Created: 10/2/1967

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SUBJECT: Soviet Capabilities end the Sequirecents cf Kiddle East States for Externa! Assistance

consider that cur recent ectizates concerningand activities in tbe Kiddle East re=ain valid.* Wetbe USSR -HI continue to adapt its ccsnitsent of resources

j to the circumstances that present tcs-selves. It will be cautious and pragnatlc, avoiding useless expenditure, but ready to exploit any precising opportunities. As and vbto we perceive the gence of such opportunities, in -ill call attention to thea in forthccclng >ITEs already scheduled.

Soviets could, if .they thought it profitable, devoteresources to the Middle East. In practice, Soviet

Soviet Strategy and Intentions In the KediterranetnProbable Soviet Objectives in Seeming ArabatedT; endSoviet Foreignated

Date wq

extensions of economic cid to countries of tha area have averaged0 oitUon annually since the's; drawings have averagediliica annually. Both extensions end drawings have been well above these averages in the past fev years. The Soviets have nlso beea lenient about debt repayment for hard-pressed countries such as the UA3. However, Koscov's reluctance to increase its ovn levels of aid is suggested by the efforts it has nade in the past few nonths to persuade East European countries to increase their assistance in the region- It hsc also beea clearly unwilling to nafce up the economic costs to Egypt of the closure of the Suet Canal.

3- The capability of nost of the Kiddle Eastern Stateseconomic aid is United. Only Egypt and Jordoa urgent and inaodlate renuireaects. But Jordan can probably con-

tinue to obtain any necessary eid free Arab and Western sources.

Algeria, Iragj and Syria combined have been usingillion in Soviet economic essistaaca annually, and they are unlikely to want or use nuch core. Algeria has neveroreign currency prabies, and do difficulties axe likely to appear unless France, vhleh provides large-scale assistance, changes policy drastically. Iraq cut foreign expenditures to olaisixe the

aspect of oil revenue lossesnd the Iraqi economy can remain largely self-supporting as long as oil production is not seriously reduced by disputes betveec the goverr-ceat and the oil company. Syrian foreign earnings, along uith Communist economic assistance at recent levels, is adequate to cover the deedstagnant economy.

Egypt's need for foreign aid was growing before the June var and has, of course, increasedesult of the Since the var, Egypt has0 aillioa in emergency economic aid, largely frca other Arab countries, and under the terns of the Kiartoun agreement Saudi Arabia, Kuvalt, and. Libya ere toEgyptillion per quarter so long as the Sues Canal remains closed. Soviet economic aid to Egypt ulll be aboutillion this year (upillionndail-lion. Economic aid already received or precised froa all sources ahould cover Egypt's foreign exchange recuirements

5. Over, tho longer term, Egypt ulll need additional foreign economic aid to prevent economic stagnation and decline. If the Suez Canal remains closed,0ear eight be required; if the Canal is reopened, Egyptian foreign exchange

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would recover end co moreilLlor. of foreignwould be needed to finance current purchases. Another problem is Egypt's indebtedness to Western creditors. Unless these debts are extended, or unless Egypt defaults, debt service will require an0 million annually.

6. Military deliveries frca the Communists to Arab1 eLcost certainly continue, though their sagnitudeong-term basis remains uncertain. Probably the Soviets have not yet decided upon the future scope of such programs in the new situation created by the Arab defeat. In the recent past we estimate Cccmunist shipments to Algeria, Egypt, Iraq, and Syria to have beea worth5 alllior. annually. The annual bills for such aid, after discounts, have everagedlllioc. | Because of accelerated deliveries during and immediately after the June war, the totals7 probably will be scoeoercent higher. Moscow is supposed toillion7 andmliuou3 In payment for shipments cade to Algeria, Syria, and Iraq ia past years. Evrypt is not now paying any installments on amn purchases.


7. In short, the Soviets have coved rapid'.. onsiderable proportion of Arab military ecuiptaent and to assist ia supplying the most urgently needed economic support. But they have thus fer demonstrated considerable caution about building up Arab military capabilities even to preuar levels, or undertaking the long-term economic support of the needier Arab States, notably the UAB.

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