
ments ments
Commit- Disburse-
ments ments
Commit- Disburse-
ments ments
Total
7,000 7,000
7,000 8,000
7,400 5,520
500 950 b
21,900 21,570
Saudi Arabia
3,000 3,000
3,000 4,000
3,400 2,400
200 200
9,600 9,600
Kuwait
2,000 2,000
2,000 2,000
2,000 2,000
300 300
6,300 6,300
United Arab Emirates
1,400 1,400
1,400 1,400
1,400 800
0 450
4,200 4,050
600 600
600 600
600 320
0 0
1,800 1,520
a As of 15 September 1983.
b In addition, Kuwait and Saudi Arabia have agreed to fulfill $2-4
billion worth of Iraqi oil sales contracts in 1983, an unknown
portion of which has already been shipped.
$5.5 billion. Jordan and Syria are also having
difficulty maintaining aid receipt levels; only Saudi
Arabia has made its Baghdad Pact payments on
schedule in 1983. As of September, Kuwait has
made only one of its three payments to Jordan and
none to Syria, and the UAE and Qatar have not
made payments to either country.
New military aid commitments of $1.8 billion in
the first six months of 1983, while below the record
annual rate in 1982, are close to the average pace
in 1979-81 ($3.6 billion). Military aid disburse-
ments of $1.3 billion in first-half 1983, however,
are lagging behind last year's rate of $3.2 billion.
Syria continues to be the largest recipient, receiv-
ing $650 million in the first half of this year
compared with the $1.4 billion received during all
Economic assistance also has declined in 1983.
According to press reports, the Abu Dhabi Fund
will reduce aid disbursements this year as a result
of oil revenue constraints, while published informa-
tion shows the Kuwait Fund authorized only one
new project loan in first-quarter 1983, compared
with nine in the previous quarter and 14 during
first-quarter 1982. We estimate that in the first six
months of 1983, new commitments by the Saudi
and the Kuwaiti Funds totaled $350 million com-
pared with $695 million committed in the first half
of 1982. In first-half 1983, commitments of total
economic aid by the Gulf states amounted to $1.4
billion, less than half the pace set in 1982. Ec n m-
ic aid disbursements total about $600 million
For the other large OPEC aid recipients such as 25X1
Morocco, Pakistan, and Bangladesh, it would take
only a 20- to 40-percent decline in OPEC funds
from last year's level to offset benefits from lower
oil import bills. In our judgment, it is likely that 25X1
these countries will call upon Washington to help
make up any financing shortfalls
Secret
30 September 1983
25X1
25X1
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Secret
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