NOTE FOR WILLIAM CASEY FROM CONSTANTINE C. MENGES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83B00140R000100050011-8
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 2
• Document Creation Date: December 20, 2016
• Document Release Date: March 21, 2007
• Sequence Number: 11
• Publication Date: September 15, 1981
• Content Type: MISC

Approved For Release 2007/03/21 : CIA-RDP83BOO14OR000100050011-8
THE DIRECTOR OF CENTRAL INTELLIGENCE
NFAC-5786-81
15 September 1981
NOTE FOR: Mr. William Casey
In our brief discussion yesterday evening you asked me to provide
you with the brief statement from my note of 10 September 1981 which
discussed the linkages among radical destabilization, increased oil prices,
economic difficulties for the west and the resulting reduction of
resources available for defense and other needs. This follows along with
a brief illustration of the potential costs to the US alone of different
radical destabilization successes:
"In 1978 I tried to convince leaders in the previous
administration that if the Shah fell, there would be an
immediate rise in oil prices, and the resulting economic
problems (inflation, balance of payments. deficits) in the
West would further weaken the capability of governments to
provide adequate resources for defense. Literally, prudent,
preventive actions in Iran, Afghanistan, and Nicaragua in
1978 would have saved tens of billions of dollars.
"We face a similar situation today. Tnexpensive political-
paramilitary action investments by the Soviet Union, Cuba,
Libya, and other anti-Western forces are increasing the risks
of destabilization in Central America/Mexico; Zaire and
Southern Africa; and the countries surrounding Saudi Arabia.
"In my personal judgment:. if North Yemen falls, if the Somali
Liberation Front makes Berbera unusable, if there is a success-
ful destabilization in one of the Persian Gulf mini-oil states,
if El Salvador falls and Guatemala follows--the impact will be
immediate increases in oil prices bringing on substantial
economic difficulties and further reducin the willingness of
democratic governments to invest sensibly in defense.
"Individuals without a geopolitical understanding fail to see
these essential connections until the crisis is upon us.
Perhaps Secretary Weinberger, as an old friend of President Reagan,
could join in helping the President understand that the success
Approved For Release 2007/03/21: CIA-RDP83BOO14OR000100050011-8
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of his domestic economic program as well as his foreign policy
may depend in substantial measure on prudent political and
other actions today which will prevent further successful
destabilization in three strategic focal points: Central
America/Mexico; Southern Africa, and the Persian Gulf."
Radical Destabilization: Potential Impact on Oil Prices and the
Resultiny Additional Costs to the US--An Illustration Only
Currently the US imports about six million barrels per day times
365 days equals approximately 2.2 billion barrels per year. For each of
the destabilization cases, I shall roughly estimate a range of effects on
oil prices due to political apprehension or the actual physical reduction
in supply believed imminent as a result of increased strength for radical
forces. This illustrates the potential value of prudent preventive
measures now.
Impact Through Increased Oil Price & Added
Annual US Import Costs
Cases
Modest
Large
-
-
+ /Barrel
+$Billion for
-+$
/
Ba r r e l
+$Billion for
Imports
Imports
A-Fall of North Yemen
to PDRY
2
$4.4 billion
5
$11 billion
B-Somali Liib. Front
1
2.3
3
6.6
making Berbera
unusable
C-PFLO takeover in
Oman
4
8.8
8
17.6
D-Destabilization of
Kuwait or other gulf
mini-oil state
5
11
10
22.0
E-Radical success in
Guatemala (1982-3)
& perceived/actual
threat to Mexico
4
8.8
8
17.6.
F-Serious political
5
11
10
22
analysis issue with Mr. McMahon and Mr. Rowen
ST
Constantine C. Menges
NIO/LA
cc: DDCI, DD/NFA, C/NIC
violence in Mexico
(1983-5)
Obviously this chart only illustrates a range of personal estimates.
However, it might well be worth trying to be systematic about and do this
type of forecast on a periodic basis using a range of other costs (defense
requirements, care for additional refugees, etc). I shall discuss this