NATIONAL INTELLIGENCE DAILY SATURDAY 3 MARCH 1979

Document Type: 
Collection: 
Document Number (FOIA) /ESDN (CREST): 
CIA-RDP81T00368R000100030009-1
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RIPPUB
Original Classification: 
T
Document Page Count: 
30
Document Creation Date: 
December 22, 2016
Document Release Date: 
February 8, 2012
Sequence Number: 
9
Case Number: 
Publication Date: 
March 3, 1979
Content Type: 
REPORT
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PDF icon CIA-RDP81T00368R000100030009-1.pdf1.44 MB
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25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 't), Central Li Intelligence National Intelligence Daily Saturday 3 March 1979 --T-ep-S 25X1 eeret--- CO NID 79-052.1/1V 1-3 March 1979 - - - _ - 1= Declassified in Part-Sanitized Copy Approved for Release 2012/02/08 : CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 ;...)^1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 25X1 Contents Situation Reports China-Vietnam-USSR Iran North Yemen - South Yemen 1 5 7 Briefs and Comments USSR: Brezhnev on Disarmament 8 Poland: Pope's Visit 10 25X6 Spain: Suarez' Victory 11 Italy: La Malfa's Failure 13 Libya: Government Changes 14 France: Nuclear Test 14 Morocco - Saudi Arabia: Hassan's Visit 14 Southern Africa: Frontline Summit 15 India-Pakistan: Nuclear Program 15 Special Analyses Uganda: Government's Weakening Position 16 Iran: Foreign Suppliers Face Cutbacks 18 Overnight Reports 21 Top Secret 25X1 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 ZOA I Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 25X1 Top Secret SITUATION REPORTS 25X1 CHINA?VIETNAM?USSR 1 25X1 --continued To i Secret 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 25X1 Withdrawal Rumors 25X1 There are a number of stories that Chinese troops have begun or are about to withdraw from Vietnam. 25X1 public re- 25X1 ports from Western news agencies in Beijing have cited unnamed Chinese sources, and yet another official, citing the fall of Lang Son, has claimed the fighting would end "soon." There are as yet no indications, however, that Chinese troops have ceased their advance, much less begun a withdrawal. 25X1 Vietnamese Statements Vietnam has officially replied to China's proposal to negotiate their border conflict. A vietnamese Foreign Ministry note yesterday termed the proposal a "trick" but accepted negotiations in principle. The Vietnamese stated they are willing to negotiate if the Chinese "per- manently" end their aggression and withdraw "immediately and unconditionally" across the "historic borderline" previously agreed to by the two sides. 25X1 Chinese officials have stated recently that after withdrawing the troops Beijing will retain the option of reentering Vietnam should Vietnamese activity make it necessary, and China is unlikely to accept a precondition that commits it never to cross the border again. Vietnam, in its reference to the "historic borderline," appears to be responding to rumors that Chinese troops will withdraw to a border defined by China. 25X1 Hanoi leveled its strongest changes to date against the US and its allies yesterday and on Thursday. The Vietnamese claimed that during his recent trip to the US and Japan, Deng Xiaoping won "approval and support" for --continued 2 To i Secret 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 25X1 Beijing's actions and accused the US and its allies of "deliberately belittling" the seriousness of the invasion. One broadcast called US collusion with China part of the "sinister policy of the Carter administration." Soviet Reaction 25X1 In his election speech yesterday, Soviet President Brezhnev gave no indication of what action the Soviets would take if China does not stop its attack on Vietnam. He predictably condemned China's actions and demanded "the immediate ending of the Chinese aggression" and a total Chinese withdrawal. Brezhnev warned that "the en- tire danger of any forms of connivance" with Beijing's policies "is more evident now than ever before." These comments are consistent with the Soviet Government state- ment of 18 February. 25X1 Despite his reference to US collusion, Brezhnev sig- naled a continuing Soviet desire to insulate the dialogue with Washington on detente and strategic arms control 25X1 from the Sino-Vietnamese conflict. (Other aspects of Brezhnev's speech are discussed on Page 8.) Three hours after Brezhnev spoke, the Soviet Govern- ment issued a second official statement on the Indochina conflict. The new statement, like the earlier one, stops far short of committing the Soviets to any military course of action and fails explicitly to place the weight of the USSR behind the warning that China's actions "can- not leave uninvolved" those genuinely interested in peace. Indeed, the statement seems designed more to put pressure on unspecified states accused of "complicity" with the aggression and to mobilize world opinion against China than to warn the Chinese. The USSR-Vietnam Friend- ship Treaty is not invoked. The statement focuses on China's alleged intention to expand its military operations into Laos. Chinese engineering troops have been present in Laos for years, but we have no indication that the Chinese are planning any military operations in or through Lao territory. 25X1 --continued 25X1 3 Top Secret 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Soviet Army Headquarters Soviet Mobile4-'k- Ulaanbaatay* Command Post 511 () n g .S umber Saynshancr Soviet Motorized Rifle Division 624764 3-79 CIA 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 25X1 25X1 25X1 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 I RAN Differences are continuing among Iranian political and religious leaders over the timing for reestablishing normal government activity, the type of government to be decided by national referendum, and the treatment of tribal minorities. 25X1 Minister of Information Minatchi has told a US Em- bassy officer that the revolutionary committees will soon be dissolved--perhaps as early as next week. The more radical committee members are sure to resist any effort to reduce their power, however. Prime Minister Bazargan, who has been critical of the committees' role as a paral- lel government, may not be able to abolish them despite the tacit support of Khomeini in his effort to do so. Even if the committee members agree to join the govern- ment Bazargan may soon find them playing a dominant role. 25X1 There are also indications that the most prominent religious leader in Tehran, Ayatollah Taleghani, is beginning to separate himself from Khomeini on substan- tive issues. He is not likely to break openly with Khomeini, who remains near the peak of national power. 25X1 Taleghani publicly stated that he and Khomeini did not discuss important issues during their meeting prior to Khomeini's departure for Qom. 25X1 5 --continued Top Secret 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 R Next 1 Page(s) In Document Denied Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Saudi Arabia 624760 3-79 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 NORTH YEMEN - SOUTH YEMEN 25X1 A cease-fire went into effect this morning along the border between North and South Yemen, according to press sources. Details of withdrawals from the border area 25X1 will be worked out at the Arab League meeting now sched- uled for tomorrow in Kuwait. 25X1 25X1 25X1 25X1 Yesterday morning there was sporadic fighting re- 25X1 ported about 30 kilometers northwest of Al Bayda 25X1 There was no satellite photography of the area wherP the fighting reportedly took place, but photography of 25X1 Al Bayda yesterday showed tanks guarding the northern ap- proach into the town and multiple rocket launchers de- ployed inside North Yemen at a dirt airstrip southwest of Al Bayda. The South Yemeni infantry brigade is still oc- cupying the high ground nearby. Across the border in South Yemen, photography shows a decrease in tanks, field artillery, and multiple rocket launchers. A small convoy towing field artillery was headed toward Al Bayda. There are no reports of fighting near Qatabah yes-25X1 terday, but South Yemeni forces appear to be in control of the area. The artillery pieces aimed toward Ibb on Tuesday are gone, but tanks are deployed further west guarding the approach to Qatabah. Vehicles appear to be moving freely to the west--an indication that South Yemeni - supported forces may be farther west toward Ibb as the North Yemenis claim. 7 25X1 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Top Secret 25X1 BRIEF AND COMMENTS USSR: Brezhnev on Disarmament The highlights of Soviet President Brezhnev's speech yesterday dealt with arms control. 25X1 Brezhnev called for SALT III to begin after the entry into force of SALT II, a reflection of increasing Soviet apprehension about prospects for US ratification. In contrast, Soviet Foreign Minister Gromyko last May called for SALT III to begin "immediately after the signing" of SALT II. Brezhnev asserted that SALT III would slow the creation of new weapons types and pro- vide for further reductions "by both sides." 25X1 The Soviet leader also spoke at length about the benefits of the prospective SALT II treaty and predicted that it will "probably be signed during my meeting with President Carter, hopefully in the near future." He called the treaty a "reasonable compromise," but noted that "not everything in it fully accords with our wishes." He claimed that it would help revive the Comprehensive Test Ban, Conventional Arms Transfers, and Mutual and Balanced Force Reduction talks and improve the interna- tional climate. 25X1 Brezhnev made the first reference by a top-level Soviet official to reports about the possible deployment in West Germany of "medium-range nuclear-missile weapons aimed at the Soviet Union." He said such a development would raise tension in Europe, exacerbate the arms race, and drastically increase the danger to West Germany. He offered to negotiate the reduction of nuclear missiles and medium-range and other weapons in Europe "on the basis of complete reciprocity," but said due account must be taken of US bases there as well. 25X1 If Brezhnev was including Soviet medium-range mis- siles, it would be the first time that Moscow has indi- cated willingness to put them on the bargaining block in arms control talks. Brezhnev seems to be encouraging the West, especially the West Germans, to pursue the arms control rather than force modernization track in con- sidering NATO policy options. 25X1 8 --continued Top Secret 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified' in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 25X1 Top Secret Brezhnev called for "something like a non-aggres- sion pact"--an agreement on "not being the first to use either nuclear or conventional arms"--among the signa- tories of the Helsinki Final Act. The inclusion of con- ventional arms is probably intended both as a response to the French proposal for a European disarmament conference focusing on conventional weapons and as an attempt to capitalize on what Moscow perceives as frustration in some West European capitals with the current pace of European disarmament talks. 25X1 He also referred to the possibility of extending the so-called military confidence-building measures in the Helsinki Final Act to cover "all considerable troop movements" and "major naval exercises." Brezhnev's reference to naval maneuvers in this context is the first authoritative Soviet statement on this subject, although Soviet diplomats have privately expressed an interest in pursuing this topic. 25X1 In discussing the Soviet defense effort, Brezhnev said the USSR was allocating considerable means to strengthen its security "both in the West and in the East." He claimed that the USSR is spending as much as is absolutely necessary. This statement was consistent with several previous ones he has made and was in keeping with what his Politburo colleagues have been saying. Brezhnev's tack on military spending, like his 25X1 defensive remarks on the compromises by both sides at the SALT negotiations, may have been in response to domestic opposition to any concessions on Soviet defense. Except for these issues, he betrayed few differences within the Soviet leadership, judging by available summaries of similar speeches by his colleagues during the past month. The US Embassy in Moscow has pointed out that Brezhnev and Gromyko are the only Politburo members who addressed the US-Soviet relationship, suggesting indeci- sion in that body and reflecting apprehension over Sino-US normalization and Indochina. 25X1 25X1 9 Top Secret Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 25X1 Top Secret POLAND: Pope's Visit to Poland The scheduling of the visit by Pope John Paul II to Poland from 2 to 10 June--instead of 10 to 14 May as de- sired by the Polish Church and the Vatican--is a Pyrrhic victory for Polish party conservatives. Poles will be keenly aware that the regime's intransigence prevented 25X1 the Pope from attending the important religious and na- tional observances in May. 25X1 The Pope probably agreed to the schedule once he became aware of the strength of the regime's insistence. Had the church prolonged the negotiations until May, end- ing any chance of a visit this spring, the prospects for serious disturbances would have increased during the ob- servance of the 900th anniversary of the martyrdom of St. Stanislaw, Poland's patron saint. 25X1 The Polish Church will probably adopt a "more-in- sorrow-than-in-bitterness" attitude when it explains the postponement to its members. The observances in May will draw huge crowds to Krakow and elsewhere, and disappoint- ment over the Pope's absence will heighten the possi- bility of trouble, despite church attempts to control the situation. 25X1 The Pope, according to Western news services, will meet with Gierek during the visit, and this should im- prove Gierek's domestic stature. For its part, the re- gime has agreed to a longer stay, nine days instead of five. 10 Top Secret 25X1 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Seats Won by Spain's Major Parties and the Basque Parties in Lower House Party 1977 1979 Union of the Democratic Center 165 167 Spanish Socialist Workers Party 118* 120 Spanish Communist Party 20 23 Popular Alliance/Democratic Coalition 16 9 Basque Nationalist Party 8 8 Basque extremists 1 4 (Based on 97 percent of votes counted) *Subsequently merged with other parties to hold 122 seats. Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 SPAIN: Suarez' Victory 25X1 Prime Minister Suarez emerged stronger following Thursday's election, while his principal rivals, Felipe Gonzales' Socialists, were weakened. The Communists in- creased their seats in the lower house of parliament from 20 to 23, and the rightists lost heavily. Although Suarez' Union of the Democratic Center fell nine seats short of an absolute majority in the all-important lower house, he should be able to form a one-party government. 25X1 The results are a personal triumph for Suarez and for his electoral strategy aimed at the center and center- left. He now has time in the post-electoral period to unify and strengthen his party. Important tests lie ahead, but Suarez should be able to get by with ad hoc majorities--at least until a resolution of the regional autonomy problem frees him to form a coalition with one or more regional parties. 25X1 The Socialists' failure to improve on their showing in the previous election will strengthen radicals within the party who oppose Gonzalez' moderate line. The party may veer to the left--as it did in the closing stages of the election campaign--to consolidate its base prior to the party congress in May. This switch is likely to be reflected in more aggressive tactics by the Socialist 25X1 labor union. The Communist Party, by contrast, will be buoyed by its gain and the Socialists' poor showing and will be looking for further gains in next month's municipal elec- tions. 25X1 The emergence of several new regional parties in parliament signals difficulties ahead on autonomy nego- tiations. In the Basque region particularly, the win- ning of four seats by two extremist parties linked with ETA terrorists will stiffen the demands of Basque Na- tionalists. 11 Top Secret 25X1 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R00010003-0009-1 25X1 25X1 25X1 25X1 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 ITALY: La Malta's Failure 25X1 President Pertini will meet with party leaders next week, in the wake of Prime Minister - designate La Malfa's failure to form a government, before deciding whether to appoint a replacement for La Malfa or dissolve parlia- ment and call an early election. 25X1 La Malfa was unable to break the deadlock resulting from the Communists' insistence on cabinet seats and the Christian Democrats' refusal to support any government that met these demands. His proposal included posts for Christian Democrats, Social Democrats, and his Repub- lican Party. It would have relied for its parliamentary majority on abstention by the Communists and Socialists. 25X1 The Communists evidently rejected this alternative, and the Socialists were reluctant to commit themselves to a government unacceptable to the Communists. Communist chief Berlinguer did suggest that his party might consider backing a government composed of technicians--including independents elected to the current parliament on the leftist ticket--but this proposal ran into stiff 25X1 Christian Democratic opposition. Although the Christian Democrats and Communists seem unwilling to alter their respective positions, Pertini may decide to appoint another prime minister - designate--probably a Christian Democrat such as party president Piccoli or Foreign Minister Forlani--in what would likely be a final attempt to avoid a new election. 13 To Secret 25X1 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Top Secret SOUTHERN AFRICA: Frontline Summit 25X1 Angolan President Neto has invited the presidents of the frontline states to Luanda this weekend to dis- cuss the Namibian situation. The Mozambican and Botswanan presidents have accepted, but we do not know if the Zam- bian and Tanzanian presidents will attend. The presi- dents probably will consider the UN Secretary General's recent report on Namibia--particularly his proposal that UN liaison offices be situated in Angola, Zambia, and Botswana to facilitate monitoring Namibian guerrillas in these countries after a cease-fire. Neto also wants to discuss the situation in Rhodesia and has invited Rho- desian nationalist leaders Joshua Nkomo and Robert Mug- abe to Luanda as well. Nkomo and Mugabe have refused to meet with each other recently, and neither may choose to attend. 25X1 INDIA-PAKISTAN: Nuclear Program 25X1 The Indian Foreign Minister has for the first time stated publicly that Pakistan is pursuing a nuclear de- velopment program that "may not be entirely for peaceful purposes." There is mounting concern in the Indian Gov- ernment that Pakistan is pursuing a nuclear capability. An official Indian disclosure of Pakistan's possible movement toward such a capability will severely limit New Delhi's maneuverability in negotiations with the US over safeguards and other bilateral nuclear problems. Any policy that might appear to foreclose Indian options for response to this perceived new threat could even threaten the cohesion of the ruling Janata coalition. 15 Top Secret 25X1 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 \Tororo4:-, ported mutiny r Ugandan troops KAMPALA Ugandan territory ti by Tanzanian fee-es- r; 624158 3.79 CIA 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Top Secret SPECIAL ANALYSES 25X1 UGANDA: Government's Weakening Position 25X1 The government of President Amin may be near col- lapse. Amin's fall would initially bring a period of social and economic turmoil in Uganda that could be dif- ficult for the Tanzanians to handle. 25X1 Rebelling Ugandan troops apparently took of the town of Tororo late yesterday. Tororo road and rail links with Kenya over which all 25X1 fuel and other supplies flow. The Kenyan Army has gone on alert control controls of Uganda's 25X1 / Nyerere may delay any decision on further advances into Uganda until he knows more about the extent of the rebellion among Ugandan 25X1 forces. Effects of Amin's Fall 25X1 Amin's fall would have the immediate effect of ac- celerating instability in Uganda. Military indiscipline and turmoil would intensify as new loyalties were sorted out and the remaining players settled old scores resulting --continued 16 Top Secret 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 25X1 Top Secret from endemic tribal, religious, and ethnic animosities. All of this could be too much for the Tanzanians to handle. We do not have detailed information on Tanzanian plans for a successor government in Kampala. 25X1 At this point we see little chance that other neigh- boring countries would attempt to intervene. They would, however, be nervous about a total breakdown of order in Uganda but would probably be most concerned that any turmoil not spill over into their territory and ag- gravate their own domestic problems. The Libyans, despite their ties to fellow Muslim Amin, would probably not be inclined to stay around and attempt to repair the situa- tion; they only reluctantly came to Amin's aid last month. 25X1 The Soviets would probably quickly try to cultivate whatever regime emerges after Amin's fall. They would, however, remain sensitive to the concerns of Nyerere, who like Amin has received the bulk of his military sup- plies from the USSR. We know of no close Soviet ties to the various Ugandan exile groups, but the Soviets have long believed that their role as chief supplier for the Ugandan military has given them connections that would survive Amin's departure. 17 To p Secret 25X1 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Top Secret IRAN: Foreign Suppliers Face Cutbacks 25X1 25X1 The political crisis in Iran already has curtailed imports and triggered cancellations of some major con- tracts for future delivery. Even if the new government succeeds in restoring order, imports are unlikely to re- turn to anything like the $18-billion annual rate of a few months ago. Foreign exchange constraints as well as new economic priorities point to a much smaller Iranian market for foreign goods. 25X1 The developed countries have provided 85 percent of Iran's total imports--most of which were manufactured goods, with capital-intensive products predominating. In 1977 and 1978, the US supplied 24 percent of Iranian imports from the major developed countries; West Germany, 22 percent; Japan, 18 percent; and the UK, Italy, and France together, 23 percent. 25X1 Iran as an Export Market Exports from the US to Iran grew from $2.7 billion in 1977 to an annual rate of $3.7 billion in the first nine months of 1978, accounting for 2.7 percent of total US exports. The US aircraft industry sold nearly 8 per- cent of its commercial exports to Iran, the largest share for any US industry. Should Iran cancel orders for commercial aircraft, the impact would be softened by the industry's strong order backlog and a willingness of other customers to move up their delivery dates. US firms signed a minimum of $4.5 billion in new 25X1 contracts during 1977 and 1978. The largest contracts were for military goods and services, communications networks, and construction projects. In addition, joint French-US ventures won contracts valued at about $2.7 billion for highway construction. 25X1 Military suppliers have been hardest hit by contract cancellations. The ousted government of Prime Minister Bakhtiar canceled roughly $7 billion in outstanding con- --continued 18 Top Secret 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 25X1 Top Secret tracts with the US for weapons purchases to save foreign exchange and to curb the large military buildup. Iran will initially pay termination and default charges on contracts it cancels from a trust fund it has established with the US Government. If weapons originally ordered by Iran can be sold to other buyers, Iran could receive some repayment. 25X1 West German exports to Iran of $2.7 billion in 1977 and $2.5 billion in the first three quarters of 1978 rep- resent about 2 percent of its total exports. More than 300 West German companies with a total of 10,000 West German employees operated facilities in Iran. Loss of the Iranian market would be particularly troublesome for the depressed steel and nuclear reactor industries. Few companies, however, would lose money on existing contracts because of export and investment insurance financed by the West German Government. 25X1 Japan, which sold goods to Iran worth $1.9 billion in 1977 and $2.2 billion in the first nine months of 1978, stopped issuing export credits to Iran last month, and no goods destined for Iran have been shipped since then. In 1977 Japanese sales to Iran accounted for 7 percent of its metal manufactures exports. 25X1 In 1977 and 1978 Japan received $1.1 billion in re- ported contracts from Iran; it is anxious to reestablish economic links with the new government to avoid contract cancellations. The Japanese, however, will probably more than make up losses from the Iranian modernization cutback by switching to China as a major market for iron and steel exports. 25X1 The UK's exports to Iran exceeded $1 billion in 1977 and again in 1978, accounting for about 2 percent of total British exports. Iran was Britain's largest arms client, and half of the $700 million in new contracts in 1977 and 1978 were for military goods. Plans for most of a $1.5-billion British-built complex at Esfahan to manu- facture guns, ammunition, and spare parts for tanks were suspended by the Bakhtiar government. British arms ex- port contracts totaling nearly $2 billion also are in --continued 19 To Secret 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 25X1 Top Secret jeopardy. In 1977, sales to Iran accounted for 6 percent of British motor vehicle exports. Chrysler UK has laid off 1,500 workers because exports to Iran have been dis- rupted. 25X1 Italy's sales to Iran have been running at about $1 billion, or 2 percent of total exports, over the last two years. Italian construction and engineering firms have orders totaling $6 billion. The Italian firms are accustomed to political unrest, strikes, and bureaucratic delays, and are not panicking. Although payments delays are causing cash flow problems work on most projects is continuing. The Italians are hoping that the new govern- ment will not abandon public works projects already under 25X1 way. France's economic stake in Iran has been comparatively small, but recently it has led the developed countries in signing contracts with Iran. In addition to the joint French-US ventures, French firms won $6.5 billion in new contracts, most signed in 1977. Roughly half were for electric power facilities, primarily nuclear. The nuclear power plant contracts with Framatome, 25X1 valued roughly at over $2.5 billion, were recently can- celed by the Bakhtiar government. Although most direct financial losses will be covered by the French Foreign Trade Insurance Company, Framatome already is in financial trouble because of the slowdown in France's own nuclear program and a decline in orders from other countries. Even though Framatome recently signed a letter of intent to build two similar plants in China, cancellation of the Iranian project will seriously set back company plans. 20 Top Secret 25X1 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Top Secret OVERNIGHT REPORTS 25X1 (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 ) 25X1 25X1 21 Toi Secret Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Top Secret France-Mexico 25X1 On the final day of his visit to Mexico, French President Giscard announced yesterday that France would provide Mexico with any technology that it requests to exploit peaceful uses of nuclear energy "regardless of the pressures or actions which might arise." Giscard said a basic Franco-Mexican agreement would include provisions concerning prospecting for and treatment of uranium, finding ways to guarantee a supply of enriched uranium, and training technicians to operate nuclear power plants. According to the joint communique signed by Giscard and Mexican President Lopez Portillo, France will provide a credit of $240 million to finance Mexican purchases of French technology and agreed to support Mexican plans to float bonds in the EC. 22 Top Secret 25X1 25X1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1 11./p IJCLI CIL Top Secret 25X1 - Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP81T00368R000100030009-1