Foreign Relations of the United States, 1969–1976, Volume E–9, Part 2, Documents on the Middle East Region, 1973–1976

17. Special National Intelligence Estimate Prepared in the Central Intelligence Agency¹

30–74

Washington, February 21, 1974.

[Omitted here is the table of contents]

IMPLICATIONS OF REOPENING THE SUEZ CANAL

NOTE

This Estimate focuses primarily on the major economic and military implications of the prospective reopening of the Suez Canal. It is not intended as a comprehensive study of all the ramifications, but rather concentrates on those economic and military aspects felt to be of greatest importance for US decision-making in the short term. For the purposes of the estimate, the Indian Ocean includes the Persian Gulf and Red Sea. The economic judgments in this SNIE are based on an assumption that the Canal will be opened by the end of this year. It is estimated that it will take at least six months to clear the Canal of mines and obstructions and restore it to its 1967 condition.

MAJOR JUDGMENTS

The prospective reopening of the Suez Canal has significant military and economic implications for the Middle East region, the broader Indian Ocean area, and for outside powers with major interests in the area. In most respects, the world has adjusted to and compensated for the Canal’s closure since June 1967. The economic and military consequences of this process, however, have had an uneven impact on the concerned countries, and so will the Canal’s reopening.

Economic Implications

In economic terms the reopening of the Suez Canal will not result in a return to the situation that obtained at the time of the Canal’s closure. But to varying degrees consumers and producers around the world will benefit some from use of the Canal, with only shipowners and shipbuilders being injured. More specifically:

—Reopening the Suez Canal will have only a moderate economic impact because alternative shipping arrangements have been developed since its closing in 1967. Given the increased use of cost-efficient supertankers too large to transit Suez, most Middle East oil traffic will continue to take the longer Cape route to major Western markets. Prior to 1967, oil shipments comprised some three-fourths of Canal traffic. Most dry cargo traffic will be attracted back to the Canal, however, and the volume of this trade could be half again as large as in 1966. Total traffic through Suez thus should measure some two-thirds of its pre-closure rate.

—Shorter voyage times for trade moving via the Canal will reduce the number of ships needed to carry world trade, at least temporarily reducing world shipping rates and slowing shipbuilding orders. Even with the Canal closed, demand for shipping is expected to slacken during the next year or so because of a slowdown in world trade and output.

—The direct economic impact on the US will be beneficial but small. Shorter hauls will reduce transport costs for oil and other raw material imports from regions east of Suez and lower worldwide rates will reduce US shipping payments even more.

—The net gain for Western Europe and Japan will be reduced by losses in shipping income and in shipbuilding orders.

—The USSR will benefit substantially because, among other things, Soviet merchant ships are small enough to transit the Canal fully loaded.

—Egypt stands to gain most from a reopened Canal. At a minimum, it could earn an additional $145 million annually in foreign exchange unless other Arab states reduce their subsidies. Israel will gain little economically from a reopened Canal.

—Other Middle East states—like the Peoples Democratic Republic of Yemen and Sudan—will gain some port revenues, while nations along the Cape route will suffer a small decline. South Asian and East African less-developed countries will benefit from reduced shipping charges on their trade with Europe, and their export earnings will be boosted moderately.

Implications of the Reopening of the Suez Canal for Soviet Military Capabilities in the Indian Ocean

It is a basic judgment of this estimate that the reopening of the Suez Canal will significantly increase naval flexibility but will not by itself precipitate a major change in the size of the Soviet naval presence in the Indian Ocean. Use of the Canal would give the USSR easier and more timely naval access to the western Indian Ocean, but not the incentive to suddenly increase its naval force there on a permanent basis. A reopened Canal would expedite inter-fleet transfers, deliveries of military aid and logistic support of ships in the Indian Ocean. It would remove the current US geographic advantage for surge deployments into the area. Moreover, the Soviets would be able to replace surface ships drawn from the Mediterranean to the Indian Ocean more quickly than the US.

The Soviets would like to play a greater role in the Indian Ocean. They probably expect considerable political change over the next decade in the Persian Gulf, Saudi Arabia, and the Horn of Africa and would like to be in a position to influence and profit from such changes. The Soviets will use a naval presence as one element in a combined approach which utilizes political, economic, subversive, and military aid instruments as well.² In contemplating an expanded naval presence the Soviets will be conscious of a number of risks. These include possible future ejection from local shore facilities and excessive involvement with one partly to a regional rivalry.

Whether or not the Suez Canal is reopened the Soviet Union is likely to increase its continuous deployments in the Indian Ocean, if there is no substantial increase in US naval forces in the area, this increase is likely to be gradual leading to a continuously deployed force of, say, 8–12 surface combatants in 1976 or 1977. The Soviets can be expected to probe for and test in a measured way the tolerance of the US and the major littoral states. With the Canal open, they could also test the reaction by making short-term developments from the Mediterranean. Should the US make a substantial increase in its naval presence in the Indian Ocean a Soviet buildup faster and larger than that described above would be likely. In any event, the Soviets would probably be unable to sustain an Indian Ocean force significantly larger than that presently deployed there without reordering their priorities and shifting naval forces from other areas.

Apart from the issue of permanent deployment, the opening of the Canal would give the Soviets a new capability for rapidly and significantly reinforcing their naval strength in the Indian Ocean from their Mediterranean and Black Sea naval forces. The USSR will recognize that the Suez Canal is subject to closure in a crisis, but in some limited crisis situations this would not in itself be a deterrent to Soviet deployments. With the Canal open, they might be encouraged to launch surge deployments on their own initiative, rather than merely reacting to US moves.

[Omitted is the remainder of the SNIE.]

1. Summary: The CIA estimated the strategic consequences of the impending re-opening of the Suez Canal.

   Source: Central Intelligence Agency, NIC Files, Job 79R0102A, Box 482, Folder 1, Implications of Reopening the Suez Canal. Secret; Controlled Dissem. The CIA and the intelligence organizations of the Departments of Defense, State, and the Treasury, and the NSA participated in the preparation of this estimate. The intelligence organizations of the Departments of the Army, the Navy, and the Air Force also participated. The DCI issued this estimate with the concurrence of all USIB members except for the representatives of the FBI and the Treasury, who abstained because the subject was outside of their jurisdiction.

2. Several USIB members believe that the above understates the degree of importance of the Soviet naval presence in the Indian Ocean, Persian Gulf, and Red Sea. For their views see footnote to paragraph 26. [Footnote is in the original.]