EFFECTS OF THE CLOSING OF THE SUEZ CANAL ON SINO-SOVIET BLOC TRADE AND TRANSPOR

Created: 2/21/1957

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Office of Current Intelligence

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EFFECTS OF THE CLOSING OF THE SUEZ CANAL ON SINO-SOVIET BLOC TRADE AND TRANSPORTATION

Office of Research and Reports CENTRAL INTELLIGENCE AGENCY

This document contains classified Information affecting the national security of the United States within the meaning of the esp!ow tow, US Code,. Vete transmissionhe revelaUon of its contents in any manner to an unauthorised person, as well as its use in any manner prejudlcal to the safety or .nterest of the United States or for the benefit of any forc.gn government to the detriment of the United states

BLANK PAGE

CONTENTS

I. Closing of the Suez Canal .

II. Status of Trade and Transportation Before Initiation

of Hostilities

Bloc Supply of the Soviet Far East

and Communist China .

Bloc Trade Offensive in the'Near '

East and in South and Southeast Asia

Bloc Merchant Marine as an Ins'tru-

ment of Foreign Trade

Disposition of Soviet Bloc Merchant Fleets

Sino-Soviet Bloc Dependence on Non-Bloc

Shipping Services .

in. Effect, of the Closing of the Suez Canal on the Sine-soviet Bloc , .

A. Merchant Shipping Services

Disruption of Sailing Schedules

Tightening of the Charter Market

Congestion at Bunker Ports

B. Trade Commitments

Bloc Supply of the Soviet Far East

and Communist China

Bloc Trade Offensive in the'Near

East and in South and Southeast Asia

Appendixes

Appendix C. Source References

- iii -

Tables

Pace

Volume of the Seaborne Foreign Trade of the Sino-Soviet Bloc Moving Through the Suez Canal,6 and7 .

Estimated Volume and Value of theForeign Trade of Communist China Moving Through the Suez Canal,nd7 .

7

4.

of Soviet and European Satellite Merchant Fleets, as6 .

Movements of Soviet Tankers Between the Black Sea and the Soviet Far East,

Estimated Volume and Value of the Overland Foreign Trade of Communist China with the USSR and the European Satellites, January6 and7 . . , ,

14

18

Illustrations

Following Page

Figure 1. Selected World Trade Routes Affected

by the Closing of the Suez Canal

(Map)

Back Cover

Figure 2. Merchant Shipping to Communiat China.

Chart)

- lv -

(ORR

ON SlNQ-ouviitfT BLOC AND TRANSPORTATION*

Sum ma ry

The moat important economic factor in the present crisis in the Near East is the closing of the Suez Canal, which is the gateway to^sia and the vital channel throughubstantial part of the petroleum supply of Western Europe normally flows. Free World and Sino-Soviet Blocservices engaged in fulfilling trade commitments and in meeting Internal requirements were immediately affected. Sailing schedules were

disrupted. Vessels caught south of the Canal were compelled to return to European ports by the much longer route around Africa.** Theof the normal flow of commodities with extended sailing distances

greatly increased shipping requirements for many nations. esult,

the tight ship charter market created when Egypt nationalized the Canal

inecame increasingly restrictive.

The result of the Canal stoppage thus far haseriousof normal commodity movementsislocation which is likely to continue until the Canal is reopened about In the West the situation is best illustrated by the reduction in petroleum shipments from the Middle East to Western Europe. The petroleum deficit of Western Europe must be overcome, in part at least, by shipments from the estern Hemisphere, but only after production and shipping adjustments of staggering proportions. Although the period of disorganization of normal economic intercourse probably will be brief, it will nevertheless increase the prices of many basic commodities in world commerce and will tend to extend the time required to meet delicately balancedplans in South and Southeast Asia. It will also probably cause considerable unemployment in the countries of the Free World which are dependent on bulk traffic movement through the Canal.

* The estimates and conclusions contained in this report represent the best judgment of ORR as '. ** See the map. Figurenside back Tonnages are given in metric tons throughout this report, except where otherwise* Including both directions.

The Sino-Soviet Bloc is more fortunate. None of its members is so dependent on the Suez Canal that the closingrisis.illion metricf Bloc trade moved through the Canal5 compared with.the total Canalillion tons. Vessels carrying Bloc trade through the Canal were about evenlybetween Bloc and Free World registry. The adjustments

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required of the Bloc, therefore, although serious, can be carried out with relatively less economic disorganization.

The Sino-Soviet Bloc will, however, incur substantialcostsesult of the long, expensive water haulbetween Europe and the Communist Far East. Thescarcity of merchant vessels as shown by the tighteningon which the Bloc is much dependent has alreadyseaborne deliveries to Communist China.. Petroleumhy sea from the Black Sea to the Soviet Far East, whichsignificantly in recent years, have been stopped sinceof the Canal, with no indication of their resumption in

A reduction in seaborne trade with the Communist Far East will make it necessary for the Sino-Soviet Bloc to increase the use of the Trans-Siberian Railroad and to absorb significantly highercosts over the short run, especially for the China trade. It is unlikely that the petroleum requirements of the Communist Far East which normally move by sea will bo met from reserves bases' in the area. Communist China also depends on substantial seaborneof such critical commodities as metals, machinery, transport equipment, and chemical fertilizers for it* industrial and military development. An appreciable reduction in the receipt of fertilizers required for spring planting may adversely affect agriculturaland the inability to phase properly the delivery of essentialequipment would threaten economic expansion.

To compensate for the disruption of its shipping and its inability to charter foreign tonnage, the Sino-Soviet Bloc began as early6 to divert essential cargoes from seaborneto trans-Soviet Bloc rail lines, while at the same timeto meet less urgent deliveries by using the route around Africa. Chinese Communist overland imports and exports already put aburden on the Trans-Siberian Railroad. Although railcan carry the added volume of dry cargo which is being diverted, there probably willtrain on the Soviet tank-car park of sufficient magnitude to prevent some deliveries. Moreover, substantiallydiversion, continued over an extended period, conceivably could retard delivery of commodities required elsewhere in the USSR and thereby adversely affect Soviet economic plans. Such diversion would also aggravate the sporadic transport congestion which hasincreasingly prevalent in China.

One effect of the closing of the Suez Canal on Sino-Soviet Bloc -Free World trade was the interruption of the normal flow of refined and crude petroleum from the Black Sea to the Egyptian port of Suez, at the southern end of the Canal. The lack of crude oil has been most difficult to overcome. The stoppage of Soviet deliveries and the inacces sibllity of other former sources have kept the two Egyptian refineries at the port of Sues closed since the initiation of hostilities. Thuson which Egyptian Industry is completely dependent for fuel,Us in critically short supply in spite of increased shipments of refined products from the Black Sea to Alexandria.

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et

The closing of the Suez Canal may alao retard the Soviet Bloc trade offensive among the underdeveloped countries of South andAsia. Since the Canal closed, few Bloc-flag vessels have departed for these areas except for India, where shortages are already appearing because of the disorganization of world shipping. The Bloc may beto fulfill its trade commitments to India to demonstrate itsto agrecmentsf.in spite of extenuating circumstances. Elsewhere in Asia the Bloc can place responsibility for any failure to meet trade commitments on Western intervention in Egypt.

I- Closing of the Suez Canal.

Immediately after thenglo-French attack on Egypt at the end ofarefully prepared plan to block the Suez Canal was put intogyptians began large-scale scuttling of ships, barges, and maintenance vessels in and near navigation channels. Subsequently the movable rail bridge at El Fridan north of Iamailia was dropped into the channel, and sevoral buildings of the canal company were destroyed. In all. at the end of hostilities, there were an estimatedbstructions in the Canal, includingessels of one type or another t> in the northern entranceement-laden LST in the channel at the south end of Lake Timsah. 2/

Estimates of the cost of clearing the wreckage range as highillion. Estimates of the time required to restore the Canal to operating condition vary widely. It has been stated that,on the size of the salvage force assembled, the amount and kind of equipment at its disposal, and the extent of cooperation by the Egyptian government, the Canal can be cleared inonths,onths the most frequently quoted estimate. Presumably these estimates refer to complete clearance and not merely to opening usable ship lanes through the debris, which could be done in less time. artial restoration of navigation has already been accomplished by Anglo-French salvage craws in Port Said, which now can be used by vessels drawing up toeet, 4/

For the purpose of this report, an estimate oforrestoration of the Canal to former traffic levels is acceptedasis for determining the effect on the trade and transportationcarried.

U- Status of Trade and Transportation Before Initiation of Hostilities.

For serially numbered source references, see Appendix C. ollows on p. 4.

The estimated volume of the commodity trade of the Sino-Soviet Bloc, both with the Free World and intra-Bloc, moving through the Suez Canal during the periods'January through6 and January through7 is shown in* More thanons

Table 1

Estimated Volume of the Seaborne Foreign Trade of the Sino-Soviet Bloc Moving Through the Sues

6 and7

Thousand Metric Tone

- free World

Cargo

gypt ee -and Asia Br and As!

rbln* -Hear East d/

It

Western Europe

China -Total DBSB

-European Satellites Total Grand TUtal

Southbound

67 j/

northbound

6

Liquid

T-outhbound

b3

1*5

269

Mo boo his

in

185

69?

657

ih: IBS

7*

7

Northbound

7

200

511

U- I

Estimated Volume oi ihc Seaborne Foreign Trade ofo-Soviet Bloc Moving Through ihc Suck Canal a/

6 and7 (Continued)

Thousand Metric Tona

- Free World

Cargo

nd Asia

Southbound

7 fj

km

L.9U

(0

BOO

too

781

fitio no

7V3

Ine

b. Including trade vlth Australia, Bursa, Cambodia, Ceylon, India, Indonesia, Iraq, Japan, Ncv Zealand, Pakistan, the Philippines, and Thailand.

e. Including trade vlth the countries specified Inlus Iran.

trade with Egypt, Lebanon, and Syria.

for the first half7 indicate that volume of trade vhlch vould have moved through the Suet Canal if thebeen open.

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of Bloc trade are estimated to have moved southbound through the Canal during the period January throughnd moreons moved northbound. These totals includeons of Bloc trade with Free World countries moving through the Canal southboundons moving northbound. The remainders represent intra-Bloc trade (Communist China to and from the USSR and the European Satellites) moving through the Canal.

Similar estimates are shown in the same table for theonths7 to indicate the magnitude of Sino-Soviet Bloc trade commitments existing at the time the Sues Canal was blocked. It is apparent that, in terms of volume at least, most of the Sino-Soviet Bloc trade which would normally have used the Canal during the first half7 is with Free World countries. It ial'eetirhated that during thisotal of aboutillion tons of cargo would have moved between the Sino-Soviet Bloc and Western Europe, Egypt and Asia, and the Near East through the Canal, principally southbound. By comparison, the volume of intra-Bloc trade which would have used the Canal in the first half7 is estimated to beillion tons, principally northbound.

A. Sino-Soviet Bloc Supply of the Soviet Far Eaat and Communist China.

Economic activity and development in the Soviet Far East and Communist China are normally dependent on supplies from the Soviet Bloc in Europe. China, in addition,omparatively large volume of trade (in terms of total Chinese foreign trade) with countries of Western Europe. One of the most important commodities moving by sea to the Soviet Far East le refined petroleum, most of which isat Vladivostok for distribution by sea to other Soviet Far East ports and by rail to China. otalons of petroleum products was delivered to the Soviet Far East from the Black Sea, moreercent increase above the level7 Theof the area on seaborne petroleum deliveries continued to increase During theonths of the year, slightly more refined petroleum was shipped to the Far East than arrived during the entire previous

Communist China depends on ocean transportubstantial part of its foreign trade. boutillion tons, or more thanercent of the volume of Chinese imports and exports, moved by sea. Although not all of the seaborne foreign commerce of China moves through the Suez Canal, that segmont which does is quite The volume of Chinese Communist trade which normally would have moved through the Suez Canal during the period January through7 is estimated to total aboutillion tons in both directions. The estimated volume and value of the seaborne foreign trade ofChina with the European Satellites, Western Europe, and the European USSR moving through the Suez Canal during the periods January through6 and January through7 are shown in

*ollows on p. 7.

Tabic I

Estimated Volume and Value of the Seaborne Foreign Trade of Communist China

Moving Through the Suez Canal a/6 and7

(Thousand MetricMetric

Liquid

Cargo Total (Million US $) Cargo Cargo Total (Million US $)

Exports to

European Satellites

Europe

USSR

from

European Satellites

Europe

USSR

3

3

B.- Sino-Soviet Bloc Trado Offensive in the Near East and in South and Southeast Asia.

Recent Sino-Soviet Bloc efforts toward the economicion of countries of South and Southeast Asia have been accompaniedonsistent expansion of credit, an extension of tradingultivation of developing markets through the export of technical services to the so-called underdeveloped areas. esult, aand increasing amount of Bloc trade with many of the free Asian countries, aa well as with Egypt, Australia, Japan, and New Zealand, normally passes through the Suet Canal. It is estimated that during the first half7 trade between the European Bloc and Egypt and Asia* would total aboutillion tons, or an increase ofn volumeike period An important segment of this trade consists of refined and crude petroleum that is usually carried from Rumanian and Soviet Black Sea ports to the port of Suez. The bulk of Bloc trade with Egypt and Asia* is with the European Satellites and would account for an estimatedercent of the total during the period from January through The amount of trade between Communist China and the Near East which would normally move through the Suez Canal is small but increasing. It Is estimated that during the first half7 such trade would amountons, an increase of more thanercent above the levelimilar periodsee.

C. Sino-Soviet Bloc Merchant Marine as an Instrument of Foreign Trade.

1. Disposition of Soviet B'.oc Merchant Fleets.

The Soviet Bloc, excluding Communist China, has active at any given timeessels, ofre of Soviet registry and the remainder of European Satellite registry. Excluding the Caspian Sea fleet, there areoviet tankers, of whichre normally used is overseas petroleum trade withof these usually used outside of Communist waters. Soviet tankers remaining permanently in Bloc waters are old or small and are therefore used on shuttle services, largely in the Black Sea and the Soviet Far East. At the moment the European Satellites have only one oceangoing tanker, the Polish-flag Karpaty. The other Polish-flag tanker, the Wspolpraca. is out of commission and was soldfor scrap. 9/ The disposition of Soviet and European Satellite merchant fleets as6 is shown in

The proportion of Soviet Bloc freighters outside ofwaters at any one time is about tho same as that of the tankers. Of thective cargo ships, generallyreBloc waters at any given time, divided fairly evenly between Soviet and European Satellite Hags. The merchant marine of Communist Chinaegligible role in foreign trade activity. Its merchant fleet of

- See Tablendd, p. bove,. ollows on p. 9.

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Table 3

Disposition of Soviet and European Satellite Merchant Fleets a/ as6

Area

, Cargo TankersVessels

b/

European Satellite P.

Cargo Vessels

Total

figure does not include the two Satellite tankers, the which was recently reported out of repair in Hong Kong, andwhich was recently sold for scrap.

the Caspian Sea fleet.

essels is for the most part confined to plying between Chinese

coastal ports, with the exception of intermittent trips to North Vietnam.

2. Sino-Soviet Bloc Dependence on Non-Bloc Shipping Services.

The Sino-Soviet Bloc utilizesmall part of Ussmall total merchant fleet capability to carry its foreign trade.esult, it mustarge amount of non-Bloc tonnage each year. ree World vessels,illion gross register tonsere chartered for varying durations by the Bloc, an increase of more thanercent over the previous

Perhaps the most striking example of Bloc dependence on Free World maritime services is found in the conveyance of the foreign trade of Communist China. Consistentlyore thanercent of the number of vessels carrying commodities to and from China have been of non-Bloc registry. For the most part, these ships carry only nonstrategic items, but their extensive participation permits the use of Bloc vessels to transport embargoed commodities to China.

Petroleum movements from the Black Sea also illustrate the dependence of the Sino-Soviet Bloc on Free World shipping. fillion tons of crude oilillion tons of refined products carried from the Black Sea.onB werein Bloc tankers, mainly to the Communist Far East. Thewhich accounted forercent of the total, was carried in non-Bloc tankers, about half of which were chartered to theinally, the dependence of Poland on foreign vessels to carry overercent of its seaborne foreign trade5 indicates the scarcity of domestic/ Other European Satellites, none of which possesses moreeagoing vessels, must also rely on foreign shipping toarge part of their seaborne foreign trade.

m. Effects of the Closing of the Suez Canal on the Sino-Soviet Bloc.

Specific information on current Sino-Soviet Bloc trade negotiations, particularly as to delivery schedules, is not available in sufficient detail to determine precisely the impact of the closing of the Suez Canal on Bloc trade commitments. Isolated reports indicate that the Bloc is having difficulty in obtaining materials, but these are too few toa pattern. On the other hand, the effect of recent events in Egypt on world shipping in general and on Bloc maritime services in particular can be moasuredair degree of reliability. Deviations from the expected pattern of employment of Bloc merchant shipping, as anof foreign trade, should indicate any disorganization of itscommerce. The impact of difficulties in the Suez Canal area duringoreover, probablyalid basis for ascertaining the prospects during the period the Canal remains closed.

It appears that the seaborne trade of the Sino-Soviet Bloc with the Communist Far East will be definitely reduced because of the disruption of Bloc shipping and tho sudden scarcity of Free World maritime services. The Soviet Bloc trade offensive in South and Southeast Asia may also be retarded. The impact on the economies of the Soviet Far East andChina will depend mainly on the extent to which overland transport can compensate for the reduction in shipping, as well as the availability and inclination to draw upon reserves of commodities normally moved by sea.

A. Merchant ShippinR Services.

1. Disruption of Sailing

At the outbreak of hostilities onoviet and European Satellite merchant vessels were deployed for the most partormal pattern. Thereoviet vessels in the Suez Canal

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areareighters in North Egyptiananker in the port of Suez, and another tanker moving through the Canal. Vessels under way which were bound for passage through the Canal consistedanker in the Eastern Mediterranean,reighteranker in the Red Sea,ankers in the Gulf of Aden. Thereuropean Satellite vessels in the areareighters in North Egyptian portsreighterIn the Canal. There were also two vessels in the Red Seato Europe from the Far East. The Polish dredge Zeran, on loan or sold to Egypt, was in the Canal awaiting spare parts before beginning

Some of the Sino-Soviet Bloc vessels in Egyptian ports when hostilities began were forced to leave before completing cargo operations. Others approaching the Canal from the south and thoseeast planning to return to home ports from Asia were confrontedong voyage around Africa or through the Panama Canal. In either case, sailing time would increase significantly. Ships returning to the Black Sea from the Far East must sailautical milesan increase of aboutercent above the conventional voyage. Round trips between these areas, therefore, probably now requireoays in addition almost double the previous voyage timeon the speed of the vessel. An increase of similar magnitude is required for round trips between the Baltic Sea and the Far East. The significant increases in voyage time for Bloc vessels normally plying between European porta and the Far East willommensurate effect on operating costs. The total impact cannot be determined, but, based onankeretroleum shipmentons from the Black Sea to Vladivostok will now cost an additional At this rate, to maintain through June7 thelevel of petroleum shipments to the Far East would cost the Bloc about USillion toillion moreovement of similar magnitude through the Suez Canal. Although this is not completelyof Bloc cargo movements affocted by the closing of the Canal, it dons suggest that considerable additional expense will be incurred in maintaining trade normally carried in Bloc vessels between Europe and Asia.

Apparently the USSR was not prepared to meet the problems caused by closing the Canal. For some lime after navigation in the Canal became impossible, considerable indecision was shown in authorizing the rerouting of Soviet vessels. Even as late aBovember it wasthat the problem of rerouting had not been fully solved. Many of the ships which normally would have left Bloc portsuez transit evidently had been placed on other assignments. Asecember, for example, no Soviet tankers had left the Black Sea for the Far East, andreighters had been rerouted from Europe by way of the Cape of Good Hope for Asia4 scheduled for North China portsor

Many of the Sino-Soviet Bloc vessels caught south of the Suez Canal began Ihc voyage back to Europe by way of the Cape. ecember there wereargo vesselsankers of Soviet flag, as welluropean Satellite freighters (mainly of Polish registry) bound for Europe by this Soviet tankers generally return to the Black Sea in ballast or carry soybeans from Dairen to Western Europe.

This time,f the rerouted Soviet tankers carried Persian Gulf petroleum to Western Europe; atf these are known to have been under charter to theith one exception duringhe lift of Persian Gulf petroleum to Western Europe in Soviet tankers was unprecedented. Such an arrangement is advantageous to both parties in that it permits Western Europe to augment its dwindling petroleum supplies and the USSR toostly empty haulrofitable journey.

from the Baltic Sea are expected to move through the Canal for the Far East and will require water and provisions atWith the exception of two transits in5 ando Soviet vessels have gone through the Panama Canal The closing of the Suez Canal, however, apparently has made the route more attractive because it is shorter than the route around Africa for vessels plying between Europe and Asia. rip between the Black Sea and Vladivostok, for example, the use of the Panama Canalaving of moreiles. J

At present, Soviet vessels are not promoirea irom moving uirougn the Panama Canal, although they are subject to security inspection by US Army personnel. To call at Honolulu or at US west coast ports, however, requires elaborate and time-consuming legal procedures. According to the US port security program, the entry of Soviet vessels requires permission from the Secretary of the Treasury after consultation with the Secretaries of State and Defense and the Director of Central Intelligence. If bunkers are requested,icense must be granted by the Department of Commerce. Theoviet vessels intending to move through the Panama Canal are expected to bunker at Trinidad to avoid this regulation.

2. Tightening of the Charter Market.

The extension of voyage time for vesselsizable segment of world trade has greatly increased the need for both tankers and cargohusharter market that has been tightening since the Suez Canal was nationalized on The impact of the change has been felt particularly in the petroleum trades as well as the wheat and coal trades, which normally maintain high levels during the fall months. Even in October, before hostilities in Egypt, available ship tonnage was just about equal to tradeith the closing of the Suez Canal, trade tonnage requirements began to exceed vessels, and rates began to soar. The impact on shipping in general is illustrated by the increase in the charter rate for coal from Hampton Roads to the Continent from.er ton on6 to.ate greater than that whichduring the Korean

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The Sino-Soviet Bloc,esult of its extensivenon-Bloc shipping services, has been adversely affected bycharter market. In October, Sovfracht, the Sovietinformed its offices abroad that the ship-charteringserious and that ships must be obtained by any means available.in Egypt made it even morelthe Far East.'

3. Congestion at Bunker Porte

Since the blocking of the Suez Canal the large-s eof Sino-Soviet Bloc and Free World vessels around Africacongestion at bunker ports In South and West Africa whichequipped to handle the increased requirements. or example,hips called at DurbanAfrica for bunkers and water after being diverted from Sues.addition to the delays occasioned by overcrowding limitedof bunker fuel make it difficult to schedule shippinga result. Bloc vessels on the Chinese and South Americanhaving difficulty in arranging for bunker stops. [rt "the Czechoslovakit

ceed as far aa Dalmr p ooutneast Asian ports and attempt to pro-

r 3tf Somemay nave co sacrifice part of their normal rgo space, moreover, to stow additional fuel, ilf In any case, delayi in fueling and attempts to avoid congestion at bunker ports are making the rerouting of Bloc vessels around the Cape of Goodoreand time-consuming diversion than tho increased distance alone would seem to indicate.

B. Trade Commitments.

1. Soviet Bloc Supply of the Soviet Far East and Communist China.

The disruption of Sino-Soviet Bloc shippingightening charter market, and bunkering difficulties have already affected seaborne trade between the European Soviet Bloc and theFar East. Normally, there is little dry cargo trade moving between the European Bloc and the Soviet Far East, butof Black.Sea petroleum to the area are rather numerous. otal ofankersons of petroleum arrived at Soviet Far East ports, mainly Vladivostok. Tankermounting toefore the closing of the Suez Canal. The movements of Soviet tankers between the Black Sea and the Soviet Far Eastre shown in

* ollows on

Tabic 4

Movements of Soviet Tankers Between the Black Sea and the Soviet Far East a/

The effect of the dislocation of world shipping on theof arrivals in Communist China cannot be measured with-aimilar precision. Normally, during November and December more ships call at Chinese Communist ports than in any other period of the year. (For merchant ship arrivals in Communist China./ see)5 thererrivals in Novembern December, of which vessels of Sino-Soviet Bloc registryespectively. Arrivals from January through October, of which Bloc vessels accounted, an average of abouthips per month. Not all of these Bloc arrivals in China were from areas affected by the closing of the Suez Canal. Most were from the Soviet Far East, andr an average ofer month, originated in European ports. Departures from Chinese portsimilar

Although the number ofino-Soviet Bloc arrivalsChina during6 and expected in themonths is not known, there are several indications that theof vessels of Western registry in Chinese foreign trade iseneral diversion of non-Bloc vessels to other routes isa report

The blocking of the Suez waterwayerioua effect on seaborne petroleum supplies to the Far Fast. During the firstonthsanker departures from the Black Sea to Vladivostok averageder month, and tanker arrivals in the Far Fast averaged about the same. Since the Canal was closed, however, there have been no tanker departures for the Far Fast. Consequently, although tanker arrivals in the Far East were about average in Novemberankers moved through the Canal before hostilities began, there wasrrival in December and, from present indications, none in January.

n mid-Novomber which stated that

there were lew cnarter vessels offering their services from Europe to the Far East because most shipping lines were expecting an increase in trans-Atlantic runs. The reluctance of ship owners to continue transporting Chinese Communist trade with Europe is understandable. Runs to the Far East now engage their ships for several months, at rates fixed before the voyages. Under these circumstances it is difficult to take advantage of steadily increasing rates to the same extent possible on short trips.

The effect of the closing of the Suez Canal on Sino-Soviet Bloc arrivals in Communist China is not yet clear, although there apparently willownward trend at least initially. Asecember, for example, only four Soviet freighters were scheduled from European ports to China by way of the Cape Moreover, Polishships, which are usually rather heavily committed to the China trade, were also reported to be less active. Duringay period endingovember, onlyolish-flag vessels wore outsidewaters, compared withimilar period last year. to North European ports and to South America remained about normal,ecrease was noted in the number of Polish-flag ships * Following

-

employed in the China The dislocation, however, may only be temporary. Based on known departures to date, there should bereighter arrival, in Chinese porta inll of Polish registry, which is to be comparedrrivals in6olish-flag

The prospecteduction in seaborne trade with the Communist Far East necessitates the Increasing use of the Trans-Siberian Railroad, especially for the trade of Communist China. Over the short run, therefore, transport costs will rise markedly. For every ton of merchandise diverted to overland movement, the Sino-Soviet Bloc must absorb on theevenfold increase incosts. The inability of the Soviet Far East to support itself has led the government of the USSR to establish state reserves liases in the area,oncentration exceeded only by that in the vicinity of Moscow. Of the approximatelyeserves bases in the regionere known to store petroleum reserves. With the alternative of rail transport available, however, it is unlikely that the petroloum requirements of the Soviet Far East will be met from these stocks. The reserves are for wartime emergency, and their depletion for an extended period probably would not be permitted by the USSR because of the adverse effect on military capability.

The effectecline in the seaborne trade of Communist China could be more serious than the curtailment of the seaborne trade of the Soviet Far East. China receives substantial seaborne deliveries of critical commodities metals, machinery, transport and other equipment, and chemical fertilizershich are required for economic and military Any appreciable curtailment of fertilizer shipments may adversely affect agricultural production, although China may be able to increase its fertilizer imports from Japan. The inability to phase properly the delivery of essential industrial equipment is even more serious, however, and could retard economic expansion.

The dependence of the Soviet and European Satelliteon imports from Communist China, which consist principallyof the agricultural and extractives notgreat as the Chinese dependence on imports, because of theof alternative sources. * The lack of vessels to transportmoreover, may congest storage facilities inwould apply mainly to agricultural commodities harvestedand South China, where present transport problems mayexports by way of the Trans-Siberian Railroad difficult, f

no warehouse space available in Shanghai

mayrowing storage If sufficiently extensive,

inability to market food crop, abroad may seriously affect the Chinese

*ajor exception, however, maybe Poland, where steel production dependsart on Chinese iron ore. ubstantial reduction in this raffic. accompanying the delays already experienced in the receipt of Indian ,ron ore, would jeopardize planned economic expansion in Poland.

-

balance of payments.

The daemon by Communist China to divert trade from ocean

d movement ha. been made..for*:ritical items at least, although less urgent deliveries apparently continue to move by

ts shipping agents in Eastern

n8ethe-hipment of industrialv'C ^tructionaterials whichshipped by sea from Gdynia.

The estimated volume and value of the overland trade of Communist China with the USSR and the European Satellite, during the period. January through6 and January throughnder

ovenand import, and export, alreadyubstantial burden on the

r Penally the Trans-Siberian line. The early closing of the Northern Sea Route this year, moreover, probably has required increased shipments on this vital rail artery. Nevertheless, Soviet rail facilities probably can cope with the estimated limited volume of dry-cargo trade which is being diverted.

The increase in petroleum .hipment. by rail to theransport problem. The growth of the Soviet tank-carnot kept pace with increasing petroleum production. The burdenoverland petroleum movements on Soviet tank-car capability isected in the addition ofon tanker, to1 and in their increa.ing use in meeting requirementsCommunist Far The complete diversion to railf petroleum that would have moved bythe first half7 may therefore seriously tax the Soviet . '

may Indicate an inability

peuoieum overland to meet the requirements of the Soviet Far East and may also suggest that merchant shipping in the area may be adversely affected. Substantially increased diversion, of dryuid cargoes, continued over an extended period, mors-

rCUrd thecommodities required el.ewhere in the USSR,agnitude sufficient to affect adversely Soviet economic plane. Appreciable increases in overland trade movement would also aggravate the sporadic transport congestion which ha. becomeprevalent In Communist China during recent

In addition to the problem of diverting to rail commoditiesarried by merchant .hipping services.hina evidently la having difficulty in obtaining neceasary supplies.'

ollow, on p.

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Tabic 5

Estimated Volume and Value of the Overland Foreign Trade of Communist China with the USSR and the European Satellites a/6 and7

of the impossibility of obtain -

ontrail wi.wuusi.aa aVolin was being The recent urging by Chinese economistsdrastic revision" in the import-export policy of China may also have some relation to events inlthough before the closing of the Sues Canal. China waswith its export program.

Dthere were not^,UsP u. uuuus. OMuahts

Earlier It was reported that China could not supply Egypt the amount of coal and steel it had ordered.

2- Sino-Soviet Bloc Trade Offensive in the Near East and in South and Southeast Asia.

One effect of the closing of the Suez Canal on- Free World trade has been the disruption of tho normal flowfrom the Black Sea to the port of Suez. Previously, apart of the imported crude oil required by the twoat Suez was received from the Bloc. In the6 this traffic amounted toons, compared withimport requirement ofons. Moreefined petroleum products from the Black Sea alsothe Canal to the port of Suez for internal distributionperiod.

The USSR acted promptly after the termination of hostilities to increase its deliveries of refined petroleum to Egypt through Alexandria By the end of November it was able to advise Cairooviet tankers with different type, of fuel oil were scheduled to sail for Egyptndore during December. Additional fuel supplies were offered if Byoviet tankers carrying anons of refined petroleum had arrived at Alexandria.n sp,te of the increase in Black Sea petroleum shipments, however, it is doubtful that the USSR will supply more than aboutercent of total Egyptian requirements during the period the Canal remains closed.

The lack of crude oil in Egypt has been most difficult to overcome. The cassation of Soviet deliveries and the inaccessibility of other former sources have kept the Suez refineries closed since the initiation of hostilities. The production of these refineries normally accounts for most of the petroleum needs of esult, petroleum, on which Egyptian industry is completely dependent for fuel as well as lubrication, is critically .hort. Reportedly there were only enough stocks on hand to last until

The blocking of the Suez Canal also has significantlythe cost of transporting Sino-Sovietsian trade. from the Black Sea to Southeast Asia now require more thanays by way of the Cape of Good Hope compared with aboutays by way of the Suoz

It is too early to say with certainty whether Sino-Soviet Bloc economic relations with Near East andf ree Asian countries wille suit of the closing of the Canal. The difficulty in determining with

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suspenced. rubber purchira-nrinael^

f indie slcu uiu[ rv

fact that sine*TTrl rcouPled the

'rganization ofarifle*lhCf formationc6 cVerthele"'evidenceurtailmentcommodity movement8 ia apparent, 1

iccu-uraieven

ypi. bii/ Thesewith the

fact that since the Suez Canaluiosea iCWbino-Soviet Bloc-flag vessels have departed for free Asian countries, suggest that the Bloc trado offensive in underdeveloped areas may be adversely affected. India, the leader amongAsian nations, may be an exception. Approximatelyercent of Its exports andercent of its imports normally pass through the Sues Canal. Already, as the result of the scarcity of world shipping, shortages of many commodities have occurred on Indian markets. In the long run, moreover, its five-year plan for economic development may be severelyne of the Soviet-flag vessels now en route to Calcutta is carrying structural steel, cranes, and, equipment required for the Indianprogram. Other Soviet and Polish vessels bound for India probably are loaded with similar commodities. Poland may be anxious to obtain return cargoes of iron oro because reported delays in its delivery threaten the closing of some steel It is also likely, that the Sino-Soviet Bloc may attempt to fulfill Us trade commitments with India in order to demonstrate its adherence to agreements in spite of extenuating circumstances. Elsewhere in Asia the Bloc can place responsibility for any failure to meet trade commitments on Western intervention in Egypt.

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APPENDIX C

SOURCE REFERENCES

following thoave the following .igniXicance:

entry and designated

of Information

ocumentary

ompletely reliable

sually reliable

airly reliable

ot usually reliable

ot reliable

annot be judged

Information

Confirmed by other sources

Probably true

Possibly true

Doubtful

Probably false

Cannot be judged

r , "documents of foreignandopie. or translation, of .uchextracted from suchV tfrU evaluation "Docu-

Evaluations not otherwise designated are those appearing on the cited document; those designated "RR" are by the author of

No. "RR" valuation is given when the author agree, with the evaluation on the cited document.

..

.

CINCPACFLT. 2 S. Eval. RRfeSSliai New. Record, U. Eval. RR. U. Eval. RR 2.

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of Communist 5.

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33.

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f

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I

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;

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C^al 'rr'z XJBlly<Far EaitK OFF USE.

A-2.

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L

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CI

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