Editor’s Note:

Six months ago SUSRIS reported on Saudi Arabia’s call for producers and consumers to talk about global energy prices as crude soared on its way to a mid-summer high of $147 a barrel. One hundred dollars later, in the opposite direction, the OPEC producers are scrambling in search of a basement for the price of crude. This week OPEC leaders in Algeria for its 151st Extraordinary Meeting pledged to cut 2.2 million barrels per day (mbpd) bringing the three month total of cuts to 4.2 mpbd, a 12 percent slide in crude output from the OPEC-11 production level of 29.045 mpbd. The cuts are set to take effect January 1, 2009.

The post meeting communique noted that members were “strongly emphasizing their firm commitment to ensuring that their production is reduced by the individually agreed amounts.” Moreover, they commited to providing an “economic and regular supply to consuming nations” and they sought to stabilize the market in pursuit of “fair and equitable levels.. for producers and consumers alike.” The next “Ordinary Meeting” is set for March 15, 2009 in Vienna.

This special report provides an overview of the actions taken at the OPEC meeting and their consequences through the lens of an Arab News report as well as several other article excerpts and related items.

OPEC cuts record 2.2m barrels a day
Arab News

The Organization of the Petroleum Exporting Countries (OPEC) yesterday agreed to slash 2.2 million barrels from its daily production — its single largest cut ever — while bloc outsiders Russia and Azerbaijan announced their own cutbacks of hundreds of thousands of barrels from the market.

“I hope we surprised you,” OPEC President Chekib Khelil said when asked whether the size of the cut would shock moribund oil markets into an upward trend. “If you’re not surprised we need to do something about it.” And yet markets weren’t impressed.

Crude oil prices sank to $40.20 after the announcement, a level not seen since the summer of 2004 and a clear sign investors are more worried that the world is heading for a long and painful recession in which energy use will continue to erode.

In just five months, crude has given up all of the price gains made over the past four years.

Making matters worse for OPEC, Moscow distanced itself from direct ties with the 13-nation producers’ group, further dampening OPEC hopes of coordinated production cuts that might put a floor under crude prices. OPEC said oil ministers of the 11 nations under the group’s quota system agreed to take 4.2 million barrels a day off the market, but that includes two previously announced cuts that totaled 2 million barrels. That leaves the new output reduction announced yesterday at 2.2 million barrels, effective Jan. 1.

Still, even the record cut was unable to counterbalance consumers’ concerns about the dismal world economy.

In the US, the world’s largest crude consumer, the Federal Reserve’s decision to slash its target interest rate to nearly zero buoyed global stock markets Tuesday and early yesterday.

But the news on the US economy is expected to get worse before it gets better. Businesses, which have already cut nearly 2 million jobs since January, keep laying off workers in the face of slumping demand.

The government reported Tuesday before the Fed rate announcement that home builders slashed production in November by 18.9 percent, the biggest drop in nearly a quarter century. That pushed activity down to a record low annual rate of 625,000 units as the woes in the property market, where the current economic troubles began, showed no signs of abating.

Focusing on the shrinking oil market, OPEC noted in its statement that “crude volumes entering the market remain well in excess of actual demand.” “Moreover, the impact of the grave global economic downturn has led to a destruction of demand, resulting in unprecedented downward pressure being exerted on prices,” it said. The group said “if unchecked, prices could fall to levels which would place in jeopardy the investments required to guarantee adequate energy supplies in the medium to long term.”

In addition to signaling that a major cut was in the offing in the days leading up to the Oran conference, OPEC ministers had expressed hope that Russia — the No. 2 producer after Saudi Arabia — would join in a significant cutback that would bolster prices.

Such support would be significant. Non-OPEC members Mexico, Norway and Russia last slashed production in the late 1990s, at a time oil was selling for about $10 a barrel.

But although Russian Deputy Premier Igor Sechin and Azeri Energy Minister Natik Aliev announced cutbacks of a total of more than 600,000 barrels a day, their commitments appeared largely symbolic.

The Russians indicated their reductions had already been implemented in November, while Azerbaijan’s output had already been reduced by about a third due to production problems earlier this year.

Among those hoping for Moscow’s support was Saudi Arabia.

“We also hope that other producers who are not in OPEC will chip in for the purpose of bringing stability to the market,” said Minister of Petroleum and Mineral Resources Ali Al-Naimi said, in a nod to Russia.

Sechin, in comments to The Associated Press, said “Russian oil companies have already made a decision to cut deliveries to the market … approximately equivalent to 350,000 barrels per day.” But he specified that his country’s cuts had already been enacted ahead of the OPEC meeting. Sechin did hold out the possibility of further reductions, saying Russia was ready to pare another 320,000 barrels a day “if we see the continuation of the current level of prices on the world oil markets.”

Source: Arab News

Editor’s Note:

Six months ago SUSRIS reported on Saudi Arabia’s call for producers and consumers to talk about global energy prices as crude soared on its way to a mid-summer high of $147 a barrel. One hundred dollars later, in the opposite direction, the OPEC producers are scrambling in search of a basement for the price of crude. This week OPEC leaders in Algeria for its 151st Extraordinary Meeting pledged to cut 2.2 million barrels per day (mbpd) bringing the three month total of cuts to 4.2 mpbd, a 12 percent slide in crude output from the OPEC-11 production level of 29.045 mpbd. The cuts are set to take effect January 1, 2009.

The post meeting communique noted that members were “strongly emphasizing their firm commitment to ensuring that their production is reduced by the individually agreed amounts.” Moreover, they commited to providing an “economic and regular supply to consuming nations” and they sought to stabilize the market in pursuit of “fair and equitable levels.. for producers and consumers alike.” The next “Ordinary Meeting” is set for March 15, 2009 in Vienna.

This special report provides an overview of the actions taken at the OPEC meeting and their consequences through the lens of an Arab News report as well as several other article excerpts and related items.

OPEC Press Release – 151st (Extraordinary) Meeting of the OPEC Conference

OPEC cuts record 2.2m barrels a day
Arab News

The Organization of the Petroleum Exporting Countries (OPEC) yesterday agreed to slash 2.2 million barrels from its daily production — its single largest cut ever — while bloc outsiders Russia and Azerbaijan announced their own cutbacks of hundreds of thousands of barrels from the market.

“I hope we surprised you,” OPEC President Chekib Khelil said when asked whether the size of the cut would shock moribund oil markets into an upward trend. “If you’re not surprised we need to do something about it.” And yet markets weren’t impressed.

Crude oil prices sank to $40.20 after the announcement, a level not seen since the summer of 2004 and a clear sign investors are more worried that the world is heading for a long and painful recession in which energy use will continue to erode.

In just five months, crude has given up all of the price gains made over the past four years.

Making matters worse for OPEC, Moscow distanced itself from direct ties with the 13-nation producers’ group, further dampening OPEC hopes of coordinated production cuts that might put a floor under crude prices. OPEC said oil ministers of the 11 nations under the group’s quota system agreed to take 4.2 million barrels a day off the market, but that includes two previously announced cuts that totaled 2 million barrels. That leaves the new output reduction announced yesterday at 2.2 million barrels, effective Jan. 1.

Still, even the record cut was unable to counterbalance consumers’ concerns about the dismal world economy.

In the US, the world’s largest crude consumer, the Federal Reserve’s decision to slash its target interest rate to nearly zero buoyed global stock markets Tuesday and early yesterday.

But the news on the US economy is expected to get worse before it gets better. Businesses, which have already cut nearly 2 million jobs since January, keep laying off workers in the face of slumping demand.

The government reported Tuesday before the Fed rate announcement that home builders slashed production in November by 18.9 percent, the biggest drop in nearly a quarter century. That pushed activity down to a record low annual rate of 625,000 units as the woes in the property market, where the current economic troubles began, showed no signs of abating.

Focusing on the shrinking oil market, OPEC noted in its statement that “crude volumes entering the market remain well in excess of actual demand.” “Moreover, the impact of the grave global economic downturn has led to a destruction of demand, resulting in unprecedented downward pressure being exerted on prices,” it said. The group said “if unchecked, prices could fall to levels which would place in jeopardy the investments required to guarantee adequate energy supplies in the medium to long term.”

In addition to signaling that a major cut was in the offing in the days leading up to the Oran conference, OPEC ministers had expressed hope that Russia — the No. 2 producer after Saudi Arabia — would join in a significant cutback that would bolster prices.

Such support would be significant. Non-OPEC members Mexico, Norway and Russia last slashed production in the late 1990s, at a time oil was selling for about $10 a barrel.

But although Russian Deputy Premier Igor Sechin and Azeri Energy Minister Natik Aliev announced cutbacks of a total of more than 600,000 barrels a day, their commitments appeared largely symbolic.

The Russians indicated their reductions had already been implemented in November, while Azerbaijan’s output had already been reduced by about a third due to production problems earlier this year.

Among those hoping for Moscow’s support was Saudi Arabia.

“We also hope that other producers who are not in OPEC will chip in for the purpose of bringing stability to the market,” said Minister of Petroleum and Mineral Resources Ali Al-Naimi said, in a nod to Russia.

Sechin, in comments to The Associated Press, said “Russian oil companies have already made a decision to cut deliveries to the market … approximately equivalent to 350,000 barrels per day.” But he specified that his country’s cuts had already been enacted ahead of the OPEC meeting. Sechin did hold out the possibility of further reductions, saying Russia was ready to pare another 320,000 barrels a day “if we see the continuation of the current level of prices on the world oil markets.”

Source: Arab News

More Reporting:

OPEC slashes production, but oil markets shrug – Houston Chronicle
“So much for Saudi Oil minister Ali al-Naimi’s vision of $75 a barrel as a fair price for crude. Amid ever-worsening economic news, rising stockpiles and the federal government’s forecast that U.S. oil consumption will be virtually flat for 20 years, oil markets on Wednesday shrugged off OPEC’s largest-ever single production cut of 2.2 million barrels a day.. ..the U.S. Energy Information Administration said inventories rose 525,000 barrels to 321.3 million barrels last week, the latest in an overall 11 percent hike in stockpiles in the last three months. “The market is saying to OPEC, ‘You really didn’t do your job. If you want prices to go higher, we need a bigger cut in supply,’ ” said Addison Armstrong, chief market analyst for Tradition Energy in Stamford, Conn. “They set the stage for an oil price drop to $30.” [more]

OPEC Agrees to Another Cut in Production – NY Times
“The OPEC cartel agreed on Wednesday to reduce production by 2.2 million barrels a day, the group’s largest cut ever, in an effort to put a floor on falling oil prices. It is the third time producers have agreed to reduce their output in three months. Since September, members of the Organization of the Petroleum Exporting Countries have pledged cuts totaling 4.2 million barrels a day, or nearly 12 percent of their capacity, a record in such a short time..” [more]

Oil, ignoring record OPEC cut, hovers below $41 – Forbes
“..Crude oil hovered below $41 a barrel on Thursday, having touched the lowest price since July 2004, after OPEC announced its biggest output cut ever and China slashed domestic fuel prices for the first time in two years. Oil is $107 off its July peak, shedding value as a global recession cuts into fuel demand. The U.S. January light crude contract sank to $39.19 on Thursday and was then trading up 65 cents at $40.71 a barrel..” [more]

OPEC Oil Export Revenues – Fact Sheet – EIA
Based on projections from the EIA November 2008 Short Term Energy Outlook (STEO), members of the Organization of the Petroleum Exporting Countries (OPEC) could earn $979 billion of net oil export revenues in 2008, and $595 billion in 2009. Through October, OPEC has earned an estimated $884 billion in net oil export earnings in 2008. Last year, OPEC earned $671 billion in net oil export revenues, a 10 percent increase from 2006. Saudi Arabia earned the largest share of these earnings, $194 billion, representing 29 percent of total OPEC revenues. On a per-capita basis, OPEC net oil export earning reached $1,137, a 8 percent increase from 2006. [more]

Update on Global and Local Financial Conditions – Nov 19
Brad Bourland, Chief Economist, Jadwa Research

Oil prices fell to 20-month lows yesterday, raising the prospect of further Opec production cuts. Global stock markets bounced back, but not by enough to offset the falls on Monday.

The main stock markets in the US and Europe were up yesterday; the US S&P500 climbed by 1 percent, the Dow Jones industrials was up by 1.8 percent and the leading European markets were up by between 0.5 percent (Germany) and 1.9 percent (the UK). However, these gains were not enough to offset the 2.5-3.5 percent losses on Monday. The Japanese stock market was down by 0.7 percent this morning.

The Saudi stock market fell by nearly 4 percent yesterday to close below 5,000 for the first time since March 22, 2004. Further falls in oil and petrochemical prices helped pull the market down. Oil prices slipped yesterday on concerns about the global economic outlook, with the Center for Global Energy Studies saying that global oil demand growth could decline this year, the first annual decline for 25 years. WTI is now trading at $54.4 per barrel, the lowest level since January 2007.

Exceptionally high oil prices had already begun to slow demand growth and the onset of financial crisis and recession in much of the world will further dent demand. Since June the International Energy Agency has slashed its projections for global demand growth in 2008 (to 120,000 barrels per day from 800,000 barrels per day) and 2009 (to 350,000 barrels per day from 800,000 barrels per day). The decline is oil demand is most pronounced in the US, the world’s largest oil consumer. US oil demand in October was 8 percent lower than in October 2007, a decline equivalent to 1.5 million barrels per day.

Implications:

Pressure within Opec is mounting for another oil production cut, possibly in advance of its next scheduled meeting in Algeria on December 17 (there is an informal Opec meeting in Cairo on November 29). We think that in the prevailing economic environment, most Opec producers would be content with prices of between $70 and $80 per barrel. Unless oil recovers to this level, Opec is expected to cut production further this year and during the first half of next year. Lower oil prices and production will slow the rate of economic growth in Saudi Arabia next year and cut the budget and current account surpluses.

While the collapse in oil prices has clear negative impacts on the Saudi economy, prices of other important commodities have also fallen fast as concerns about demand have intensified. Since the end of June the Reuters commodity price index has dropped by 48 percent. The price falls are across the range of commodities, covering industrial raw materials, food products and precious metals.

Lower prices for non-oil commodities will help to reduce inflation and have other positive benefits for the economy. For example, the prices of copper and steel, key construction materials, have plunged by 57 and 36 percent, respectively, since the end of June. Surging raw material prices had undermined the financial viability of some construction projects and these price falls mean considerable savings for those constructors that have financing in place. They also improve the affordability of building homes (more than 90 percent of homes are built by individuals) and are likely to take some pressure off the rental market, currently the main source of inflation.

Lower food prices will also reduce inflation. Prices of basmati rice have fallen by 45 percent since the end of June and are down by 31 percent in the last two months alone. In addition, gold prices, a key determinant of jewelry prices are down by 20 percent since the end of the second quarter. The beneficial effects of lower prices are being compounded by the strength of the dollar (and therefore the riyal). Since end-June the riyal has appreciated by 20 percent against the euro, 25 percent against the British pound, 15 percent against the Indian rupee and 9 percent against the Japanese yen (these regions/countries account for over 40 percent of Saudi Arabia’s imports).

Source: Jadwa Investment

Brad Bourland

Brad Bourland is head of research at Jadwa Investment, Riyadh. From 1999 through 2007 Brad was the Chief Economist at Samba Financial Group, formerly Saudi American Bank, in Riyadh, where he published regularly on issues related to the Saudi and global economies and the world oil market. He appears frequently in the domestic and international media and is a regular public speaker. Before joining Samba, Brad spent an 18-year career as diplomat, economist, and manager with the U.S. Department of State. During the last three years of his diplomatic career he was in Riyadh as the American Embassy’s First Secretary responsible for financial affairs, where he analyzed the Saudi economy for the U.S. Government and conducted financial aspects of US-Saudi relations. Brad has his BA and MA magna cum laude from the University of Utah, and is a CFA (Chartered Financial Analyst) charterholder.

For comments and queries please contact:

Brad Bourland
Chief Economist and Head of Research
jadwaresearch@jadwa.com
Head office:
Phone +966 1 279-1111
Fax +966 1 279-1571
P.O. Box 60677, Riyadh 11555
Kingdom of Saudi Arabia

http://www.jadwa.com

General Assembly President voices hope that global meeting on values will spur action – UN News Centre
“..The General Assembly President expressed optimism today that the high-level “Culture of Peace” gathering, which kicks off tomorrow with the leaders and senior officials from dozens of nations, will hasten action on such global obstacles as hunger and poverty. Speaking to reporters in New York, Miguel D’Escoto underscored that the two-day Assembly plenary meeting at United Nations Headquarters is not about religion, which he said can be a “very divisive subject.”..” [more]

Saudi Arabia to Lead U.N. Faith Forum – Washington Post
“..Saudi Arabia, the oil-rich Islamic kingdom that forbids the public practice of other religious faiths, will preside Wednesday over a two-day U.N. conference on religious tolerance that will draw more than a dozen world leaders, including President Bush, Israeli President Shimon Peres and British Prime Minister Gordon Brown.. ..The event is part of a personal initiative by Saudi King Abdullah to promote an interfaith dialogue among the world’s major religions. The Saudi leader agreed for the first time to dine in the same room with the Israeli president at a private, pre-conference banquet Tuesday hosted by U.N. Secretary General Ban Ki-moon.. ..Secretary of State Condoleezza Rice planned to attend the conference to hear the Saudi King’s opening address. Bush is scheduled to deliver an address Thursday. The White House said last month that it welcomed the Saudi initiative and supports “the right to practice one’s religion” and other principles of religious freedom enshrined in the U.N. charter..” [more]

Saudi king’s UN appearance has domestic audience – Reuters
“..Saudi Arabian King Abdullah will push for religious tolerance at a U.N. meeting opening on Wednesday, aiming not only to impress the West but also to send a message to domestic opponents of his reforms. “The king wants to drive a message to the Western world: to change the idea that Islam is a religion of war and terror. But he also wants to send a message of tolerance back home where he has a problem,” said Jamal Khajoggi, editor of al-Watan daily and a member of the delegation accompanying the king. “The king wants to change the mind-set of the Saudi people and its clerical establishment.”..” [more]

Saudi Arabia to lead UN talks on religious tolerance – IHT
“..Saudi Arabia, which deploys a special police force to ensure that only one narrow sect of Islam predominates in the kingdom, is sponsoring a discussion at the United Nations on religious tolerance starting Wednesday. More than a dozen world leaders are expected to attend, including President George W. Bush, Prime Minister Gordon Brown of Britain and the Saudi monarch, King Abdullah, making a rare appearance at the UN headquarters. Officially, the United Nations does not sponsor religious discussions, so the two-day session of the General Assembly is being billed as a meeting on the “Culture of Peace,” and most of those attending are government rather than religious figures..” [more]

Saudis in move to improve image of Islam – FT
“..Saudi Arabia is sponsoring a two-day United Nations conference in New York to promote interfaith dialogue to improve the image of Islam as a religion that favours dialogue over violence. The conference, which begins on Wednesday, is seen as part of the Saudi monarch’s efforts to promote a more moderate brand of Islam in a kingdom that has been accused of breeding extremism since the September 11 attacks in 2001. By sponsoring interfaith events, King Abdullah may also be hoping to advance the debate over radicalism within the kingdom.. ..“The dialogue comes at a time when the world is criticising Islam,” the Saudi monarch told local media. “It is regrettable that some of our sons have been tempted by Satan or the brothers of Satan.’’..” [more]

UN meet opens new era of peace – Arab News
“..A special UN General Assembly session on cultural and interfaith dialogue opens at the United Nations headquarters in New York today.. ..UN Secretary General Ban Ki-moon said he had received “an encouraging list” of dignitaries who would take part in the interfaith dialogue. “This initiative will be a very important one in which world leaders, and representatives from different faiths will sit together. They will provide us with very important momentum,” Ban said.. ..The landmark UN meeting comes on the recommendation of the World Dialogue Conference that was held in Madrid on July 16, which was attended by more than 300 leaders representing Islam, Christianity, Judaism, Hinduism and Buddhism..” [more]

Bush, other leaders to promote Muslim-Christian dialogue at UN – CSM
“..The global effort to build a “culture of peace” among Christians and Muslims and other faiths is gaining some momentum this month, both symbolically and substantively. After a groundbreaking meeting between Roman Catholic and Muslim religious leaders last week, world political leaders this week are meeting to heighten the visibility and broaden the commitment to interfaith dialogue. On Nov. 12 and 13 at the United Nations, President Bush gathers with a dozen heads of state and other leaders to lend political backing to interfaith initiatives. The prime minister of Britain, leaders of several Muslim nations, and the presidents of Israel, Lebanon, and Palestine are among those participating. “The idea is to send a unified clear message that the world community is in consensus in promoting interfaith dialogue and speaking against extremism, intolerance, and terrorism,” says Rayed Krimly, special envoy of Saudi Arabia, whose king, Abdullah bin Abdul-Aziz, was the driving force behind this week’s meeting..” [more]

Dialogue among civilizations — New York Declaration to commend Saudi interfaith initiative – Arab News
“..Saudi officials highlighted the importance of the UN conference and said it would promote peaceful coexistence and condemn extremism. “This hits at the extremists, who we say are wrong in terms of Islam,” said Mohammed Al-Zulfa, a member of the Shoura. He described King Abdullah as an advocate of interfaith dialogue. “Our king has a good vision of world peace.” Al-Zulfa said Islam was the first religion to call for dialogue..” [more]

UN chief invites Saudi king, Israeli president to dinner – AFP
“..Saudi King Abdullah and Israeli President Shimon Peres are expected to attend a dinner hosted by UN Secretary General Ban Ki-moon Tuesday, a first for the two heads of state whose countries lack diplomatic ties. Ban said he had invited the two dignitaries, who are in New York for a UN conference on interfaith dialogue, to a dinner later Tuesday, and welcomed the occasion to bring together two leaders who tend to avoid one another. “It’s quite unique when you expect President Peres of Israel and the King of Saudi Arabia and many kings and leaders from the Arab world (to) sit down together and having dinner, this is quite encouraging and positive,” Ban said..” [more]

Editorial: Dialogue among civilizations – Arab News
“..The importance of the UN meeting today and tomorrow in New York on dialogue between cultures and civilizations under the heading Culture for Peace cannot be overstated. Dialogue goes to the heart of international relations. The world is no longer made up of different cultures living in their own separate spaces — if it ever was. Thanks to technology, we live in an interdependent global village, mixing in with each other to an extent that was unimaginable even 50 years ago. Muslims, for example, now constitute the second largest faith community in several European countries while in the US, the father of the next president was a Muslim; but equally there are several hundred thousand Christian expats working here in Saudi Arabia and elsewhere in the Gulf. Whatever our faith or culture, we live and work side by side with each other. If we cannot do that without respect for each other, then there is no hope for humanity. There can be no peace in the world..” [more]

President-Elect Obama: Reactions

Saudi king seeks sense of Obama policy on U.S. trip – Andrew Hammond – Reuters
“Wary about the direction of U.S. policy in the region, Saudi Arabia’s King Abdullah will have a chance to put out feelers to president-elect Barack Obama during a visit to the United States next week. The Saudi monarch and his delegation will attend a two-day United Nations session in New York on an “interfaith dialogue” he launched this year and then attend a summit of world leaders in Washington on the global financial crisis. “They will do their best to sound out what the president is going to be like, but these sorts of things always take time,” said Saudi political analyst Khaled al-Dakhil. Obama’s election pitch featured a promise to end U.S. dependence on Middle East oil within 10 years, open dialogue with Iran and a draw down of the U.S. presence in Iraq. Those all have the potential to deeply trouble the Saudi leadership, which has relied on an oil-for-security U.S. alliance since the 1940s that has survived regional upheavals and kept the Saud family in power against often tall odds. A message of congratulation from the 85-year-old king to Obama, 47, betrayed what was on the Saudi leadership’s mind..” [more]

‘Obama victory a chance for hope’ — Sarah Abdullah — Arab News
“..Saudi students from local institutions, such as Dar Al-Hekma, King Abdulaziz University (KAU) and the College of Business Administration (CBA), yesterday participated in an event in which they learned about the US political process and voiced their enthusiasm at the American people’s decision to elect Barack Hussein Obama as the country’s 44th president. The event — entitled “2008 US Election Watch” — was organized by the US Consulate General and held at the Al-Qasr Ballroom of the Jeddah Hilton hotel. It began with a presentation showing the students the importance of campaigning and how the Electoral College system is implemented. The event also included an open panel discussion..” [more]

Change. Any change — Saudi Gazette
“..Change. That’s what Obama represents to the outside world that had no say in his election but hopes to keenly feel the effects of his policies as much as they resented feeling those of George Bush administration. Change from a previous regime that was perceived by some as racist, as targeting religions, as toying with smaller economies to feed its own monster, as wielding its weaponry with little regard for the consequences, as failing to apply the standards that it demanded of everyone else. Everyone has their gripe with the Bush administration, and the atmosphere of change and the hope it is bringing recalls the auras surrounding the elections of John F. Kennedy and later Bill Clinton, who had Bob Dylan, writer of “The Times They Are a-Changing,” sing at his inauguration ceremony. As results came in during election night, the voices of people of various nationalities in Saudi Arabia reflected the palpable sense of history being made. “We are all Obama fans here and we see something special about this man. His motto is change and change is the need of the hour. Change in American politics and policies means change in the entire world. So we are keeping the TV on to see if the world has a chance to witness a change,” said Fathima, an Indian expatriate in Dammam. Change, however, was as much a McCain mantra as it was Obama’s during the election campaign, but Obama had all the winds blowing in his favor to make people believe it was possible..” [more]

Historic victory, say citizens, expats – Arab News
“Citizens and expatriates across Saudi Arabia welcomed Sen. Barack Obama’s election yesterday as the first African-American and 44th US president, describing it as a historic development. Throughout the night and until the outcome was announced in the morning people were glued to their television and radio sets as the counting progressed. Many citizens and expatriates believe that a new leaf will be turned in the history of modern politics. They believe that Obama has been chosen to be a tolerant and understanding president to lead the United States and deal with the problems of the world..” [more]

What Obama’s election means abroad – Sedona.biz
“..In Saudi Arabia, many young Saudis have been affectionately using his middle name, dubbing him “Abu Hussein,” or “Father of Hussein.” Here, he symbolizes a restoration of faith in the democratic freedoms that Saudis don’t yet have. “Saudis.. ..did not really believe in the American version of democracy. How could they when all the presidents of the so-called ‘melting pot’ were Anglo,” writes Eman Al-Nafjan in her post on the Saudiwoman’s Weblog. “But now they are rubbing their eyes in disbelief.”..” [more]

Much of Arab World Rejoices Over Obama Election – VOA
“..Much of the Arab press, as well as ordinary people in the street, are rejoicing over the election of Democrat Barack Obama as the next president of the United States. Nevertheless, as Edward Yeranian reports from Cairo, there are misgivings in certain quarters..” [more]

King Abdullah congratulates President-elect Obama
“..Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz today congratulated President-elect Barack Obama on his victory in the US presidential elections. In a cable, King Abdullah highlighted the close relationship between Saudi Arabia and the United States. He noted that both countries share a desire for peace, security and stability in the Middle East and beyond..” [more]

A surprise for Obama in the Middle East – Frida Ghitis – McClatchy Newspapers
“..The initial wave of euphoria that greeted Obama’s candidacy in this region has given way to a tradition of cynicism about what happens in the West, particularly in the United States. The good news for Obama is that in the Arab world he will not face the trap of excessively high expectations. The bad news is that an Obama election may not automatically repair damaged attitudes, as so many had predicted..” [more]

Awaiting Obama’s Promise of Change – George S. Hishmeh – Middle East Times
“..How will Obama implement his promised “age of transformation” remains to be seen, but one thing he must realize is that all in the Middle East are anxiously awaiting a new and immediate American initiative. He can’t afford any missteps although one is aware that Obama’s plate is full and one should not count his chickens before they hatch..” [more]

Many around the world cheer Obama victory – Seattle Times
“..”For the first time I feel the phrase, ‘I hereby declare that all men are created equal,’ from the U.S. Declaration of Independence, really came to life for me today,” said architect Mamdouh al-Sobaihi, a guest at a post-election reception Wednesday in Jeddah, Saudi Arabia. “U.S. history has returned to its roots. The forefathers would be very pleased with today’s election,” he said. Saudi journalist Samir Saadi said that Obama’s election means “the U.S. has won the war on terror.” “Given Obama’s name, his background, the doubts about his religion, Americans still voted for him and this proved that America is a democracy,” he said. “People here are starting to believe in the U.S. again.”..” [more]

A skeptical Mideast public awaits U.S. election verdict
“John McCain and Barack Obama have very different visions for what America needs over the next four years, and when it comes to foreign policy, the differences are quite stark. On Middle East policy, in particular, many of their positions are diametrically opposed. Obama wants a phased withdrawal of U.S. troops from Iraq; McCain wants no timetables. Obama is open to direct diplomacy with such foes as Iran; McCain says preconditions would have to be met. What do Arabs and Muslims in the Middle East think of the U.S. candidates? Mideast experts and polls, as well as interviews I’ve done through e-mail and in person during a recent trip to Syria, indicate mixed reviews of the two nominees but with an edge for Obama..” [more]

Saudi Arabia Will Benefit – Tariq Alhomayed – Asharq Alawsat
“..By tomorrow we will know who the new president of the United States of America will be, Republican John McCain or Democrat Barack Obama, ushering in a new, critical era that will affect our region and our Islamic world. The new president will be faced with the mission of wrapping up the two wars in Iraq and Afghanistan successfully or bringing them to an end, as well as the Arab-Israeli issue and dealing with Iran. The new president will also have to launch the battle of reforming the American economy, the effects of which are global. The new president would not be able to do all of the above in isolation of our region, as oil is a key factor in stabilizing the American and world economy. Therefore, in consideration of this forthcoming era from the angle of our region, and who will benefit most from it, all the indications point towards Saudi Arabia..” [more]

A Case for Barack Hussein – Ahmed R. Benchemsi – Special Guest Columnist – Newsweek
“..This is why it is so important for me that the face of the United States changes in this election. I mean dramatically—by a clear-cut Obama victory. It would be far tougher for the Islamists to point the finger at America if it were led by a man whose middle name is Hussein. Not that they won’t try anyway. As long as U.S. troops are stationed in Iraq, they will continue to condemn. But U.S. troops will back off within 16 months, as Obama has promised. (I am hoping that’s not just talk.) Then the credibility of those who do the damning will fade. The battle in Afghanistan may drag on; it may escalate. But this war, unlike the one in Iraq, didn’t turn the average Arab-Muslim mad. The Taliban hosted Al Qaeda, which is guilty of attacking the United States on 9/11; America hit back, and still is. It sounds perfectly fair. (If only you could get a move on, that would be cool. I mean, it’s been almost seven years now.) Getting the job done—cutting down Al Qaeda and catching bin Laden—would comes as a relief for everyone, Arabs included. In our part of the world, it would empower the secular among us, helping us reverse the Islamist curse..” [more]

Editor’s Note:

Members of the Organization of Petroleum Exporting Countries (OPEC) met in Vienna October 24th in an “extraordinary” meeting called to address the impact of the global economic situation on the oil market. When we spoke with OPEC President Chakib Khelil on the sidelines of the U.S.-Arab Economic Forum in Washington, as world crude oil prices were soaring to the summertime high of $147 a barrel, he was keen to reject talk of production increases, arguing that the market was in equilibrium. Now, just five months later, OPEC members are anxious to act, to put the brakes on oil’s dramatic decline — which continued a skid to about $64 per barrel on Friday despite OPEC’s actions. The emergency meeting produced a 1.5 million barrel per day (bpd) cut to the ceiling, with Saudi Arabia’s portion — 466,000 bpd — amounting to about one third of the total cut. The next regular meeting is set for December 17, 2008.

Here, for your consideration, the results of the OPEC emergency meeting as announced in the organization’s press release, followed by related reporting and web resources.

OPEC Production Ceiling Cut 1.5 MBPD
OPEC Press Release

The Extraordinary Meeting having been convened in order to allow the Conference to discuss the current global financial crisis, the world economic situation and their impacts on the oil market, the Conference began by emphasizing that it shared the concern of the international community – of which OPEC Member Countries are an integral part – over ongoing developments in financial markets.

The Conference observed that the financial crisis is already having a noticeable impact on the world economy, dampening the demand for energy, in general, and oil in particular. This slowdown in oil demand is serving to exacerbate the situation in a market which has been over-supplied with crude for some time, an observation which the Organization has been making since earlier this year. Moreover, forecasts indicate that the fall in demand will deepen, despite the approach of winter in the northern hemisphere.

Similarly worryingly, the Conference noted that oil prices have witnessed a dramatic collapse – unprecedented in speed and magnitude – these falling to levels which may put at jeopardy many existing oil projects and lead to the cancellation or delay of others, possibly resulting in a medium-term supply shortage.

Given the foregoing, the Conference will continue to provide to the market crude oil volumes required by consumers. Accordingly, the Conference has decided to decrease the current OPEC-11 production ceiling of 28.808 million barrels a day by 1.5 mb/d, effective 1 November 2008, with Member Countries strongly emphasizing their firm commitment to ensuring that the volumes they supply to the market are reduced by the individually agreed amounts, as shown below.

Country: Decrease (b/d)

• Algeria: 71,000
• Angola: 99,000
• Ecuador: 27,000
• I. R. Iran: 199,000
• Kuwait: 132,000
• Libya: 89,000
• Nigeria: 113,000
• Qatar: 43,000
• Saudi Arabia: 466,000
• U.A.E.: 134,000
• Venezuela: 129,000

Total: 1,500,000

This decision will be reviewed at the Extraordinary Meeting of the Conference scheduled to convene in Oran, Algeria, on 17 December 2008. In the interim, the Conference requested the Secretariat to continue to closely monitor the market.

The Heads of Delegation again stressed the Organization’s proven commitment to providing adequate supplies of petroleum to consuming nations at all times, as well as to realizing its objective of maintaining crude oil prices at fair and equitable levels for the benefit of the world economy and the wellbeing of the market. At the same time, the Conference pointed out that OPEC cannot be expected to bear alone the burden of restoring equilibrium and it called on non-OPEC producers/exporters to contribute to efforts to restore prices to reasonable levels and eliminate harmful and unnecessary fluctuations.

Source: OPEC

Update on Global and Local Financial Conditions – Oct 25
Brad Bourland, Chief Economist, Jadwa Research

Global stock markets plunged yesterday as poor economic data from Europe and weak corporate results from Asia and the US further illustrated the global nature of the recession and heightened fears about its length and depth. These falls were accompanied by extreme currency volatility with the dollar and particularly the Japanese Yen strengthening sharply. Oil prices slipped further despite Opec agreeing to reduce production. The continued fall in oil prices and global stock markets means that we expect the Saudi stock market to open sharply lower this morning.

On Friday the US S&P500 and Dow Jones industrials index both fell by around 3.5 percent to reach their low points since April 2003. Asian stock markets also hit multi-year lows, with Japan dropping by 9.6 percent, Hong Kong down by 8.3 percent and South Korea slumping by 10.6 percent. European stock markets also recorded sharp declines; the UK and German were both down by 5 percent and France was 3.5 percent lower.

Among the key factor contributing to the intensification of investor pessimism yesterday were:

• Business confidence measures in Europe showed private sector output falling at the fastest rate for a decade.
• There was bad news from the corporate sector across a variety of countries and industries. For example, Samsung announced a large fall in profits; Sony halved its profit forecast and Chrysler said it was cutting 5,000 jobs.

The UK economy contracted by 0.5 percent in the third quarter, a much faster rate than was expected. This is the first time in sixteen years that the economy has shrunk.

Recent selling has been aggravated by hedge funds. The strains within the financial sector have badly hit hedge funds, many of whom rely on borrowing. As their performance has deteriorated, many hedge funds are preparing for large investor redemptions by cashing in their risky assets.

Hedge fund selling also contributed to wild swings on foreign exchange markets. On Friday the Japanese Yen hit a 13-year high against dollar and an all-time high against the euro, as investors unwound ‘carry trades’. The carry trade has been a popular investment strategy in recent years, it involves borrowing in currencies with low interest rates (particularly the Yen) and investing the proceeds elsewhere for higher returns. Now that risk aversion has dramatically increased these trades are being unwound, triggering large purchases of Yen. The dollar also continued to strengthen, with the pound recording its largest one-day fall for 16 years yesterday because of the poor economic growth data. Currencies of important emerging market countries have also been hit; the South Korea won and Brazilian real have dropped by over 20 percent against the dollar so far in October.

Oil prices continued to fall yesterday despite Opec agreeing to a 1.5 million barrel per day cut in production effective November 1. Opec members have been very concerned by the rapid fall in oil prices, which have more than halved since July, and were hoping that by committing to lower production they could stabilize prices. However, even though the cut back was in line with market expectations, WTI fell by 5.7 percent to $63.34 per barrel, its lowest level since May 2007.

Implications:

Opec has indicated that if oil prices continue to slide it could meet again before its next scheduled meeting in December. Analysts will be watching how closely Opec members comply to their new quotas, as historically compliance has generally not been strong. We think there is a chance that oil prices will drop further as the deterioration in the outlook for demand has been accompanied by a reversal in speculative positions. It takes some time to physically lower oil production so it will be a few months before the real effect of the production cut back can be judged.

Under the new agreement Saudi Arabia’s production quota was reduced by 466,000 barrels per day from 8.943 million barrels per day to 8.477 million barrels per day. Production has been persistently above quota over the last 12 months, though we understand that it had already been cut back over the last two months. Lower production combined with lower prices will impact negatively on economic performance. Nonetheless, we believe that the strong internal growth dynamics within Saudi Arabia means that economic performance will remain healthy.

Brad Bourland

Brad Bourland is head of research at Jadwa Investment, Riyadh. From 1999 through 2007 Brad was the Chief Economist at Samba Financial Group, formerly Saudi American Bank, in Riyadh, where he published regularly on issues related to the Saudi and global economies and the world oil market. He appears frequently in the domestic and international media and is a regular public speaker. Before joining Samba, Brad spent an 18-year career as diplomat, economist, and manager with the U.S. Department of State. During the last three years of his diplomatic career he was in Riyadh as the American Embassy’s First Secretary responsible for financial affairs, where he analyzed the Saudi economy for the U.S. Government and conducted financial aspects of US-Saudi relations. Brad has his BA and MA magna cum laude from the University of Utah, and is a CFA (Chartered Financial Analyst) charterholder.

For comments and queries please contact:

Brad Bourland
Chief Economist and Head of Research
jadwaresearch@jadwa.com
Head office:
Phone +966 1 279-1111
Fax +966 1 279-1571
P.O. Box 60677, Riyadh 11555
Kingdom of Saudi Arabia

http://www.jadwa.com

Update on Global and Local Financial Conditions – Oct 22
Brad Bourland, Chief Economist, Jadwa Research

Economic concerns push markets down

Further steps have been taken to bolster the financial sector in the US as the extreme financial stresses of recent weeks continue to unwind. These were not enough to boost stock markets which were hit by disappointing third quarter results and ongoing concerns about the health of the global economy. The US dollar has strengthened significantly.

Yesterday the US Federal Reserve pledged up to $540 billion for the purchase of commercial paper (short-term debt issued by corporations and banks) from money market funds. Money market funds are large investors in commercial paper and have historically been considered almost as safe as bank accounts. However, one large fund was heavily exposed to Lehman Brothers debt after that bank collapsed last month and was unable to maintain the $1 per share value that is essential to the viability of these funds (a value of below $1 per share indicates that investors have lost money). This triggered large withdrawals that have placed pressure on an important component of the US financial sector (almost $3.5 trillion is invested in money market funds); the reluctance of money market funds to invest in commercial paper has widespread implications throughout the economy, as many companies rely on it to finance their day-to-day operations.

This move helped to further improve interbank rates and other indicators of financial stress. However, stock markets fell following poor third quarter results across a broad range of sectors. The US Dow Jones industrials index fell by 2.5 percent and the S&P 500 was down by 3.1 percent yesterday. Asian markets have closed sharply lower this morning, with Japan, South Korea and Hong Kong all down by over 4 percent to new four-year lows. European stock markets fell by 0.5-1.5 percent yesterday are down by a further 1-2.5 percent this morning. GCC stock markets have also opened lower; the Saudi market is down by 3.3 percent, Dubai down 3.1 percent and Kuwait down 2 percent.

Another notable feature of the last few days is the strength of the US dollar. It is currently at an 18-month high against a basket of currencies of its leading trading partners and has risen further against the currencies of many emerging market countries. The dollar has benefitted from its status as a safe haven and has seen large inflows from US hedge funds and other institutional investors that have liquidated foreign investments and moved into cash. It also benefits from market sentiment that interest rates need to fall much further outside the US than inside it and that as the first of the leading global economies to enter recession, the US may also be the first to emerge from it.

Implications:

Oil prices have stabilized over the last few days (WTI is around $71 per barrel) as the markets wait to see what occurs at the Opec summit on Friday. It seems inevitable that Opec producers will agree to a cut in production. Ahead of the summit, figures of between one and three million barrels per day have been floated. Opec will be keen to put a floor on oil prices, which have halved since early July, but will not want to damage the exceptionally weak global economic outlook. Lower production for Saudi Arabia will reduce GDP growth and lower the budget and current account surpluses. However, it is important to consider that economic performance was very strong in 2007 when WTI averaged $72.3 per barrel and production was 8.7 million barrels per day; a potential scenario for next year.

The strength of the dollar (and therefore the riyal) should help to lower inflation by reducing prices for imported goods. Since the end of July the riyal has appreciated by 17 percent against the euro (the eurozone is Saudi Arabia’s largest source of imports), 18 percent against the British pound and 7 percent against the Japanese yen. The stronger exchange rate should particularly help reduce food prices as it coincides with lower global food prices. For example the price of Indian basmati rice has fallen by 12 percent since mid-September and the Indian rupee has fallen by 16 percent against the riyal since the end of July.

Brad Bourland

Brad Bourland is head of research at Jadwa Investment, Riyadh. From 1999 through 2007 Brad was the Chief Economist at Samba Financial Group, formerly Saudi American Bank, in Riyadh, where he published regularly on issues related to the Saudi and global economies and the world oil market. He appears frequently in the domestic and international media and is a regular public speaker. Before joining Samba, Brad spent an 18-year career as diplomat, economist, and manager with the U.S. Department of State. During the last three years of his diplomatic career he was in Riyadh as the American Embassy’s First Secretary responsible for financial affairs, where he analyzed the Saudi economy for the U.S. Government and conducted financial aspects of US-Saudi relations. Brad has his BA and MA magna cum laude from the University of Utah, and is a CFA (Chartered Financial Analyst) charterholder.

For comments and queries please contact:

Brad Bourland
Chief Economist and Head of Research
jadwaresearch@jadwa.com
Head office:
Phone +966 1 279-1111
Fax +966 1 279-1571
P.O. Box 60677, Riyadh 11555
Kingdom of Saudi Arabia

http://www.jadwa.com

Editor’s Note:

Today we are providing another snapshot of economic developments with a perspective on implications for the Gulf, provided by Mr. Brad Bourland, Chief Economist at Jadwa Investment in Riyadh. We previously shared a copy of his global and local financial conditions report on October 8, 2008.

Update on Global and Local Financial Conditions – Oct 16
Brad Bourland, Chief Economist, Jadwa Research

Global stock markets have recorded their biggest one-day declines since the crash of 1987 on fears that the world is heading for a deep recession. Data released yesterday showing falling spending and rising unemployment has focused investor’s minds on the bleak economic outlook and emphasized that the performance of all companies, not just those in the financial sector, will be hurt. The new data was for August and September and indicates just how weak the global economy was before it entered into the worst of the financial crisis.

The key economic news from yesterday was:

• US retail sales fell by 1.2 percent in September, their biggest monthly drop for three years.
• Unemployment in the UK rose at its fastest pace since 1991 in August, while average earnings growth was the weakest in five years at 3.4 percent, well below the prevailing rate of inflation, which hit 5.2 percent (a 16-year high) in September.
• New car sales in the EU in September were the lowest since 1998 and 8.2 percent less than in September of last year.

US Federal Reserve Chairman Ben Bernanke gave a very downbeat assessment of the US economy, saying that the turmoil in financial markets poses a “significant threat to economic growth” and that even if financial markets stabilize “broader economic recovery will not happen right away”.

Financial conditions have again improved modestly. Pledges of even greater liquidity by global central banks have further reduced interbank rates; though the decline is most pronounced for overnight lending and interest rates for funding over a longer period remain highly strained. Nonetheless, government bailouts of the financial sector continue. Today UBS received a $5 billion injection of capital from the Swiss government and the Swiss central bank agreed to take on up to $60 billion of its troubled assets. In addition, Credit Suisse got a $9 billion injection from private investors (including a subsidiary of the Qatar Investment Authority). Disappointment over the pace of improvement in financial conditions has added to stock market woes.

In response to mounting concerns about the economic outlook, the US S&P 500 and the Japanese Nikkei 225 both recorded their largest one-day fall since the crash of 1987; the S&P 500 slumped by 9 percent, while the Nikkei was down by 11.4 percent. European markets have opened sharply lower this morning (the UK is down by 3 percent, German down 3.3 percent and France down by 3.5 percent) after falls of 6.5-7.5 percent yesterday. Those GCC markets trading today are also being hit; Dubai is currently down 6 percent and Kuwait down 1.5 percent.

Implications:

The economic outlook for Saudi Arabia is deteriorating. Oil prices dropped below $75 for the first time in over a year yesterday and could well slip below $70 per barrel by end-Friday. We expect Opec to cut production in order to defend prices of around this level (though its next scheduled meeting is not until November 18) and indications are that Saudi Arabia has taken off the market much of the supply increase it introduced in the summer. Lower oil production and prices will dramatically reduce the budget and current account balances, though in both cases we still expect relatively comfortable surpluses.

Lower oil production will cut our forecast for real GDP growth. Growth in the non-oil private sector (the main driver of economic growth in recent years) is also expected to suffer. Recessions abroad will hit demand for exports and the tough financial conditions, both globally and locally, will increase the cost and reduce the availability of financing (IPOs throughout the region are being put on hold). Nonetheless, it is encouraging that some private sector companies are pushing ahead with new financing deals—Dar Al-Arkan and Saudi Hollandi Bank have announced plans for sukuk issues—and those investors with large cash holdings (including the government) should benefit from the recent rapid decline in raw material prices.

Brad Bourland

Brad Bourland is head of research at Jadwa Investment, Riyadh. From 1999 through 2007 Brad was the Chief Economist at Samba Financial Group, formerly Saudi American Bank, in Riyadh, where he published regularly on issues related to the Saudi and global economies and the world oil market. He appears frequently in the domestic and international media and is a regular public speaker. Before joining Samba, Brad spent an 18-year career as diplomat, economist, and manager with the U.S. Department of State. During the last three years of his diplomatic career he was in Riyadh as the American Embassy’s First Secretary responsible for financial affairs, where he analyzed the Saudi economy for the U.S. Government and conducted financial aspects of US-Saudi relations. Brad has his BA and MA magna cum laude from the University of Utah, and is a CFA (Chartered Financial Analyst) charterholder.

For comments and queries please contact:

Brad Bourland
Chief Economist and Head of Research
jadwaresearch@jadwa.com
Head office:
Phone +966 1 279-1111
Fax +966 1 279-1571
P.O. Box 60677, Riyadh 11555
Kingdom of Saudi Arabia

http://www.jadwa.com

Editor’s Note:

Today we are providing a snapshot of economic developments with the perspective on implications for the Gulf, provided by Mr. Brad Bourland, Chief Economist at Jadwa Investment in Riyadh. SUSRIS readers have long benefited from his perspectives on Saudi economic developments and we thank him for continuing to share his insights here.

Update on Global and Local Financial Conditions – Oct 8
Brad Bourland, Chief Economist, Jadwa Research

U.S. stock markets slumped again yesterday, prompting large declines in Asia, Europe and the GCC this morning. The first annual decline in US consumer credit for over a decade heightened concerns about the impact of the financial crisis on the broader global economy sending markets into a frenzied sell off. This was despite new measures from the US Federal Reserve designed to provide additional liquidity and clear indications that further interest rate cuts would be forthcoming.

The U.S. S&P 500 dropped 5.7 percent yesterday to close below 1,000 for the first time since August 2003; it is now down by 15 percent in the last five trading days. Financial shares again led the way, with the S&P financials index hitting its lowest level in 11 years. In response, Asian markets plunged, with Japan falling by 9.4 percent (its largest one-day decline since 1987) and Hong Kong dropping by 8.2 percent. European markets were down by upwards of 5 percent in early trading after closing relatively unchanged yesterday (the stock markets in the UK and France both ended up slight and the German market was down by just over 1 percent). GCC markets have also fallen sharply again, with the TASI down by another 8.5 percent and Dubai dropping by over 10 percent.

The central concern among investors over the last few days has been the freezing of the interbank market. Lending between banks has virtually stopped as bank’s confidence in their counterparties has drained as more and more financial institutions have got into trouble. Three-month euro interbank rates are now at an all-time high and three-month dollar interbank rates are currently 4.32 percent, up from 2.82 percent in mid-September. Interbank rates are a key determinant of lending rates, so higher interbank rates combined with an aversion to lending will have a clear impact on the broader economy. Interbank markets are also a vital tool for banks to manage their liquidity. In this climate, the huge injections of liquidity from central banks are vital.

The markets are falling despite additional government efforts designed to improve financial conditions, including the following announcements over the past 24 hours:

• The U.S. Federal Reserve has said it will buy commercial paper (short-term debt issued by corporations and banks). Many companies rely on commercial paper to finance their day-to-day operations, effectively using it as a credit line. The extreme aversion to risk in the markets means that investors have significantly scaled back their purchases of commercial paper and interest rates have jumped. The intervention in the commercial paper market is separate to the $700 billion that has been allocated to buy up distressed financial assets in a plan approved by the U.S. government on Friday and marks the first time that the Fed has assets that not backed by collateral.
• Fed Chairman Ben Bernanke signaled a shift in policy at a speech yesterday commenting that the outlook for economic growth has deteriorated and that inflationary pressures have eased. This gives a strong indication that there will be further interest rate cuts. The futures market had already priced in lower rates, but previous Fed comments had been careful to balance concerns about the economy (which call for lower interest rates) with concerns about inflation (which call for higher interest rates).
• This morning the UK government announced a financial support package for domestic banks. GBP50 billion of government money has been made available to eight of the country’s largest financial institutions, who in return for access to this funding will give the government shares that guaranteed a fixed rate of interest but do not have voting rights. A further GBP200 billion of short term financing has been made available to provide liquidity. Share prices of commercial banks plunged on Tuesday; HBOS was down by 40 percent and Royal Bank of Scotland down by 39 percent. Share prices of the companies with access to the support package are currently registering double-digit gains.
• A summit of EU finance ministers yesterday agreed to a set of principles for government action in rescuing financial institutions. These principles were reasonably broad and did not amount to a formal EU-wide action pan. Instead the region will deal with banks on a case-by-case basis. In addition, deposit insurance in the EU was increased yesterday from Euros20,000 to Euros50,000 ($68,000). This move was designed to reassure savers and prevent potentially destabilizing withdrawals from the banking sector and follows Ireland and Greece guaranteeing all depositors’ savings in the last few days.

Implications:

Global and regional stock markets are overwhelmed by panic. While the plunging share prices are creating some strong investment opportunities, investor confidence is exceptionally fragile and a sustainable recovery is not likely in the near term. The declines of this week are putting more pressure on political leaders and discussions of G7 leaders on Friday and global financial leaders at the IMF/World Bank meetings on Saturday and Sunday should be closely watched. The chances of a large-scale coordinated rescue package across the leading global economies are growing day by day. Jadwa will be reporting from these meetings.

Interbank rates have been pushed up throughout the GCC, as interbank lending has dried up. This process began well before the extreme stresses in global interbank markets of the past few weeks (though this has heightened the interbank strains, particularly in the UAE), but is related to the global financial turmoil. Three main factors account for this.

• The exit of foreign funds that have entered the regional banking system in anticipation of exchange rate adjustments as investors became more risk averse and GCC government’s reaffirmed their commitment to the exchange rate pegs.
• Central banks clamping down on credit growth in order to contain inflation by withdrawing liquidity (for example, by raising commercial bank reserve requirements).
• Some banks raising large amounts of local currency to buy up the assets underlying instruments they hold that were affected by the financial crisis.

Higher local and global interbank rates raise the cost of financing for local companies who are also finding it more expensive to borrow on international markets. This is hampering implementation of the project boom in the region and has prompted action from GCC central banks. This morning, the Central Bank of Kuwait slashed its discount rate to 4.5 percent from 5.75 percent and its repo rate to 2.5 percent from 3.5 percent. SAMA has again stated that there are no liquidity problems in Saudi Arabia and that it would provide addition liquidity if needed (the three-month interbank rate is currently 4.59 percent compared to 2.16 percent in early May).

SAMA has also stated that bank deposits are safe. There is no formal deposit insurance in Saudi Arabia, but we believe there is a strong implicit government guarantee and the government has stepped in in the past when banks have been in trouble. We do not see any circumstances in which a Saudi bank would be unable to fully honor customer deposits.

Third quarter results released so far by Saudi banks do not point to any serious problems. Saudi Hollandi Bank, Bank Al Bilad and Banque Saudi Fransi all reported double digit profits growth, though profits fell by 8 percent at Samba and by 28 percent at Riyad Bank.

Brad Bourland

Brad Bourland is head of research at Jadwa Investment, Riyadh. From 1999 through 2007 Brad was the Chief Economist at Samba Financial Group, formerly Saudi American Bank, in Riyadh, where he published regularly on issues related to the Saudi and global economies and the world oil market. He appears frequently in the domestic and international media and is a regular public speaker. Before joining Samba, Brad spent an 18-year career as diplomat, economist, and manager with the U.S. Department of State. During the last three years of his diplomatic career he was in Riyadh as the American Embassy’s First Secretary responsible for financial affairs, where he analyzed the Saudi economy for the U.S. Government and conducted financial aspects of US-Saudi relations. Brad has his BA and MA magna cum laude from the University of Utah, and is a CFA (Chartered Financial Analyst) charterholder.

For comments and queries please contact:

Brad Bourland
Chief Economist and Head of Research
jadwaresearch@jadwa.com
Head office:
Phone +966 1 279-1111
Fax +966 1 279-1571
P.O. Box 60677, Riyadh 11555
Kingdom of Saudi Arabia

http://www.jadwa.com

GCC Ministerial Session in Jeddah

Foreign Ministers of the Gulf Cooperation Council (GCC) are to hold their 108th ministerial session on Tuesday, September 2, in the Saudi Arabian city of Jeddah.

The meeting of the six GCC states; Kuwait, Saudi Arabia, the United Arab Emirates, Qatar, Bahrain and Oman, will be headed by Qatar this year.

GCC Secretary General Abdulrahman Al-Atiyya said that these meetings were crucial to the development of the region, especially with the latest events the area is witnessing.

He said that the session’s main topic of discussion would be the Iranian occupation of the three Emirati islands and relations with Iran in light of the Tehran’s recent measures in the island of Abu Musa.

“The GCC is totally behind the full sovereignty of the UAE over the three islands – Greater Tunb, Lesser Tunb and Abu Musa – and called on Iran to respond to the UAE sincere initiatives to settle the issue through direct negotiations or resort to the International Court of Justice,” Al-Atiyya said.

The GCC will also discuss the latest developments in the Palestinian-Israeli issue as well as the outcome of the Lebanese President’s visit to Syria and the state of affairs in Iraq, Sudan and Somalia, according to Al-Atiyya.

Other items on the agenda would deal with intentions for the peaceful use of nuclear power by GCC countries as well as other items discussed in previous ministerial meetings in the fields of communication, trade, industry, agriculture and the environment.

Source: WAM

Editor’s Note:

King Abdullah of Saudi Arabia, a little over a month since he convened a meeting in Mecca among Muslims to foster understanding in the Islamic communities, called together representatives of the major religions of the world gathered in Madrid this week with the purpose of advancing interfaith dialogue. The conference, organized by the Mecca-based Muslim World League, attracted over 200 delegates including Muslims, Jews, Christians, Buddhists, Hindus and Sikhs.

This SUSRIS Special Report provides an overview of the historic Madrid Conference and other news reporting on the conference and links to some the many materials on the SUSRIS web site that chronicled the steps leading to this meeting as well as related background information. The conference communiqué and King Abdullah’s remarks will be provided separately. We recommend checking the SUSRIS Special Section on “Interfaith Dialogue” for more on these developments including articles, references and photos.

Perspective..

“My brothers, we must tell the world differences do not lead to conflict and confrontation..”

King Abdullah of Saudi Arabia
July 16, 2008

Dialogue is essential for peace
Badea Abu Al-Naja | Arab News

MADRID: The three-day international interfaith conference, which concluded here yesterday, emphasized the need for promoting dialogue among religions and cultures in order to strengthen world peace and stability.

Nearly 300 delegates representing Islam, Judaism, Christianity, Buddhism, Hinduism and other faiths from across the world attended the conference, which was opened by Custodian of the Two Holy Mosques King Abdullah on Wednesday in the presence of Spain’s King Juan Carlos and Prime Minister José Luis Rodriguez Zapatero.

The participants reminded the world of the Declaration of the UN General Assembly in 1994, which called for tolerance and the spread of the culture of peace.

The final declaration issued by the conference rejected the notion of the so-called “clash of civilizations” and warned against the danger of campaigns seeking to deepen conflicts and destabilize peace and security.

The conference also called for an international agreement to combat terrorism.

“The conference has thoroughly reviewed the process of dialogue and its obstacles as well as the catastrophes that afflict humanity and noted that terrorism is one of the most serious obstacles confronting dialogue and coexistence,” the declaration said.

“Terrorism is a universal phenomenon that requires unified international efforts to combat it in a serious, responsible and just way… This demands an international agreement on defining terrorism, addressing its root causes and achieving justice and stability in the world.”

The declaration was read by Abdul Rahman Al-Zaid, deputy secretary-general of the Makkah-based Muslim World League (MWL), which organized the conference at the initiative of King Abdullah.

“King Abdullah has a universal vision.. ..and believes that the followers of different faiths and cultures, who uphold common values, can play a big role in solving problems,” said Abdullah Al-Turki, secretary-general of the MWL, while addressing a press conference.

He said the conference had no political agenda. “It was organized with a humanitarian perspective and the invitees were religious leaders and other dignitaries who are concerned with dialogue and human relations.”

He said there was no problem among the various religions. “The problem is created by the behavior and practices of their followers,” he said.

Delegates were optimistic that the conference would open a new era in interfaith relations.

“It’s a major step,” said Jesse Jackson, the American civil rights leader. “For the king to use his moral authority to convene this session, to work for common ground — that’s a very big step.”

Tony Blair, special envoy of the Middle East Quartet, was equally encouraged. “The king has made a lot of reforms,” Blair said, referring to King Abdullah. “The fact that this conference is happening with the king, and with religious leaders of all different faiths, is significant.” For Rabbi Brad Hirschfield of the National Jewish Center for Learning and Leadership in New York, the conference was like a baby taking its first steps. “On the one hand, it’s the most ordinary moment,” he said. “And on the other, it’s the most important. But what matters is what the baby does next.”

“This will not be a one-off conference. I’m sure the commitment of the king to engage in dialogue will continue,” said Anthony Ball, an aide to the Archbishop of Canterbury Rowan Williams.

Rabbi Marc Schneier, North American chairman of the World Jewish Congress, said King Abdullah was reaching out to other faiths to counter extremists and fanatics. “What I heard from him is that ‘I represent Islam, and I am the voice of moderation’,” he added.

The conference called for enhancing common human values and for their dissemination within societies. “It emphasized the need to promote a culture of tolerance and understanding through dialogue by holding conferences and developing relevant cultural, educational and media programs,” the declaration said.

The participants agreed “on international guidelines for dialogue among the followers of religions and cultures.” They said the deepening of moral values and ethical principles, which are common denominators among such followers, would help strengthen stability and achieve prosperity for all humans.

Governmental and nongovernmental organizations have been urged to issue a document stipulating respect for religions and their symbols, prohibition of their denigration and repudiation of those who commit such acts.

In order to fulfill the above-mentioned objectives, the participants agreed to form a working team to study the problems hindering dialogue. “The team will prepare a study that provides visions for the solution of these problems and coordinate with bodies that promote world dialogue,” the conference said.

The five-point methodology for the realization of the conference’s objectives included cooperation among religious, cultural, educational, and media organizations to consolidate ethical values, encourage noble social practices and confront sexual promiscuity, family disintegration and other vices.

It also decided to organize inter-religious and inter-cultural meetings, conduct research and use the Internet and other media for the dissemination of a culture of peace, understanding and coexistence.

The conference urged the UN General Assembly to support its recommendations and called for a special UN session on dialogue.

“The participants expressed hope that King Abdullah would use his good offices with the concerned bodies in convening this session as soon as possible,” the declaration said. The participants voiced their readiness to take part in such a UN session.

The conference adopted 10 principles that included unity of humankind and the equality of human beings irrespective of their colors, ethnic backgrounds and cultures; purity of the nature of humans as they were created liking good and disliking evil, inclining to justice and avoiding injustice; diversity of cultures and civilizations.

Other principles adopted included:

The heavenly messages aim at realizing the obedience of humankind to its Creator and achieving happiness, justice, security and peace;

Respecting heavenly religions, preserving their high status, condemning any insult to their symbols, and combating the exploitation of religion in the instigation of racial discrimination;

Observing peace, honoring agreements and respecting unique traditions of peoples and their right to security, freedom and self-determination as the basis for building good relations among all people.

The conference emphasized the significance of religion and moral values and the need for humans to revert to their Creator in their fight against crime, corruption, drugs, and terrorism, and in preserving the institution of the family and protecting societies from deviant behaviors.

“The family is the basic unit of society and its nucleus. Protecting it from disintegration is a cornerstone for any secure and stable society,” it said.

“Dialogue is one of the most important means for knowing each other,” the declaration said. “The preservation of the environment and its protection from pollution and other dangers are considered a major objective of all religions and cultures.”

Source: Arab News

Additional Reporting:

Editorial: Dialogue for understanding – Arab News
“..The groundbreaking three-day interfaith World Conference of Dialogue which closed yesterday in Madrid appears to have caught international imagination, perhaps in no small part because Saudi Arabia, a conservative state to some, was the prime mover behind the gathering. In his opening address Custodian of the Two Holy Mosques King Abdullah told the 300 attendees, mostly Muslim, Christian and Jewish clergy, that the world’s major religions had to turn their backs on extremism and embrace “constructive dialogue”..” [more]

Madrid interfaith conference concludes with call for UN session on dialogue – saudiembassy.net
“..The World Conference on Dialogue concluded its deliberations in Madrid, Spain today. Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz proposed the conference as part of his efforts to promote interfaith dialogue. In a final statement known as the Madrid Declaration, participants highlighted the importance of dialogue in achieving mutual understanding and cooperation among religions and cultures. They called on the United Nations to convene a special session on dialogue as a follow-up to the conference. Some 300 delegates from around the world – representing Islam, Judaism, Christianity, Hinduism, Buddhism, Shintoism and Confucianism – attended the three-day conference, which was organized by the Makkah-based Muslim World League (MWL)..” [more]

Saudi inter-faith conference urges global anti-terrorism pact – AFP
“..Islamic, Christian and Jewish leaders Friday called for an international agreement to combat terrorism, at the end of a landmark Saudi-organised conference. The representatives of the world’s great monotheistic religions also appealed for a special session of the UN General Assembly to promote dialogue and prevent “a clash of civilizations.”..” [more]

Saudi Host Renounces Extremism At Spain Summit – NPR (Audio)
“..Religious leaders are meeting in Spain for an interfaith summit sponsored by Saudi Arabia. Critics say the meeting is only meant to make the Arab country look good in the West. Only one Israeli was invited, and no Palestinians were on the list. Still, the Saudi king opened the summit with a surprising message..” [more]

Saudi conference urges global anti-terror pact – DailyTimes
“..Terrorism is an international issue and there should be a global agreement to address the root causes, said the document issued by the World Inter-faith Conference on Dialogue that ended here on Friday. “Terrorism is a universal phenomenon that requires international efforts to combat it in a serious, responsible and just way,” said the document called the Madrid Declaration..” [more]

Religious leaders end Saudi-sponsored interfaith conference calling for U.N. to play role – IHT
“..Representatives of the world’s religions on Friday ended a three-day interfaith conference called by King Abdullah of Saudi Arabia which some hope could hail the beginning of a new relationship by denominations. The Madrid meeting brought together Jews, Muslims, Christians, Hindus, Buddhists and representatives of other religions in what was seen as an unprecedented event for the Saudi monarchy. In a final declaration, participants urged the United Nations to play a role, saying they hope to follow up “recommendations in enhancing dialogue among the followers of religions, civilizations and cultures through conducting a special U.N. session on dialogue.”..” [more]

Interfaith meet signals thaw in Saudi hostility toward Israel – Haaretz
“..In an apparent easing of traditional Saudi hostility toward Israel, King Abdullah has urged followers of all the world’s leading religions to embrace reconciliation. “We must tell the world that differences don’t need to lead to disputes,” he said at the opening of an interfaith conference in Madrid, addressing Muslim and Christian delegates and even one Israeli envoy who also shook his hand. Rabbi David Rosen, who is also the Chief Rabbinate’s adviser on interfaith dialogue, had been invited to the conference as Chairman of IJCIC, the International Jewish Committee on Interreligious Consultations. The conference organizers knew he was Israeli, following media reports to that effect last week. He met King Abdullah, told him he was a rabbi from Jerusalem and even received his blessing..” [more]

Theologians call for gender equality at Saudi inter-faith conference – AFP
“..Women have historically suffered discrimination in the name of religion, and the world’s great faiths must do more to encourage gender equality, theologians told a seminar at a Saudi-organised conference Thursday. “Women have been forgotten and marginalised in religions,” Juan Jose Tamayo, director of theology at Madrid’s Juan Carlos III university, told a roundtable on the second day of the World Conference of Dialogue in Madrid, aimed at bringing the great monotheistic faiths closer together. “They are organised hierarchically and patriarchically, excluding women in all fields of knowledge and religious matters. Now, at the start of the 21st century, all men, but especially clerics “must restore the dignity of women.”..” [more]

Saudi king cites Islam’s tolerance – JTA
“..The king of Saudi Arabia opened an interfaith conference by calling Islam a religion of tolerance and moderation. King Abdullah organized the conference, which runs Wednesday to Friday, in Madrid. A number of Jewish leaders, mostly from the United States and England, were among the nearly 300 religious figures in attendance..” [more]

Saudis host a global interfaith conference in Madrid: a ‘first step’
“..More than 500 years after Spain’s golden age of tolerance among Jews, Christians, and Muslims came to a definitive end, leaders of those faiths – as well as of Buddhism, Taoism, and Hinduism – are meeting at a royal palace on Madrid’s outskirts in a bid to boost interreligious understanding. In his opening remarks Wednesday at the three-day conference, host Saudi King Abdullah reminded his audience – nearly 300 religious, political, and cultural leaders from 50 different countries – of their shared purpose. “If we want this historic encounter to succeed, we must look to the things that unite us: our profound faith in God, the noble principles and elevated ethics that represent the foundation of religions,” he said. He linked societal woes like terrorism, racism, crime, drug abuse, and the breakdown of the family to losing touch with religion: “All this is the consequence of the spiritual void that people suffer once they distance themselves from God.”..” [more]

Saudi king shuns extremism as faiths gather – Reuters
“..Saudi Arabia’s King Abdullah called on followers of the world’s major faiths to turn away from extremism and seek reconciliation as he opened an unprecedented interfaith conference in Madrid on Wednesday. The Saudi-sponsored gathering aims to draw Muslims, Jews and Christians closer together and isolate those who use religion to justify violence or intolerance. It was the first time Saudi Arabia, where non-Muslims cannot practice their faith openly, had invited Jews to such a meeting..” [more]

Saudi-backed interfaith meeting starts – AP
“..King Abdullah of Saudi Arabia was kicking off an interfaith conference in Madrid on Wednesday — an effort to bring Muslims, Christians and Jews closer together amid a world that often puts the three faiths at odds. Spanish King Juan Carlos was also addressing the gathering — which the Saudis have billed as a strictly religious affair. There’s to be no mention of hot-button issues like the war in Iraq, the Israeli-Palestinian conflict, Iranian nuclear ambitions or rising oil prices. Abdullah has made reaching out to other faiths a hallmark of his rule since taking over the oil-rich kingdom following the death of his half brother in 2005. He met with Pope Benedict XVI late last year, the first meeting ever between a pope and a reigning Saudi king. And in June, Abdullah held a religious conference in Mecca in which participants pledged improved relations between Islam’s two main branches — Sunni and Shia. At that meeting Abdullah also rejected extremism, saying that Muslims must present Islam’s “good message” to the world..” [more]

Skepticism precedes Saudi-led interfaith meeting – AP
“..A Saudi-sponsored conference that will bring together Israeli and American rabbis with clerics from the strict Wahhabi sect of Islam — as well as global religious leaders of nearly every persuasion — is either a rare opportunity for dialogue or a cynical publicity stunt. It all depends on whom you ask. And like any confab that includes Jews, Muslims, Christians, Hindus, Buddhists and representatives of several other religions — there is no shortage of opinion..” [more]

Saudi king to open inter-faith conference in Madrid – AFP
Saudi King Abdullah opens an international conference in Madrid on Wednesday aimed at allowing representatives of the world’s great religions “to get to know each other,” the organisers said. The conference is organised by the Muslim World League from an initiative by King Abdullah, whose country hosts Islam’s two holiest shrines in Mecca and Medina. The king “has been calling for this type of dialogue between religions for the past three years,”..” [more]

Saudi Government Curbs Religious Police – NPR (Audio)
“..Saudi Arabia’s Interior Ministry has ordered the controversial religious police in the conservative Wahhabi kingdom to stop detaining or interrogating citizens suspected of violating Islamic law. The decree comes as members of the force face charges stemming from the deaths of two men while in custody. Human rights advocates hope the changes mean the government is serious about reining in the religious police..” [more]

Editor’s Note:

World leaders are set to meet in Jeddah tomorrow to examine causes of the oil crisis gripping global energy markets and develop solutions. This SUSRIS Special Report provides an overview of the conference among oil producers and consumers called by King Abdullah last week. Check the SUSRIS Special Section on the web site (links below) for more information.

Reporting..

Limelight to Shine on Saudis at Energy Forum as Oil Prices Continue to Soar
“..But by hosting a global energy forum here on Sunday during the worst oil crisis in decades, the Saudis are taking a risky step. The meeting will draw new attention to the Saudis’ role in a boom that has pushed oil prices close to $140 a barrel and caused protests from Britain to Bangladesh.. ..But for the Saudis, the meeting is a crucial opportunity both to calm the market’s volatility and to get their point of view across. They say they have been unfairly blamed for the crisis, which has seen the price of oil rise 40 percent since the start of the year..” [more]

Riyadh assures market
“..Saudi Arabia announced yesterday that it would do everything possible to curb rising oil prices, which it blamed on geopolitics and speculators. “The Kingdom looks… with great interest to oil market stability that will protect the interests of producers and consumers and promote world economic growth,” an official statement said. “As the world’s biggest oil exporter, Saudi Arabia has not and will not spare any effort to achieve oil market stability. Its oil policy aims always to foster and strengthen cooperation and dialogue between oil producing and consuming countries.”..” [more]

Kingdom has no magic wand: Abdulaziz
“..Saudi officials said yesterday that the Kingdom has no “magic wand” that will resolve the skyrocketing oil prices.. ..Addressing a press conference ahead of tomorrow’s International Energy Conference here, Deputy Minister of Petroleum and Mineral Resources Prince Abdulaziz bin Salman said: “There are political, economic and regulatory factors involved..” [more]

Plans to pump extra 200,000 bpd: Al-Naimi
“..Minister of Petroleum and Mineral Resources Ali Al-Naimi announced yesterday that Saudi Arabia would increase its daily output to 9.7 million barrels next month, pumping an extra 200,000 barrels to world markets. UN Secretary-General Ban Ki-moon said last Sunday that the Saudi minister had told him the plan to increase production by 200,000 bpd. “He quoted me right, that’s old news now,” Al-Naimi told reporters in Jeddah. Asked if Saudi Arabia would increase output more than that figure, Al-Naimi said: “We’ll be giving out new information within the next two days.” He was apparently referring to the International Energy Conference that opens at Jeddah Hilton tomorrow..” [more]

Saudi to lobby at Jeddah for action on speculation
“..Saudi Arabia will press consumer nations at an oil meeting in Jeddah this week to take action to curtail the speculation it sees as a major factor behind high oil prices, a newspaper reported on Saturday. “Governments have a role in organising (oil) markets and structuring them in a way that prevents speculators behaving in a manner that has led oil prices to reach their current levels,” Deputy Oil Minister Prince Abdulaziz bin Salman was quoted as saying in the Saudi-owned Asharq al-Awsat daily..” [more]

Comments ahead of emergency oil talks in Jeddah
“..The world’s top oil exporter, Saudi Arabia, convenes an emergency meeting of producers, consumers and big oil executives on June 22 to seek a solution to soaring crude prices. Producers and consumers have long blamed each other, but the Saudi cabinet, chaired by King Abdullah, issued instructions two weeks ago to bring them together in Jeddah after oil surged by $16 a barrel in just over 24 hours..” [more]

What to watch for at Jeddah’s oil summit
“..Saudi Arabia’s oil meeting on Sunday is key to setting the direction of the oil price, which this week hit a record high of $139.89 a barrel. On Friday, oil prices closed at $135.13 a barrel, up 40 per cent since January. Although the gathering of producers and consumers is not an Opec meeting, the market is expecting an announcement on oil production from Saudi Arabia and perhaps other countries, such as Kuwait and the UAE..” [more]

Oil Prices Rise Ahead of Key Meeting in Saudi Arabia
“..Oil prices have risen ahead of a key meeting between oil producers and oil consumers to be held in Saudi Arabia. Crude oil for July delivery rose more than two percent, $2.84, at the close of trading in New York Friday, at times spiking by more than four dollars a barrel..” [more]

Oil prices surge above 136 dollars before Jeddah meet
“..Oil prices stormed higher on Friday as OPEC members hit out at consumer demands for more crude ahead of a high-level weekend meeting in the Saudi city of Jeddah to discuss rocketing fuel costs. Prices had fallen sharply Thursday after Saudi Arabia, the world’s biggest producer, announced a production hike of 200,000 barrels per day..” [more]

Editor’s Note:

In November 2005 King Abdullah presided at the opening of the International Energy Forum Secretariat (IEFS) in Riyadh which sought to improve the dialogue between oil producing and consuming countries. In the latest initiative to join the efforts of consumers and producers, as global energy prices are soaring, Saudi Arabia has called for a meeting to examine the causes of the crisis and explore remedies. Global oil consumers and producers will gather in Riyadh on June 22, 2008.

This SUSRIS Special Report provides a wrap up of reporting on the Saudi call for dialogue on the crisis. It also provides links to some the voluminous reference materials on the SUSRIS web site addressing the energy component of the US-Saudi relationship and introduces a new SUSRIS Special Section on the “Energy Crisis of 2008.”

Perspective..

“..The global community faces tough choices as it struggles with how to achieve energy security. I believe we must act decisively because the current path poses a real threat of a continuing boom and bust cycle that robs us of the stability and predictability which promotes sound economic growth. At the same time, we must heed the lessons learned during previous eras of energy uncertainty and avoid repeating the costly mistakes of the past..”

The Future of US-Saudi Energy Relations – Saudi Minister of Petroleum and Mineral Resources Ali I. Al-Naimi
Center for Strategic and International Studies, Washington
May 2, 2006

“..Saudi Arabia currently supplies about 8% of total US demand, although by any measure it remains the most prolific, reliable and secure source of oil for global consumers. With the exception of the targeted oil embargo of 1973, Saudi Arabia has been one of the very few highly reliable producer/exporters of the past 30 years. Its performance in providing the world with incremental supply in time of need (eg, in the lead up to the 1991 Gulf War, during the 2002 Venezuelan strike, more recently in advance of the 2003 Gulf conflict and as prices spiked in the past two years) is unsurpassed..”

Robert E. Ebel
Chairman of the Energy Program at the Center for Strategic and International Studies (CSIS)

Reporting..

Saudi oil meeting scheduled for June 22: OPEC
“..Saudi Arabia is to host a meeting of oil producers and consumers on June 22, OPEC Secretary General Abdalla El-Badri told AFP Tuesday. “It will take place on June 22 in Jeddah,” he told AFP by telephone, adding that officials from consumer countries, the International Energy Agency and the heads of investment banks Morgan Stanley and Goldman Sachs would be invited. Oil kingpin Saudi Arabia called on [June 9] for the talks between producer and consumer countries in the aftermath of fresh records on oil markets..” [more]

IEA Seeks Increase in Oil Output at Saudi Meeting
“The International Energy Agency is seeking an immediate increase in oil output at this weekend’s producer-consumer summit in Saudi Arabia to “calm markets” in the wake of record crude prices. “The main message that will be very good is if we see an increase in production now,” Fatih Birol, chief economist at the IEA, said today in an interview in Istanbul. Oil producers should also agree `”to increase spare capacity for the next years to come. This is what the markets need to hear.”..” [more]

Oil prices slip in anticipation of Saudi output hike
“..Oil prices on Tuesday extended their retreat from record highs amid profit taking ahead of Saudi Arabia’s expected output increase.. ..”The Saudis seem quite willing to supply the market with more, despite their OPEC brethren’s objections at a time when average gasoline prices around the country (US) are moving beyond 4.00 dollars (a gallon). Under these conditions, oil looks less and less attractive,” said Mike Fitzpatrick at MF Global..” [more]

Iran opposes any Saudi unilateral oil output hike
“..Iran said on Tuesday it would be opposed to any move by OPEC kingpin Saudi Arabia to raise its oil output without a consensus from fellow members of the oil cartel. “If Saudi Arabia takes a measure to unilaterally increase (oil) output, it is a wrong move,” Mohammad Ali Khatibi, Iran’s new representative to OPEC, was quoted as saying by the state television website..” [more]

Saudi meet aims to soothe U.S. ire at oil price
“..An emergency meeting of oil producing and consuming countries this Sunday will give Saudi Arabia the chance to try to turn around a storm of negative publicity it has received in the United States, analysts say. Washington has been Saudi Arabia’s closest ally since the 1940s when a tight relationship formed on the basis of guaranteed oil supplies in return for U.S. protection for the Saudi monarchy through thick and thin..” [more]

Oil extends fall after Saudi output plan
“..Oil fell for a fourth day on Wednesday, as more investors appeared convinced that top exporter Saudi Arabia’s plan to boost supply could tame prices..” [more]

Editor’s Note:

Crude oil on world markets continues on a meteoric rise — NYMex futures more than doubling since June 2007 and up 14 percent in just two days last week — and the average gas price at the pump topped $4.00 in the United States today. American leaders are scrambling for solutions to the 2008 energy crisis but keep coming up empty.

Congress examines market manipulation. The American Treasury Secretary floats the notion of dollar-stabilizing intervention. President Bush returns from meetings in Saudi Arabia in January and May — his first and second visits to the Kingdom in his two terms — and despite the obvious crush of regional security issues to address, the headlines are consumed with talk of failure on the oil production increase front. Meanwhile the price climb continues to be fueled by actions beyond the apparent control of America and other consuming nations. Such was the European Central Bank President’s suggestion that interest rates could be boosted to counter inflation, a dollar weakening move that drove crude prices higher on Thursday and an Israeli minister’s “unavoidable” Iran war-talk that pumped up prices on Friday.

We are also mindful of the position of producers that there’s already enough crude available on the market. OPEC President Khelil, Algeria’s oil minister, told SUSRIS last month that “supply and demand are in equilibrium” and that “increasing production is not going to reduce the price.”

It was against this backdrop that the Saudi Council of Ministers concluded on Monday that “the current increase in oil prices is unjustifiable in terms of oil data and market fundamentals” and called for a “meeting involving representatives from producing and consuming countries and companies active in the production, export and sales of petroleum to take into consideration the high prices, their causes, and how to objectively deal with them.”

This SUSRIS Special Report provides a perspective on the supply and demand for crude oil in the world and a wrap up of reporting on the Saudi call for consuming and producing nations and commercial interests to confer on the crisis and develop solutions. It also provides links to some the voluminous reference materials on the SUSRIS web site addressing the energy component of the US-Saudi relationship.

Perspective..

“Saudi Arabia, which benefited immensely from record oil prices last year, has sent signals in the past two weeks that it is committed to keeping oil at around $50 a barrel — down $27 a barrel from the summer peak that shook consumers across the developed world..”

Saudi Officials Seek to Temper the Price of Oil – Jad Mouawad, New York Times
January 28, 2007

“The “oil crisis” of 2004 is one more sign that a Bush administration that once hoped to transform the sources of instability in the Middle East is instead retrenching to a messier version of the old status quo. Desperate to slow the recent rise in oil prices, finance ministers from the Group of Eight industrialized countries last weekend demanded that OPEC countries raise their production, arguing in their communiqué that “lower oil prices would be of benefit to the whole world economy.”..”

Homemade Oil Crisis – David Ignatius, The Washington Post
May 25, 2004

“Events since September 11th have reinforced the view that a defining feature of the 21st century is global interdependence. And nowhere in the market is it more evident than in relations between the Kingdom and the United States. Interdependent relations always suffer from stress. The genius of diplomacy and the strength of long-term relations are the willingness and ability of the parties to manage and solve problems cooperatively as they arise. Every relationship is imperfect by any number of measures but our mutual willingness to persevere over a long and somewhat difficult period suggests that both sides view the effort as critical and strategically important. That effort begins with dialogue..”

Brent Scowcroft
CSIS/USSABC Energy Conference
April 27, 2004

“The good news is that generally we don’t have to worry about disruptions where people simply cannot supply enough oil or other energy commodities to meet demand but that doesn’t mean that there aren’t a lot of challenges.. ..We’ve been very pleased to join Saudi Crown Prince Abdullah’s call for enhancing the producer-consumer dialogues that have taken place over the last couple of years, and I think Minister, you’re going to see Secretary Abraham at the IEF in Amsterdam where the continuation of that producer-consumer dialogue will take place..”

Kyle McSlarrow
Deputy Energy Secretary
April 27, 2004

“..rise is driven by demand, particularly the dramatic growth in demand in China, which has increased its imports of oil by 400% in just 4 years, and is reinforced by concern about supply security.. ..continuity of supply has been threatened by disruptions – including Iraq, Nigeria and Venezuela. There has been no shortage, but there has been a fear that a shortage would develop..”

BP Group Chief Executive Lord Browne
Dec 10, 2004

“Saudi Aramco, the national oil company of Saudi Arabia, is a true example of the capability of national oil companies to provide the world with the needed oil. Its performance during the last two decades speaks volumes. Saudi Aramco was able to increase production after the Iraq invasion in Kuwait in August 1990, from 5.4mn b/d to 8.6mn b/d within three months. It was able to advance its production capacity on a sustainable basis from 7 to 10mn b/d during the first half of the 1990s, a permanent increase of some 3mn b/d, all the while finding new reserves to replace its production..”

Ali al Naimi, Saudi Minister of Petroleum and Mineral Resources
Remarks at Chatham House, London
Nov 29, 2004

Reporting..

Oil kingpin Saudi calls for talks with consumer countries – AFP
“..Oil kingpin Saudi Arabia called on Monday for talks with consumer nations on soaring world prices and reiterated its readiness to meet any increase in demand. The Saudi call was swiftly welcomed by the United States which has expressed mounting concern about the impact of high energy costs on the world economy. At a meeting chaired by King Abdullah, the Saudi cabinet restated its view that the leap in prices that saw New York’s benchmark contract hit a record 138.54 dollars on Friday was unjustified by fundamentals. But it added that it had asked Oil Minister Ali al-Naimi to “convene a meeting soon of representatives of producer and consumer nations and firms operating in the production, export and trading of oil to discuss the jump in prices, its causes and how to deal with it objectively”..” [more]

Saudi calls for talks; oil experts see no change – AP
“..Saudi Arabia will call for a summit between oil producing countries and consumer states to discuss soaring energy prices.. ..The kingdom will also work with OPEC to “guarantee the availability of oil supplies now and in the future,”.. ..the kingdom has informed “all oil companies it deals with as well as countries that consume oil that (the kingdom) is ready to provide them with any additional oil they need.”.. ..”The Saudi Cabinet has instructed Oil Minister Ali al-Naimi to call for a meeting in the near future that will include representatives of oil-producing countries, consumers and companies that work in extracting, exporting and selling oil to look into the price hike, its causes and how to deal with it,” ..” [more]

Saudi Arabia Calls for Summit on Energy Costs – NY Times
“..Saudi Arabia, the world’s biggest oil exporter, said on Monday that it wanted to convene an energy summit of producers and consumers to focus on “how to objectively deal” with high prices.. ..Following a cabinet meeting chaired by King Abdullah, the Saudi government said, “the increase in prices isn’t justified in terms of market fundamentals,” according to a statement released by the official Saudi Press Agency.. ..Few analysts expect a concerted effort by producers and consumers to push down prices. Still, the Saudi statement, while vague, helped prick the momentum of last week, when oil prices gained an unprecedented $16 a barrel over two days of frantic trading. Oil futures fell $4.19 on Monday to close at $134.35 a barrel.”.. ..some experts say that the Saudis are concerned about the impact of high prices on the American economy, the world’s largest consumer of oil, and the growth in alternative fuels..” [more]

Paulson says oil prices a ‘problem’, welcomes Saudi call – AFP
“..US Treasury Secretary Henry Paulson said Monday that surging world crude oil prices were a “problem” and welcomed a call by oil-rich Saudi Arabia for talks with energy-hungry consumer nations.. ..Paulson spoke after Saudi Arabia called for talks with consumer nations on soaring world prices and reiterated its readiness to meet any increase in demand as a key oil-producing nation..” [more]

Oil Falls as Saudi Arabia Calls for Producer-Consumer Meeting – Bloomberg
Crude oil fell more than $4 a barrel in New York after Saudi Arabia’s oil minister, Ali al-Naimi, called for a meeting of oil producing and consuming nations to discuss how to deal with record prices. “The increase in prices isn’t justified in terms of market fundamentals,” the Saudi government said today in a statement distributed by the Saudi Press Agency. Oil climbed $10.75 on June 6, its biggest gain ever, because of a weakening dollar and threats of supply disruptions..” [more]

Gas Prices Rise Higher, Hit $4 Average – Washington Post
“..After breaking the $4-a-gallon barrier during the weekend, nationwide gasoline prices continued their climb today, rising to $4.02 a gallon on average for regular, as crude oil prices fell only slightly after last Friday’s record surge. Gasoline prices are now 93 cents a gallon more than a year ago, and the price of diesel, which fuels the nation’s trucking fleet, stood this morning at $4.77 a gallon, $1.87 more than this time last year. “The fear here is that we’ve crossed a Rubicon,” said John Townsend, spokesman for AAA. “Normally prices plateau after Memorial Day.. ..But we still have this lag between the price of gasoline and the price of crude. We don’t know when these prices will come down. I don’t think we’re going to get much relief this summer.”..” [more]

Editor’s Note:

U.S. President George Bush was in Saudi Arabia on May 16, 2008 for meetings with King Abdullah and Saudi officials during a three country visit to the Middle East. While in the Kingdom Bush’s National Security Advisor Stephen Hadley met with the press to review the visit. This SUSRIS IOI provides the transcript of the press briefing.

Briefing by National Security Advisor Steve Hadley
Al Janadriyah, Saudi Arabia
May 16, 2008

MR. HADLEY: Just thought I would try and review a little bit what the President has been doing today. As you know, this morning he had a tour of the Bible Lands Museum in Jerusalem, and then had an opportunity to have a roundtable with Israeli youth, which some of you saw some of. It was an interesting group of young people — a cross-section, if you will, of Israel today. And the President had an opportunity to express his optimism that, as he said in the speech that he gave to the Knesset, that peace is possible in the Middle East; share his optimism with these young people; and also to hear from these young people about their hopes and dreams for their own future and for their country. It was a good exchange.

We then came here to Saudi Arabia; an arrival ceremony, which you all saw. And then a brief gathering, and finally going into lunch. The President and Mrs. Bush sat with His Majesty and they obviously had an opportunity for informal conversation at the end of the lunch. Then we moved into a separate meeting room and the two leaders had an opportunity to exchange views, and I’ll say a little bit about that. And then as you know they moved into a larger room where they witnessed the signature of two agreements between our Secretary of State and their Interior Minister and Foreign Minister.

I’d like to start, if I can, to say a little bit about some of the strengthening and diplomatic ties between the United States and Saudi Arabia that they were able to witness here today. As we’ve noted, this is the 75th anniversary of the formal establishment of diplomatic relations between the United States and the Kingdom of Saudi Arabia. And it is certainly fitting that these two leaders were able to reach some understandings and agreements that will further strengthen the ties between the two countries.

There are really four things I would draw your attention to, and they are covered in a fact sheet that we’ve issued. One is that Saudi Arabia will join the 70 partner nations of the Global Initiative to Combat Nuclear Terrorism. There are a number of things that all the countries who are party to this arrangement do. Saudi Arabia will participate in this activity. Just a couple things: These activities include advancing capabilities to search for and confiscate unlawfully held or traded nuclear materials, enhancing means to secure and make more safe civilian nuclear facilities, and promote information sharing and other activities to suppress acts of nuclear terrorism. It’s good that Saudi Arabia has joined this initiative.

They have also at the same time joined more than 85 states that are participating in the Proliferation Security Initiative. As you know, the Proliferation Security Initiative — or PSI — is a group of countries that have come voluntarily together to pool information and resources and use their own national capabilities and legal authorities to try to disrupt and interdict the flow of weapons of mass destruction and the means to deliver them or components and equipment that could contribute to the development of those weapons and systems.

Thirdly, there was an agreement signed between the two countries that will enhance their cooperation on infrastructure protection and protection of borders. For example, under the Critical Infrastructure and Protection agreement the two nations have agreed to establish a joint commission on infrastructure and border protection, to facilitate training, the exchange of experts, and support services to each other as required and as needed. And the two countries have agreed to broaden their cooperation between the Saudi Ministry of Interior and various departments in the U.S. government.

And finally, the Secretary of State and the Saudi Foreign Minister signed a Memorandum of Understanding in the area of peaceful civil nuclear energy cooperation. This will pave the way for Saudi Arabia’s access to safe, reliable fuel sources for energy in terms of nuclear reactors, and also be part of Saudi advancing the cause of non-proliferation in the Middle East.

The two leaders, before the signing of the two agreements, had an opportunity to have an exchange of views. I would call it a preliminary exchange of views on a set of topics. They will have an opportunity, of course, tonight at dinner to talk further, as well as tomorrow. There really were two subjects that dominated the discussion after initial conversations where they reaffirmed the agreements and understandings that had been reached and that the signing of which they would witness a little bit later.

They talked about Iran and the concern that both leaders have that recent events in Lebanon will embolden Iran. The two countries are of one mind, in terms of condemning what Hezbollah did, to try to bring pressure on the duly elected government of Lebanon. The two leaders obviously reaffirmed their support for the elected government in Lebanon and to strengthening the institutions of that government, including security institutions.

I think one of the things that you’re beginning to hear from the Lebanese people, themselves, is the fact that the recent activity by Hezbollah has given the lie to the notion or the argument that Hezbollah has made, that they can maintain maintenance of a militia is needed in order to protect Lebanon from pressure or attack by Israel, because as Lebanese voices are now saying, this was an instance where Hezbollah turned their militia on the Lebanese people and the institutions of a duly elected Lebanese government. And we think that this realization — spreading realization among the people of Lebanon may help to resolve the underlying political deadlock that has afflicted the government.

As you know, there is an Arab League Initiative in which Saudi Arabia has been a very active proponent that has — is now in Lebanon, and is trying to get the situation back to the status quo ante, in terms of the actions by the government, and also to get Hezbollah militia off the streets and the people of Lebanon out from under siege, and finally then encourage a political process that could lead to the underlying resolution of the political deadlock that we’ve seen there.

We obviously support that effort, but I think it pointed up to the two leaders, as they have — or reemphasized something that the two leaders have believed for some time: that Iran, working directly and through Syria, was very much behind what happened in Lebanon over the weekend; and it is another example about how Iran is taking actions contrary to the interests of those in the Middle East who want peace, stability and freedom; and, indeed, is a threat really outside to the Middle East to humanity as a whole.

The two leaders discussed ways in which we can more effectively confront Iran’s negative actions and behavior and increase pressure on Iran in order to aid our diplomacy in convincing Iran to make a strategic change in direction, to stop its nuclear program, to stop its support for terror, to stop intimidating its neighbors, and at some point hopefully to provide greater freedom to its own people.

The second major topic of the conversation had to do with oil. The Saudi government has reiterated their policy that Saudi Arabia is willing to put on the oil market whatever oil is necessary to meet the demand of Saudi Arabia’s customers. Now, it’s important to understand that that policy, or even an increase in production is not going to result in some dramatic reduction in gas prices in the United States. And I say that — what I’m describing for you now was a presentation that Saudi authorities made in the course in the meeting, which was very illuminating of Saudi thinking and policy.

They reiterated the policy that I described. They said that despite these efforts that they would make, in order to meet the demand of their customers, in their judgment, this — even increased production under this policy would not result in dramatic gas prices — reduction of gas prices in the United States. They emphasized — and particularly their oil minister, Minister Naimi, the complexity of today’s oil market and that, in his judgment, prices were sustained by a number of things.

There is great uncertainty in the oil market today: [un]certainty about geo-politics, about developments in some countries that are major producers, where there is political or other instability — and I’m thinking, for example, Venezuela, Nigeria — some uncertainties with respect to Iran, if you listen to some of the public statements they’ve been making recently. There is a fair amount of, therefore, heading going on in the market that, if you will, has in the view of the Saudi minister, has injected a margin between the real cost of oil and the market price of oil.

And, finally, he emphasized the mismatch in today’s oil market in the type of oil available — versus heavy versus light, high sulfur versus low sulfur — and the available refining capacity and the refined products that are available as a result of the refinement of the existing oil that is available today. He talked about the availability of heavy crude and the lack of availability of the special refineries required to take heavy crude and to turn it into refined products available for the market.

Some discussion about how to address the underlying problems in the oil market today. And this is something I think where the things we’ve heard from Saudi authorities has very much consistent with our own thinking and policy. One, there has to be an increase in reserves, an increase of production from those reserves, and particularly production of oil that can be more easily refined in the existing refining capacity.

And as you know, Saudi Arabia is making a major investment of over $10 billion over the next five years to increase their own production capacity by over a million barrels a day. This is something that’s been public. The President has talked about how the United States — even though we get the majority of our imported gas from neighbors Canada and Mexico — also has an opportunity to increase its own reserves. And this is, of course, why we have called for the environmentally sensitive exploration and exploitation of oil reserves in ANWR up in Alaska, and also on the offshore.

Second, there is a need to increase refining capacity. And the Saudi Oil Minister outlined their own efforts, both in Saudi Arabia and abroad, to increase refining capacity. And as you know, the President has talked about the need for the United States to be able to build new refineries in the United States, something we haven’t been able to do for over 30 years.

And finally, of course, we have talked about — that is to say the President has talked about alternative energy sources that are not dependent on plutonium — sorry, petroleum, so that we can reduce our dependency on petroleum products. And that, I think, is a good summary of the conversations they had this morning, and I’d be delighted to take some questions.

Q What they told you on the oil front, do you understand that as a promise to boost oil output as needed? How do you interpret that?

MR. HADLEY: What he said, and it was interesting, is, look –

Q When you say “what he said,” who is the he?

MR. HADLEY: We’re talking about the, as I said, the Saudi Oil Minister, Minister Naimi. He makes the point that this is a market — you sell to buyers. And if your buyers are not asking you for product, you can put it on the market and it will sit in ships. You need a buyer, and that’s why I think the Oil Minister’s comment was framed the way it was; reiterated their policy that Saudi Arabia is willing to put on the market whatever oil is necessary to meet the demand of their customers.

And what they’re saying to us is, we do not, at the present time — that is to say Saudi Arabia at the present time does not have customers that are making requests for oil that they are not able to satisfy. And so he’s basically said, if our customers come to us and say they have a shortage of crude oil, we will meet that request. But so far what he’s saying to us is, there is not unfulfilled demand from their customers that they are not meeting out of their current production, even as they are making investments to increase their production over time.

Q Did they express any concern about the bills in Congress right now that would block weapons deals to Saudi or that would enact — implement anti-trust legislation against — are they concerned about that?

MR. HADLEY: There wasn’t any specific discussion about that, but obviously they are a student of their customer. And one of the things I think you have heard from Saudi officials before is that they are sensitive to the economic health of their customers. And they are also sensitive to, and aware of, I’m sure, about the unhappiness that is generated in the United States among the American people and in the Congress about these high oil prices. So it didn’t come up explicitly, but I’m sure it’s something that the Saudi authorities are very much aware of.

Q It sounded to me, and maybe I got it wrong, but that they extremely — in a very polite way stonewalled you; they said we do whatever is necessary to meet the demand of our customers, but the demand isn’t there.

MR. HADLEY: What it tells you is –

Q It’s kind of a technicality.

MR. HADLEY: No, on the contrary. How can you sell a product that nobody wants to buy? And what they’re telling us is, you need to look at the dynamics of this oil market, and what they’re saying is, we sell to something like 50 or so customers, and our customers are not asking us to sell them oil.

So what they’re saying is, the problem isn’t inadequate supply, the problem is, we don’t have the demand at present that is being unmet. I think people have a notion that at some level there is an excess of demand over available capacity, and that may be true in the macro sense, but what the Saudi Oil Minister is saying, look, we’ve got the oil, and we will sell it to any customer who comes to want to buy it, but we don’t have customers who are saying they want our oil that we’re not meeting.

And I think what it tells you is, there’s something going on in this oil market that is more complicated than just turning on the spigot. I think people — there’s a sense in which people think the problem is, all you need to turn — is somehow turn on the spigot, get more oil into the market, and everything will be fine. And what they’re saying is, we can put more oil on the market, and will, if somebody comes to us and says they want to buy it. But they aren’t.

And so the next question is, why aren’t they? And the question partly is this mismatch between available production, refinery capability and products. And that’s one thing that goes to the issue of demand, demand for what. And then the second question, as well, if the Saudis say there isn’t unmet demand from their customers, why is the price of oil so high? And what I think he’s saying is, there are other factors that are affecting price other than unmet demand. There is uncertainty, there is speculation.

And I think there’s also a recognition that in the short run — and this I think is very much factored in the price — in the short run, while economists will tell you demand is going up and will go up in future years, the ability to meet increasing demand over the next several years is going to require an increase in production and refining capacity, which requires mega-dollar investments over a period of time.

So I think one of the things there are — what I think they are saying is, there are a lot of things that are driving the issue of oil — of gas prices, and that it is a much more sophisticated analysis than just, “there isn’t enough crude on the market, therefore open the spigot” — basically saying, that won’t solve the problem.

Q Well, what — I’m sorry — what was the President’s reaction to that? Thanks?

Q Did he buy it?

MR. HADLEY: I think the President has said, as you know, very publicly, that this is going to be a problem — of high oil prices — a problem that isn’t going to be fixed overnight; that it’s not something you can take a magic wand to; that we’ve got to address the underlying problems in the market, and that is — given the prospect for increasing demand in the years ahead, we’ve got to make investments to increase production; that that’s something that the Saudis are doing and we applaud that. That’s something that he thinks we should have been doing over the last five years or so here at home.

So his response has been I think the same that you have heard publicly: We need to make investments in energy, particularly at home. That means new production. That means looking exploration for oil and being willing to develop it in U.S. territory — that’s ANWR in Alaska; that’s offshore. He’s also talked about the need for increased refining capacity. That’s that problem of the mismatch between the kinds and grades of crude available and the refining capacity. Not every refiner can take every grade of oil and turn it into gasoline.

So the second thing he’s called — talked about is the need to invest in refining capacity, which has been stymied in the United States for 30 years. And then the third thing he’s called for, of course, is diversification out of — in addition to petroleum from other sources.

So it’s very much consistent with what the President has been saying, which is we have failed to make the investments we needed to make in the past. We need to get after it and make the right investments now if we’re not going to have this problem in the future.

Dana, you wanted to –

Q I just wanted to follow up and take a step back then — is it fair to characterize the Saudi presentation as saying, we understand the problem; there’s not a whole lot we can do?

MR. HADLEY: I think what I would say is, I would interpret — I think that what the Saudis wanted to tell us was, we’re doing everything we can do; we’re putting oil on the market to satisfy all our customers, and if our customers increase what they want to buy from us, we will meet their demand. And then I think they were saying, we are also making investments to increase our production and to increase refining. So I think the message the Saudis were sending was, we’re doing everything we can to meet this problem, but it’s a complicated problem and the underlying causes of these high gas prices are going to take time and money to address.

Q But do you see –

MR. JOHNDROE: Folks, Mrs. Bush is on her way shortly, so I think Steve is going to take a couple more questions. All right, so I don’t know if you have anything other than oil, because I’m — I feel like Steve has just about exhausted –

MR. HADLEY: I’m drained out on the oil issue? (Laughter.)

Q President Bush is very well schooled, obviously, on the oil market –

MR. HADLEY: Sure is.

Q — so none of this — all this stuff makes sense; you know, explaining the dynamics of the market, the sophistication of it, the complication of it — all this stuff is stuff the President knows and has known for a long time. Both the President and you and others said before this trip that what he would like to see, even knowing all this stuff before they explained it to him, is increased production. And they’re saying that’s not something that they think would be helpful or that they’re going to do.

MR. HADLEY: No, I think the — what they’re saying is, we’re doing it; we have met all the demand from our customers, and if our customers increase the demand, we will meet it, we reaffirm that; we will meet that demand. I think that’s a very good thing. And secondly, they reaffirmed and elaborated a bit on the investments they are making over time that will increase their production and refining capacity. So I think all of that was good.

Q This explanation, did he even ask for an increase in production?

MR. HADLEY: Sure, he — look, what the President said is, we need to be doing all we can do to deal with this problem. And that’s why I said I think the message that came back from the Saudis are, we hear you, we know the markets are under pressure, and we’re doing all we can do.

Q But does the President agree with the Saudis that turning on the spigots would not solve the problem?

MR. HADLEY: I think you’ve heard from the President of the United States. If you look at his comments over the last two or three weeks, he said in a press conference, look, if I could wave a magic wand and make this problem go away, I would, but it’s not that simple. So I think what I would say is, it’s very consistent in his thematics. Now, can I verify, and did we verify every piece of data we got from the Saudis? No, we’ll take that back and see if it conforms to what our –

Q Did the President — but then, if that was the case, why did the President want OPEC to increase production, if he did not believe that increasing production would lower oil prices? I mean, it doesn’t go together.

MR. HADLEY: He does want increased production.

Q But you’re saying no.

MR. HADLEY: And he does want to meet — no, that’s not — I mean, I don’t know how many times I can say this. What I said was, they are willing — they are meeting all the demand, and if there is additional demand, they will meet it out of increased production. And they also said they are making investments today that will increase production tomorrow. So on the question of, are they increasing production, check that box yes.

The question is, will what they are doing in the short run — a willingness to meet any additional demand from the customers and investments in production over the long term — will that affect oil prices in the next — in the short term. What the Saudis are saying is, in their judgment, no. That’s not — that doesn’t mean they aren’t going to do what they said they were going to do. They just don’t want to create false expectations in the same way the President didn’t want to when he spoke three weeks ago.

Dana.

MS. PERINO: I’m just — let me just add another thing, which is that what we have said in the past and what we’ve continued to say is that there’s lots of parallel tracks that we have to be moving along at the same time. And America has a lot of work to do on its own, back home, as well. And decisions that have been made in the past to not allow us to become more self-sufficient are now squeezing us on the price side.

And so there’s not only the portion where we need to do more at home on the exploration and production side, but we’ve got to continue to do more, and the President has put — had many good policies in place over the past several years on alternatives and renewable energy, and also on conservation efforts with the CAFE standards. So there’s parallel tracks that we all need to be working towards, and I think what you’ve heard from the Saudis today is, we’d be willing to do more production; at the same time, we are willing to try to help on the refinery side of things.

We have to ask ourselves, why are we not trying to improve refinery capacity in our own country? And barriers to those needs, or even with expanding original sites, we all know some of the reasons for that back home, but I think we need to get over it if we are going to be able to help solve this — help solve this problem for ourselves.

MR. HADLEY: I think the bottom line is, the problem of high gas prices is more than just about oil, it’s more than just about Saudi, and it’s more than just about short-term production. It’s about a variety of things that I have tried to describe, and what it is — and the President’s message was, of course, been heard by Saudi, by other members of OPEC. But the President’s message also is that it needs to be heard by the American people and by the American Congress so that we can start doing the things that are within our own control to increase our own oil production, our own refining capability, and our ability to diversify out of the dependence on petroleum.

Q One non-oil question — nuclear, please?

MR. HADLEY: Yes.

Q In the past, the administration has made the argument that Iran’s claims of its needs for a domestic civilian energy program are not credible because they have such enormous oil reserves. Should competitors to Saudi Arabia fear that they are in the process of trying to develop a nuclear capacity for something other than domestic purposes, given the fact that they have enormous oil reserves sufficient for their domestic energy needs?

MR. HADLEY: Who is?

Q Saudi Arabia has nuclear intentions beyond domestic energy production.

MR. HADLEY: Well, they said very clearly that they haven’t.

Q That’s what Iran says, too.

MR. HADLEY: Well, but the situations are dramatically different. Saudi Arabia, in a very public way, consistent with IAEA standards, and subject to the IAEA, is beginning to talk about nuclear energy writ large, which is not just an issue about civil nuclear power, but as you read the agreement, it involves cooperation on a number of other things — very much at the early stages.

Iran, of course, got into the nuclear business in secret with a program outside the IAEA safeguards, that we only found out about it because of the action by the IAEA, tipped off by dissident groups within Iran, and they started their program in a very curious way. Rather than, as the Saudi Arabians have talked about getting civil nuclear power reactors, they started out and went and developed enrichment capability before they had a single civil nuclear reactor on line.

So they developed a capacity to enrich uranium, which, yes, can be used to fuel a civil nuclear reactor, but also can also be used to continue to enrich to a level of weapons-grade for a nuclear weapon. They did that in secret, without disclosing it to the IAEA, in an un-safeguarded way before they ever had a civil nuclear power reactor, which could have been a plausible need for the enrichment fuel. And it is almost calculated in a way to raise suspicions on the international community that they had something else in mind. So I think the situations could not be more different.

Q What does Saudi Arabia need nuclear energy for?

MR. HADLEY: It is a technology that has a lot of uses, and at some point they make — for things like, for example, desalinization, it is a particularly good power source, and you’ve — it’s better probably for you to talk to Saudi authorities about their various development plans, but I know one of the things that’s on the minds of countries in the Middle East is nuclear power to fuel desalinization plants to deal with, of course, the underlying problem in the region, which is fresh water.

Q Does this mean U.S. troops are going to go back to Saudi Arabia to protect these oil resources that you all agreed to today?

MR. HADLEY: No, there’s — the whole point of these agreements, of course, is to cooperate and support Saudi efforts to safeguard their own oil infrastructure. And we think Saudi Arabia can do that job, wants to do that job, and it’s in, of course, our interests as a close ally to support them and help them develop that capacity for themselves.

Q No U.S. troops?

MR. HADLEY: There we are. Thank you.

Source: White House

Saudis slightly boost oil output as Bush visits – Reuters
RIYADH (Reuters) – Saudi Arabia announced a modest increase in oil output on Friday after an appeal from visiting President George W. Bush but the news did little to douse prices that hit a new record earlier in the day. On his second visit to the world’s biggest oil-exporter this year, Bush renewed his call for OPEC to increase production amid rising pressure at home to take action as soaring fuel prices weigh on the U.S. economy.. ..The United States, the world’s largest energy consumer, also reached agreements with Saudi Arabia to help it protect oil resources and develop peaceful nuclear energy. The announcement came as Bush ended a three-day trip to Israel where he vowed to oppose Iran’s nuclear ambitions. Tehran says its program is peaceful but Bush said it would be “unforgivable” if Iran were allowed to acquire a nuclear weapon. Hadley said Bush and King Abdullah believed “Iran, working directly and through Syria, was very much behind what happened in Lebanon”, where Hezbollah has routed fighters loyal to the government backed by Saudi Arabia and the West. They also discussed how to “confront Iran’s negative actions and behavior and increase pressure on Iran”.. ..Prince Saud objected to Bush’s outspoken support for Israel during a speech to the Knesset in Jerusalem on Thursday in which the U.S. president referred to the Israelis as “chosen people,” saying that the Palestinians were entitled to rights as well. [more]

Saudis announce slight oil output increase – USA Today
RIYADH, Saudi Arabia — Saudi Arabia announced a slight increase in oil output after a meeting between King Abdullah and President Bush on Friday, but the kingdom’s leaders said they are powerless to bring down rising gas prices. The decision to raise oil output by modest 300,000 barrels a day went into effect on Saturday and gives Bush a small victory amid mounting pressure from lawmakers and motorists at home where fuel prices are approaching four dollars a gallon. [more]

Oil Efforts Are Best Possible, Saudis Say – Washington Post
RIYADH, Saudi Arabia, May 16 — Saudi leaders told President Bush on Friday that they are doing all they can to increase oil production, gently turning aside the president’s efforts to bring down prices more rapidly. After a meeting with Bush and his advisers Friday afternoon, Saudi Oil Minister Ali al-Naimi announced that the kingdom decided last week to increase production by about 300,000 barrels a day to meet increased demand from customers for June. [more]

Saudis Rebuff Bush, Politely, on Pumping More Oil – NY Times
RIYADH, Saudi Arabia — President Bush used a private visit to King Abdullah’s ranch here on Friday to make another appeal for an increase in oil production that might give American consumers some relief at the gasoline pump. The Saudis responded by announcing they had decided a week ago on a modest increase of 300,000 barrels a day. The White House said the increase would not be enough to lower gasoline prices, which are nearing $4 a gallon, and industry analysts called it mostly symbolic. But Mr. Bush’s request, his second in five months, coupled with rising anti-Saudi sentiment in the Democratic-led Congress, underscored the growing tensions between the countries over oil. [more]

Saudi raises oil output to highest in two years after pleas from George Bush
Saudi Arabia has disclosed, during a visit to the Kingdom by George Bush, that it has lifted oil production to its highest in two years. But the agreement to pump an extra 300,000 barrels per day did little to relieve runaway oil prices, which had earlier struck a record high of nearly $128 a barrel.. ..The announcement from Saudi Arabia, the world’s largest producer, to increase supplies by 3.3 per cent to 9.45 million barrels per day came during the second trip made by President Bush this year to visit King Abdullah in Riyadh. Saudi Oil Minister Ali al-Naimi said: “On May 10, we raised supplies to customers by increasing 300,000 barrels per day of oil (output) .. In the future if the need appears, Saudi Arabia has no objection to producing more.” [more]

U.S.-Saudi Arabia Memorandum of Understanding on Nuclear Energy Cooperation – Media Note – State Dept
Today, Secretary of State Condoleezza Rice and Saudi Arabia Foreign Minister Prince Saud Al Faisal signed a Memorandum of Understanding on Civil Nuclear Energy Cooperation. The Government of the United States and the Kingdom of Saudi Arabia will establish a comprehensive framework for cooperation in the development of environmentally sustainable, safe, and secure civilian nuclear energy through a series of complementary agreements. Both of our countries face growing energy needs and we seek to address them in a responsible manner that contributes to reducing the effects of greenhouse gases on the global climate. The United States will assist the Kingdom of Saudi Arabia to develop civilian nuclear energy for use in medicine, industry, and power generation and will help in development of both the human and infrastructure resources in accordance with evolving International Atomic Energy Agency guidance and standards. Saudi Arabia has stated its intent to rely on international markets for nuclear fuel and to not pursue sensitive nuclear technologies, which stands in direct contrast to the actions of Iran. [more]

Bush in Saudi Arabia for Nuclear Deal – VOA
U.S. President George Bush is in Saudi Arabia for talks with King Abdullah marking the 75th anniversary of diplomatic relations between Washington and Riyadh.. ..the two leaders are expected to reach agreement on civilian nuclear technology. [more]

Beseeching the Saudis – Wall Street Journal
We don’t know who advised President Bush to go on bended knee to Saudi Arabia yesterday, to plead with King Abdullah to ramp up oil supply and ease prices at the American gas pump. But about that adviser, our suggestion to the President is: Fire him – or her.. ..As it is, rising prices are less a reflection of inadequate supply than they are of the dollar’s collapse. For proof, look no further than Europe, where gas prices haven’t risen nearly as sharply as they have in the U.S. We never like to see an American President of either party go begging. But if Mr. Bush really needs to beseech a political authority, he’d be better served turning to Federal Reserve Chairman Ben Bernanke, creator of our current commodity-price spike. [more]

White House Notebook: No question, Bush not doing Q&A – AP
RIYADH, Saudi Arabia (AP) — No question about it: President Bush hasn’t given reporters a chance to ask him anything on this Mideast journey. On foreign trips, Bush often holds mini-news conferences with his hosts, during which two U.S. reporters and two local media representatives get to ask questions. Yet there is not a single such session on his agenda this time as Bush tackles Mideast peace and soaring oil prices in stops through Israel, Saudi Arabia and Egypt. By comparison, Bush held four of these “press availabilities” in five days during a trip to Africa in February. These impromptu back-and-forths are not always announced like news conferences, but are fairly common. Through the first three days of his current five-day trip, he has not had one. [more]

Editor’s Note:

President George W. Bush is in Saudi Arabia today for meetings with King Abdullah and Saudi officials on a wide range of issues and challenges in the bilateral partnership. On the occasion of the meetings the Administration released a “Fact Sheet” on the White House Web site which is provided here for your consideration.

Fact Sheet: Strengthening Diplomatic Ties with Saudi Arabia
United States And Saudi Arabia Improve Peace And Stability In The Region Through Nuclear Cooperation

Today, President Bush met with King Abdallah to commemorate the 75th anniversary of formal diplomatic relations between the United States and Saudi Arabia. Since 1933, these two nations have enjoyed formal relations. In 1945, during the waning months of World War II, King Abdallah’s father – King Abd al-Aziz – met with President Franklin Delano Roosevelt aboard the U.S.S. Quincy in the Red Sea, and the two leaders chose to deepen the strategic relationship between the two countries. The President’s visit today builds on this tradition of friendship and close cooperation.

It is in the spirit of that meeting that the United States and Saudi Arabia have completed four critical agreements to strengthen the protection of energy resources, enhance peaceful nuclear cooperation, broaden the fight against global terrorism, and bolster nonproliferation. These agreements further cement the longstanding U.S.-Saudi friendship and close cooperation to help bring peace and stability to the region and its people.

The United States And Saudi Arabia Will Work Together To Further Our Relationship

The Saudis bear a special responsibility for protecting key energy facilities of global importance and the world benefits from their abundant energy supplies. Our global economy depends greatly on Saudi Arabian energy. The U.S. has a keen interest in helping the Saudis protect their energy infrastructure against terrorism, as demonstrated by the unsuccessful terrorist attack against the Kingdom’s Abqaiq Plants in February 2006. To this end, the United States and Saudi Arabia have agreed to cooperate in safeguarding the Kingdom’s energy resources by protecting key infrastructure, enhancing Saudi border security, and meeting Saudi Arabia’s expanding energy needs in an environmentally responsible manner.

1. Saudi Arabia will join the 70 partner nations of the Global Initiative to Combat Nuclear Terrorism. As a partner in this multilateral initiative, Saudi Arabia will:

• Enhance its accountability and physical protection of nuclear systems
• Advance its capability to search for and confiscate unlawfully held nuclear material
• Improve its ability to detect nuclear material to prevent illicit trafficking
• Enhance its means to secure civilian nuclear facilities
• Deny safe havens and economic resources to terrorists
• Create legal frameworks to enforce criminal liability for terrorists
• Improve its response and mitigation capabilities in the event of a terrorist attack
• Promote information sharing to suppress acts of nuclear terrorism

2. The Kingdom of Saudi Arabia will also join more than 85 states participating in the Proliferation Security Initiative (PSI). The PSI is a response to the growing challenge posed by the proliferation of weapons of mass destruction, their delivery vehicles, and related materials worldwide. PSI participants will now include Saudi Arabia and all states that border it.

3. The U.S. will help the Saudis develop both human and infrastructure resources in accordance with International Atomic Energy Agency guidance and standards.

• In order to ensure a smooth supply of energy to the world, Saudi Arabia must be able to effectively safeguard its borders and coasts, and ensure consistent supplies of water and power to its citizens.
• Under the Critical Infrastructure Protection agreement, the two nations have agreed to establish a Joint Commission on Infrastructure and Border Protection to facilitate training, the exchange of experts and specialized knowledge, and other support services as needed.
• The U.S. and Saudi Arabia will also conclude a security agreement that will allow for broadened cooperation between the Saudi Ministry of Interior and the U.S. Government.

4. The U.S. and Saudi Arabia will sign a Memorandum of Understanding in the area of peaceful civil nuclear energy cooperation. This agreement will pave the way for Saudi Arabia’s access to safe, reliable fuel sources for energy reactors and demonstrate Saudi leadership as a positive non-proliferation model for the region.

• The United States will assist the Kingdom of Saudi Arabia to develop civilian nuclear power for use in medicine, industry, and power generation.
• The Government of the United States and the Kingdom of Saudi Arabia will establish a comprehensive framework for cooperation in the development of environmentally sustainable, safe, and secure civilian nuclear energy through a series of complementary agreements.

Fouad al-Farhan was well known among the expanding web log, or blog, community in Saudi Arabia prior to his imprisonment on December 10, 2007. Since then his case gained international attention including an exchange of concerns by senior U.S. government officials to Saudi officials during the period of President Bush’s January visit to the Kingdom. On Saturday he was released from custody and returned to his Jeddah home. This SUSRIS Special Report provides an update to Farhan’s case with excerpts and links to related articles. We conclude today with a replay of the January SUSRIS report on his detention and Abeer Mishkhas’ Arab News piece on the case.

News Reporting:

Popular Saudi blogger released from jail – Christian Science Monitor – Apr 28, 2008
A senior Saudi official for the first time today elaborated on why a popular Saudi blogger – released Saturday from detention – was held without charges for more than four months. “We have … what we call electronic crimes – any kind of violation related to computer and technology and so on,” Interior Ministry spokesman Gen. Mansour Al Turki told the Monitor when asked why Fouad Farhan had been jailed.”And I believe his main case was like violating personal rights…. Like when I go for example on the Internet or I go on any electronic media and I use your name and your personality and I criticize … or offend you without being able to introduce evidence of what I’m saying.” [more]

Saudi blogger freed after 4 months in jail – Reuters – Apr 28, 2008
A Saudi blogger detained without charge for more than four months after expressing pro-reform opinions has been released, a colleague said on Saturday. Fouad Farhan was detained in early December after running an online campaign over 10 men arrested since February 2007 on suspicion of financing militant groups, but whose supporters say they are being punished for pro-democracy activity. “I spoke to him and he’s in good spirits. He said he was treated really well,” said Ahmed al-Omran, who published the news on his website (www.saudijeans.org). [more]

Reformist Saudi blogger freed and ‘very happy’ – AFP – Apr 27, 2008
A Saudi blogger and reform advocate, whose detention without charge four months ago sparked criticism from Washington, told AFP on Sunday he was “very happy” to be free and was “fairly” treated in custody. But Fouad al-Farhan, who was released on Saturday from a prison in the Red Sea city of Jeddah, said he would not comment on the details of his case for the time being. “I am very happy to be back with family and friends. I appreciate their help (while I was in detention),” Farhan said by telephone from the resort of Taef near Jeddah, where he was visiting his mother. [more]

Freed Saudi blogger: Teens mustn’t become terrorists – CNN.com – Apr 27, 2008
Blogger Fouad al-Farhan said Sunday, the day after his release from a Saudi jail, that his four months in detention has given him a new focus. “My main interest right now is to help … our youth not to be involved in terrorism activities that will lead them to prisons,” al-Farhan said. Al-Farhan, 32, was detained in December, ostensibly because he supported several reform advocates accused by the Saudi government of supporting terrorism. The American Islamic Congress, which pushed for his release, said al-Farhan was simply expressing opinions and had advocated against terrorism. Al-Farhan said he “was treated like any other prisoner” and would not comment further about his case, saying he plans to issue a statement “soon” on his Web log, or “blog.” [more]

Freed Saudi blogger calls prison ‘unique’ – UPI – Apr 27, 2008
“My main interest right now is to help … our youth not to be involved in terrorism activities that will lead them to prisons,” al-Farhan said. Al-Farhan, 32, was detained in December, ostensibly because he supported several reform advocates accused by the Saudi government of supporting terrorism. The American Islamic Congress, which pushed for his release, said al-Farhan was simply expressing opinions and had advocated against terrorism. Al-Farhan said he “was treated like any other prisoner” and would not comment further about his case, saying he plans to issue a statement “soon” on his Web log, or “blog.” .. One of Farhan’s fellow activist bloggers, Ahmed al-Omran, told the Post Farhan’s arrest likely had the opposite effect than was intended. “The arrest was scary and intimidating to bloggers but also empowering. It made bloggers know that their blogs are influential, and now they feel more of a responsibility and take their blogs more seriously,” Omran said. [more]

The following SUSRIS Item of Interest was originally circulated on January 4, 2008.

Web Logs and Red Lines:
The Case of the Saudi Blogger

Editor’s Note:

What’s a blog? A blog is a personal diary. A daily pulpit. A collaborative space. A political soapbox. A breaking-news outlet. A collection of links. Your own private thoughts. Memos to the world. Your blog is whatever you want it to be. There are millions of them, in all shapes and sizes, and there are no real rules. In simple terms, a blog is a web site, where you write stuff on an ongoing basis. New stuff shows up at the top, so your visitors can read what’s new. Then they comment on it or link to it or email you. Or not.

–Blogger.com

The Saudi Interior Ministry confirmed on Monday that Fouad Al-Farhan was being held for interrogation, according to Arab News. Farhan, long recognized as among the more well known Saudi bloggers — certainly the best known Saudi blogger since his December 10, 2007 arrest — is being detained by authorities for “interrogation for violating non-security regulations,” according to ministry spokesman Maj. Gen. Mansour Al-Turki. What that means is not clear but before the arrest Farhan said he was being investigated and predicted he would be taken into custody. He attributed the investigation to his writing about Saudi academics who were arrested earlier in the year.

The case has been elevated onto the world stage, including discussions at the US State Department press briefings — especially in view of President Bush’s impending visit to Saudi Arabia. Today we provide an update on the news reporting on Farhan’s case (links below) and a discussion, by Abeer Mishkhas of Arab News, of expression in the media in the Kingdom and how the blogosphere in Saudi Arabia dances “close to the red lines.”

Fouad Al Farhan’s Blog is posted at: http://www.alfarhan.org.

How Free Is the Blogosphere?
Abeer Mishkhas, abeermishkhas@arabnews.com

When we congratulate ourselves on the expanding role of the media in Saudi Arabia, we do this with a sense of the different atmosphere surrounding us; there are still social problems, which we journalists cannot write about and there are still attitudes, which are anything but tolerant.

Tolerance is of course viewed subjectively here, and we know from experience that tolerance can enable us to say many things that have been buried in our hearts and minds for ages.

And yet despite our good intentions, we still use the brakes to stop ourselves from going in too deeply; and we do that either consciously or not.

The news of the arrest in Jeddah on Dec. 10 of Saudi blogger Fouad Farhan will be seen by many as a setback at a time when international news agencies had begun quoting our newspapers on some of our most important and sensitive issues.

One would think that the blogosphere should be even more open and free than newspapers.

And generally it has been: Bloggers in Saudi Arabia have varied their goals and subjects from fun-oriented ones to social networks to comments on current affairs.

For Saudis it was a breath of fresh air; the blogosphere offered freedom and an unrestricted space for all voices. Some of the bloggers have continued while others, for various reasons, stopped. The blogs dealing with lighter subjects, such as entertainment and fashion, survived while the more daring ones, which comment on current affairs, dance close to the red lines.

Some of the bloggers went from observing and posting clips from newspapers and TV shows to posting their own opinions.

Whether you agree with them is completely up to each person for after all that is the beauty of the blogosphere – live and let live, express and let express.

This sense of freedom is now at risk. According to some Saudi bloggers, Farhan’s arrest is making them think twice before posting comments that they might get in trouble for.

The almost complete freedom bloggers enjoyed is now subject to the same censorship that other websites face. Before that, censorship manifested itself in the simple sentence which came up when you clicked on a website: “This site is forbidden.”

The arrest of Farhan, however, seems to many people to be a much more drastic step. According to the authorities, Farhan’s arrest was for “non-security related issues” which implies that his website might not be the cause of the arrest – and indeed, this is supported by the fact that the site is up and running.

It is not blocked. In any case, until people hear otherwise, the assumption will be that the website was in fact the reason for his arrest.

At a time when the world media is focusing on Saudi affairs – whether we like it or not – a little openness could help our image a great deal. We must learn from the Qatif Girl case.

Because the authorities refused to talk, others did the talking; all sorts of theories came to the surface and there was no way of challenging or refuting them as there was no clear official information.

Maybe this time a clear statement as to why Farhan is being detained on a very imprecise charge would go a long way to clearing things up. In this age when news is available to everyone around the clock, it is hard to be convinced by a vague statement.

Source: Arab News

Editor’s Note:

President Bush arrived in the United Arab Emirates today following several days in Israel and the West Bank; and visits to Kuwait and Bahrain. In a speech in Abu Dhabi, Mr. Bush talked about the progress seen in the Gulf, the progress of the freedom agenda in the region, emerging economic progress, and how regional security is important for both continued economic growth and for the spread of freedom.

President Bush Visits Abu Dhabi
Emirates Palace Hotel
Abu Dhabi, United Arab Emirates

THE PRESIDENT: Doctor Aida, thank you very much for the kind introduction. Ministers, members of the diplomatic corps, and distinguished guests: I am honored by the opportunity to stand on Arab soil and speak to the people of this nation and this region.

Throughout the sweep of history, the lands that the Arab people call home have played a pivotal role in world affairs. These lands sit at the juncture of three great continents — Europe and Asia and Africa. These lands have given birth to three of the world’s major religions. These lands have seen the rise and fall of great civilizations. And in the 21st century, these lands are once again playing a central role in the human story.

A great new era is unfolding before us. This new era is founded on the equality of all people before God. This new era is being built with the understanding that power is a trust that must be exercised with the consent of the governed — and deliver equal justice under the law. And this new era offers hope for the millions across the Middle East who yearn for a future of peace and progress and opportunity.

Here in Abu Dhabi, we see clearly the outlines of this future. Beginning with the revered father of this country — Sheikh Zayed — you have succeeded in building a prosperous society out of the desert. You have opened your doors to the world economy. You have encouraged women to contribute to the development of your nation — and they have occupied some of your highest ministerial posts. You have held historic elections for the Federal National Council. You have shown the world a model of a Muslim state that is tolerant toward people of other faiths. I’m proud to stand in a nation where the people have an opportunity to build a better future for themselves and their families. Thank you for your warm hospitality.

In my country, we speak of these developments as the advance of freedom. Others may call it the advance of justice. Yet whatever term we use, the ideal is the same. In a free and just society, every person is treated with dignity. In a free and just society, leaders are accountable to those they govern. And in a free and just society, individuals can rise as far as their talents and hard work will take them.

For decades, the people of this region saw their desire for liberty and justice denied at home and dismissed abroad in the name of stability. Today your aspirations are threatened by violent extremists who murder the innocent in pursuit of power. These extremists have hijacked the noble religion of Islam, and seek to impose their totalitarian ideology on millions. They hate freedom and they hate democracy — because it fosters religious tolerance and allows people to chart their own future. They hate your government because it does not share their dark vision. They hate the United States because they know we stand with you in opposition to their brutal ambitions. And everywhere they go, they use murder and fear to foment instability to advance their aims.

One cause of instability is the extremists supported and embodied by the regime that sits in Tehran. Iran is today the world’s leading state sponsor of terror. It sends hundreds of millions of dollars to extremists around the world — while its own people face repression and economic hardship at home. It undermines Lebanese hopes for peace by arming and aiding the terrorist group Hezbollah. It subverts the hopes for peace in other parts of the region by funding terrorist groups like Hamas and the Palestine Islamic Jihad. It sends arms to the Taliban in Afghanistan and Shia militants in Iraq. It seeks to intimidate its neighbors with ballistic missiles and bellicose rhetoric. And finally, it defies the United Nations and destabilizes the region by refusing to be open and transparent about its nuclear programs and ambitions. Iran’s actions threaten the security of nations everywhere. So the United States is strengthening our longstanding security commitments with our friends in the Gulf — and rallying friends around the world to confront this danger before it is too late.

The other major cause of instability is the extremists embodied by al Qaeda and its affiliates. On September 11, 2001, al Qaeda murdered nearly 3,000 people on America’s home soil. Some of the victims that day were innocent Muslims. And since then, al Qaeda and its allies have killed many more Muslims here in the Middle East — including women and children. In Afghanistan under the Taliban, on Iraq’s Anbar Province, they ruled by intimidation and murder. Their goal is to impose that same dark rule across the Middle East. So they seek to topple your governments, acquire weapons of mass destruction, and drive a wedge between the people of the United States and the people of the Middle East. And they will fail. The United States joins you in your commitment to the freedom and security of this region — and we will not abandon you to terrorists or extremists.

The fight against the forces of extremism is the great ideological struggle of our time. And in this fight, our nations have a weapon more powerful than bombs or bullets. It is the desire for freedom and justice written into our hearts by Almighty God — and no terrorist or tyrant can take that away. We see this desire in the 12 million Iraqis who dipped their fingers in purple ink as they voted in defiance of al Qaeda. We see the desire in the Palestinians who elected a President committed to peace and reconciliation. We see this desire in the thousands of Lebanese whose protests helped rid their country of a foreign occupier. And we see this desire in the brave dissidents and journalists who speak out against terror and oppression and injustice. We see this desire in the ordinary people across the Middle East, who are sick of violence, who are sick of corruption, sick of empty promises — and who choose a free future whenever they are given a chance.

We also see leaders across this region beginning to respond to the desires of their people — and take the steps that will help enhance the stability and prosperity of their nations. The recent elections to your Federal National Council represent the first part of a larger reform designed to make your government more modern and more representative. Algeria held its first competitive presidential elections. Kuwait held elections in which women were allowed to vote and hold office for the first time. Citizens have voted in municipal elections in Saudi Arabia, in competitive parliamentary elections in Jordan and Morocco and Bahrain, and in a multiparty presidential election in Yemen. Across the world, the majority of Muslim people live in a free and democratic society — and the people of the Middle East must continue to work for the day where that is also true of the lands that Islam first called home.

As freedom and justice advance in this part of the world, elections are important, but they’re only a start. Free and just societies require strong civic institutions, such as houses of worship, universities, professional associations, local governments and community groups. Free and just societies require habits of self-government that contribute to the rule of law. And free and just societies ultimately depend on the emergence of an engaged public whose citizens feel they have a real stake in their nation’s future. All these developments contribute to the bond between government and the governed, between a people and their nation.

Free and just societies also create opportunities for their citizens. This opportunity begins with economic growth. In any society, the greatest resource is not the oil in the ground or the minerals beneath the soil. It is the skills and talents of the people. Or as one Nobel winning economist calls this human capital. Across this region, you have an abundance of human capital — in the men and women who are your citizens. By strengthening your education systems and opening your economies, you will unlock their potential, create vibrant and entrepreneurial societies, and usher in a new era where people have confidence that tomorrow will bring more opportunities than today.

In the last few years, the nations of this region have made some great progress. The World Bank reports that economic growth is strong and it is rising. Saudi Arabia has joined the World Trade Organization. Jordan, Oman, Bahrain, and Morocco have signed free trade agreements with the United States. Your nations are attracting more foreign investment. Oil accounts for much of the economic growth here. But the nations of the Middle East are now investing in their people, and building infrastructure, and opening the door to foreign trade and investment. America supports you in these efforts. We believe that trade and investment is the key to the future of hope and opportunity. We also believe that as we demand you open your markets we should open ours, as well. We’re encouraged by the movement toward economic freedom that we’re seeing across the Middle East.

Unfortunately, amid some steps forward in this region we’ve also seen some setbacks. You cannot build trust when you hold an election where opposition candidates find themselves harassed or in prison. You cannot expect people to believe in the promise of a better future when they are jailed for peacefully petitioning their government. And you cannot stand up a modern and confident nation when you do not allow people to voice their legitimate criticisms.

The United States appreciates that democratic progress requires tough choices. Our own history teaches us that the road to freedom is not always even, and democracy does not come overnight. Yet we also know that for all the difficulties, a society based on liberty is worth the sacrifice. We know that democracy is the only form of government that treats individuals with the dignity and equality that is their right. We know from experience that democracy is the only system of government that yields lasting peace and stability. In a democracy, leaders depend on their people — and most people do not want war and bloodshed and violence. Most people want lives of peace and opportunity. So it is the declared policy of the United States to support these peoples as they claim their freedom — as a matter of natural right and national interest.

I recognize that some people — including some in my own country — believe it is a mistake to support democratic freedom in the Middle East. They say that the Arab people are not “ready” for democracy. Of course, that is exactly what people said about the Japanese after World War II. Some said that having an Emperor was incompatible with democracy. Some said that the Japanese religion was incompatible with democracy. Some said that advancing freedom in Japan and the Pacific was unwise, because our interests lay in supporting pro-American leaders no matter how they ruled their people.

Fortunately, America rejected this advice, kept our faith in freedom, and stood with the people of Asia. The results are now in. Today the people of Japan have both a working democracy and a hereditary emperor. They have preserved their traditional religious practices while tolerating the faiths of others. They are surrounded by many democracies that reflect the full diversity of the region. Some of these democracies have constitutional monarchies, some have parliaments, and some have presidents. Some of these democracies have Christian majorities, some have Muslim majorities, some have Hindu or Buddhist majorities. Yet for all the differences, the free nations of Asia all derive their authority from the consent of the governed — and all know the lasting stability that only freedom can bring.

This transformation would not have been possible without America’s presence and perseverance over many decades. And just as our commitment to Asia helped people there secure their freedom and prosperity, our commitment to the Middle East will help you achieve yours. And you can know from our record in Asia that our commitment is real, it is strong, and it is lasting.

Today America is using its influence to foster peace and reconciliation in the Holy Land. The Israelis have raised a thriving modern society out of rocky soil, and want to live their lives in freedom and security at home and at peace with their neighbors. The Palestinian people aspire to build a nation of their own — where they can live in dignity and realize their dreams. Today Israelis and Palestinians each understand that the only way to realize their own goals is by helping one another. In other words, an independent, viable, democratic, and peaceful Palestinian state is more than the dream of the Palestinians. It’s also the best guarantee for peace for all its neighbors — and the Israelis understand this. Leaders on both sides still have many tough decisions ahead, and they will need to back these decisions with real commitments. But the time has come for a Holy Land where Palestinian and Israeli live together in peace.

America will do our part. In Annapolis in November, the United States invited the Israelis and the Palestinians, and other members of the international community to come to a conference. And I appreciate the fact that your country sent a delegate. It was a remarkable thing to see a Palestinian President and an Israeli Prime Minister address a roomful of Arab leaders together. And the result was that the Palestinians and Israelis launched negotiations for the establishment of a Palestinian state and a broader peace.

The talks are just beginning, and our hopes are high. At the beginning of my trip, I met with both Israeli and Palestinian leaders. I was impressed by their commitment to move forward. And by supporting the legitimate aspirations of both sides, we will encourage reconciliation between the Israeli and Palestinian people, foster reconciliation between Israelis and Arabs, and build a foundation for lasting peace that will contribute to the security of every state in the Gulf.

And as you build a Middle East growing in peace and prosperity, the United States will be your partner. As we have done in places from Asia to Europe, we have forged new relationships with friends and allies designed to help you protect your people and your borders. As we have done in places from Asia to Europe, we’re helping you bring your economies into the global market. And as we have done in places from Asia to Europe, we have launched programs designed to help you promote economic reform and educational opportunity and political participation.

The United States has no desire for territory. We seek our shared security in your liberty. We believe that stability can only come through a free and just Middle East — where the extremists are marginalized by millions of moms and dads who want the same opportunities for their children that we have for ours.

So today I would like to speak directly to the people of the Middle East.

To the Palestinian people: The dignity and sovereignty that is your right is within your reach. In President Abbas, you have a leader who understands that the path forward is through peaceful negotiations. Help him as he makes the tough decisions for peace. Oppose the extremists and terrorists who represent the greatest threat to a Palestinian state. The United States will help you build the institutions of democracy and prosperity — and make your dreams of a state come true.

To the people of Israel: You know that peace and reconciliation with your neighbors is the best path to long-term security. We believe that peace is possible, though it requires tough decisions. The United States will always stand with Israel in the face of terrorism. And we will support you as you work to ensure the security of your people — and bring peace and reconciliation to the Holy Land.

To the people of Iraq: You have made your choice for democracy, and you have stood firm in face of terrible acts of murder. The terrorists and extremists cannot prevail. They are tormented by the sight of an old man voting, or a young girl going to school — because they know a successful democracy is a mortal threat to their ambitions. The United States is fighting side by side with Sunni and Shia and Kurd to root out the terrorists and extremists. We have dealt them serious blows. The United States will continue to support you as you build the institutions of a free society. And together we’ll defeat our common enemies.

To the people of Iran: You are rich in culture and talent. You have a right to live under a government that listens to your wishes, respects your talents, and allows you to build better lives for your families. Unfortunately, your government denies you these opportunities, and threatens the peace and stability of your neighbors. So we call on the regime in Tehran to heed your will, and to make itself accountable to you. The day will come when the people of Iran have a government that embraces liberty and justice, and Iran joins the community of free nations. And when that good day comes, you will have no better friend than the United States of America.

To the leaders across the Middle East who are fighting the extremists: The United States will stand with you as you confront the terrorists and radicals. We urge you to join us in committing the resources to help the Palestinians build the institutions of a free society. Help the citizens of Lebanon preserve their government and their sovereignty in the face of outside pressure from their neighbors. Show the Iraqis that you support them in their effort to build a more hopeful nation. And as you do these things, the best way to defeat the extremists in your midst is by opening your societies, and trusting in your people, and giving them a voice in their nation.

And finally, to the people of the Middle East: We hear your cries for justice. We share your desire for a free and prosperous future. And as you struggle to find your voice and make your way in this world, the United States will stand with you.

For most of the world, there’s no greater symbol of America than the Statue of Liberty. It was designed by a man who traveled widely in this part of the world — and who had originally envisioned his woman bearing a torch as standing over the Suez Canal. Ultimately, of course, it was erected in New York Harbor, where it has been an inspiration to generations of immigrants. One of these immigrants was a poet-writer named Ameen Rihani. Gazing at her lamp held high, he wondered whether her sister might be erected in the lands of his Arab forefathers. Here is how he put it: “When will you turn your face toward the East, oh Liberty?”

My friends, a future of liberty stands before you. It is your right. It is your dream. And it is your destiny.

God bless. (Applause.)

Source: White House