Declassified CIA memo tied oil crash to India–Pakistan balance

Washington, Dec 8 (SocialNews.XYZ) A newly declassified Central Intelligence Agency memorandum from March 1983 shows the Reagan administration's spymasters believed a sharp fall in world oil prices could reshape the strategic balance in South Asia, warning that any move by Washington to step up military aid to Pakistan risked undermining a "recent thaw in US-Indian relations" under then Prime Minister Indira Gandhi.

"In India, Prime Minister (Indira) Gandhi apparently is trying to steer a more neutral course between the United States and the USSR than she has in the past; any US move to increase military aid to Pakistan might jeopardise the recent thaw in US-Indian relations," the memo states in a section on South and Southeast Asia.

The secret study, circulated by then-CIA Director William J. Casey to the top US national security cabinet, has now been released under the Freedom of Information Act.

The 19-page paper, titled "An Oil Price Drop and US Leverage," among others, focuses on Pakistan's vulnerability if Gulf cash flows declined. "Pakistan, although an oil importer, would be hard pressed financially if Saudi aid and remittances from Pakistani citizens working in the Persian Gulf states were substantially reduced," it notes. Yet the authors add that "Growing economic and political pressures are unlikely to affect the nuclear program since Zia views it as a mechanism to maintain regional balance."

By contrast, the CIA judged that New Delhi's overall economic position would benefit more from cheaper energy than Islamabad's. "Although India would also experience a reduction in worker remittances from the Gulf and export reductions, on balance, it fares better than Pakistan," the memo says. Even so, it downplays direct levers for Washington, concluding: "As for India, we do not believe an oil price decline would create any crood opportunities to exploit."

The document argues that South and Southeast Asia present mixed prospects for US influence.

"Among the South and Southeast Asian LDCs of strategic interest to the United States, we think lower oil prices pose the greatest threat to Indonesia and Pakistan," it says.

In Indonesia, the memo warns that Jakarta "would have to cut development spending drastically" and estimates the country would run an "$8-11 billion current account deficit this year." In return for US help arranging financing, it suggests that "Jakarta might be persuaded to abandon plans further to restrict the operating environment for foreign oil companies."

Beyond the regional focus, the CIA lays out a global framework linking oil markets to US power. "A sharp drop in oil prices would create an environment that, in general, would work to the US's favour," the overview asserts. It says that "lower oil prices—by lowering inflation, reducing interest rates, and spurring economic growth—will strengthen the US economy and therefore the US Government's ability to pursue foreign policy initiatives."

One of the most consequential implications, in the agency's view, lay in Moscow's shrinking hard-currency revenues. "As it is, the Soviets earn over half of their total hard currency from sales of oil and gas; they earn on average another 5-10 per cent from gold, the price of which has plummeted recently," the memo notes.

As earnings shrink, "the USSR will have to choose more carefully those countries or groups it wishes to support," and a "forced Soviet retrenchment would lessen the allure of the Soviet model" while giving Washington "greater access as a variety of countries look to the United States for assistance in getting back on the growth track."

The study maps potential shifts from West Africa and the Horn to Latin America and the Middle East, warning of economic crises in major producers like Nigeria and Venezuela and cautioning that a steep price fall in the Gulf would "likely present more pitfalls than opportunities."

For Saudi Arabia, it predicts that "sense of vulnerability to Iranian and Libyan threats would rise" and that curbs on aid could erode Riyadh's ability to influence Arab radicals, even as Egypt and Sudan would look more heavily to Washington for financing and political backing.

Casey's brief cover note underscores the exercise's strategic intent. "I asked for the attached memorandum on how the decline in oil prices could create an opportunity for greater US leverage and influence around the world," he wrote in forwarding the paper to the Secretaries of State, Defence, Treasury and Commerce and the President's National Security Adviser.

The memo was drafted at a moment when global oil markets were moving from the price shocks of the 1970s toward the mid-1980s glut, which sharply cut revenues for OPEC producers and the Soviet Union. In South Asia, Indira Gandhi's government in New Delhi and General Zia-ul-Haq's military regime in Islamabad were navigating high oil import bills, Gulf remittances and Cold War alignments, even as Pakistan's nuclear programme and India's non-aligned posture emerged as central variables in US calculations.

Source: IANS