THE CHANGING HIGH TECHNOLOGY ARMS MARKET IN THE AFTERMATH OF THE FALKLANDS AND LEBANON CONFLICTS

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00176R000900070001-0
• Release Decision: RIPPUB
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• Document Page Count: 16
• Document Creation Date: December 20, 2016
• Document Release Date: April 25, 2007
• Sequence Number: 1
• Publication Date: December 21, 1982
• Content Type: SNIE

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Director of ecret
Central
Intelligence
The Changing High-Technology Arms
Market in the Aftermath of the
Falklands and Lebanon Conflicts
Special National Intelligence Estimate
Secret
SNIE 4-2-82
21 December 1982
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S N I E 4-2-82
THE CHANGING HIGH-TECHNOLOGY ARMS
MARKET IN THE AFTERMATH OF THE
FALKLANDS AND LEBANON CONFLICTS
Information available as of 14 December 1982 was
used in the preparation of this Estimate.
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THIS ESTIMATE IS ISSUED BY THE DIRECTOR OF CENTRAL
INTELLIGENCE.
THE NATIONAL FOREIGN INTELLIGENCE BOARD CONCURS.
The following intelligence organizations participated in the preparation of the
Estimate:
The Central Intelligence Agency, the Defense Intelligence Agency, the National Security
Agency, and the intelligence organization of the Department of State.
Also Participating:
The Assistant Chief of Staff for Intelligence, Department of the Army
The Director of Naval Intelligence, Department of the Navy
The Assistant Chief of Staff, Intelligence, Department of the Air Force
The Director of Intelligence, Headquarters, Marine Corps
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CONTENTS
Page
SCOPE NOTE ............................................................................................................ 1
KEY JUDGMENTS .................................................................................................... 3
DISCUSSION ..............................................................................................................
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SCOPE NOTE
This Estimate examines shifts in supply and demand for high-
technology weapons that are taking place in the aftermath of the recent
conflicts in the Falkland Islands and Lebanon and the significance of
these changes for US interests over the next five years. High-technology
(hightech) weapons for purposes of this Estimate are those types of
weapon systems, still in production, that gained attention in the recent
conflicts.l The specific types of weapon systems considered in this
Estimate are described in annex B. Because these weapons are already
available in NATO and Warsaw Pact inventories, European countries
are treated mainly in this Estimate not as buyers but as potential
suppliers.
This Estimate builds on recent Intelligence Community studies on
arms transfers,2
were use to Istln-
guls mores arp y e ween eman a rI u a e o the recent conflicts
and that reflecting earlier arms transfer patterns.
urvey involved senior US diplomats in 23 Third World
countries tat have been among the leading recipients of hightech
weapons. We sought their views on how influential civilian and military
leaders assessed the recent conflicts in terms of their countries' own
national security and the extent to which those assessments are likely to
lead to changes in demand for hightech weapons and arms trade
relationships.
' The determination of just which weapons to consider hightech is subiective. We include only those
types of weapon systems involved to a significant extent in the Falklands and Lebanon. Many of these are
not new, having been widely used in Vietnam in the 1960s, in the 1973 Arab-Israeli war, or in more recent
conflicts. Among these systems, we further restricted our analysis to those still in production. This enables us
to determine production market shares and to distinguish between production for export and that for trade
involving previously produced, older model weapons.
a Argentina, Brazil, Chile, China, Egypt, India, Indonesia, Israel, Kuwait, Malavsia, Mexico, Oman,
Pakistan, Peru, the Philippines, Qatar, Singapore, South Africa, South Korea, Syria, Thailand, the United
Arab Emirates, and Venezuela. .
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KEY JUDGMENTS
Third World states display a high interest in acquiring a broad
range of high-technology weapons and support equipment. The pre-
dominant view among both producers and potential Third World
purchasers of hightech arms, however, is that overall spending on them
will not increase dramatically. Rather, demand will shift in favor of the
types of weapons-such as the Exocet and AIM-9L missiles-that were
credited with good performance in the recent Falkland Islands and
Lebanon conflicts. In this increasingly competitive arms market, more
emphasis will be placed on prices and ancillary arrangements, such as
training, maintenance, and coproduction.
The demand for such weapons predates the Falklands and Leba-
non fighting, having been fueled especially by massive military mod-
ernization programs in Iran, Saudi Arabia, Libya, and a few other oil-
rich countries. But these weapons are attracting Third World attention
especially at this time because the recent conflicts have shown them to
be deadly, varied, ubiquitous, readily available, and capable of offset-
ting an enemy's seeming military advantages. Also, leaders in some
countries are interested in these weapons for reasons of domestic or
foreign prestige. The demand for hightech weapons over the next few
years will be sustained primarily, however, by countries that are
replacing recent war losses, and by those building larger stockpiles in
view of the high loss and consumption rates noted in the Falklands and
Lebanon.
Any increase in demand for hightech weapons will in most cases,
however, not be reflected in actual military inventories for some time
because of existing backlogs in arms orders and long production
leadtimes. Many interested buyers, moreover, will be prevented from
purchasing these weapons by severe budget constraints in reaction to
the world recession, as their export earnings decline and their debt-
service payments mount. Reduced oil revenues over the next few years
will cause difficult procurement decisions and will inhibit arms acquisi-
tions since the five top Middle East oil-exporting countries alone have
accounted for about half of the total arms imported worldwide in recent
years. Other buyers also will be hard pressed to sustain high levels of
arms purchases. The tabulation on page 4 helps illustrate the range of
competition in the arms market.
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Sources of Arms
Third World Countries
With Smaller Defense
Budgets
Third World Countries
With Larger Defense
Budgets
Developed Countries
Total
Western
46
18
18
82
Mixed
26
11
1
38
Eastern
7
4
7
18
Total
79
33
26
138
Virtually all the 18 countries that constitute the major Third World
market for Western arms are either dependent on oil revenues or are
experiencing serious foreign debt problems. Many of these have already
fallen behind in their payments for military purchases. There is little
prospect for arms market expansion elsewhere because only minor
growth in arms imports is anticipated among the 26 developed coun-
tries, and most of the 79 countries included as minor arms buyers will
probably reduce defense spending during the next few years.
Increased interest has been especially noted in systems f or airborne
warning and control, ship defense, air defense, electronic warfare, and
hightech training. This may result in higher procurement priorities for
tactical missiles, radars, avionics, midair refueling systems, electronic
warfare equipment, simulator training devices, remotely piloted ve-
hicles, and for training in the combat use of hightech weapons and
equipment.
In addition to boosting the desire for hightech weapons, the
Falkland and Lebanon crises have evidently caused several arms-
purchasing countries to think more seriously about diversifying sources,
increasing stockpiles, upgrading existing equipment, and acquiring
weapons that are easily adaptable to a variety of platforms such as
Sidewinder and Harpoon missiles.
The United States, France, and the United Kingdom will continue
to dominate the Western hightech arms market:
- France, with a strong base in producing tactical missiles, may
gain an increased share of the market as demand shifts.
- The excellent combat performance of American-made weapons
ensures the United States a continued strong position in the
market.
- US support for the United Kingdom during the Falklands
conflict is not likely to have serious or lasting adverse effects on
US foreign military sales to Latin American recipients.
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-The United States should benefit from increased demands for
avionics and other electronic military equipment.
- If remotely piloted vehicles (RPVs) become more popular, as is
likely, Britain could benefit from its broad research and devel-
opment program for these RPVs.
Other arms producers, including West Germany, Italy, Israel, and
Brazil, are not likely to increase their share of the hightech arms market
appreciably. The overall volume of the market is not expanding and the
newer producers lack comparative advantages to make them competi-
tive in such weapons.
The decline in confidence in Soviet-made weapons, caused by their
apparent poor performance in the hands of the Syrians, poses a
potentially serious problem for the USSR. Inasmuch as foreign military
sales account for about 16 percent of Moscow's hard currency earnings,
the USSR can be expected to try to counteract this perception and meet
Western competition by attempting to provide upgraded equipment
and improve training, maintenance, and logistic support for Soviet-
made equipment, often at attractive terms. The USSR remains in a
strong position to provide quickly large quantities of hightech weapons.
In any case, the Soviets will take steps to retain their present share of the
hightech arms market.
Control over arms transfers will become more difficult as competi-
tion in the arms market increases. This competition will in some cases,
such as tactical missiles and RPVs, result in more weapons available at
lower prices as the number of smaller producers increases and complex
distribution networks involving third countries are established. At the
same time, arms producers have almost no incentives to limit sales.
Under these conditions, hightech weapons will continue to proliferate,
and there will be few low-threat areas remaining in the world.
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DISCUSSION
1. The recent conflicts in the Falkland Islands and
Lebanon demonstrated the value of several high-
technology weapons, especially when directed by ef-
fective command and control systems and operated by
well-trained people. Consequently, as governments
reevaluate their security situations in light of these
conflicts, many may see value in acquiring more
sophisticated weapons and support systems. At the
same time, the list of potential suppliers of weapons is
increasing. The combination of increased desire and
expanding supply could theoretically result in substan-
tial increases in global arms exports, higher levels of
military expenditures, and possibly changes in regional
military balances. But the forces that generally favor
greater demand for hightech weapons are likely to be
countered by the difficult economic circumstances
afflicting virtually all potential buyers. The most
probable net result is that overall spending on hightech
weapons will not increase dramatically, but demand
Figure 1
Trends in Global Arms Trades
Third World
NATO
Warsaw Pact
Others Insignificant
will shift in favor of the types of weapons-such as the
Exocet and AIM-9L missiles-that were credited with
good performance in the Falklands and Lebanon.
2. Any change in the hightech market will come
about in a market that grew rapidly in the early 1970s
but more recently has shown signs of leveling off. (See
figure 1.) Most of the growth in sales resulted from the
spending of a few oil-rich customers. In 1980, for
example, Algeria, Libya, Saudi Arabia, and Iraq alone
accounted for nearly two-thirds of the arms purchased
that year by Third World countries. Moreover, some
of these countries also have financed additional bil-
lions of dollars' worth of arms for other countries,
including Jordan, Syria, North Yemen, and Pakistan.
As the military modernization programs of these maior
Middle East buyers near completion in the next few
years, however, their spending will probably shift
from arms procurement to costly operations support.
5 1970 72 74 76 78 80
aTrends in arms agreements generally precede deliveries by about
two years. High-technology weapons and associated support equip-
ment account for about three-quarters of the estimated world arms
trade.
588385 12-82
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The sharp downturn in oil revenues they all are
experiencing is likely to cause them to be more
cautious in the future about committing funds for
major new weapons acquisitions.
3. Analysis of overall current arms procurement
patterns reveals that there are three basic markets and
three kinds of buyers. (See table 1.) A large majority of
the countries of the world buy from the United States
and Western Europe. Of the more than 60 Third
World countries in this category, fewer than 30 per-
cent of them spend more than $500 million annually
on defense. A much smaller group of countries buy
from both the West and the Soviet Bloc (and China).
Of the 37 Third World countries in this category,
about 40 percent are major buyers. The third market
comprises those few countries buying exclusively from
the East. Four of the 11 Third World countries in this
category can be considered major buyers. The main
focus of competition among sellers is the major Third
World buyers. These countries have accounted for
more than 80 percent of the increase in arms imports
over the last decade, while, during .this same period,
demand among developed countries has remained
level.
4. The worldwide recession has contributed to se-
vere budget problems for many countries. Export
earnings have declined and debt-service payments
have increased for the most part. At least 45 countries
are experiencing serious foreign debt problems or are
in arrears on payments for military purchases (see
table 1). These factors will seriously inhibit the ability
of many countries to increase their arms purchases.
5. The most immediate consequence of the Falk-
lands and Lebanese conflicts has been to highlight for
Third World onlookers the performance of the high-
tech weapons used in these engagements. Assessments
by Third World governments of the effectiveness of
these weapons will draw primarily on media reporting
that occurred during and just after the conflicts and on
whatever firsthand accounts participants may choose
to pass on. In many cases, these governments' ability to
judge how well weapons performed will be significant-
ly handicapped by lack of access to detailed technical
information on what occurred and, in some instances,
by misinformation. For example, it was incorrectly
reported that the HMS Sheffield, sunk in the Falk-
lands conflict, had an aluminum superstructure.
6. Despite these problems, judgments will be made
about weapon performance on the basis of available
information. In particular, an impact was probably
made by dramatic photography from the Falklands
(figure 2), which drew attention to the French Exocet
antiship missile's success in sinking two British ships
and damaging a third. Similarly, press reports from
Lebanon highlighted heavy Syrian losses of Soviet-
made aircraft, tanks, and surface-to-air missile (SAM)
systems to US-made aircraft and, missiles used by the
Israelis. In both conflicts, media reporting glamorized
hightech weapons generally and tactical missiles in
particular.
7. Our survey of major Third World arms-purchas-
ing countries indicated both pressures that encourage
additional purchases of hightech weapons and other
pressures that tend to discourage them. The recent
conflicts stimulated interest in hightech weapons in
many countries and caused reevaluation of stockpile
levels in light of the high loss rates noted in those
conflicts. The possibility that potential enemies may
acquire such weapons, the increasing availability of
weapons, and reasons of national prestige also argue in
favor of increased demand for hightech weapons. At
the same time, however, many countries already have
large, multiyear arms contracts that, if increased,
would compound already serious foreign debt prob-
lems. Our survey also noted a preference for Western-
made arms, particularly after the poor showing of
Soviet-made weapons in Lebanon. The arms embargo
against Argentina during the Falklands conflict caused
several countries to express intentions to diversify their
sources of supply.
8. Our survey of the arms industry noted some
increased interest in hightech weapons, but most
commercial market observers are not anticipating
substantial increases in demand. Nevertheless the cur-
rent, relatively high level of demand may shift in
favor of tactical missiles, electronic warfare equip-
ment, reconnaissance equipment, aerial refueling
equipment, and remotely piloted vehicles (RPVs). This
shift would in part reflect a move toward upgrading
existing equipment rather than procuring entire new
systems. The details of both the consumer and supplier
surveys are contained in annex A.
9. In the near term, the demand for hightech
weapons will be sustained by the replacement of war
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Table 1
The High-Technology Arms Markets
Third World Countries With
Third World Countries With Annual Defense Budgets of Annual Defense Budgets of
Less Than $500 Million More Than $500 Million
Developed Countries
Bahrain
Buyers in the
Jordan
Western Arms Market a
Argentina n
Australia
Barbados
Kenya
Brazil n
Austria
Bolivia b
Liberia b
Chile b
Belgium
Burma
Malawi n
Indonesia
Canada
Cameroon b
Malta
Malaysian
Denmark
Central African Republic n
Mauritius
Mexico n
France
Colombia
Nepal
Morocco n
Greece
Costa Rican
Niger
Oman
Israel
Cyprus
Panama
Philippines n
Italy
Dominican Republic n
Papua New Guinea
Qatar
Japan
Ecuador n
Paraguay
Saudi Arabia
Netherlands
El Salvador n
Rwanda
Singapore n
New Zealand
Fiji
Senegal n
South Korean
Spain
Gabon
South Africa
Thailand n
Sweden
Gambia
Sri Lanka
Turkey n
Switzerland
Ghana n
Swaziland
United Arab Emirates
United Kingdom
Guatemala
Togo b
Venezuelan
United States
Guyana n
Trinidad and Tobago
Taiwan n
West Germany
Haiti
Tunisia b
Honduras n
Upper Volta n
Ireland
Uruguay
Ivory Coast
Zaire n
Jamaican
Zimbabwe
B
uyers in the Mixed Arms Market
Bangladesh n
Mali
Algeria
Finland
Benin
Mauritanian
China
Botswana
Mozambique
Egypt
Burundi
Nicaragua b a
India
Cape Verde
Nigeria
Iran
Chad
North Yemen
Iraq
Congo
Seychelles
Kuwait
Equatorial Guinea
Sierra Leone n
Libya
Ethiopia a
Somalian
Pakistan n
Guinean
Sudan n
Peru n
Guinea-Bissau
Tanzanian
Yugoslavia n
Lebanon n
Uganda b
Madagascar n
Zambia
Afghanistan
Bu
Laos
yers in the Eastern Arms Market o
Cuba
Bulgaria
Albania
Mongolia
North Korean
Czechoslovakia
Angola
South Yemen
Syria
East Germany
Kampuchea
Vietnam n
Hungary
Poland
Romania
Soviet Union
a These countries procure 90 percent or more of their arms in the West.
n These countries have serious foreign debt problems or recent records of arrears on military sales payments that could inhibit significant
increases in their arms purchases.
These countries have procured major items of military equipment from both East and West within the last 10 years.
a These countries have shifted their procurement patterns in the last five years.
e These countries procure 90 percent or more of their military equipment in the East.
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Figure 2
British Naval Losses in the Falklands
HMS Antelope explodes during attempt to
defuse Argentine bomb.
losses and the building of stockpiles. Over the longer
term, however, the high rates of growth in sales of
hightech weapons noted over the past decade may not
be sustained unless economic conditions significantly
improve for a sustained period. But even in a tight
arms market, the United States should continue to do
well. Economic problems may force Third World
leaders to become highly selective in their procure-
ment of weapons, and the recent conflicts will raise
confidence in US weapons. US support for the United
Kingdom in the Falkland Islands conflict is not likely
to cause any lasting effect on weapons procurement
choices in most Latin American countries. Also, pres-
sure to diversify sources of supply will not be an
overriding factor in most future decisions on arms .
purchases. On balance, considering all of the incen-
tives and disincentives, we believe that the United
States will continue to be the preferred source of
hightech weapons for most countries.
10. US-Soviet relations could be affected if there is
widespread demand for US and Western hightech
weapons and, at the same time, a reduction in demand
for Soviet weapons. Such conditions might cause Soviet
leaders to have somewhat greater interest in renewing
conventional arms ?transfer talks with the United
States, seeking to use such talks to reduce the flow of
weapons to Western friends and allies. Another possi-
ble Soviet response to a threat of reduced arms sales
could involve greater willingness to take risks to
prevent erosion of confidence in Soviet military equip-
ment. In Syria, for example, the Soviets have taken on
greater responsibility for air defense. Also, the USSR
and China may try to use Third World demand for
hightech weapons to acquire advanced technology
illegally.
11. For most countries, the effect of the Falkland
Islands and Lebanon conflicts on military plans and
operations will be modest. Most of the lessons learned
were tactical, and there were no real surprises in
weapons performance. The deadly, varied, and ubiq-
uitous nature of hightech weapons may introduce
more caution into contingency planning. Even those
shifts in demand for hightech weapons that do occur
are not likely to be reflected in military inventories for
some time because of existing backlogs in arms orders
and the long production leadtimes. Surveillance air-
craft, for example, take about 36 months to produce,
and delivery time is now about four years. Attempts to
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buy hightech weapons "off the shelf" are likely to be
unsuccessful. Overall, we do not expect to see any
dramatic changes in regional military balances for the
next few years.
12. Over the longer term, we may see changes in
force postures if some Third World military leaders
conclude that the risks of not having the latest military
equipment are too great and that personnel levels have
to be reduced to pay for hightech weapons-although
any such reductions in the size of active duty forces
will, of course, be a difficult trade-off. Another con-
clusion that could lead to changes in force postures
would be that military stockpiles need to be increased
in the light of the high consumption and loss rates in
the recent conflicts; again, the difficult trade-off
would be fewer forces versus more hightech arms.
13. In any event, US efforts to manage arms compe-
tition will be greatly complicated by another tendency
demonstrated in the two recent conflicts: the establish-
ment of covert and indirect arms relationships. Be-
cause of the widespread availability of hightech weap-
ons, complex networks of arms transfers may reduce
the effect of arms embargoes sought by any of the
major producers. At the same time, arms producers
have almost no incentives to limit sales. Under these
conditions, hightech weapons will continue to prolifer-
ate, and there will be few low-threat areas remaining
in the world.
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