NATIONAL INTELLIGENCE DAILY TUESDAY 9 JANUARY 1979

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP81T00368R000100010007-0
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 20
• Document Creation Date: December 23, 2016
• Document Release Date: April 7, 2010
• Sequence Number: 7
• Publication Date: January 9, 1979
• Content Type: REPORT

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Director of TOu; Secret
Central
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Situation Reports
Argentina-Chile: Agreement on Mediation . . .
5
Spain: King's Speech to Military . . . . . .
6
North Yemen - South Yemen: Border incursion .
7
Peru: General Strike Threat . . . . . . . . .
8
Nicaragua: Anniversary Protests . . . . . . .
9
Egypt: Economic Dissatisfaction . . . . . . .
9
Nigeria: Political Trouble in Kano . . . . .
10
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Special Analysis
Iran and the World Oil Market . . . . . . . . 11
Overnight Reports . . . . . . . . . . . . . . . . . 14
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Top Secret
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the US Embassy in Tehran reported yes-
terday that retired General Jam has refused to become
Minister of War in Prime Minister Bakhtiar's government
and intends to return to London as soon as possible.
After a meeting with the Shah, Jam reportedly concluded
that the Bakhtiar government is a hopeless proposition.
Debate on the new cabinet in the lower house of the
legislature has been delayed until Thursday; the Senate
will consider it on Friday. Meanwhile, pressure on
military and police forces continues to mount as violent
demonstrations occurred yesterday in Tehran Tabriz,
and other cities. 25X1
Jam's departure will severely weaken and embarrass
the'Bakhtiar government. Jam was the one prominent
figure in a cabinet consisting mostly of political un-
knowns. We believe Jam's departure will also erode
Bakhtiar's ability to deal with hardline military offi-25X1
cers who are pressing for a harsh crackdown on the
opposition. The chances that these officers will at-
tempt to seize power have probably been increased.
The Shah's apparent unwillingness to give Jam the
power to control the military raises the possibility
that the Shah does not really want the Bakhtiar govern-
ment to succeed. The Shah--or at least his hardline
advisers like Ambassador Zahedi--may in fact hope that
if Bakhtiar fails to restore order the stage will be set
for a military crackdown.
Demonstrations continued yesterday in Tehran,
Mashhad, Esfahan, Abadan, and other cities. In Tabriz
rioters burned eight theaters and up to 100 stores. An
estimated crowd of 10,000 listened to speeches in Shiraz
by political and religious opposition leaders.
Continuing opposition activities are putting con-
siderable strain on military and security forces.
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Attacks on individual soldiers by demonstrators
and threats against officers and their families have
contributed to a siege mentality within the military. 25X1
Concern by religious and political opposition 25X1
leaders that further provocations might lead to a back-
lash by military units has led them to take a more
cautious and conciliatory attitude toward the Army and
the police. Two leading religious figures--Ayatollah
Taleqani in Tehran and Ayatollah Dastgad in Shiraz--
yesterday urged demonstrators not to take the law into
their own hands. 25X1
2 To u Secret
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ARGENTINA-CHILE: Agreement on Mediation
Argentina and Chile have accepted formal Vatican
mediation of the Beagle Channel dispute. Last night in
Montevideo the Foreign Ministers of the two countries
signed an agreement to this effect under the auspices of
papal emissary Antonio Cardinal Samore. Although the
controversy could still ultimately Zead to the use of
force. Samore's recent shuttle diplomacy appears to
made some progress toward a peaceful solution.
25X1 25X1
In exchange for the Vatican mediation, the cardinal
extracted from the two countries a promise not to resort
to force, to return to the military deployment that ex-
isted at the beginning of 1977, and to abstain from any
provocative actions. Presumably these pledges will ex-
tend throughout the mediation effort.
These agreements appear to represent a significant
concession on the part of the Argentines, who have in-
sisted on a division of the disputed islands as a pre-
condition for mediation. The lack of such a precondition
is at least a momentary political victory for Argentine
President Videla, who has argued vigorously for a diploma-
tic solution over the strenuous objections of hardline
military leaders. These officers will closely follow the
mediation to ensure that Argentina's maritime claims in
the disputed area are respected. If they are not Videla
will be held strictly accountable. 25X1
25X1
On the Chilean side, the mediation may be viewed as
merely a further opportunity for foot-dragging. Contin-
ued Chilean intransigence would cause the mediation to
fail and rekindle demands Araentine hard iners for a
military solution. 25X1
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SPAIN: King's Speech to Military
King Juan Carlos, in a speech to the military on
Saturday, appealed for discipline and solidarity in the
face of terrorism. In unusually explicit language, he
denounced the Zack of discipline displayed by some
officers after the funeral mass Zate Zast week for the
slain military governor of Madrid. Although the speech
has eased tensions within the military, more occasional
outbursts are likely, and discipline problems could grow
if Basque terrorists kill more high-ranking officers.
The King also praised Defense Minister General 25X1
Gutierrez Mellado, who has become highly unpopular among
the military for his role in bringing needed reforms to
the armed forces. 25X1
Spanish media have termed the speech necessary and
appropriate, and the King's intervention has probably
given pause to many in the military who are unhappy with
the government. Despite the continuing danger terrorism
poses to military discipline, most key command positions
are held by moderate officers who remain loyal to the
King and are fully aware of the problem.
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?_ International boundary
~_->---- International boundary,
indef In lte
Administrative line
- ------ Surfaced road
Unsurfaccd road
North Yemen
(Yemen Arab Republic)
erSANA
r
South Yemen
(Peoples Democratic
Republic of Yemen)
Socotra
(South Yemen)
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- SOnth
rah Veinen
Yemen
l1il:~uiq J ~''
Perim
(Seath Yemen)
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smaZ military force from South Yemen supported by tanks
and artillery pursued a group of dissidents into the 25X1
southeastern part of North Yemen Zate Zast week and oc-
eupi?: three viZZa,ges.
the South Yemenis withdrew, apparent y yester ay,
after mining the area. Border incidents such as this a25X1
ZikeZy to occur sporadically as long as the two Yemens
continue their subversive activities against each other.
25X1
Officials in Sana apparently decided not to contest
the incursion into this remote area, probably in part
because of the weakness of their armed forces. They
have appealed to Jordan's King Hussein in hopes that
he can moderate South Yemen's stand through approaches
to Syria and Libya, both friends of the Aden regime.
Any such effort by Hussein, however, is likely to fail.
25X1
The North Yemenis also asked Hussein to help speed
military assistance from Saudi Arabia. Saudi officials
are greatly concerned about the border incident and 25X1
have indicated to the US Ambassador that they think
a joint US-Saudi response is needed to deal with the
deteriorating situation between the two Yemens.
25X1
South Yemen reportedly still holds North Yemeni
territory it seized in November while supporting dissi-
dents against the North Yemeni Government.
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Several Leftist Labor groups, including the in-
fluential General Workers' Confederation, plan to start
a three-day general strike today. More moderate unions
are not participating, at Least for now, which could
Limit the strike's effectiveness or force it to be post-
poned. Any widespread work stoppages would pose major
economic and political problems for the military govern-
ment. 25X1
The left is trying to capitalize on the workers'
growing frustration over the worsening effect of infla-
tion. Last week's official price hikes on gasoline,
rice, and bus fares seem to have provided the final in-
centive for calling a strike, which labor leaders have
warned could be extended indefinitely unless their de-
mands are met. Previous general strikes have all but
closed the city of Lima. 25X1
The government is taking a tough line to prevent
or hamper the strike, but stern measures could affect
the military's timing in implementing its promise to re-
turn power to civilian hands by 1980, a delicate process
that has been under way for some months. Leaders of
Peru's major political party, which backs the moderate
labor group, see a chance to come to power when the of-
ficers return to the barracks. Party leaders may fear
loss of popular support, however, if they do not soon
stand up to the government on bread-and-butter issues.
25X1
Prolonged or widespread work stoppages could worsen
the already precarious economic situation by disrupting
copper production--a key earner of foreign exchange.
The strike could also damage Peru's shaky international
financial standing by forcing the government to back
away from its agreements with the International Monetary
Fund.
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NICARAGUA: Anniversary Protests
The Somoza government and its opponents are braced
for a confrontation during protest activities this week
in commemoration of opposition martyr Chamorro, whose
murder last January touched off events that led to the
civil warfare in September. The most likely flashpoints
will be a youth rally this afternoon and a massive march
to Chamorro's gravesite tomorrow. The National Guard
has warned that the march will not be allowed unless
the organizers obtain a permit, which they seem disin-
clined to do. Other protests probably will include
a general strike of one day or more and demonstrations,
including a possible march on the US Embassy, by Managua
slum organizations. Sandinista guerrillas are planning
more hit-and-run attacks this week and may use the
demonstrations to try to provoke the Guard.
25X1
price increases had significantly broadened the base of
economic dissatisfaction and might diminish Sadat's
chances of surviving a serious policy setback--such as
a collapse of peace negotiations--or a domestic challenge
to his leadership. We believe that the apparently strong
public reaction against the price increases--which in-
volved only a few nonessential items--indicates Sadat's
continuing vulnerability and underscores his dilemma in
trying to improve the economy through basic reforms.
25X1
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Nigerian police officials are increasingly con-
cerned over the serious conflict developing in northern
Kano State, according to the US Embassy. The trouble
has included several clashes between two Muslim-based
political parties and has led to a number of arrests.
Major political violence is most likely to occur here
as electioneering intensifies and the country draws
closer to a scheduled changeover to civilian rule next
October. Similar situations are likely to crop up
elsewhere in Nigeria, testing the government's ability
to keep order and its resolve to proceed toward civilian
government. 25X1
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Despite continuing turmoil in Iran, the world oil
market picture has changed little since November. Pro-
duction by other producers is up, and stocks are suffi-
cient to meet world demand through the winter. If Iran
does not resume exports by spring, however, the market
will tighten, and stockbilers will occupy the key posi-
The most important development has been a substan-
tial production increase in other OPEC countries. Most
member states would have increased their oil exports in
the fourth quarter of 1978 in any case because of high
seasonal demand and speculative purchases in anticipation
of the oil price hike on 1 January. The reduction in
Iranian supplies has further stimulated demand for crude
from other OPEC countries. 25X1
In the fourth quarter of 1978, Saudi Arabia increased
its production by about 1 million barrels per day over
planned levels. During November and December, the Saudis
produced 10 million barrels per day, near their maximum
sustainable capacity. Because December weather was rela-
tively mild, the intain high tanker
loading rates. 25X1
Iraq, Kuwait, Nigeria, and other OPEC members have
increased production by another 500,000 barrels per day
and are also producing at near capacity levels. Non-
OPEC production increased by only about 100,000 to
200,000 barrels per day, slightly less than we had ex-
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Iran now is producing less than 300,000 barrels of
oil daily, compared with a normal production of 5.5 mil-
lion to 6 million barrels. It has exported no oil
since 27 December.
oil facilities, output probably will not reach 4.5 mil-
lion barrels per day for at least six weeks. Others be-
lieve that 3 million to 4 million barrels per day could
be produced within two weeks. This level, together with
continued high output by other producers, would meet
world demand and maintain stocks at reasonable levels
through the winter.
Restoration of oil production to near prestrike
sustainable capacity--6 million to 6.5 million barrels
per day--could take up to a year and would depend on the
return of foreign workers, particularly specialists in
drilling and oil well maintenance. The willingness of
the non-Iranians to resume work will be conditioned by
security at the oilfields. The Iranian leadership, more-
over, will have to decide the role of foreign petroleum
personnel as well as the level of petroleum output nec-
essary to meet new Iranian political, economic, and so-
cial goals. Such goals could well dictate lower output
in the future. 25X1
If Iranian exports are completely shut down through
the winter, the oil market will tighten even with other
suppliers producing at capacity. The gap between supply
and demand will be about 2 million to 3 million barrels
per day. Competition for available supplies will inten-
sify, spot shortages of some oil products will occur,
and spot market prices will rise. 25X1
Current world inventories--equal to 70 days' con-
sumption--would nevertheless remain adequate to meet
overall demand. If production shortfalls continue after
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the winter, oil companies will have a difficult time re-
building inventories sufficient for next winter. (This
discussion assumes that Saudi Arabia will continue pro-
ducing at its present high level. We believe this to be
a reasonable expectation through the winter but increas-
ingly uncertain beyond that time because of Saudi con-
cern over technical problems in the fields.)
A key question is whether holders of stocks would 25X1
release them to cover production shortfalls. If stock-
holders hang on to their inventories, as happened after
the 1973 embargo, consumption cutbacks will be necessary.
Thus far, middlemen and consumers have accepted the cur-
tailment of Iranian exports calmly, but their mood could
change quickly if a prolonged supply disruption appeared
likely.
Some oil-producing countries might try to push up
their prices unilaterally if there is a prolonged Iranian
shutdown and subsequent market tightness. Moreover,
should spot market prices rise, these countries would be
especially sensitive to any indication of profiteering
by middlemen. If the OPEC countries became convinced
that oil companies and brokers were making excessive
profits by reselling oil, even if the volumes were small,
the price hawks among them could be counted on to lobby
for a further boost in official sales prices beyond those
set last month.
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(The items in the overnight Reports section have not
been coordinated within the intelligence community.
They are prepared overnight by the Office of Current
Operations with analyst comment where possible from
the production offices of NFAC.)
Thailand-Kampuchea
Thai Prime Minister Kriangsak told US Ambassador
Abramowitz yesterday that his government will not inter-
vene in Kampuchea or supply arms for guerrilla activity
by the ousted Pol Pot regime. Kriangsak, obviously
deeply concerned, said he hopes the US will issue a
statement of support for Thailand, and he particularly
urged accelerated delivery of ammunition, mortars, and
F-5E aircraft, as well as an expansion of credits for
purchasing weapons from the US. Ambassador Abramowitz
believes that the Thai will display their usual caution
and that they are thus unlikely to become involved in
supporting anti-Vietnamese forces in Kampuchea.
According to the US Embassy in Sana, North Yemeni
President Salih called in the UK Charge on Saturday and
expressed an urgent need for two squadrons of Rapier or
Jaguar aircraft and an unspecified number of tanks.
Salih also asked for British military training and train-
ing in antisubversion techniques. He acknowledged that
North Yemen may have some problems in securing Saudi
financing for this assistance. Salih was vague in his
references to South Yemen's activity in the border area
(see Briefs and Comments section). The US Embassy be-
lieves that the increasing pressure by South Yemen is
pushing Salih to look in all directions for immediate
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Kampuchea-China-UN
Former Kampuchean leader Prince Sihanouk left
Peking today and is expected to arrive late this after-
noon in New York, where he will ask that the UN Security
Council consider the Vietnamese incursion into Kampuchea.
There has been no indication of displeasure from the
Chinese or from Kampuchea's ousted leaders over Sihanouk's
remarks against the Pol Pot regime during his press con-
ference yesterday. The US Mission at the UN reported
last night that the Chinese are having problems in their
efforts to lobby for support for their Kampuchean allies;
this is their first effort to convene a Security Council
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