The cosy relationship between Saudi Arabia and the US has come under considerable strain since President George W. Bush took over in the White House, writes Michael Jansen, and both powers may be tempted to control oil supplies as a political weapon
The 60-year old Saudi-US friendship could be crumbling, exacerbating already troubled politico-economic relationships between Washington and other Middle Eastern capitals. Until January 2001, the Saudi-US alliance was based on the understanding that the US would protect the ruling House of Saud in exchange for stable oil supplies at affordable prices. While there were occasional policy differences, both sides swept them under the carpet.
This relationship came under considerable stress as soon as US President George W. Bush moved into the White House. By refusing to intervene in the increasingly bloody conflict between the Palestinians and Israel, he alienated pro-Western Arab rulers who feared resentment against the US could build into a violent popular backlash jeopardising their thrones. The Saudis were particularly peeved because Mr Bush and his advisers refused to respond to public pleas. Crown Prince Abdullah, the effective ruler of the kingdom, repeatedly rejected invitations to meet the president.
On August 27th last year, the crown prince sent a letter to Mr Bush suggesting that it was time for the two countries to agree that they should part company. Two weeks later 19 Arab hijackers, 15 of them Saudis, crashed civilian aircraft into the World Trade Centre, the Pentagon and a field in Pennsylvania. The Bush administration and many ordinary US citizens adopted the view that Saudi Arabia was responsible, its puritanical brand of Islam had primed the hijackers and Saudi oil wealth financed "Islamic terrorism" worldwide.
The Saudis repeatedly repudiated any connection with the events of September 11th, cracked down on dissident elements in the kingdom and froze assets of individuals and institutions accused of financing al-Qaeda, the movement founded by a former Saudi citizen, Mr Osama bin Laden which was blamed by the US for the attacks.
However, Riyadh opposed the US war in Afghanistan and refused to permit Washington to use bases in the kingdom as launching pads for air raids. When Mr Bush began speaking of effecting "regime change" in Baghdad, the Saudis again refused use of the bases and said they would not participate in or finance such a campaign.
This amounted to a complete turnaround: in the 1991 US-led campaign against Iraq, the kingdom hosted half a million US troops, sent its soldiers into battle alongside them and provided a large chunk of the $60 billion tab.
The Bush administration orchestrated an anti-Saudi media campaign. Crown Prince Abdullah responded by convincing Arab leaders meeting at summit level in March to reconcile with Iraq and issue a declaration stating that an attack on any Arab country would be considered an attack on all. The crown prince also put forward a peace plan, adopted by the summit, proposing "normal relations" between the Arab states and Israel, if Israel withdraws from "all the territory occupied in 1967".
In April he formally presented his plan to Mr Bush who not only ignored it but did nothing to stop Israel's full-scale military re-occupation of the West Bank and Gaza. Saudi-US relations continued to slide. They reached rock bottom last month when, in a briefing to the influential Defense Policy Board, an associate of the Rand Corporation, Mr Laurent Murawiec, described Saudi Arabia as "the kernel of evil" and called for the US to take over the kingdom's oil fields if the Saudis did not go along with US demands.
Although this is not US policy, Mr Murawiec's ideas are shared by senior members of the administration, including the Vice-President, Mr Dick Cheney, the Defence Secretary, Mr Donald Rumsfeld, and his deputy, Mr Paul Wolfowitz.
Last week families of September 11th victims filed a trillion-dollar civil law suit against three Saudi princes and 15 institutions, accusing them of supporting and financing al-Qaeda. Saudi lawyers promptly retaliated by preparing legal action on behalf of Saudis detained in the US and at Guantanamo Bay, Saudi students denied visas to continue their studies at US universities, and others who claim they have been harmed by the US domestic clamp-down and media campaign.
The highly publicised suits and counter-suits are straightforward tit-for-tat moves which reflect the meltdown of US-Saudi economic and financial relations.
This week the Financial Times reported that, since last autumn, private Saudi investors have withdrawn $100-$200 billion from the US. This figure was confirmed yesterday by a report in the Saudi daily Arab News which quoted "a high-ranking official of the Saudi Arabian Monetary Agency" as saying that "$200 billion" had been divested.
Both the negative political climate and US economic woes are blamed. Merill Lynch/Gemini Consultancy estimates that the Saudis have $700 billion in the US. Arab News reported that an unidentified banker said, "... there was a lot of Saudi money with American banks that was not diversified, now they [the Saudis] are spreading their wings. Perhaps 30 per cent to 50 per cent of the money that was with US banks is seeking diversification."
Saudi investors are said to be deeply concerned that the US could freeze or seize their assets if the deterioration in relations continues at the present rate or the US goes to war with Iraq. Investors from other Arab countries, who have placed $600 billion outside the region, have also been pulling money out of the US.
Wednesday's Financial Times report drove the dollar down against the euro and yen while oil prices peaked at a high of $30 per barrel. The paper reported yesterday that some Saudis would like to punish the US by pressing the Organisation of Petroleum Producing Countries to price oil in euros rather than dollars.
Negotiations on Saudi Arabia's $35 billion Gas Investment Initiative have stalled due to key differences between the 10 international oil companies and to the negative political climate. Among the unresolved issues are the annual return rate for the companies' participation, access to exploration areas, the equity share of Saudi firms and the size of the foreign investment in infrastructure. The original deadline for concluding the deal was mid-December 2001, closure was moved to March of this year. No new deadline has been set.
While the Saudi political echelon would normally attempt to reconcile these differences, the government is reluctant to award US companies a major stake in the initiative. Riyadh is aware that it is difficult to exclude them, but the Saudis fear dependency on US firms.
Since the Palestinian uprising, the Intifada, erupted in September 2000, Saudi citizens have joined their Arab brethren in a mass boycott of US franchises and firms, costing them millions of dollars. The anti-Saudi media campaign in the US has deepened and widened the boycott. Saudi Arabia has also reinstated the boycott of Israeli products, suspended in 1993 with the signing of the Oslo accord by the Palestinians and Israel. Foreign firms handling Israeli goods have had merchandise seized and fines imposed.
Post-September 11th, US visa requirements and popular hostility towards Arab students and visitors has dramatically reduced the number of Saudi students at US colleges and universities and visitors to the US, depriving the US economy of tens of billions of dollars.
Sitting on 260 billion barrels of oil reserves, Saudi Arabia's basic national interest is served by stabilising oil prices, ensuring the security of supply, maintaining the hegemony of oil as a source of the world's energy and sustaining the kingdom's leading role amongst producers. Consequently,Riyadh has, so far, refused to use oil as a political weapon, as it did during the Arab-Israeli war of 1973.
This could change if the US, which remains the kingdom's biggest customer, takes control of the Iraqi oil fields by military occupation or installing a client regime in Baghdad.
There is the belief in official Saudi circles that this could be the true objective of the Bush administration's "war on terror". Anticipating such an eventuality, the Saudis have been seeking to consolidate the Arab front and to forge a regional politico-economic-security bloc which includes Iran, named by Mr Bush along with Iraq and North Korea as part of an "axis of evil".
Senior Saudi officials pay frequent visits to Tehran and press Gulf emirs to do likewise. This suggests that the kingdom is attempting to reduce its dependence on the US and diversify its political connections in much the same way as its citizens have begun to diversify their investments.
