256. Telegram From the Embassy in the United Arab Republic to the Department of State1
2225. While it will be some time before one can evaluate significance UAR agreement for Soviet assistance in construction both stages [Page 579] high dam2 preliminary and tentative views of Embassy may be of some relevance.
From standpoint USSR, it has successfully driven home advantage achieved from October 1958 offer to finance and assist in first stage. UAR now wholly dependent on benevolence USSR with regard its two most vital areas (1) USSR sole supplier military equipment to UAR and (2) USSR sole source foreign assistance for most important and spectacular UAR economic project. Unless USSR stumbles badly over Iraq or another political issue, USSR presumably will maintain formidable position vis-à-vis UAR indefinitely.
From standpoint UAR, reasons for awarding second stage to USSR not as clear as motives of Moscow in pressing its advantage to favorable decision. Previous Embassy messages which have anticipated possibility USSR would obtain second stage have pointed out various factors such as fear of political complications which might result from attempting introduce western nations into second stage. In addition there are no doubt many engineering reasons; greater smoothness of operation if only one country involved, possible saving of total time, and perhaps economic advantages of Soviet offer from standpoint terms repayment and interest rate.
Embassy believes Haikal article (Embtel 2202;3 repeated information London 198, Bonn 16, pouched Moscow) presents reasonably accurate résumé considerations influencing UAR decision without of course illuminating critical political factors, if indeed, any such did exist.
Recent developments have also produced possible additional economic motives for decision. It is noteworthy that West German credit provided in May 1958 has been practically exhausted, whereas Soviet credit of January 1958 still less than half utilized. We assume UAR has found Soviet offer of industrial equipment generally not up to international standard and that consequently UAR may be seeking concentrate all assistance that can be obtained from West Germany and other modern industrial countries in providing equipment for industry, while channeling Soviet aid into a public works project, which being unique, does not have to meet international competition in quite same manner. So long as cotton remains a surplus commodity, so long as UAR requirements remain in excess its ability to finance from the west, and so long as Soviet bloc willing accept “surplus” cotton in payment, it would seem natural for UAR from economic point view to turn to bloc for such aid as can be most effectively absorbed.
[Page 580]Negotiations apparently proceeded with great speed and within tightly limited circle UAR officials. Although rumors of impending Soviet offer prevalent two or three days prior to announcement, surprising element was neither offer nor acceptance but rather precipitous manner in which decision made. We have not yet been able ascertain to what extent Soviet pressures or other political factors may account for this speed. We had anticipated UAR action would be deferred pending scrutiny imminent German offer and evolution Soviet policy in Iraq.
We have no evidence to prove that tremendous leverage available to USSR as result its paramount position as arms supplier and cotton purchaser was in fact applied to produce recent agreement. We note, however, Soviets had not scored major success in UAR since first stage agreement in 1958 and that in light forthcoming Erhard visit and President Eisenhower’s recent sympathetic remarks re high dam4 Soviets may have become seriously concerned at prospect propaganda advantages accruing to it from first stage would be substantially neutralized by western participation.
Such incomplete accounts as we have so far been able obtain suggest that in Nasser’s mind basic economic factors were principal preoccupations. According to these accounts Nasser considered Soviet offer better than anything he likely to receive from the west and was apprehensive negotiation with west would result in same type frustrations and delays which UAR experiencing in its efforts obtain DLF financing.
In view Nasser’s well known complexes, his willingness accept aid from any source without strings, his political and economic involvements in high dam, and fact his decisions contingent on approval from no other authority, these accounts may well be correct. Under these circumstances Nasser’s economic incentives and Soviet political incentives may have fused into quick agreement.
While we regret this additional enhancement of Soviet strength vis-à-vis UAR, we have no doubt that Nasser is fully determined adhere his policy non-alignment and would react sharply to any Soviet effort exploit its position. It is our thesis that western interests in UAR can be maintained only by actively participating in its economic and civil development plans and thereby pre-empting the ground from further bloc intrusion. This latest Soviet achievement again emphasizes necessity for effectively implementing this policy or, in words of Ambassador Hare, of “competing without appearing to compete”.
[Page 581]If Nasser assumes western nations recognize it in their interest during this period roughly to balance bloc participation in UAR development, Nasser may be right.
- Source: Department of State, Central Files, 886B.2614/1–2060. Confidential. Repeated to London, Bonn, and Moscow.↩
- On January 18, the United Arab Republic announced that the Soviet Union would participate in the second stage of the Aswan Dam on the same basis as the first stage.↩
- Telegram 2202, January 19, summarized a long article by Haikal on the circumstances leading to the UAR decision to have the Soviet Union finance the second stage of the Aswan Dam. (Department of State, Central Files, 886B.2514/1–1960)↩
- For text of President Eisenhower’s remarks at his January 13 press conference, see Public Papers of the Presidents of the United States, Dwight D. Eisenhower, 1960–61, pp. 21–31.↩