NICARAGUA: OIL PROBLEMS AND PROSPECTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T01298R000100070001-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 22
• Document Creation Date: December 22, 2016
• Document Release Date: January 7, 2011
• Sequence Number: 1
• Publication Date: May 1, 1985
• Content Type: REPORT

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Directorate of heeret
Intelligence
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Nicaragua: Oil Problems
and Prospects
ALA 85-10046CX
May 1985
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*AL Intelligence
Nicaragua: Oil Problems
and Prospects
This paper was prepared by
Office of n and Latin American Ana ysis, and
Office of Soviet Analysis, with
contributions b Office of Global
Issues, Office of African and
Latin American Analysis, Office of
Imagery Analysis
Comments and queries are welcome and may be
directed to the Chief, Middle American-Caribbean
Division, AL
Secret
ALA 85-10046CX
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Nicaragua: Oil Problems
and Prospects 25X1
Key Judgments Nicaragua's dependence on crude oil imports and susceptibility to supply
Information available disruptions have resulted in serious fuel shortages over the past year.
as of15 April 1985 Managua faces the prospect of further, potentially critical shortfalls even
was used in this report.
as its dependence on Soviet deliveries and Cuban technical expertise is
likely to continue to grow.
Nicaragua has no indigenous petroleum resources and its one refinery can
process only 80 percent of the country's oil requirements. The Sandinistas
have been unable to manage fuel supply smoothly since the withdrawal of
Nicaragua's two traditional oil suppliers-Venezuela in 1982 for overdue
debt payments and Mexico earlier this year to give greater balance to its
regional policies. In February, the refinery was forced to close for a month
for lack of crude, creating the worst energy crisis in recent memory,
according to US Embassy reporting
With Venezuela out of the supply picture and Mexico cutting back from
peak 1983 levels, the Soviets matched Mexico as Nicaragua's primary oil
supplier last year, providing some 6,000 barrels per day (b/d). Moreover, in
a sharp departure from typical commercial policy, Moscow appears to have
permitted the financially pressed Sandinistas to run arrears on their oil
payments. We believe the Soviets have tried to reduce costs associated with
deliveries to Nicaragua by attempting to convince traditional suppliers to
resume or increase shipments, by trying to work out new oil swap deals,
and by attempting to use Cuba as a broker. These efforts have had only
limited success, and, consequently, we expect the Soviets will remain the
Sandinistas' principal suppliers for at least the next several years.
Even if the Soviets supplied all of Nicaragua's oil needs-currently some
14,000 b/d-this would amount to less than 0.5 percent of the USSR's to-
tal net oil exports. Given the political and military importance of adequate
fuel supplies for the Sandinistas, we believe the USSR will continue to
provide Nicaragua with the bulk of its oil needs and allow Managua a very
lenient repayment schedule. Even with such a commitment, however,
Moscow's logistic problems in sending crude oil directly to Nicaragua may
create occasional fuel shortages for the Sandinistas
Even if there are no major petroleum import problems, we believe
Nicaragua will suffer periodic fuel shortages throughout 1985 because of
the poor condition of its refining and distribution system.
the aging pipeline and tanker truck transportation
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network has no backup, and any significant system failure will result in ex-
tended supply disruptions. In addition, Corinto-the only port capable of
handling large tanker loads of imported refined products-can store one
month's supply of the products needed to satisfy Nicaragua's demand. The
necessity of moving oil from the refinery on the west coast to the Caribbean
coast also places an additional burden on the country's limited number of
tanker trucks.
Keeping the refinery operative will also be a major challenge for the
Sandinistas. Because Managua has withheld all profits from the plant's
foreign owners since 1981, the owners have not maintained the refinery.
Lack of adequate repairs since early 1981 has reduced the refinery's
already insufficient capacity, forcing the Sandinistas to rely increasingly
on foreign suppliers to meet their refined product demand.
With the Sandinistas' announced goal to eliminate the counterinsurgency
this year, we expect military priorities to further divert oil supplies from
the civilian sector. Currently, the Army is allocated the bulk of the
petroleum used by government agencies, which is normally 80 percent of
available supplies. As a result of the diversion, industrial and agricultural
output will continue to decline and erode living standards further.
If mechanical and crude supply problems-or gross Sandinista misman-
agement-should force the refinery to shut down for two months or longer,
we predict that activity in the industrial sector of Nicaragua's economy as
well as selected portions of agriculture would be sharply curtailed. An
extended petroleum shortage would virtually eliminate public transporta-
tion, disrupt food distribution, and further weaken public confidence in the
ability of the Sandinista leadership. It would also indirectly affect
Managua's already precarious financial condition. Logistic problems would
also develop in the military. In the event of an extended supply disruption,
we believe that the Sandinistas' Soviet and Cuban allies would have to
greatly increase aid in the form of repairs to the supply system and direct
product imports to keep the military functioning at minimal operational
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Scope Note This assessment focuses on a single aspect of the deteriorating situation in
Nicaragua: the economy's vulnerability to oil supply and distribution
interruptions. The assessment analyzes Nicaragua's oil import require-
ments, chronicles the Sandinistas' growing dependence on the Soviet
Union, and examines deficiencies in the petroleum infrastructure.
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Soviets Take Up the Slack
Looking To Share the Burden 3
Long-Range Outlook for Soviet Supplies 9
A. Civilian Petroleum Storage Facilities in Nicaragua
B. The Military's Thirst for Oil and Impact on the Civilian Sector 13
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Nicaragua: Oil Problems
and Prospects
Nicaragua's oil supply problems have worsened in the
past year. After experiencing five serious oil shortages
since mid-1984, a lack of crude forced Nicaragua to
close its only refinery in February, marking the worst
oil crisis in 20 years, (see
figure 1). The US Embassy reports public transporta-
tion was nearly at a standstill during late February
and early March after almost all gas stations were
shut down and hundreds of cars were abandoned. The
absence of petroleum also disrupted industry and
agriculture: there
was no oil for farm and other types of machinery and
no fuel to transport workers during the critical final
phase of Nicaragua's coffee and cotton harvest. Based
on press and US Embassy reports on the severity of
the shortages, we believe the military also experienced
spot shortages, even though its operational activity
levels suggest it was largely shielded from the supply
disruptions.
This paper analyzes Nicaragua's petroleum require-
ments and examines supply relationships with other
Latin American countries and the USSR. It also
discusses petroleum infrastructure problems, includ-
ing distribution and refining capabilities, and the
impact of oil supply difficulties on Nicaragua's econo-
my this year.
Petroleum . Requirements
Nicaragua has no indigenous crude oil resources and
its one refinery is capable of processing only 80
percent of the country's petroleum product needs. As
a result, Managua imports all of its crude oil and
some additional petroleum products, including trans-
portation fuels, kerosene, and petrochemicals. Be-
cause petroleum product reserves are low and indige-
nous storage capacity is limited-approximately three
months for product and less than two months for
crude, based on our estimates of overall demand for
product and the physical size of total storage capaci-
ty-Nicaragua depends on frequent deliveries of
crude and petroleum products.
ing have held consumption growth in check.
A review of trade statistics, government publications,
and industry reporting suggests that during the 1970s,
Nicaragua's demand for crude oil and petroleum
products increased steadily from around 10,600 bar-
rels per day (b/d) in 1971 to about 15,000 b/d in
1977. Since then apparent consumption has remained
relatively constant at an average rate of 14,000 b/d. 25X1
Reduced economic activity and private-sector ration-
The Sandinistas' actual hard currency costs, however, 25X1
have been greatly cushioned by concessional financing
from first its Latin American and later its Soviet
suppliers. Under the terms of the San Jose Accord,
beginning in August 1980, Mexico and Venezuela
offered a stable supply of subsidized crude oil to all
Central American and Caribbean countries, including
Nicaragua. The agreement, as announced by Mexico
City and Caracas, provided below market interest rate 25X1
Nicaragua's oil gerirements from mid-1982 to late
1983 were covered by Mexico 25X1
'irtually all of 25X1
(Even
though Mexico received only occasional token pay-
ments, it initially increased deliveries to take up the
slack for what we believe were political reasons.
Managua's oil import needs translate into an annual
oil import bill of about $150 million at current prices.
loans to cover 20 percent of any oil purchase. In
Managua's case, Mexico decided to sweeten the pot
by extending the offer of low interest rate terms to all
the oil it delivered to the Sandinistas. Despite this
favorable treatment, problems began to develop. In
mid-1982 Venezuela stopped deliveries under this
program because the Sandinistas had fallen behind in
their payment obligations.
Mexico City's position changed in early 1984 when,
according to Embassy reporting, it ordered an audit of
bilateral accounts and began requiring, for the first
time, partial payments on all oil deliveries. We believe
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Figure 1
Nicaragua: Oil Imports, 1984-85
Three-month
moving average
1982-83
average imports
0 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr-
1984 85
Figure 2
Nicaraguan Imports of Crude Oil and
Petroleum Products by Supplier, 1974-84
Q Venezuela
. Mexico
Netherlands Antilles
LI USSR
LI Others
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secret
Mexico intended this shift to give more balance to its
Central American policies, to encourage Managua to
moderate its hardline position on regional issues, and
to respond to increasingly vocal conservative elements
in Mexico as well as concerns raised abroad. As
Mexico moved to treat Nicaragua like any other
customer, deliveries became less frequent and, based
on press reporting, its shipments of crude oil and
refined products dropped from an average of nearly
13,000 b/d in 1983 to about 6,000 b/d in 1984,
almost 50 percent of Nicaragua's oil imports. So far
this year, Mexico is continuing to supply some oil to
Nicaragua, we believe, to maintain its influence and
persuade Managua to retain some measure of political
moderation
To down-
play political goals, however, Mexico City has public-
ly emphasized that it will not resume its role as a
long-term oil supplier until Managua pays the more
than $500 million it owes for past shipments.
As Mexico's role as oil supplier began to decline, the
USSR stepped in to become a major actor in provid-
ing oil to the Sandinista regime. The first observed
Soviet petroleum shipments to Nicaragua occurred in
December 1983. Based on cargo deliveries, we calcu-
late that, during 1984, Soviet oil shipments slightly
outpaced those from Mexico (see figure 2). For the
first four months of 1985, the USSR has directly
provided over two-thirds of Nicaragua's oil imports
and, indirectly, about 10 percent through Cuba.
In addition to assuming responsibility for the bulk of
Nicaragua's oil needs, there are numerous signs that
Moscow-in a marked departure from its typical
commercial policy-has permitted Nicaraguan oil
payments to lapse. For example, although we do not
know the details of oil sales terms, Moscow has to
date required only token payment from Nicaragua in
the form of commodities such as cotton, coffee, and
other farm products. The negligible value of the
countertrade shipment
suggests that there is a large grant element
In view of Nicaragua's precarious finan-
cial position, the Soviets almost certainly could not
have entered into this deal expecting that the Sandi-
nistas would be able to make any significant payment
for years to come. From Nicaragua's standpoint, the
Soviets' willingness to supply petroleum on generous
payment terms has been critical to Managua, because
it has enabled the Sandinistas to conserve scarce hard
currency for such essential imports as foodstuffs.'
Even though the burden on the Soviets is small-at
world prices, 1984 Soviet deliveries would have been
valued at $60 million out of total hard currency oil
export earnings of around $15 billion-Moscow is
apparently searching for alternate or lower-cost sup-
pliers to Nicaragua.
Cuba
Under a Soviet-Cuban-Nicaraguan trilateral accord
signed in 1983, Havana assumed responsibility for
supplying Managua with some petroleum products
purchased from Caribbean sources in 1984,
of oil products from Western traders in Curacao for
delivery to Nicaragua. To cover Havana's costs, the
' Nicaragua's hard currency levels were at an alltime low in
February, when its Minister of the Interior admitted that dollar
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Soviets diverted to Cuba a tanker of crude oil,
originally destined for Nicaragua. At world prices,
the Soviet crude was worth $3-4 million more than
Cuba's product purchases from Curacao, and it is
possible that the balance may have been used to
arrange additional petroleum deliveries to Nicaragua
via Cuba. Havana has recently purchased two crude
shipments from Mexico, which may allow for some-
what higher shipments of Cuban refined products to
Nicaragua despite a recent reduction in crude deliver-
ies to Cuba from the USSR. As a temporary expedi-
ent-particularly when the Managua refinery faced
shutdown-Moscow also shifted oil deliveries directly
Other Regional Suppliers
To provide the amounts of oil Managua requires and
save transportation costs, Moscow has also attempted
to get other regional sources to supply Nicaragua, in
return for Soviet deliveries elsewhere, similar to a
quadrilateral oil swap arrangement it uses to help
supply Cuba. Under that agreement, Moscow ships to
one of Venezuela's West European customers an
amount of oil equal to that which Caracas provides
April, Venezuela agreed to double the amount of
crude under its quadrilateral agreement for Cuba,
with their standard clause that the crude could not be
diverted to Nicaragua. But the clause does not pre-
vent products refined from the crude to be shipped to
Managua.
The Soviets have also had little success in obtaining
oil for Nicaragua from Ecuador. In December 1984
the Soviets believed they had made an arrangement,
in
which Ecuador would supply the bulk of the Sandinis-
tas' oil needs in 1985
In return, thi
dor's account. Ecuador's first shipment under the
agreement was canceled just before its scheduled
departure in February, however, after Quito vetoed
the sale
When the Ecuadorean deal fell through, Managua
and Moscow were left to scramble for alternatives to
cover oil needs for 1985.
The delay, however, forced the
Nicaraguans to deplete their reserves and close their
refinery. The Cubans sent a shipment of refined
products to alleviate growing shortages, before a
Soviet crude delivery in early March reopened the
In addition to coping with delivery uncertainties,
Nicaragua has also had to deal with a petroleum
infrastructure plagued by a limited distribution sys-
tem, inefficient refining capabilities, and a lack of
skilled managers
because of financial constraints and mismanagement,
the Sandinistas are not properly maintaining plants,
equipment, and transport vehicles.
Transportation and Storage
The petroleum distribution system (see figure 3) has
been particularly susceptible to disruption.
the aging system has no backup,
and any failure results in substantial supply disrup-
tions. For example, all crude enters at Puerto Sandino
and is piped 56 kilometers to the refinery in Mana-
gua. The crude storage tanks located at both ends of
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Figure 3
POL Entry Ports and Transshipment Routes
North
Pacific
Ocean
Boundary representation ,e
net necessarily authorltat,Ve.
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the pipeline can hold less than two months of the
refinery's crude requirements, according to Embassy
sources. No ready alternative to the pipeline exists,
although the pipeline
is still serviceable, it has not been adequately main-
tained in recent years and its pumping station needs
refurbishing.
Moreover, when the refinery is forced to shut down
for repairs or lack of crude-as it has been five times
in the past year for periods ranging two to three
weeks, according to Embassy reporting-problems
are compounded. Corinto, the only port that can
handle large tanker loads of refined oil products, can
only store a fraction of the products needed to satisfy
Nicaraguan demands. Corinto's petroleum storage
facilities were designed to supplement the refinery by
allowing imports of specialty products and providing
some additional distribution capacity. The Corinto
facilities can hold approximately one month's supply
of refined product, which sharply limits the number of
ships that can offload during any particular month. In
addition, during periods when Corinto serves as Ni-
caragua's major petroleum product distribution point,
its remote location limits the extent to which trucks
can distribute petroleum products around the country.
To address Nicaragua's crude storage problem, the
Cubans and Soviets are constructing additional stor-
age tanks east of Puerto Sandino,
Two prefabricated
30,000 barrel storage tanks are under construction
near the crude oil pipeline connecting the port with
the refinery at Managua, and workers have cleared
space for at least five more tanks
estimate that the construction materials observed at
the site and on a quay at Corinto are probably
Another logistic problem involves moving petroleum
products to Nicaragua's east coast.
fuel is usually
trucked from the refinery to the interior port of Rama
and then shipped by barge to the Caribbean ports of
El Bluff, Puerto Isabel, and Puerto Cabezas, which
serve as regional distribution points. From there fuel
is supplied to the fishing industry, military installa-
tions, and Nicaragua's mining sector.
has one small tanker that makes regular deliveries of
petroleum from Corinto through the Panama Canal to
the east coast, and also makes small shipments of
imports directly from Cuba, Panama, and Aruba,
according to Embassy sources.
Nicaragua's refinery
operates well below capacity. Before the latest shut-
down on 13 February, crude processing was averaging
some 5,000 b/d below its designed capacity of 15,000
b/d (see figure 6 at end of text). According to industry
publications, the refinery is owned and maintained by
Esso International (Exxon). Even though the Embassy
reports that the refinery is now closely regulated by
Petronic, the Nicaraguan state oil company, Esso
reportedly still provides top management and techni-
cal advice. Because the Sandinistas have refused to
allow the owner to repatriate its share of profits since
mid-1981, however, the company has been reluctant
to maintain the refinery and has made no improve-
ments or capital investment. The Sandinistas have
made only minimal repairs vital to keeping the plant
sufficient to build 15 tanks. If all the tanks were used Indeed, Esso has tried to cut its losses by selling the
for crude oil, they would about double Nicaragua's facility to the government.
crude storage capacity- providing about 45 days'
extra supply and reducing the vulnerability to crude however, the Sandinistas have placed the equivalent
disruptions. While the location of the tanks points to
their intended use to improve crude oil supply flexibil-
ity, they could also be used for petroleum product
storage if the need arose.
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of over $30 million in local currency of the company's Any dropoff in oil product deliveries to the agricultur-
unrepatriated profits into escrow accounts. The San- al or industrial sector would only further limit exports
dinistas also postponed sales negotiations several and thus hard currency earnings. Balancing these
demands by Esso for back payments.
if a sales agreement were reached, the
needs against military requirements would only gener-
ate additional stress on both government decision-
makers and an already shaky distribution network
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Sandinistas would require outside assistance to run
the refinery;
Alternatively, the Sandinistas could hire technical
services from the present owners. Although third-
round negotiations with the owners are under way, the
Nicaraguans' critical financial situation precludes
them from making more than nominal payment for
Nicaragua's Oil Situation in 1985
Nicaragua probably will suffer periodic disruptions of
oil supplies throughout the remainder of 1985 similar
to those of February-March. We expect the current
state of disrepair of the refinery, pipelines, and trans-
portation system to disrupt occasionally the process-
ing and distribution of petroleum even if there are no
unexpected crude import problems.
In our view, the economic impact of fuel shortages on
Nicaraguan industry and agriculture will increase
over time even without unusual disruptions. With
Managua's announced goal to eliminate the counter-
insurgency this year, we expect military priorities to
further divert oil supplies from the civilian sector. As
a result, industrial and agricultural output will contin-
ue to decline and erode living standards further.
If, through gross Sandinista mismanagement, me-
chanical failure forced the refinery to close down for
two months or more, the consequences to the Nicara-
guan economy would be disastrous. An extended
petroleum shortage would virtually eliminate public
transportation, disrupting food distribution and fur-
ther weakening public confidence in the ability of the
Sandinista leadership. It would also indirectly affect
Managua's already precarious financial condition.
(see appendix A).
In the case of an extended shutdown at the refinery,
the Sandinistas would be forced to find alternative
ways of bringing in refined products or increasing
capacity at Corinto. Assuming the new storage capac-
ity at Puerto Sandino remained dedicated to crude oil,
the fastest and least complicated option for bolstering
product storage, in our assessment, would be at
Corinto. Even so, for Corinto to handle all petroleum
imports, the Sandinistas
would need at least to double oil product storage
capacity, improve road maintenance, and import ap-
proximately 100 tanker trucks; the trucks alone would
cost nearly $4 million. If financial and technical
support were given by the Soviets and Cubans, indus-
try experience indicates that the process could be
completed in as little as two to three months. Based on
Managua's track record with the storage tanks at
Puerto Sandino, however, progress could be much
slower. Another relatively low cost option would be to
refit and rededicate the Puerto Sandino storage area
to petroleum products. Logistic problems would, of
course, exist. Truck loading facilities would have to be
built, roads substantially improved, and the like.
Moreover, other complications could arise if the tanks
were full of crude at the time of a refinery shutdown.
The Nicaraguans would have other options beyond
increasing storage capacity. Managua could try to use
pipelines to ship oil products, by fully converting the
Puerto Sandino complex to handle refined products.
This would be feasible but expensive,
Hydraulic problems associated
with low viscosity of refined products and the crude
pipeline's diameter would likely require the Sandinis-
tas to build a new pipeline to Managua. In this case,
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to enable the port to receive, store, and pump most
refined products to Managua, we estimate the conver-
sion would take three to five months at a minimum
and cost $5-10 million. Even then, some specialty
products would still have to offload at Corinto. If on
the off chance that Managua could somehow success-
fully retool the crude pipeline to transport refined
products, it would still require a few months and
several million dollars. Aside from the technical diffi-
culties involved, the Sandinistas would have to spend
more time and money reversing the process once the
refinery was reopened. Regardless of the option cho-
sen, the Sandinistas would need extensive technical
and financial assistance from their allies.
Long-Range Outlook for Soviet Supplies
If given the choice, we doubt the Soviets, over the long
run, would want the burden of supplying oil to such
virtually nonpaying customers as Nicaragua. In our
view, the recent decline in the USSR's oil production
probably makes the relatively small cost of supplying
oil to Nicaragua appear slightly more worrisome to
Soviet planners? In the past, the Soviets have compen-
sated for lower world oil prices by boosting the
quantity of petroleum sold for hard currency; such
sales account for about half the USSR's hard curren-
cy trade earnings. The Soviets experienced problems
exporting oil during the first quarter because the
harsh winter weather increased domestic consumption
to an unexpected level. The USSR may well see
another decline in overall production this year with a
concomitant drop in hard currency oil earnings. Sovi-
et economic planners may fear that the recent produc-
tion decline presages a long-term stagnation or drop
(see figure 5), and may therefore become more reluc-
tant to extend oil commitments to soft-currency cus-
tomers or those that, like Nicaragua, have made only
token payments. The USSR's tough choices are com-
pounded by the large amounts of oil committed to
Eastern Europe and Cuba.
Nevertheless, even though Soviet economic planners
probably will be anxious to avoid a large, multiyear
Figure 5
USSR: Oil Production 1950-84
I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I 1 1
0_1950 55 60 65 70 75 80 84
3051163-85
commitment to Nicaragua, in our judgment the politi-
cal imperative of maintaining the Sandinista regime
in power will overrule economic considerations. Even
if Moscow had to make up for all the oil Nicaragua
consumed in its peak year-15,000 b/d in 1977-this
amount would represent less than 0.5 percent of the
USSR's total net oil exports and roughly 7 percent of
what Moscow currently provides to Cuba.
In our view, the Soviet oil deliveries will continue to
constitute the most effective direct support that Mos-
cow has available for Managua. An adequate supply
of petroleum is critical for military operations needed
to keep the Sandinistas in power. At the same time,
the Sandinistas' arrangements to pay for oil with
future commodity swaps conserves scarce foreign
exchange needed for imports of Western spare parts
and equipment. Moreover, the Kremlin can reap
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propaganda dividends and strengthen its credentials
as a reliable ally by advertising its role in helping the
Nicaraguans overcome the adversities that Managua
claims are caused by US aggression; for example,
President Ortega used Ecuador's suspension of its
crude oil contract to attack the United States and
praise the USSR's efforts in easing the country's oil
shortages.
On balance, we believe that, despite the financial
costs, the USSR will continue to provide Nicaragua
with the bulk of its oil needs and allow Managua a
very lenient payment schedule to try to help the
Sandinistas get through the next few difficult years.
At the same time, we expect Moscow to redouble
efforts to entice Venezuela and Ecuador into oil swap
deals and encourage Mexico to step up its support.
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Secret
Appendix A
The Military's Thirst for Oil
and Impact on the Civilian Sector
The massive expansion and modernization of Sandi-
nista military power has required ever larger allot-
ments of petroleum resources. Before the revolution,
based on our analysis of average fuel load factors,
military defense forces burned a little less than 500
barrels of diesel fuel and gasoline each day. Since
then the military has expanded nearly 10 times and its
Despite the military's priority, it has not been able to
shield itself completely from the recent fuel shortages.
use of oil products has grown even faster.
we estimate the military is
now burning at least 5,000 barrels of petroleum
products each day
The Sandinista military has jealously defended its
increased fuel allocation. Experience during the past
year or so indicates
that 80 percent of available fuel is supplied to the
government, with about half going directly to the
military to keep its equipment operational. In con-
trast, we estimate that before the revolution the
government accounted for only about one-fourth of
fuel demand with less than one-fourth of that going to
the military.
To assure steady fuel supplies, the military has been
authorized priority drawings on civilian reserves and
the Sandinistas have substantially augmented mili-
tary reserve facilities. During the past two years,
the Sandinistas
have ordered some 200 gasoline stations throughout
the country to dedicate, on a priority basis, part of
their civilian storage for military use. Under the
system, only designated Sandinista officials have the
authority to release petroleum supplies after station
reserves fall to certain minimum levels. The military
makes frequent inspections to make sure their portion
has not been used.
during the last few years, the Sandinistas have de-
ployed 600 new 350-barrel diesel and gasoline storage
tanks mainly in northern Nicaragua. We estimate
that this extra military storage capacity alone is
enough to support normal military operations for
about 40 days and sustain surge activities for about
half that time.
Military fuel requirements will almost surely grow
further for at least the next year as the announced
military buildup continues. Some 450 new trucks are
scheduled to arrive in Corinto from Eastern Europe
during late April alone. Despite regional condemna-
tion for their arms buildup, the Sandinistas continue
to call for the rapid addition of at least 20,000 men
25X1
25X1
25X1
and more advanced weaponry to their military ma- 25X1
chine. Existing oil constraints, however, are a limiting
factor in their ability to field much more equipment.
In our estimation, to support the larger military the
Sandinistas are calling for would require further
diversion of fuel from the private sector, even more
active conservation and rationing techniques, and
increased petroleum imports.
The Impact of Military Diversions on the Civilian
Sector
25X1
Redirection of petroleum supplies already has hit hard 25X1
on the economy. We believe that in pre-Sandinista
times, the private sector used almost three-fourths of
all petroleum and demand centered on use in manu-
facturing, mining, and agriculture. We estimate that
the private-sector share has now plummeted to just
one-fifth or less. Part of the enormous falloff is
explained by wide-ranging nationalizations-all of
mining and more than one-third of manufacturing 25X1
and agriculture were taken over by the Sandinistas
following the revolution-but even more by reduced
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Number of units
(except where noted)
Total Forces a Trucks and Jeeps Helicopters Tanks Other Armored
(number of persons) Vehicles
private-sector allotments caused by military require-
ments. The curtailment of civilian allocations, in both
the government and private sectors, has:
? Caused an alarming decrease in industrial produc-
tion, as reported by the US Embassy.
? Undercut the recent key coffee and cotton harvests,
according to various press reports.
? Forced the government in March to order a perma-
nent cutback on the number of pages newspapers
could print and banned Sunday editions, according
to Embassy sources.
? Cut down on the electricity allocated for industrial
and household uses; for the past several years the
US Embassy has recorded daily scheduled power
outages throughout the country.
? Made jet fuel and bunker unavailable, requiring
incoming planes and ships to bring enough fuel for
return trips, according to several sources.
The political ramifications of this resource diversion
have been extensive. Fuel shortages are certainly one
of the many reasons behind the demise of Nicaragua's
private-economy. By undermining the economic pow-
er of the remaining private sector, effective political
opposition has been substantially weakened and de-
moralized. For example, the US Embassy reports a
growing sense of hopelessness among leading busi-
nessmen, who have sent at least some family members
and much of their money out of the country. At the
same time, the combined effect on producers and
especially consumers continues to undercut popular
confidence in and support for the regime. We have
increasing anecdotal reporting of consumer distress,
focusing on growing criticism of Sandinista policies.
Secret 12
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Appendix B
Civilian Petroleum Storage Facilities in Nicaragua
Facility
Number of Tanks
Current Storage Capacity
(barrels)
Port of Puerto
Sandino
2
2
295,473
100,000
Managua refinery
56
821,428
Port of El Bluff
14
55,339
Port of Puerto
Cabezas
4
41,428
Puerto Isabel (Puerto Benjamin
Zeladon)
3
San Juan del Sur
3,808
Sandino civil facility
4,151
Masachapa terminal
96,663
Remarks
Crude oil and fuel
oil for Point Tiscuco power
plant.
Combined crude and refined oil
storage.
An insurgent attack on 10
October 1983 destroyed or
damaged 7 tanks, reducing ca-
pacity by 70,000 barrels.
An insurgent attack on 2 Octo-
ber 1983 destroyed or damaged
3 tanks, reducing capacity by
7,739 barrels.
This terminal, inactive since
1974, was once the primary
port of entry for refined oil
products.
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Figure 6. Nicaragua's Only Crude Oil Refinery, Managua.
Insufficient repair and maintenance have reduced this facility's
output by about one-third.
15
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Secret
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