Conquering the Last Degree

The Zahid Expedition reached the South Pole on December 10 where Haytham, Waleed and Mohamed Zahid unfurled the Saudi flag. (Photo: ZahidExpedition.com)

The flag of Saudi Arabia has been carried into outer space and unfurled on Mount Everest and now it has flown at one of the last milestone destinations reachable by human intrepidity, the South Pole. An expedition led by Saudi businessman Waleed Zahid, accompanied by his sons Haytham and Mohamed reached the geographic South Pole on December 10, 2010, the conclusion of a grueling trek across the harshest environment on Earth, is believed to be the first Saudi team to complete the challenge.

The arrival at the Pole, 90 degrees south latitude, was the capstone of months of preparation, training and conditioning; travel to an Antarctic base station; and a flight to a location at 89 degrees south latitude; to launch the overland trek across the polar plateau known as “The Last Degree.” It is a 111 km journey on skis, over a number of days – achieving 20 km a day is remarkable – with painful progress decided by the whims of the weather, which had the team pinned down in their tent shelters 41 km short of their goal, for several days.

The weather in Antarctica is the most formidable foe of human physiology with the temperature at the Pole, when the team reached 90 South, a numbing -33C on the thermometer but feeling like -50C in the steady 40 km plus wind. However, other hazards face trekkers at the bottom of the planet. The ground at the South Pole is near sea level but the actual altitude of the Amundsen-Scott Polar Station, given the ice build up, is about 2800 meters. Becoming acclimated to the thinner air of higher altitude is made worse by the phenomenon of the earth’s rotation dropping air pressure to what would be expected at 3350 meters.

The Zahid Expedition route to the South Pole. (Map: ZahidExpedition.com)

The inhospitable conditions at the Pole were first noted by Captain Robert Scott, who led a 1912 expedition that took second place, 35 days behind Roald Amundsen as first to the Pole, “Great God! This is an awful place and terrible enough for us to have labored to it without the reward of priority. Well, it is something to have got here.” The Scott expedition perished on their polar egress.

The Zahid Expedition camp at 89 degrees South Latitude was the drop off point to begin the overland trek by skis to the South Pole. (Photo: ZahidExpedition.com)

The Zahid Expedition documented their experiences in Antarctica and their trek across “The Last Degree” on a blog that recorded the team’s dispatches. On December 8th when stranded two days short of their goal, Haytham Zahid recorded, “The weather report came in at 8am this morning saying that the wind will persist for another 24 to 36 hours.. ..We’ve been pinned down by the weather at 41km from the pole for the last 36 hours and now we may have to wait another 36 hours before we can move again..” He continued, “The wind really does make it a miserable existence out here.. ..inside my down sleeping bag that is rated to -40 degrees C, I still had a chill in my bones.. ..if that wasn’t enough it started snowing in the inside of our tent .. our breath condenses and freezes on the inside of our tent and over the 36 hours that we have been here it has built up, then the wind blows hard, shakes the tent and in the middle of the night while I’m sleeping I get very fine ice particles falling on my face.”

Until recent years the area around 90 South was the exclusive preserve of scientists based at the American Amundsen-Scott research compound, but it has become a destination for adventure travelers who fly in for short, symbolic visits to the geographic South Pole. The “Last Degree” trek, however, captures the challenges and dangers faced by the Antarctic pioneers. The three Zahids were accompanied by Duncan Paul of South Africa, Dr. Jeff Lunt of Britain and Guy Cotter of Adventure Consultants who was commissioned as the expedition organizer.

The demands and exhilaration, the inspiration and spirituality of such a journey was perhaps best summed up by Waleed Zahid in a blog posting from the Union Glacier base station on the outbound trip. On December 12th he wrote, “When Mohamed and Haytham first suggested we undertake this expedition I was thrilled at the prospect of sharing in such an adventure.. ..I expected it to be hard, I had no idea how hard it would actually turn out to be – physically, psychologically, emotionally and hygienically.. ..by far the most demanding and challenging two weeks of my past 60 years. Two weeks that would normally flash by unnoticed in our everyday life, crawled excruciatingly slowly here on the ice. Every kilometer gained and every hour clocked felt like a lifetime. But in all those kilometers and hours, it was the last two, when the pole was so close that it seemed so unattainably far. But alhamdulillah we made it, by Allah’s grace and mercy, all in one piece and none worse for wear other than the brutally blistered feet and marginally frost bitten noses and hands.” Waleed Zahid celebrated his 60th birthday on December 7th, the target date for reaching the South Pole, but weather delays kept them from the goal until December 10th.

The last steps of “The Last Degree” trek were documented on the blog by Mohamed Zahid who wrote: “I enjoyed every aspect of it. The frigid cold, the brutal wind, the powerful hidden UV rays, the vast nothingness and the company of my father and brother.. ..There is no margin for error. The cold can freeze you, the sun can burn you, the wind can bite you and the monotony can wear you down. On the last day, I thought Antarctica had accepted me because of the generous treatment it gave me but not so. On the final stretch, it slapped me with a fierce wind bite on my cheek leaving a scar, hopefully not permanently, a sure reminder to be on alert at all times. The long grueling hours of skiing took a toll on the body but, alas, it was what was needed to achieve the goal of reaching the South Pole and my determination kept me in good spirits.. ..The sight of the South Pole, first spotted from 15 kilometers out, gave us a false perception of heaven. It was a large fortress, the Amundsen-Scott station, neatly hidden and tucked in the dense clouds, a rare sighting after 10 days of nothing but the wind, sun and ice. It was adrenaline jolting. Yes, after arriving at the southern most point on Earth at the day’s end, I felt a tremendous reward and the paying off of the planning, training, self-discipline and tedious treks but neither compared to the feeling rushing through me at the appearance of my father and Haytham collapsing into each other’s arms with joy pouring out of them.. ..It was emotionally magnificent.”

The closing notes from the expedition, summed up by Haytham on the blog were not of the hardships but of the accomplishments and rewards, “Memory is a very funny yet kind creature, whenever we look back on experiences we always remember the good and tend to forget the bad, or at least the bad doesn’t exist as prominently in our psyche as the good. The funny thing about this experience is that it was the very things that I complained about that I now cherish and relish and very much miss.. ..What an experience! If it hasn’t been mentioned yet, Antarctica is the most beautiful place I have ever been to, the polar plateau is featureless, beautiful nonetheless but that’s not what I’m talking about … The sites were awe inspiring, the mountains on three sides, the clearly visible glaciers of blue ice, the whole thing was just magnificent!”

Those were words echoed by Mohamed in his expedition epilogue, “Standing on Antarctica, the last great pristine and protected place on Earth, is a privilege! The wind, sun and ice. Ah, I miss it.”

You can share the adventure, including background, dispatches and photography, at the www.zahidexpedition.com web site.

Related Items:

• Zahid Expedition Home Page
• Building Bridges in the Saudi-US Business Relationship: The Case of the Zahid-Caterpillar Partnership – SUSRIS – Apr 13, 2010

SUSRIS SPECIAL REPORT

King Abdullah completed a one-month hospitalization in New York following two successful back surgeries. (Photo: SPA)

King Abdullah completed a one-month hospital stay in New York City Tuesday following two operations to repair back problems according to the Saudi Press Agency citing the Royal Court. The 86-year old Saudi monarch was sidelined from his duties in early November when his doctors recommended he rest as treatment for a herniated disc. On November 22 he was transferred to New York Presbyterian hospital for surgical treatment of “lumbar spine disc prolapse complicated by a haematoma pressing on lower nerve roots causing pain,” according to a Saudi Health Ministry official. A second surgery on December 4 was undertaken to repair several vertebrae. The Royal Court statement said King Abdullah was transferred to his New York residence to recuperate. There was no indication how long the New York recovery period would last before the King returned to Saudi Arabia.

Related Reporting:

• King Abdullah Undergoes Back Surgery – SUSRIS Special Report – Nov 24, 2010
• Leadership in the Kingdom: A Conversation with Thomas Lippman – SUSRIS Exclusive Interview – Nov 23, 2010
• King Abdullah to U.S. Monday for Medical Care – SUSRIS Special Report – Nov 21, 2010
• King Abdullah Sidelined – SUSRIS – Nov 13, 2010
• Saudi King Abdullah leaves New York hospital – BBC – Dec 22, 2010
• Saudi King leaves New York hospital – Washington Post – Dec 22, 2010

Editor’s Note:

A meeting of the Council of Ministers in Saudi Arabia.

The Saudi Arabian Council of Ministers endorsed the 2011 budget yesterday demonstrating a commitment to continued “stimulatory spending to develop the economy” according to Dr. John Sfakianakis of Banque Saudi Fransi (BSF). In an email discussing the budget he noted, “the government is committed to continue raising expenditures at a healthy pace while reducing its debt burden.” [Link] In a separate BSF special report, “Ready to roll: Saudi 2011 budget raises stakes, seeks out private sector,” Sfakianakis and his colleagues at BSF provided a comprehensive discussion of the 2011 budget.

The 2011 budget, as explained in the report, shows an emphasis on infrastructure and social spending within Saudi Arabia and that the Kingdom has slashed its domestic debt burden more than a quarter this year, and it has narrowed 70% since 2002. It notes the shift towards the private sector and the measures the state can take to ensure local and global investors are re-integrated into the development process. Among other highlights of the BSF report were: the 2010 surplus of SR108.5 billion was higher-than-expected, compared with the state’s earlier projection for a deficit of SR70 billion; expenditures in 2010 rose to SR626.5 billion, representing overspending of 16% as the government raised wages of many state and university employees and funneled money into expansion projects; the government sector GDP grew 5.9% in 2010, driving real GDP growth of 3.8% while the private sector expanded 3.7%; and the state plans SR256 billion in capital spending next year.

We would like to thank Dr. Sfakianakis and his colleagues for this important report, “Ready to roll,” on the 2011 Saudi budget.

[Visit HERE for the complete report including insightful charts and graphs.]

Ready to roll
December 20, 2010
Dr. John Sfakianakis
Banque Saudi Fransi

Saudi 2011 budget raises stakes, seeks out private sector

• Saudi 2011 budget foresees 7.4% rise in expenditures on revenues of SR540 bn as state continues to drive economic recovery but seeks to temper overspending
• Education allocation rises 8%, municipal services by 13% in budget stressing social and infrastructure themes
• State cautiously projects 2011 deficit despite bumper surplus of SR108.5 billion in 2010 on back of higher oil prices
• Domestic debt slashed by more than a quarter even after government overspends 2010 targets by 16% and government sector GDP growth hits 5.9%

Saudi Arabia’s 2011 budget serves the dual purpose of demonstrating the state’s prowess in continuing to steer the economic recovery and, by reducing the pace of budget expansion, signals the government’s determination to minimize overspending. The budget, released on December 20 after Council of Ministers approval, envisages a 7.4% increase in state expenditures in 2011 to a record SR580 billion. This is among the slowest rates of budget expansion in a decade that saw public spending more than double. In the seven years to 2010, year-on-year budget expenditure allocations grew by more than 10% in all but one year.

While 2011 targets rank among largest stimulus measures in the G20 relative to GDP, the measured pace of budget expansion is part and parcel of an effort to achieve greater efficiency. Despite continued high spending, the government managed to trim down domestic debt by a substantial 26% in 2010, giving it a unique edge among its G20 counterparts.

Budget commitments for 2011 represent the largest allocation in history and emphasize infrastructure and social spending. Allotments to education and training, health and social development, and infrastructure – together 46% of the budget – grew 8%, 12.3%, and 10.4%, respectively. This underpins the state’s plan to continue building the infrastructure necessary to support a population growing more than 2% per year and diversify away from its reliance on oil.

The 2011 budget foresees a deficit of SR40 billion on revenues of SR540 billion – the third year in a row the government has projected a deficit. This suggests the government is using a conservative oil price assumption of about $58 per barrel of WTI on production of 8.7 million barrels per day (bpd) to determine its budget, according to our estimates. Higher actual oil prices enabled Saudi Arabia to post a substantial surplus in 2010 of SR108.5 billion after recording its first deficit for seven years in 2009.

The budget includes a provision of SR256 billion for financing new and ongoing projects. Unlike current expenditures comprising recurrent costs on items only used once such as salaries, this category describes capital expenditures – funds directed at assets with potential long-lasting benefits for the economy. The government, for instance, has pledged to build 610 new schools and lay down 6,600 kilometers of road.

While the state’s aim is for capital spending to account for almost 45% of total spending, actual results have been lower. In 2009, capital spending accounted for 30.2% of total spending, vastly higher than 10% in 2000 but still below the desired level. On the other hand, current expenditures have almost doubled since 2000 and comprise the biggest portion of overspending. Policymakers will need to strike the right balance between current and capital spending in the coming years.

The 2011 budget demonstrates that the kingdom is dedicated to continuing stimulatory spending to develop the economy and persuade private investors to do the same as they gradually emerge from a phase of deleveraging. A slowdown in the pace of budget growth, however, also signals the state’s goal to rein in overspending which reached 25.5% in 2009 and 16% in 2010.

Above expectations: 2010 fiscal outcome

When the government put together its 2010 budget it anticipated a deficit of SR70 billion, which would have been slightly narrower than the 2009 deficit amounting to SR86.6 billion. Preliminary data show the kingdom was able to achieve a surplus of SR108.5 billion, linked to a good rebound in oil prices for most of the year as well as a likely decline in capital investments by Saudi Aramco this year. In the first 11 months of 2010, oil prices averaged almost $79 a barrel – up from $62 a barrel in 2009. As a result of greater revenues from oil exports, the government exceeded its revenue target of SR470 billion for the year – generating revenue of SR735 billion in 2010, 11.5% above our forecast.

The surplus was as a result more than double our forecast of SR41.3 billion. The government, meanwhile, failed to substantially minimize the pace of overspending. Government expenditure of SR626.5 billion in 2010 was against a budget target of SR540 billion – indicating overspending of 16%, which could be revised higher in 2011 as happened this year. The government attributed overspending to a periodic salary increase known as the “13th month”, as well as spending on projects in the holy cities of Makkah and Madina, the implementation of a new compensation scheme for university faculty, an adjustment in military employee salaries and higher costs related to an overseas scholarship programme for Saudi nationals.

Meanwhile, in 2010 alone, the government awarded 2,460 project contracts worth SR182.4 billion to private sector companies, up 26% from the year earlier, it said in the budget statement.

In 2008 and 2009, overspending had exceeded 25%, which is not sustainable in the medium term because it raises the price of oil required to achieve fiscal balance. Still, heavy spending is not surprising given that onus for funding domestic projects remained on state shoulders in 2010 as the pace of bank loan growth, particularly to the private sector, made slow progress. But we expect it will fast become a state priority to curtail spending targets.

The kingdom continued to service public debt in 2010, reducing overall public debt to SR167 billion from SR225.1 billion in 2009. That is a drastic reduction, almost 22% more than we were anticipating, and is a testament to the kingdom’s fiscal health. Public debt now represents 10.2% of GDP, down from 103% in 1999. All Saudi government debt is domestic, held mainly by the two state pension funds – the General Organization for Social Insurance and the Public Pension Agency – with the balance at banks. As many G20 economies grapple with rising debt-to-GDP ratios, the kingdom has been nearly unique in the global context by the fact that debt ratios are falling even as the government poured funds into the economy to keep it in motion amid global recession.

Reducing the debt burden has been possible due to the generous store of foreign assets held by the Saudi Arabian Monetary Agency (SAMA), which stood at SR1.61 trillion ($434.7 billion) at the end of October. SAMA added SR90 billion to its foreign assets store during the first 10 months of 2010. For the corresponding period in 2009, it had drawn down foreign assets by SR183.2 billion so the government could meet budget commitments amid a weaker oil price backdrop. The tables turned once again in the state’s favor this year.

We expect domestic debt will fall further in 2011 even as debt-to-GDP ratios soar in developed markets, including the United States, where the Fed embarks on its latest quantitative easing programme, known as QE2. This positions the kingdom comfortably to continue supporting budget expansion without acquiring unsustainable levels of debt.

2010 economic performance

The budget statement included preliminary macroeconomic data for 2010 which are likely to be revised during 2011. Indicators showed the Saudi economy is on a solid track toward recovery amid improvements globally that have been somewhat clouded by European sovereign debt concerns. Non-oil private sector GDP growth offers the most-accurate reflection of the pace of domestic economic activity since it is not directly linked to oil market fluctuations. While the private sector remains cautious about committing to new investments, private sector real GDP growth rose to 3.7%, below our 4% forecast, and compared with 3.5% in 2009. Overall real GDP growth of 3.8% was on par with our forecast, although it is subject to revision. This year, Saudi Arabia raised its real GDP growth estimate for 2009 to 0.6% from a preliminary 0.15%.

The government sector picked up the greatest slack in real GDP growth estimates, growing 5.9% according to preliminary estimates, well above our 4.6% forecast and the fastest pace of growth since 1997 (6.1%). Among key non-oil sectors, the electricity, gas and water sector witnessed the fastest expansion at 6%, followed by the transport and communications sector at 5.6%. Retail, restaurants and hotels GDP grew 4.4% while the construction sector expanded 3.7%. Finance sector growth was more muted at 1.4%. The private sector contributed 47.8% to real GDP in 2010, below its 2009 contribution of 47.98%.

The government did not release its oil sector GDP growth estimate, although from the data provided it would not have exceeded 2.2% growth this year, according to our estimates. Oil production in the first ten months of 2010 fell 0.6% compared with the year-earlier period, according Join Oil Data Initiative data, but there is evidence that production levels jumped in the final two months of the year as producers were striving to meet high demand growth in the fourth quarter. In 2009, the government included other factors –investments in oil infrastructure and non-crude hydrocarbon products – into its real GDP calculation. A similar scenario likely unfolded this year.

At current prices, GDP climbed substantially this year to SR1.63 trillion from SR1.41 trillion last year as a result of the higher oil price environment. The Saudi economy accounts for almost 45% of the total Gulf area and more than 25% for the MENA region.

In our view, economic growth should accelerate to 4.2% at constant prices in 2011. OPEC production policies will have a big sway on where GDP growth will fall next year. High prices could compel OPEC to raise output next year to meet growing demand from Asia, and any production increase would filter through to higher real oil sector GDP growth. The private sector’s rate of growth next year is likely to climb to 4.6%, while government GDP expansion falls to 3.8%. Again, this highlights the state’s goal to continue cushioning the recovery while slowly stepping away from its dominant role.

The current account balance made an impressive comeback this year, more than tripling to SR260.9 billion, against our forecast of SR154.15 billion. The increase is linked to stronger oil revenues resulting from the higher price environment. Meanwhile, the pace of increase in imports was not as quick as earlier expected. Oil revenues rose to SR762.1 billion, up 24.6%, while non-oil revenues climbed 13.7% to SR124.2 billion. Preliminary data show imports rose just 0.7% to SR326.2 billion, below our forecast of SR340.1 billion. In keeping with the cautious recovery, we anticipate imports will rise to SR374.2 billion in 2011, or 9.7% of GDP, while oil export revenues should hit SR209.5 billion.

Inflationary pressures in Saudi Arabia were the highest in the Gulf region this year, although preliminary full-year estimates put inflation at 3.7%, according to the finance ministry statement. This is inconsistent with Central Department of Statistics data which show that in the first 11 months of 2010, inflation averaged 5.3%. We expect inflation to ease to 4.7% in 2011 from 5.3% this year, with rents and food prices the main contributors. Baseline effects should exert downward pressures on headline inflation, at least for the first half of the year. The non-oil GDP deflator – the difference between nominal and real GDP – rose 1.5% in 2010. The deflator is one measure of comprehensively assessing price trends because it considers the cost and volume of all goods consumed in the economy, whereas the consumer index looks only at a basket of goods and services.

The year ahead: motivating the private sector

With the record budget, Saudi Arabia is sending a signal to the market that it will continue to back its aggressive expansion plans with impressive financial muscle. However, while the 2010 budget emphasized the state-led approach espoused by the government, in 2011 the impetus will shift to the private sector and the measures the state can take to ensure local and global investors are re-integrated into the development process. Private sector expertise and financial support for projects in energy, utilities and infrastructure will become the focal point of the state’s approach through new contract awards and public-private partnerships.

While a prolonged stretch of high oil prices enabled the government to kick-start many key expansion projects in energy, infrastructure and transportation, it is time to begin scaling back expenditure growth, especially for current spending. Some 70% of public expenditures in 2009 fell in the current category, including such items as public sector employee salaries, which cannot be easily phased out over time, therefore placing undue burden on public finances.

Salaries for state employees alone should cost upwards of SR240 billion in 2010. While we firmly believe the state will continue to pick up any slack left by private investors, the state is keen to see the private sector take on greater responsibilities. For a number of years, the government has placed great emphasis on tailoring its budget toward capital-intensive investments that would generate jobs and have multiplier benefits for the economy. The education budget has tripled in size since 2000.

The 2011 budget includes a 7.4% increase in state expenditure allocations to SR580 billion. In particular “education and manpower development” were allocated SR150 billion, compared with SR137.6 billion in 2010, amounting to a 26% share of the annual budget. Part of surpluses realized this year could be allocated to a budget surplus programme that dedicates funds to several domestic development projects. As of 2009, appropriations for this programme were SR71 billion, covering construction costs for 5,954 projects, including 33% in education.

Last year, a considerable 66% of Saudi Arabia’s indigenous population of 18.5 million comprised youth below the age of 30. Efforts to improve the quality of education to equip Saudis with the right skills for private sector employment are therefore crucial, especially so after the ratio of Saudis working in the private sector fell in 2009 to less than 10%, according to official data. The King Abdullah foreign scholarship program enables around 80,000 youth, around a quarter of whom women, to complete higher education abroad.
In 2010, the education budget rose 12.8% as the government pledged to build 1,200 new schools, while health and social affairs allocations had risen 51% mainly to cover staffing costs and numerous new hospitals. The defense and security budget, which accounted for 31% of total allocations in the 2010 budget, is also likely to be augmented in 2011. The level of spending dedicated to defense will be revealed only next year. In all spending categories, however, the pace of growth in allocations has fallen in 2011.

Following are the key areas of priority emphasized by the government in its 2011 allocations:

1. Education and training are allocated SR150 billion compared with SR137.6 in 2010. The plan would see the construction of 610 new schools in addition to the 3200 already under construction. Education spending has more than tripled in the past decade, growing 50% in 2005 and 2006 alone. Such rates of growth are not sustainable, which is why it is not surprising to see the growth of the education budget fall to 8% in 2011 compared with 12.7% in 2010. Much of the budget will go toward paying staff costs related to opening new schools.
2. Health and social affairs received a 12.3% boost in the 2011 budget to SR68.7 billion, after the category’s allocation jumped 51% in 2010 to SR61.2 billion. Health and social affairs account for 11.8% of the total budget. Within the sector there are plans to build 12 new hospitals in addition to the 120 currently being built to add 26,700 beds.
3. Water, agriculture and infrastructure are allotted SR50.8 billion in 2011, up from SR46 billion in 2010, a 10.4% increase. Within the framework are plans to invest in water, sewerage and desalination projects. Water and electricity demand are rising about 8% per year, and we expect upwards of SR1 trillion will need to be invested in the sector in the coming 15 years to keep up with demand growth. State-run Saudi Electricity Co raised electricity tariffs on industrial and commercial users by almost 10% last July, a positive step toward rationalizing power consumption. Underpinning the need to implement energy efficiency measures in the power generation, distribution and consumption, we anticipate revisions of utility tariff schemes will become a key policy priority in the coming years.
5. The allocation for transportation and telecommunications rose for 2011 to SR25.2 billion from SR23.9 billion in 2010, a rise of 5%. The increase reflects the need to improve infrastructure to accommodate new mega projects and upgrade existing infrastructure. Under the plan, some 6,600 kilometers of roads are slated to be built in the coming year, in addition to the 30,200 kilometers already under construction. The state is also planning to build four new airports and refurbish the King Abdelaziz International Airport, the government said.
6. Municipal services will receive SR24.5 billion in the 2011 budget compared with SR21.7 billion this year. The budget will cover the cost of constructing new inter-city roads and bridges to help ease traffic bottlenecks, as well as other environment-related projects, the ministry said.
7. The allocation for Specialized Credit Institutions and state financing programmes fell 2.7% to SR47 billion for 2011. These entities include the Public Investment, Real Estate Development Fund and Saudi Industrial Development Fund, among others. These bodies have disbursed SR414.3 billion in loans since inception to support industrial sectors, housing, and small and medium enterprises, the ministry said.

2011 oil market outlook

A recent increase in oil prices is partially justified by oil market data pointing to a tighter market, with overall oil demand growing more than 3 million barrels per day in the third quarter according to estimates of our affiliate Credit Agricole CIB. Oil demand growth for 2010 is estimated at a high 2.5 million barrels per day, reflecting both the recovery in demand from non-OECD countries demand and the base effect from weak demand in 2009. Non-OECD countries account for more than three-quarters of 2010 demand growth.

The latest jump in demand led world stocks to decline by 1.5 mbpd in Q3 and an anticipated 0.6 mbpd in Q4, supporting recent price increases. Credit Agricole CIB expects WTI prices to surpass $80 a barrel in Q4 and Q1 2011, although efforts by OPEC to increase production should prompt oil prices to return to the $70-$80 per barrel range in 2011.

In particular, Credit Agricole CIB expects OPEC to increase crude production by 0.7 million barrels per day in 2011, putting a stop to the 2010 stock draw (amounting to an average of 0.6 mbpd) and establishing prices within its favored $70-$80 range. In fact, the oil stock draw is expected to decline progressively and yield a 0.6 mbpd stock build up by Q2 2011.

Demand growth, meanwhile, is likely to slow to 1.5 mbpd in 2011, with China the greatest single contributor to increased oil demand, Credit Agricole CIB said. State stimulus has boosted demand for petrochemicals and diesel demand rose recently due to a policy geared at reducing energy intensity. OPEC production in 2011 is likely to rise to 29.8 mbpd from 29.2 mbpd currently. For 2011, we forecast the WTI oil price will average $82 a barrel.

2011 monetary policy outlook

The 2011 budget includes sizeable increments in all key policy areas while gesturing public sector departments to scale back excess spending in a bid to curtail current expenditures to reasonable levels. Placing continued emphasis on infrastructure and social spending, the budget complies with the state’s $385 billion five-year plan, which we expect will be carried through in its entirety.

It remains to be seen how much the private sector will reciprocate with its own investments and whether banks will increase the pace of lending growth to add further support. We expect bank private sector credit growth will rise slightly to 9.3% in 2011, although a return to low double-digit growth is unlikely for at least another year.

Saudi banks are flush with liquidity and hence in a strong position to support stronger loan appetite in the coming year. They have among the lowest loan-to-deposit ratios in the Gulf and are minimally exposed to real estate, including commercial properties facing further price corrections. SAMA has implemented several measures to successfully ensure banks exhibit capital and liquidity resilience.

As credit growth is picking up only gradually, we do not anticipate SAMA will increase interest rates in 2011. Monetary policy should continue to accommodate private sector loan growth especially since monetary policy is not currently spurring inflation.

U.S. monetary policy supports the status quo. The Federal Reserve is unlikely to tighten policy until mid-2012 as the country faces high unemployment and low inflation. Saudi and U.S. economic cycles are far more in sync now than they were prior to the financial crisis, which should continue to dampen speculation about any shift in the policy of pegging the riyal to the dollar.

Market uncertainty on whether the Fed will fully follow through with its QE2 plans to purchase $600 billion of treasury securities by mid-2011 could lead to fluctuations in the U.S. dollar. However, we expect euro-zone debt troubles will accumulate in 2011 and markets could turn more toward punishing the euro than the dollar. Credit Agricole CIB foresees the euro-dollar falling to $1.25 by December 2011, a scenario which would positively impact riyal strength and its alignment to with the dollar.

Disclosures and disclaimers in the original document

Source: Banque Saudi Fransi

[Visit HERE for the complete report including insightful charts and graphs.]

Contact Info:
Dr. John Sfakianakis – Chief Economist
Tel: +966 1 289 1797 – Email: johns@alfransi.com.sa
Turki A. Al Hugail – Economic Research Analyst
Tel: +966 1 289 1163 – Email: talhugail@alfransi.com.sa
Daliah Merzaban – Economic Analyst
Tel: +971 4 428 3608 – Email: dmerzaban@alfransi.com.sa

Related:

Editor’s Note:

SUSRIS readers are very familiar with the insightful, thoughtful and sometimes provocative perspectives shared in these pages by Ambassador Chas Freeman.  He served as America’s top diplomat in Saudi Arabia during Operation Desert Storm, among other challenging diplomatic posts in a distinguished career in the U.S. Foreign Service. For those who have followed his many interviews, panel discussions, keynote addresses and articles presented in SUSRIS you now can find many of his public remarks as well as heretofore unpublished materials in his new book, America’s Misadventures in the Middle East. It was published this fall by Just World Books and is available on Amazon.com. Today we are pleased to provide for your consideration a brief conversation we had with Ambassador Freeman a week before the October release of his new book. It is accompanied by, in a separate mailing and posting, an excerpt from “Misadventures” to give you a taste of what’s provided in the book.

***

SUSRIS EXCLUSIVE

“Misadventures”: A Conversation with Ambassador Chas Freeman

[SUSRIS] Congratulations on your new book, “America’s Misadventures in the Middle East.” Tell us about it.

Ambassador Chas Freeman was the opening speaker at the 2010 Arab U.S.-Policymakers Conference and talked about American "misadventures."

[Amb Chas Freeman] This book is something new for me even though I previously published several books. The first was a bilingual English/Chinese book, I was co-author, on how to cook French and Italian cuisine in China with local ingredients. It was a called “Eating Western in China.” Then I published “Arts of Power,” a study of statecraft now widely used in teaching diplomacy around the world. “The Diplomats Dictionary,” which came out in a second revised edition in May was my third book. So other than the book on cuisine I’ve focused on diplomacy in the past.

The idea for this book, “Misadventures,” belongs to the publisher, Helena Cobban of Just World Books. It brings together a collection of my speeches on the Middle East and related matters with some papers that I had written. The new book opens with my views and experiences from the Gulf War to liberate Kuwait, a lengthy paper containing materials that haven’t been seen before. Then it goes to my interpretation of why that war, although it was a military triumph, was not a political success and, in fact, led in time to a second war with Iraq.

There are some speeches and papers of interest to those concerned with developments in Saudi Arabia. None have been published before with the exception of my speech about the end of progress without change from earlier this year. The others describe some of the dilemmas facing Saudi domestic and foreign policymakers. The book is, in other words, entirely about the Middle East. It touches heavily on Saudi Arabia and is both a timeless and a chronological examination of the subjects.

[SUSRIS] Many SUSRIS readers are familiar with your perspectives through the interviews we’ve done with you and from some of your speeches that you’ve permitted us to print here. What is in the book that would be new for them?

[Freeman] The account of the Gulf War will be new and very interesting, particularly to those who lived through that time. There are two rather good accounts of the war as seen from the prospective military commanders on our side, Norman Schwarzkopf and Khalid Bin Sultan. There’s also a very good book by the British Ambassador, Sir Alan Munro [Arab Storm], from his perspective. It’s a broader account and it is quite good.

The title of the article in my book is “In the Eye of the Storm,” being in the eye of Operation Desert Storm, and I think it will be of considerable interest to people. They might learn things they didn’t know about that period.

Otherwise I was very encouraged in a way, discouraged in another way, when I looked back at the various public remarks I had given, to find that I had gotten many things right. I spoke out early against the “misadventure” in Iraq. I spoke out early against the shift of the focus in Afghanistan from Al Qaeda to pacification efforts directed at right-winged Islamic elements in Afghanistan – the Taliban and others – and I was quite a bit ahead of the curve as I look back and see. That gives me the confidence that some of the things I see happening now, I see correctly.

[SUSRIS] You said the Gulf War of 1991 was a military victory but not a political success. How so?

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[Freeman] The best thing to do is read the chapter because the argument is reasonably sophisticated, but it has to do with the American way of warfare as it has evolved. Unlike any other country it does not focus in any respect, let alone adequately, on war termination strategy – on how to get the other side to acknowledge its defeat and make the concessions necessary to relieve itself of further pressure. So in the case of the first Gulf War and in a sense the invasion of Iraq as well, the United States did not know what to do once it had won militarily.

In the case of the first Gulf War Saddam Hussein was never forced to confront the reality of his defeat or to acknowledge it politically. He, therefore, was able to turn his continued survival into a point of political strength rather than weakness and to carry on for many more years. It resulted in great suffering for the Iraqi people and eventually led to a war designed primarily to dislodge him from power, which I think was its only accomplishment. So I try to explain that in terms of American war doctrine, which people may find of interest.

[SUSRIS] In one of your speeches you talked about American policy failings in the Middle East and you posed the question “Why not try diplomacy?” What about Washington’s approach in the region led you to that point?

[Freeman] The book does include, as I’ve said, the texts of many of my public remarks. That conversation was from a speech I gave in New Orleans to the University Continuing Education Association. I think the commentary in that speech laid out, in a reasonably consistent way, the mistakes that the United States has made: too much reliance on the use of force, the use of military campaigns as a substitute for strategy, the tendency to go at it alone, the building of coalitions of camp followers rather than serious military and diplomatic partners, and the inability to deal with the regional context of much of what we were doing. That last point lies in part because of our incapacities with respect to Iran, but more broadly our inability to engage, in the case of Iraq, the various countries on the periphery effectively – Saudi Arabia, Turkey, Iran, Syria, Jordan and Kuwait.

The United States did not put together the regional strategies that the Iraq Working Group called for. So what you have, in effect, is a running commentary in the book on American diplomacy as it unfolded. When remarks were made I discussed what the probable consequences of failure to use diplomacy more effectively might be. More often than not those predictions turned out to be correct.

[SUSRIS] With regard to the Middle East how would you see what we’re witnessing in Washington fit into your prescription of “why not try diplomacy”?

[Freeman] I don’t see this so-called peace process as an example of diplomacy. I think it’s an example of public relations for domestic political effect and an exploitation of the very sincere desire of many in the region, in Israel and among the Palestinians and other Arabs, to see peace without any real strategy for getting there. What I would say is to examine the speech and you’ll find suggestions for a diplomatic approach, beginning with getting behind the Arab Peace Initiative, which of course was a Saudi initiative.

[SUSRIS] What are your thoughts on Tom Friedman’s column suggesting an invitation from Riyadh to Prime Minister Netanyahu to come to the Kingdom for a hand delivered copy of King Abdullah’s peace plan, and former Jordanian Foreign Minister Marwan Muasher suggesting the two-state solution as having been closed out and needing a new regional context. What is your reaction to those kinds of perspectives?

[Freeman] Well I think with regard to the first one it really makes no sense from any point of view to have a meeting with Mr. Netanyahu in Riyadh to give him the text of that which he can read, and should have read eight years ago. I think myself, and I said this in my Oslo remarks, that the Arab Peace Initiative should be put directly in front of the Israeli public. I think it would be a good idea to buy space in Israeli newspapers to publish the text and appropriate commentary in Hebrew, which I don’t think has been done. I think most Israelis remain essentially ignorant of what was offered at Beirut in 2002. Their views are colored mostly by – not having seen the text for themselves – disparaging commentary in the press by people in Israel who basically are very happy with the status quo, where they can continue land grabs without having to give anything up. So I do think that Friedman is right – this is a serious offer which deserves to be picked up, but, tactically the approach he suggests doesn’t make sense to me.

On Marwan Muasher’s suggestion – I think he’s right on two levels. The two-state solution is now essentially physically impossible without decisions in Israel that are very unlikely to be made. And second, he’s right that the only way a resolution can come about is with the involvement of more of the neighbors of Palestine and Israel. And I think he’s a very thoughtful commentator so I hope he will continue to explore the possibilities of regional diplomacy.

In a sense, in Oslo what I was doing was making the case that no peace process, no peace that was dependent on American politics, or directly subject to them, could actually occur because of the ability of Israel and those associated with Israel to manipulate American politics. What I said in the Oslo speech was, “Only a peace process that is protected from Israel’s ability to manipulate American politics can succeed.”

I think a lot of people have heard speeches by me or they have seen little bits and pieces of them quoted here and there, in places like SUSRIS. One of the merits of the book is it brings the major statements all together in one place and I hope it is good reading as well as thought-provoking.

[SUSRIS] Thank you as always. We appreciate the time you take with us.

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About Ambassador Chas Freeman

Chas W. Freeman, Jr. – Chairman of the Board, Projects International, Inc., a Washington, DC-based development firm specializing in international joint ventures, acquisitions, and other business operations for its American and foreign clients; former President, Middle East Policy Council; former Assistant Secretary of Defense for International Security Affairs (1993-94), earning the Department of Defense’s highest public service awards for his roles in designing a NATO-centered post-Cold War security system and in reestablishing defense and military relations with China; former U.S. Ambassador to Saudi Arabia (during Operations Desert Shield and Desert Storm); Principal Deputy Assistant Secretary of State for African Affairs during the U.S. mediation of Namibian independence from South Africa and Cuban troop withdrawal from Angola; and author of the newly published America’s Misadventures in the Middle East as well as The Diplomat’s Dictionary (Revised Edition) and Arts of Power: Statecraft and Diplomacy.

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About Just World Books

Just World Books opened in the spring of 2010 with the aim of expanding the range of discourse on the most important international issues of our day and offering a platform for some of the most overlooked (but smartest) authors writing on these matters .. Just World Books brings these eloquent voices to print so that audiences in the U.S. and elsewhere who understand the gravity of these issues, yet feel under-informed about the true nature and roots of these crises, can have easier access to the wisdom, views, and insights of people with direct experience working on (and often in) these areas.

..more [Link]

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Related Items:

• Arts of Power: Statecraft and Diplomacy by Chas Freeman
• The Diplomat’s Dictionary by Chas Freeman
• Misadventures: A Conversation with Ambassador Chas Freeman – SUSRIS – Dec 11, 2010
• Book News: “America’s Misadventures in the Middle East” Excerpt – SUSRIS – Dec 11, 2010
• Amb Chas Freeman Opens AUSPC with “Misadventures” Presentation – SUSRIS – oct 25, 2010
• America’s Faltering Search for Mideast Peace – Freeman
• A Conversation with Ambassador Chas Freeman – “An Interesting Moment” – SUSRIS – Exclusive Interview – Mar 22, 2010
• Saudi Arabia: The End of Progress without Change – Chas W. Freeman, Jr. – SUSRIS – Mar 2, 2010
• Arab-U.S. Relations: The Way Forward – Chas. W. Freeman, Jr. – SUSRIS – Oct 29, 2009
• Gestures and Illusions: Assessing Obama’s Riyadh Visit A Conversation with Chas Freeman – SUSRIS – Exclusive Interview – Jul 28, 2009
• Reforms and Relations: Perspectives on the Kingdom – A Conversation with Amb Chas Freeman – SUSRIS – Exclusive Interview – Oct 8, 2008
• Rediscovering Diplomacy: America’s Reputation in the Middle East – Amb. Chas. W. Freeman, Jr. on “Middle East Interviews” - SUSRIS – Oct 3, 2008
• Why Not Try Diplomacy? – Amb. Chas. W. Freeman, Jr. – SUSRIS – Apr 1, 2008
• American Interests, Policies, and Results in the Middle East: Energy, Israel, Access, and the Containment of Muslim Rage – Amb. Chas. W. Freeman, Jr. – SUSRIS IOI – Feb 16, 2008
• Impressions of Arabia, Autumn 2007 – Chas W. Freeman, Jr. – SUSRIS IOI – Nov 26, 2007
• Can American Leadership Be Restored? – Chas W. Freeman, Jr. – SUSRIS IOI – May 31, 2007
• National Security in the Age of Terrorism – Chas W. Freeman, Jr. – SUSRIS IOI – Jan 11, 2007
• The GCC and the Management of Policy Consequences – Chas W Freeman, Jr. – SUSRIS IOI – Nov. 3, 2006
• “American-GCC Relations: An Assessment of Reforms, Elections, Challenges and the Prospects for Regional Peace and Stability” – Chas W. Freeman, Jr., Arab-US Policymakers Conference – Oct. 31, 2006 [Audio/Text]
• Building Understanding: The Role of the MEPC – A Conversation with Chas W. Freeman, Jr. – SUSRIS Interview – Sep 20, 2006
• Strengthening the Relationship: Whose Job? A Conversation with Chas W. Freeman, Jr. – SUSRIS Interview – Aug 14, 2006
• The Arabs Take a Chinese Wife: Sino-Arab Relations in the Decade to Come – Chas W. Freeman, Jr.- SUSRIS IOI – Jun 1, 2006
• How Can the U.S. Re-Open for Business to the Arab World? – MEPC Capitol Hill Forum – Part 1 – Ambassador Chas Freeman – SUSRIS IOI – Apr 14, 2006
• Defining Interests and a Changing Relationship – Ambassador Chas Freeman Interview – Part I – SUSRIS Interview Series – Oct. 29, 2004
• U.S.-Saudi Relations: The Path Ahead – Ambassador Chas Freeman Interview – Part II – SUSRIS Interview Series – Oct. 30, 2004
• The Way Forward: A Diplomat’s Perspective – Remarks by Ambassador Chas W. Freeman, Jr. – 13th Arab-U.S. Policymakers Conference -Washington, DC – September 13, 2004

Editor’s Note:

Today we provide for your consideration an excerpt from Ambassador Chas Freeman’s new book, “America’s Misadventures in the Middle East,” to accompany our exclusive interview with him discussing the context and scope of the work. [Link].  Here’s how “Misadventures” is described on its Amazon.com page:

Chas W. Freeman is one of America’s most distinguished diplomats. In a government career spanning three decades, he negotiated on behalf of the United States with over 100 foreign governments. In America’s Misadventures, Freeman presents two dozen of his essays on the Middle East, all of them trenchant and many of them previously unpublished. The essays span the period from 1990 – when as U.S. Ambassador to Saudi Arabia Freeman helped plan and implement the massive, U.S.-led effort to liberate Kuwait from occupation by Saddam Hussein’s Iraq – through 2010, by which time he had developed many thoughtful and well-informed criticisms of the policies Washington had pursued toward the region throughout the past two decades. The book includes considerable new material on Operations Desert Shield and Desert Storm, much valuable information about the structure and politics of Saudi Arabia, and many trenchant essays in which Freeman applies his smart and wide-ranging “Realist” form of analysis both to defining America’s national interests in the Middle East and describing the often sad, confused, or counter-productive way in which it has sought to pursue them.

We thank Ambassador Freeman for sharing this insightful excerpt from his book with SUSRIS readers and for taking time to talk with us about the book. [Link]

“America’s Misadventures in the Middle East” was published by Just World Books whose founder, Helena Cobban, notes on their web site that they bring a “range of discourse on the most important international issues of our day and offering a platform for some of the most overlooked (but smartest) authors writing on these matters.” She adds, “Just World Books brings these eloquent voices to print so that audiences in the U.S. and elsewhere who understand the gravity of these issues, yet feel under-informed about the true nature and roots of these crises, can have easier access to the wisdom, views, and insights of people with direct experience working on (and often in) these areas.”

For more information on Ambassador Freeman’s book, “America’s Misadventures in the Middle East” and to order a copy you can visit Amazon.com.

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Ambassador Chas Freeman was the opening speaker at the 2010 Arab U.S.-Policymakers Conference and talked about American "misadventures."

EXCERPT FROM “AMERICA’S MISADVENTURES IN THE MIDDLE EAST,” BY AMB CHAS FREEMAN

Chapter 2

Objectives and End Games in the Middle East

By early summer 1991, U.S. and other forces that had occupied southern Iraq as part of the campaign to liberate Kuwait had withdrawn. As I argued in the previous chapter, however, the failure to transform military victory into appropriate adjustments in relations with Iraq left the war with no closure. Saddam was able to parlay his survival in power into a political victory buttressed by his control of the distribution of essential resources to the Iraqi population. (As is often the case, the system of sanctions put in place by the international community inadvertently propped up its target. Only the Baghdad regime had the means to circumvent the sanctions. Meanwhile, the Oil-for-Food Program by which essential humanitarian supplies were allowed to penetrate the sanctions wall reinforced Saddam’s centrality in his country’s political life by increasing his patronage power. Only those who were prepared to appease him got reliable access to food and medical supplies.) Intermittent talk about removing Saddam from power was never translated into a serious U.S. policy.

Over the course of the 1990s, U.S. policy in the Gulf was essentially reactive—on autopilot, leaving the initiative to the Iraqi dictator, Saddam Hussein. When he needed to rally Iraqi nationalism or Arab sympathy to his side, he would goad the United States and United Kingdom into bombing Iraq. Meanwhile, while maintaining a public stance of defiance, he complied in practice with U.N. demands that he destroy his WMDs and end the programs by which he had developed them. His concealment of this compliance reflected his fear that it would be seen by Iraqi nationalists and other Arabs as a sign of weakness that could undermine his case for remaining in power and even lead to his overthrow. Ironically, he managed to convince the George W. Bush administration, if not Iraq’s neighbors, that he and his government remained a menace. On the night of March 19 to 20, 2003, after an absence of twelve years, U.S. forces reinvaded Iraq, this time with the objective of engineering regime change in Baghdad.

This American lurch into the strategic ambush of Iraq caused me to spend a lot of time thinking about how the short victorious war of 1990 to 1991 could have failed to preclude the long, ruinous misadventure that began in 2003. (As I write, this misadventure has yet to conclude.) I came in time to the conclusion that the botched interventions in Afghanistan and Iraq reflect a basic dysfunctionality in the American way of war that is deeply rooted in the exceptional geopolitical circumstances and historical experiences of the United States.

Later in this book, I present a series of personal snapshots of the Afghan and Iraq Wars as they unfolded. Suffice it to say here that, by late 2004, it was getting really hard to overlook the extent to which American policies and actions were linking trends and events in Palestine with those in Afghanistan, Iraq, Iran, and the Gulf.

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Excerpts from a talk at the Institute for Defense Analyses

November 10, 2004

William Tecumseh Sherman once succinctly observed that “the legitimate purpose of war is a more perfect peace.”2 It is the political results of war that translate battlefield successes into victory. And it is the defeated, not the victors, who decide when the war has ended. No war ends until the vanquished accept their defeat.

Therefore, as I noted in my 1994 book The Diplomat’s Dictionary,

the first question anyone planning to start a war or to respond with force to an act of aggression should ask is not whether his nation’s force can prevail in battle, though that is indeed a vital question. He should ask what objectives, once achieved, would justify ending the war and why anyone on the other side should regard these changes in the status quo as either temporarily or permanently acceptable. How will the fighting be ended? On what terms? Negotiated by and with whom? What happens after the conflict is over? Will the seeds of future military actions be planted in the terms of the peace?3

As U.S. Ambassador to Saudi Arabia, I repeatedly put these questions to the first Bush administration before our liberation of Kuwait from Saddam Hussein’s occupation. My cables were never answered. There was no war termination strategy. Generals Schwarzkopf and Khalid bin Sultan met their Iraqi counterparts at Safwan without political instructions. Saddam was never forced to accept the political consequences of his defeat. Therefore, he remained in power. And the war never ended. It continued as low-intensity conflict until our March 20, 2003, invasion and subsequent conquest of Iraq. The Gulf War thus failed General Sherman’s test; it did not produce a better peace. Iraq and Afghanistan do not seem likely to do better.

I’ve spent a lot of time trying to understand how a politico-military integration failure of this magnitude could have occurred. My first instinct was to blame the nature of coalition warfare. Coalitions harmonize objectives to the lowest common denominator; they are the enemies of clarity. But, on further reflection, I have come to the conclusion something more fundamental was at work, reflecting a basic flaw in the American way of war.

In the Asian tradition of Sunzi and the European tradition of Clausewitz, war is a means of accomplishing political objectives that cannot be achieved by less costly means. When the fighting ends, negotiations between victor and vanquished define the adjustments—in frontiers, territories, or behavior—necessary to make peace.

Long ago, for example, in our war for independence and the Mexican War Americans fought that way too. But the ending of wars through negotiation has not been our formative experience. Our views of war have been shaped in existential struggles against enemies we demonized and whose continued existence we pronounced to be morally unacceptable. In our civil war, in World War I, and in World War II, as well as in the cold war, we fought with the expectation of unconditional surrender and the subsequent reconstruction of our enemies.

Not surprisingly, it is these experiences rather than the awkward stalemate in Korea or dishonorable retreat from Indochina that inspire us when we go to war. The Spanish-American War, in which military success against enemy forces preceded any serious effort to concoct war aims, is also not a model, except perhaps in terms of encouraging us to believe that we can somehow sort out how to deal with the aftermath of war after we’ve destroyed the enemy’s combat power.

The American idea of war termination is the annihilation of the enemy’s forces and the temporary replacement of his sovereignty with our own. We seem to have no notion of how to settle for less than that. In this context, it is hardly surprising that we should have been unable to formulate a war termination strategy for the Gulf War, which was fought to repel aggression and restore a regional balance of power disturbed by the Iran-Iraq War. The failure to craft a sustainable postwar order for the Gulf and to assign Iraq an appropriate role in it meant that there was no postwar regional balance. This, in turn, left the United States to fill the power vacuum.

Many Americans were inclined to see anything less than the occupation and reconstruction of Iraq as an incomplete war, even if that had not been our original objective. The war was indeed incomplete, but this was not why. The sad fact is that Saddam’s military defeat was never translated into his political humiliation. Thus, our military triumph never became a political victory over the Iraqi dictator, and humiliated and resentful Iraqi nationalists in Baghdad were not motivated to overthrow him. We showed, once again, that one can win every battle and prevail in every military contest of strength and still lose politically. To lose politically, as we should have learned in Vietnam, is to be defeated.

This brings me to the conflicts in Afghanistan, Iraq, and with terrorists throughout the world today. To gain victory in these conflicts, we must have clear and unwavering objectives. To consolidate victory in these conflicts we must think through how they should conclude. Where do we now stand? Let’s start with 9/11.

In the more than three years since America was cruelly maimed by terrorist attacks on New York and Washington, the United States has disrupted the corporate headquarters of al-Qaeda, killed much of its original leadership, and driven from power those who gave it safe haven in Afghanistan. In doing so, we more or less accomplished our original objectives of apprehending the perpetrators of 9/11 and punishing their Afghan hosts so as to deter other countries from sheltering al-Qaeda or its like.

But al-Qaeda has grown new leaders, reorganized, and expanded its operations internationally. It has, in short, metastasized, not collapsed or shrunk into irrelevance. The war in Afghanistan, meanwhile, is largely forgotten here, but it is far from over. It is an expensive war in every sense: 143 U.S. soldiers have died; 423 have been seriously injured.

But, as our war with Afghan insurgents has continued, we have often seemed to forget that al-Qa`ida, not Afghans associated with the Taliban, did 9/11. Unlike al-Qaeda, this should make the Taliban not an enemy to be annihilated but a politico-military problem to be managed as much by political means as by force of arms. We have slain 8,587 Afghan warriors and seriously wounded 25,761. More to the point, we have killed 3,485 Afghan civilians and seriously injured 6,273. In proportion to population, the Afghan dead are the equivalent of 85,000 dead and 250,000 gravely wounded American soldiers, and 34,000 dead American civilians, with another 62,000 seriously injured. As we have turned our attention from capturing al-Qaeda’s leadership to annihilating the Taliban, Afghan tolerance of our presence, not surprisingly, has begun to wear thin.

As I speak, some 18,000 American troops remain engaged in combat with various terrorist and resistance forces in Afghanistan. No one has told us—apparently no one can now say—what might constitute victory there or when our intervention can end. Afghanistan’s pro-American president needed American bodyguards to conduct his successful electoral campaign. The once-discredited Taliban seems to be regaining lost political ground.

Presumably, our central objective remains strategic denial of Afghanistan to al-Qaeda and other terrorist enemies of the United States. This now depends, apparently, on maintaining a huge American pacification force there while looking the other way as contented Afghan farmers exercise their democratic right to harvest the largest opium crop in history.

A year and a half ago, in the second major development since 9/11, we invaded Iraq. We did so for a tangle of five or six theses and reasons that no one has yet been able convincingly to untangle. I will not attempt to do so this afternoon. I will simply note that our one indisputable achievement has been the overthrow of Saddam Hussein, a very bad man whose fall from power few in Iraq and no one outside it laments.

But we invaded Iraq with a bunch of dogmas rather than a set of plans. So, as we removed the Iraqi regime, we inadvertently destroyed the Iraqi state. We replaced that state not with a new regime but with an overwhelmingly American military occupation; 137 Americans died during our invasion of Iraq. During the same period, we killed about 30,000 Iraqi troops and seriously wounded another 90,000. In terms of our population, these figures equate to about 349,000 American military dead, with 1,050,000 seriously injured. Not surprisingly, Iraqis had distinctly mixed feelings about our arrival from the outset.

Since the president declared our “mission accomplished” in May 2003, another 1,079 American military personnel have given their lives in Iraq. Our military no longer do body counts, so it is hard to know how many Iraqi guerrillas or civilians have died under our occupation. Hospital-documented deaths add up to at least 15,000, with 26,000 seriously injured, while recent estimates in the British medical journal, The Lancet, suggest as many as 100,000 died. Again, to imagine the impact on ordinary Iraqis of these figures, we must translate them into American terms. They equate to between 175,000 and 1,160,000 dead American civilians. The 600 civilian deaths documented over the past week in Fallujah alone are the equivalent of nearly 7,000 in America.

It’s hard to think of any occupation anywhere that has been welcomed or accepted as legitimate for long by those occupied. But, given our inability even to repair basic infrastructure, let alone reconstruct Iraq, and the figures I have just cited, our occupation is now so universally regarded as illegitimate that it invites resistance and taints any project and any person associated with it. Our aid workers and journalists are now essentially confined to fortified enclaves, military bases, or convoys escorted by our troops. The only thing keeping Iraqis from civil war is their unity in opposing our occupation.

In this increasingly hostile environment, we are nonetheless asking our military simultaneously to create a state and an army to back it while providing security for reconstruction and the installation through elections of a government with the legitimacy we and the interim authority we appointed lack. Apparently, we then plan to hang around in the 14 permanent military bases we are building, as a guarantee of Iraqi democracy and Kurdish autonomy. This is an ambitious, not to say preposterous, tasking to give the United States Army. Support of this kind from us is very likely the kiss of death for any new Iraqi government.

Under the circumstances, perhaps the best outcome we can hope for is that the January elections in Iraq come off and produce a government that asks us to leave. Declaring democracy and withdrawing may be our best option. But is that what we plan to do? And, if not, what do we plan to do?

Our vagueness—maybe it’s just honest confusion—about what we are trying to accomplish in Iraq and how and when we might leave carries a heavy cost, and not just to the American taxpayer. Increasingly, Iraqis, other Arabs, and Muslims around the globe see our presence there as part of a broad assault on the fifth of the human race that is Muslim. They connect our actions in Afghanistan and Iraq with our unconditional support, including generous subsidies, for the Israeli government and its policies in the Arab territories it occupies. They do not believe our president when he promises to resume a peacemaking role between Israelis and Palestinians. They see the United States as now so closely aligned with Israel as to be essentially indistinguishable from it in policy terms and to be disqualified as a mediator.

Identification with Israel remains a big plus in American politics. But it is no longer a plus elsewhere. Here too, it helps to consider the conflict statistics. Since Ariel Sharon’s provocative visit to the Al-Aqsa Mosque on September 29, 2000, the intifada has taken the lives of 942 Israelis and seriously wounded perhaps another 4,500. Critics of Israel should take note! The ascendancy of the Israeli right wing is easier to understand when one considers that this is the equivalent of 44,715 dead and 215,000 wounded Americans. After all, 3,000 deaths on 9/11 were enough to send the United States into a sort of national nervous breakdown.

We focus on the Israeli dead and wounded. Arabs and Muslims are naturally more apt to focus on the comparable Palestinian statistics. Since September 29, 2000, 3,447 Palestinians have died, while another 40,000 or so have been seriously injured. In our terms, this would be 284,964 dead and 3.4 million wounded. As I said a moment ago, rightly or wrongly, Arabs and indeed Muslims globally see this bloodbath in the Holy Land as a direct result of U.S. policy. And they now connect it to lethal American actions against Arabs and Muslims elsewhere.

The decisive shift in foreign views of the United States is the third and most significant change in our situation since 9/11. Our allies and Islamic partners were with us in Afghanistan. Our invasion of Iraq separated most of them from us and set us against three-fourths of the member states of the United Nations. Abu Ghraib and the scofflaw behavior at Guantanamo now belatedly being set right by the federal judiciary subsequently erased much of the admiration the United States enjoyed when we stood unequivocally for a just world order based on the rule of law.

Most, though not all, of our allies and friends in Europe and Asia are now skeptical, even apprehensive, about us. The political burden of proof internationally is against any leader who proposes to follow our lead. Most notably, in Muslim countries, huge majorities have now concluded that the United States is an international predator and implacable enemy of their values. Osama bin Laden and others of like mind see this not only as a boon to recruitment but as a major opportunity to build a transnational political movement to back their terrorist struggle. This is why Osama’s latest message has such a confident, even upbeat tone. He thinks he’s winning his war with us. If our measure of success is whether we kill more terrorists than we create, Osama may be right. In places like Fallujah, to kill one so-called terrorist is to get five free. And Fallujah is now connected to Gaza and Kandahar in the Muslim mind.

If we continue on course, we can expect the world to become ever less hospitable and safe for Americans. And we can expect others to continue to attempt to do to us what they perceive us to be doing to them. Our homeland remains highly vulnerable to attack or, as the terrorists would describe it, counterattack. As we deal with the irregular rhythms of our mounting conflict with the Muslim world, we will be hard pressed to deal with other issues of concern, like the North Korean and Iranian nuclear programs, or our precarious international financial standing. In fact, some of these issues have already been adversely affected by the various developments I have discussed. Our invasion of Iraq, for example, caused both North Korea and Iran to accelerate their plans to acquire nuclear deterrent forces. The mounting costs of the war drive up our budget deficits and increase our dependence on purchases of our national debt by the Japanese, Chinese, Koreans, and so forth.

Which brings me back to the terrible challenges facing our president. We must hope that Kaiser Wilhelm was right when he claimed that “God watches over idiots, little children, and the United States of America.” Or that Winston Churchill was prescient when he observed that “one can always count on the United States to do the right thing, after it has exhausted all the alternatives.” We are getting somewhat short of alternatives, I sense. But what is the right thing to do in these circumstances?

As recently as two years ago, there was no real connection between Afghanistan, Iraq, and the Holy Land. As a result of our decisions and actions, they are now inextricably connected both to each other and to the future of al-Qaeda and other Islamic extremist movements. As we deal with each of these issues, we must therefore weigh the extent to which our actions aid or impede resolution of the others.

The place to start is probably Afghanistan, where, I would argue, we have been guilty of “mission creep”—an unwitting and somewhat witless shifting of the goal posts. What are our goals in Afghanistan now that we have al-Qaeda on the run and the Taliban out of office? Are there no alternatives to perpetual military intervention in Afghanistan and to uncontrolled production of the raw material for heroin to accomplish these goals, whatever they may be?

With a presidential election in Afghanistan behind us and parliamentary elections in sight, it is time to clarify and refocus our policy to substitute diplomacy and foreign aid for military intervention. If a fraction of the money we are spending on military operations in Afghanistan were made available to its government for army and nation-building activities, with a bit left over to fund a public school program in Pakistan to give kids in the border areas an alternative to the religiously reactionary madrasas there, much might be accomplished. What’s more, I believe that such an effort could attract matching money and other help from allies, partners, and friends, not just in Europe, but in Asia and even the Arab world.

An approach like this would not represent an abandonment of Afghanistan but a recognition that, in the end, Afghans are likely to be more effective in excluding Islamist terrorists from their territory if the terrorists cannot pose as the resistance to an American-led occupation that is killing other Afghan Muslims. The Afghan government will need to be able to count on us, with other members of the international community, in its struggle to co-opt regional warlords and end the Taliban insurgency. Our withdrawal must be orderly and phased. As we withdraw, we should do everything possible to help the Afghan government succeed, while ensuring that we retain the capacity to re-intervene in the unlikely event that a future Afghan government repeats the error of offering a home to terrorists with global reach.

Then there is Iraq. Here, too, policy clarification is urgently required. The biggest gift we could give to the Iraqi constituent assembly to be elected in January would be a clear statement that our first order of business with it will be to negotiate the terms of our orderly withdrawal from Iraq. We might add that we intend, as and after we withdraw, to channel a continuing flow of American and other international assistance to Iraqi reconstruction through the Iraqi government and Iraqi companies, not carpetbaggers from the United States. As part of our withdrawal plan, we should propose protective arrangements with Iraq’s neighbors.

The fledgling Iraqi state needs assurances of non-intervention from Iran, Syria, and Turkey. It needs help rather than opposition from Saudi Arabia and Kuwait, and it requires the cooperation of Jordan. Among Iraq’s neighbors, the most important in terms of capacity to intervene in Iraqi politics is Iran. As a neighbor of Afghanistan, Iran is important in that context too. If the Bush Administration can find a way to do business with Col. Qaddhafi’s wacky regime in Libya, where the stakes are much smaller, one may hope that it might have the political courage to deal with Iran.

This brings us to the Israeli-Palestinian dispute, which is at the core of al-Qaeda’s and other extremists’ hopes of uniting the Muslim world against the United States. There was, as far as I could tell, no difference at all between the presidential candidates on any issue touching on Israel and our relations with it. That is truly remarkable because Israelis themselves are deeply divided and carry on a vigorous debate about these issues. American politicians now compete for the favor of whoever is prime minister in Israel, regardless of whether that prime minister pays any attention at all to American opinions or views. All this recalls the fact that it was the Middle East that first gave hypocrisy a bad name. It leads me to the conclusion that an answer to the question of how to secure peace between Israelis and Palestinians is more likely to originate with outspoken Israelis and Palestinians than it is among brain-dead and intimidated politicians here.

But here’s the rub. Well-intentioned American subsidies and pledges of unconditional support for Israel, regardless of its policies, mean not only that Israelis can act without regard to American interests and views. They also mean that Israelis don’t have to make the hard choices they would have to make if they were—or feared they might end up—on their own.

Confident of subsidies from the American taxpayer, Israelis are under little, if any, pressure to reform their inefficient, socialist economy, now one of the most statist in the world. Peace is not impossible, as the Geneva Accords negotiated between former Israeli and current Palestinian officials attest. Assured of military superiority and support against the Arabs, however, Israelis do not need to end their expansion into Palestinian lands or make the diplomatic compromises necessary to define their borders with a viable and therefore stable Palestinian state. Israelis could benefit from some tough love from their American backers.

Israel is the strongest power in the Middle East by a wide margin, even if its security were not guaranteed by the United States, as it is and will continue to be. The only thing that could now call Israel’s existence into question is a long-term failure on its part to make peace with its neighbors. Israel’s cold war with the Arabs has now emerged as a grave threat to U.S. interests as well as to those of the Jewish state. It is time, therefore, to use American leverage to help change the political context in Israel. We should be trying to help those within Israel who advocate policies intended to achieve peace rather than continued oppression of the Palestinians and expansion into Arab lands. American support for the existence of the state of Israel is and should be unquestionable. American support for particular policies of that state should not, however, be exempt from scrutiny and debate.

Let me conclude. I do not apologize for the grave tone of my remarks. Systematically thinking through what we are trying to accomplish in Afghanistan, Iraq, and the Arab-Israeli dispute is now an imperative for our country. So is developing strategies for the successful consolidation of victory in these conflicts on terms that advance our national interests. We cannot hope to end hatred and enmity toward the United States in the hearts of all, but we can reverse current trends that are causing that hatred and enmity to deepen and spread internationally. Terrorists represent a grave threat to our liberties as well as to our wealth and power as a nation. We are not winning our struggle with them at present. But I believe that, with clear objectives and well-defined end-games, with the right policies and actions, we can.

* * *

Notes:
1 This text also incorporates remarks made to the Rhode Island Yale Club.
2 The Diplomat’s Dictionary, 2nd ed. (Washington, D.C.: United States Institute of Peace Press, 2010), p. 245.
3 Ibid., p. 243.

Chas W. Freeman, Jr. – Chairman of the Board, Projects International, Inc., a Washington, DC-based development firm specializing in international joint ventures, acquisitions, and other business operations for its American and foreign clients; former President, Middle East Policy Council; former Assistant Secretary of Defense for International Security Affairs (1993-94), earning the Department of Defense’s highest public service awards for his roles in designing a NATO-centered post-Cold War security system and in reestablishing defense and military relations with China; former U.S. Ambassador to Saudi Arabia (during Operations Desert Shield and Desert Storm); Principal Deputy Assistant Secretary of State for African Affairs during the U.S. mediation of Namibian independence from South Africa and Cuban troop withdrawal from Angola; and author of the newly published America’s Misadventures in the Middle East as well as The Diplomat’s Dictionary (Revised Edition) and Arts of Power: Statecraft and Diplomacy.

***

Related Items:

• “Misadventure”: A Conversation with Ambassador Chas Freeman, SUSRIS – Dec 11, 2010
• Amb Chas Freeman Opens AUSPC with “Misadventures” Presentation – SUSRIS – Oct 25, 2010
• America’s Faltering Search for Mideast Peace – Freeman
• A Conversation with Ambassador Chas Freeman – “An Interesting Moment” – SUSRIS – Exclusive Interview – Mar 22, 2010
• Saudi Arabia: The End of Progress without Change – Chas W. Freeman, Jr. – SUSRIS – Mar 2, 2010
• Arab-U.S. Relations: The Way Forward – Chas. W. Freeman, Jr. – SUSRIS – Oct 29, 2009
• Gestures and Illusions: Assessing Obama’s Riyadh Visit A Conversation with Chas Freeman – SUSRIS – Exclusive Interview – Jul 28, 2009
• Reforms and Relations: Perspectives on the Kingdom – A Conversation with Amb Chas Freeman – SUSRIS – Exclusive Interview – Oct 8, 2008
• Rediscovering Diplomacy: America’s Reputation in the Middle East – Amb. Chas. W. Freeman, Jr. on “Middle East Interviews” - SUSRIS – Oct 3, 2008
• Why Not Try Diplomacy? – Amb. Chas. W. Freeman, Jr. – SUSRIS – Apr 1, 2008
• American Interests, Policies, and Results in the Middle East: Energy, Israel, Access, and the Containment of Muslim Rage – Amb. Chas. W. Freeman, Jr. – SUSRIS IOI – Feb 26, 2008
• Impressions of Arabia, Autumn 2007 – Chas W. Freeman, Jr. – SUSRIS IOI – Nov 26, 2007
• Can American Leadership Be Restored? – Chas W. Freeman, Jr. – SUSRIS IOI – May 31, 2007
• National Security in the Age of Terrorism – Chas W. Freeman, Jr. – SUSRIS IOI – Jan 11, 2007
• The GCC and the Management of Policy Consequences – Chas W Freeman, Jr. – SUSRIS IOI – Nov. 3, 2006
• “American-GCC Relations: An Assessment of Reforms, Elections, Challenges and the Prospects for Regional Peace and Stability” – Chas W. Freeman, Jr., Arab-US Policymakers Conference – Oct. 31, 2006 [Audio/Text]
• Building Understanding: The Role of the MEPC – A Conversation with Chas W. Freeman, Jr. – SUSRIS Interview – Sep 20, 2006
• Strengthening the Relationship: Whose Job? A Conversation with Chas W. Freeman, Jr. – SUSRIS Interview – Aug 14, 2006
• The Arabs Take a Chinese Wife: Sino-Arab Relations in the Decade to Come – Chas W. Freeman, Jr.- SUSRIS IOI – Jun 1, 2006
• How Can the U.S. Re-Open for Business to the Arab World? – MEPC Capitol Hill Forum – Part 1 – Ambassador Chas Freeman – SUSRIS IOI – Apr 14, 2006
• Defining Interests and a Changing Relationship – Ambassador Chas Freeman Interview – Part I – SUSRIS Interview Series – Oct. 29, 2004
• U.S.-Saudi Relations: The Path Ahead – Ambassador Chas Freeman Interview – Part II – SUSRIS Interview Series – Oct. 30, 2004
• The Way Forward: A Diplomat’s Perspective – Remarks by Ambassador Chas W. Freeman, Jr. – 13th Arab-U.S. Policymakers Conference -Washington, DC – September 13, 2004

Elizabeth R. Pfiester | SUSRIS

Dr. Laurence Michalak, University of California, Berkeley

Dr. Larry Michalak, PhD, a cultural anthropologist and Middle East specialist from the University of California, Berkeley, recently talked with SUSRIS about the “Improvement in Images of Arabs and Muslims in Recent American Cinema.” Dr. Michalak’s research about the film portrayals was the subject of a paper he presented last month at the Middle East Studies Association annual conference in San Diego. [Interview on SUSRIStube.com]

In his study, Michalak examined 23 major films about Arabs and Muslims between the years 1999 and 2010 — categorizing them as positive, negative, and neutral films — to understand how the image of Arabs and Muslims in American cinema evolved in the recent past. Despite challenges in properly fitting each of these films into precise categories, Michalak rated 11 of them positive, six neutral, and four negative. He created an alternative category for two films, which were about the 9/11 terrorist attacks, which needed separate discussion and classification.

“There has never been a positive [main stream] movie with a main character who was an Arab or a Muslim before 1999,” Michalak explained to SUSRIS. Two 1999 releases –The Thirteenth Warrior and Three Kings – portrayed Arabs in a realistic, non-negative light. This seemed to be the start of a new era of more conscientious and well-informed filmmaking, but when the 9/11 terrorist attacks occurred in 2001, Michalak feared the prevalence of negative portrayals would return. However, he found this not to be the case. In the following years other movies with Arab or Muslim characters appeared on the scene, including Kingdom of Heaven in 2005. This film portrayed Muslims as the “good guys” and the crusaders as the “bad guys”. In his conversation with SUSRIS, Michalak cited several other films since 9/11, including Syriana and The Kite Runner, which portrayed diverse Middle Eastern characters. In the case of the movie The Kite Runner, Afghans and Muslims are represented based on characters in the book, which was written by an Afghani. Michalak’s assessment noted the positive depiction of Islam.

The Kingdom, which focuses on Saudi Arabia specifically, represents Saudi Arabians positively. It was a story of an investigation by American agents into a terrorist attack against an American residential compound in the Kingdom. Michalak explained that the leading Saudi Arabian character, a senior police officer, was one of the heroes of the movie.  He added that the Royal Family was positively depicted, especially as contrasted with an American diplomat who sought to quash the FBI investigation.  Even the terrorists are humanized and seen as complex people in this film, according to Michalak.

In September of 2007, SUSRIS examined The Kingdom giving readers an inside look at the production notes. The Kingdom’s Director, Peter Berg commented on the movie, “After 9/11, there was so much anti-Saudi sentiment in the States, because so many of the hijackers were from Saudi Arabia .. but, it wasn’t reflected in my relationships with Saudis I knew.” Berg believed that there was no better time to make a film that “looks at the joint Arab and American fight against violent extremism.” He noted, “The movie is about Americans and Arabs working together in a very decent and human way.”

In his paper on Arabs and Muslims in cinema, Dr. Michalak explored reasons why negative stereotyping may not have increased after 9/11.

The silver lining to the black cloud of 9/11 is that it has led to an increased interest in Islam and an upsurge in the numbers of people studying Arabic. More young Americans are studying abroad in countries such as Morocco, Tunisia, Egypt, Jordan and Oman. The result is a steady increase in American sophistication about the Middle East and the Muslim world, which is all to the good.

Michalak was asked by SUSRIS how his analysis of these films speaks to the image of Arabs in American society as a whole.

Until recently there’s been a great deal of ignorance about the Middle East and about Islam, and especially since 9/11 there has been great attention to Middle Easterners, Middle East politics, and Islam. What has developed is there is a big debate that is going on. On the one hand you have the people who present Islam as a negative religion .. But at the same time there is at least an equal number – probably even more – scholars of Islam who present Islam as a positive religion, who present Islam as a religion which is basically very, very similar to Judaism and Christianity .. they tend to be very polarized. They either have a very positive view of Islam or a very negative view but there is a struggle going on.

However, people are learning more about Islam and about the Middle East and I think that the more people study Islam and the Middle East the more they are, shall we say, alleviated of their negative stereotypes, and they achieve a much more nuanced and generally positive picture of people who live in the Middle East. In other words, Arabs, Muslims, they’re not the most wonderful people in the world and they are not the most terrible people in the world. They are fundamentally just like us, and their religion is very, very similar to Judaism and Christianity.

Dr. Michalak noted his research is not comprehensive, but the broad scope of films selected and explored demonstrate that Arabs and Muslims have gone from being generally vilified in cinema to being humanized and respected. “The substantial number of films with positive Arab and Muslim characters is a sign that things are changing. Presumably, we can all agree that negative stereotyping is harmful and that Americans should strive for critical thinking, understanding, tolerance and multi-culturalism.”

Dr. Laurence Michalak received his BA from Stanford with honors (1964) and served in the Peace Corps in Tunisia for two years as a Volunteer (1964-66) and two years as Associate Director (1967-69). He completed his PhD in Cultural Anthropology at Berkeley in 1983. For 23 years he was Vice Chair of the Center for Middle Eastern Studies at UC/Berkeley, retiring in 2002. Since retiring he has done postdoctoral research in alcohol studies, gone around the world as a visiting professor on the Semester at Sea program, and directed an American overseas research center in Tunis. He has spent over ten years in the Arab World, mostly in Tunisia, and has published two edited books (on social legislation in the Middle East) and on the effects of labor migration on North Africa), plus numerous articles and reviews. He is currently working part-time at UC/Berkeley as the Faculty Advisor for the undergraduate major in Middle Eastern Studies.

Related Items:

• Conversation with Larry Michalak: Arabs and Muslims in American Cinema – SUSRIStube – Dec 1, 2010 – VIDEO
• The Celluloid Kingdom – SUSRIS – Sep 28, 2007
• Reel Bad Arabs – How Hollywood Vilifies a People –  A Documentary Featuring Dr. Jack Shaheen
• Reel Bad Arabs – Wikipedia

Editor’s Note:

In May Jafar Alshayeb, chairman of the Qatif municipal council, wrote that women’s rights held a central place in social reform efforts in “Women’s Rights Gain Focus in Saudi Arabia,” for the Carnegie Endowment’s “Arab Reform Bulletin.” He offered that King Abdullah’s “relatively liberal position” created an opening for initiatives empowering women. Alshayeb noted advancements like: appointing a women deputy minister of education; firing a cleric for condemning coed education at the landmark King Abdullah University of Science and Technology; and elevating women to posts at chambers of commerce in Jeddah and the Eastern Province. In the introduction to SUSRIS’ posting of Alshayeb’s report we noted that Thomas Lippman in his book on US-Saudi relations, “Inside the Mirage,” wrote in 2004, “I’ve had the strong impression from visiting Saudi Arabia that there is a new generation of educated Saudi women who are trying to claim what they think is their proper place in the economic and social life of the country, as indeed they should. For economic reasons if no other they are gradually going to be accommodated. So what you see, as so often happens in Saudi Arabia, is the attempt to balance the progressive instincts of some parts of the society against what I would call the retrogressive instincts of other parts of the society. It’s a difficult balance to manage and that’s the job of the House of Saud.”

With that context in mind we provide for your consideration an article by Fatima Sidiya and Diana Al-Jassem, with input from Mariam Nihal, for Arab News reporting on last week’s “Women in Leadership Forum,” in Jeddah. They provide an overview of the issues and a discussion of the challenges and the way forward for empowering women in the Kingdom. This report is accompanied on SUSRIS this week with an op-ed by journalist Samar Fatany who talks about the call for a “Ministry for Women’s Affairs” that arose after the forum; and there is an op-ed in Arab News which focuses on getting women into the Saudi work force.

Forum discusses strategy to empower women
Fatima Sidiya & Diana Al-Jassem

Princess Lolowah Al-Faisal (Back row center) distributed awards at the Women in Leadership Forum in Jeddah.

Participants at the Women in Leadership Forum, which ended in Jeddah at the Park Hyatt Jeddah hotel on Wednesday, called for more similar forums in other parts of the Kingdom and a strategy to empower women, said Nashwa Al-Taher, executive director of the Al-Taher Group.

Al-Taher, who is also a former member of the Jeddah Chamber of Commerce and Industry, said participants also called for a strategy to empower women and develop “a proper atmosphere for women in 30 years time.”

Commenting on the role of the Kingdom’s chambers of commerce and industry, several employees of chambers said the bodies’ remit does not include finding jobs for unemployed women. “Employment is the job of the Civil Service Council. Our job is to provide services to companies,” said Lyla Ashadawi, president of the Asharqia Young Businesswomen Executive Counsel at the Asharqia Chamber of Commerce and Industry.

Her views were echoed by Al-Taher and Haila Al-Saud, head of the women’s section of the Riyadh Chamber of Commerce and Industry. “Our role is to help women initiate businesses,” said Al-Saud.

Ashadawi also said there is a need to create more small businesses to generate jobs. Large companies, she said, will not provide job opportunities due to low profit margins, which do not exceed 4 percent in the Middle East while in other regions it is as high as 40 percent.

“There are also some 113,000 graduates who are studying on scholarship programs abroad and will come back soon,” said Ashadawi.

Noura Al-Turki, head of the women’s section at the Institute of Banking, criticized the absence of men at the event. “I hope we could see men at all women-related conferences. They have to come and listen to us. For years we have been discussing everything on our own. This is not practical. They are decision makers and have to be here,” she said.

In her closing speech, Lina Almaeena, co-founder and director of the Jeddah United Sports Company, said the “biggest benefit and achievement” was the chance to meet women figures from different walks of life and regions of the Kingdom. “You felt like there is a synergy and cooperation with all sections of Saudi society” recognizing the potential of each other, she said.

She added that she was delighted “to meet so many decision and policy making women” at one place. Providing a summary of the idea of the event, she said, “Networking with women who are in different situations, positions and cultures within the same society. Indeed, this conference was about uniting Saudi women.”

She added that though she and the basketball team she is captain of have been attacked for breaking cultural norms by appearing in the international media, she believes they are challenging negative stereotypes about Saudi women.

“Women in the Kingdom are thought to be restricted and considered second-class citizens. We wanted to change that stereotype though the involvement of women and their families in sports activities,” she said.

Speaking about the help offered to disabled youth, Buthina Al-Kathiri, head of the women section at the Human Resources Fund in Jeddah, said, “We can offer rehabilitation programs for disabled youths that includes both males and females to start their own projects. The programs require the youth to develop a plan and have the sponsorship of organizations such as the Jeddah Chamber of Commerce and Industry, Abdul Latif Jameel Community Services Program and others. We can’t offer jobs or financial support to the disabled unless they have a sponsor.”

“The Human Resources Fund is trying to play a key role in hiring a big number of youth and tackle the problem of unemployment. We receive a large number of girls who are interested to learn several fields such as nursing, banking, human resources and insurance in order to … get jobs,” she said.

Speaking on the sidelines of the event, Dr. Fawzeia Mohammed Akhdar, associate member of the National Region of Handicapped People, said most disabled individuals are unemployed though they may be very talented.

“We’ve prepared several programs to enable the disabled to develop skills. Many have skills in various subjects and our job is to present their ideas and projects to interested bodies, but we can’t get organizations to sponsor them. These organizations prefer people who are not disabled,” she said.

Khadija Aboud Baheda, head of the women section of Aware Association for Social Awareness and Rehabilitation, complained about the weak communication ties between officials at the Human Resources Fund and charity associations.

“We do not know about the programs on offer for the disabled or orphans. There are no periodical visits or meetings between officials at the Human Resources Fund and charity associations,” she said.

“The Human Resources Fund only arranges periodical visits at private universities and institutions and ignores needy group such as those that deal with disabled people.”

The forum also hosted the Kingdom Women in Leadership Awards to recognize leading women from across the Kingdom. On the first day of the conference Princess Lolowah Al-Faisal, vice chair and general supervisor of the board of trustees of Effat University, distributed awards.

The Saudi Businesswoman of the Year award went to Wafaa Abbar, the Most Innovative Woman Entrepreneur award went to Lina Almaeena, the Leading Woman in the Public Sector award went to Maha Al-Muneef, the Leading Woman CEO award went to Haifa Jamalallail, the Leading Woman in a Family Business award went to Mashael Al-Suleiman, the Most Women-Friendly Employer award went to Jeddah Municipality, the award for Women Empowerment went to Al-Waleed bin Talal Foundation and the Most Philanthropic Initiative award went to the National Commercial Bank.

— With input from Mariam Nihal

Source: Arab News

Related Items:

• Institutionalizing Empowerment: A Women’s Ministry? – SURSIS – Dec 9, 2010
• Jobs for Women – Arab News Editorial – SUSRIS – Dec 9, 2010
• Women’s Rights Gain Focus in Saudi Arabia – Alshayeb – SUSRIS – May 27, 2010
• Boosting Small and Medium Enterprises in Saudi Arabia – SUSRIS – Dec 4, 2010
• Has 9/11 Changed Saudi Arabia for the Better? – Robert Lacey – SUSRIS – Sep 12, 2010
• Saudi Women to Stand Against Breast Cancer – SUSRIS – Aug 23, 2010
• Saudi Domestic and Regional Policies – Gause – SUSRIS – Jun 22, 2010
• Higher Education Opportunities for Women – SUSRIS – Mar 12, 2010
• King Abdullah: An Outstretched Hand – Sobhani Book – SUSRIS – Mar 6, 2010
• Saudi College Women Build Social Entrepreneurship Skills – SUSRIS – Jul 22, 2009
• U.S.-Saudi Women’s Forum on Social Entrepreneurship Summer Symposium Opens – SUSRIS – Jul 14, 2010
• Saudi Arabia Shuffles Government Posts – SUSRIS – Feb 14, 2009
• Rights Commission Opens Women’s Branch – SUSRIS – Sep 5, 2008
• Women’s Political Participation in the Gulf – SUSRIS – Apr 14, 2008
• Abdullah Pardons ‘Qatif Girl’ – SUSRIS – Dec 18, 2007
• A Slap in the Face of Justice – SUSRIS – Nov 21, 2007
• For Cloaked Saudi Women, Color Is the New Black – SUSRIS – May 30, 2007
• Government Jobs for Saudi Women – SUSRIS – May 29, 2007
• Saudi Businesswomen Seek Greater Participation – Mar 21, 2007
• Challenges and Opportunities: Saudi Arabia in the 21st Century – SUSRIS – Jan 23, 2007
• On Relations and Reforms: A Conversation with Usamah al-Kurdi – SUSRIS – May 30, 2006
• Young and Restless – Afshin Molavi – SUSRIS – May 17, 2006
• The Time is Now in Saudi Arabia – Part 2 – SUSRIS – Apr 27, 2006
• The Time is Now in Saudi Arabia – Part 1 – SUSRIS – Apr 26, 2006
• Saudi Professional Women Advancing – SUSRIS – Dec 28, 2005
• Women Create History in JCCI Poll – SUSRIS – Dec 1, 2005
• U.S. critics miss the real Saudi Arabia – SUSRIS – Nov 30, 2005
• On Relations and Reforms: A Conversation with Usamah al Kurdi – SUSRIS – Sep 30, 2005
• Building Bridges: A Conversation with Princess Loulwa Al-Faisal – SUSRIS – Jun 2, 2005
• Saudi Women Moving Up in Business Remarks by Princess Lolowah Al-Faisal – SUSRIS – May 18, 2005
• Women of the Holy Kingdom By Sharmeen Obaid-Chinoy – SUSRIS – Apr 4, 2005
• Saudi Municipal Elections – Round Two – SUSRIS – Mar 3, 2005
• Reforms and Relations: Saudi Arabia’s Foreign Minister Discusses Developments in the Kingdom – SUSRIS – Feb 24, 2005
• Women’s Employment Initiative – SUSRIS – Jan 27, 2005
• Saudi Women and the Jeddah Economic Forum – SUSRIS – Feb 12, 2004
• “A Saudi Vision For Growth” Women Make Their Mark at Jeddah Economic Forum – Lubna Olayan’s Keynote Address -SUSRIS – Jan 21, 2004
• Al-Ikhbariya Makes Waves – SUSRIS – Jan 15, 2004
• On A Dagger’s Edge — Saudi Women, Long Silent, Gain a Quiet Voice [Part 4 in a Series] – SUSRIS – Jan 14, 2004
• Women’s Rights in Saudi Arabia – SUSRIS – Jun 19, 2003

Editor’s Note:

Each month Banque Saudi Fransi (BSF) takes a look at the latest monetary indicators provided by the Saudi Arabian Monetary Agency (SAMA) to produce its “Monetary Indicators” report. The key findings for today’s report, drawn from October 2010 SAMA data, include: a slowdown in the growth of broad money supply for October to 3.7% with the Kingdom poised for 2010 to show the slowest annual money supply growth since 1998; there is little impetus to indicate a 4th quarter credit recovery and that private sector credit growth gained only slightly and public sector credit dipped; new letters of credit surged in October, while consumer activity also showed a good comeback in the month before the Hajj pilgrimage; and that SAMA foreign assets jumped more than 10% for a second month as oil prices press above $80 a barrel. Today we are pleased to provide the December 6, 2010 BSF “Monetary Watch” and thank Dr. Sfakianakis and his staff for sharing it with you on SUSRIS.

[Visit HERE for the complete report including insightful charts and graphs.]

Monthly monetary indicators

December 2010
Dr. John Sfakianakis
Banque Saudi Fransi

Little thrust behind loan growth, but trade, consumer data perk up in October

• Money supply growth slows, 2010 poised for lowest growth since 1998
• Private sector loan growth edges higher, lower deposits reflect weak momentum
• New letters of credit, point of sale transactions point to recovery
• SAMA foreign assets jump 10.4% as oil touches $82

Saudi Arabia’s private sector credit growth once again inched higher in October, although declines in deposits and money supply growth lent little impetus to optimism for a decent fourth-quarter turnaround in monetary conditions. Trade and consumer activity, however, appeared to pick up following a weak showing in September, according to the latest data of the Saudi Arabian Monetary Agency (SAMA).

Lacklustre credit growth has characterised most of 2010, and the fourth quarter appears set to be no different. Resulting from both a reticence among banks toward new lending and caution among private investors still re-positioning themselves following the financial crisis, private sector credit growth expanded just 5.1% in October compared with the end of December 2009. Bank credit to the private sector grew 3% year on year in October, while claims on the private sector, which combine bank credit with investments in private securities, rose an annual 4.1%.

While the pace of annual growth in private sector claims looks likely to pick up in November and December, overall growth for the year is unlikely to exceed 7.4%, below our 8% forecast. As we stated in our December monthly report, Saudi banks probably will not witness a return to double-digit rates of loan growth before 2012-2013, when a greater stream of project financing deals bolsters their balance sheets. All of the credit growth that happened in October was from loans carrying medium- to long-term maturities (one year or longer), which grew 2.8% and 1.4%, respectively, from the month earlier. Short-term loans carrying maturities of less than a year, on the other hand, fell.

Credit to public sector enterprises, meanwhile, dropped almost 5% in October from September to SR32.27 billion. But loans that banks have extended to state-linked entities are still up almost 15% from December. The government has been steering the economy this year by taking the lead in financing strategic expansion projects.

Weak deposits, money supply growth

The state’s efforts to stimulate the economy by increasing spending have failed to noticeably advance growth in deposits or money supply in 2010. Total deposits fell in July and August before rising by 3.2% in September. In October, they fell again by 1.1% to SR945.2 billion, just 0.5% above deposit levels at the end of 2009. The decline in October was due to lower time-and-savings and foreign currency deposits. Demand deposits continued to grow, reaching SR499.53 billion, almost 53% of total deposits.

Non-interest-bearing demand deposits have gained favour among corporate and individual clients in the past two years due to their accessibility and the low interest rates paid on interest-bearing deposits. This scenario is likely to remain in place until such a time as SAMA raises its benchmark interest rates, which we expect will not happen before the latter part of next year. The central bank has deliberately kept its benchmark repurchase rate at 2% and reverse repurchase rate at 0.25% since mid-2009 in an effort to stimulate banks to lend. Since Saudi Arabia pegs its currency to the U.S. dollar, interest rate policy in many ways mirrors official Federal Reserve policy.

Banks, though, have continued to shelter their liquidity. Commercial bank foreign assets have more than doubled since the beginning of 2009 in conjunction with bank vigilance. While their foreign asset holdings declined 6.6% in October from the month earlier, banks stashed more with the central bank – including in statutory deposits and in the reverse repurchase window.

Expansion in broad money supply (M3), fell to just 3.7% in October, down almost 1% from September levels. Full-year money supply growth looks poised not to exceed 4% in 2010, slower than any year since 1998. The money multiplier has, nonetheless, improved through the course of the year. In October it was 4.52 which, while lower than almost 4.8 in August, has risen from just 4 at the start of the year. Acceleration in economic activity has been taking place on the ground. We expect private sector GDP will have grown 4% in 2010 while government sector GDP will have expanded 4.6% by the end of the year. The country is also likely to post twin fiscal and current account surpluses.

Trade, consumption activity picks up

Enhanced trading activity was evident in October letters of credit (LCs) data. The value of new LCs signed against imports jumped 61.5% year on year, and, following a big drop in September, rose almost 50% from the month earlier. There was a broad rise in the value of LCs for food imports, building materials, cars and machinery in October.

Domestic consumer activity is also on the rise. The number of point of sale transactions that were concluded in October stood at 13.1 million, valued at SR6.15 billion, up 10.6% from September and 26% from the year earlier. The value of commercial and personal cheques gained 48% in October from September and was up 15% on the year at SR46.7 billion, the highest level since March. While this does not include cash transactions that continue to account for the majority of purchasing activity, it offers a glimpse into the sentiment of consumers. One of the key drivers of inflation this year has been the other expenses and services, which recorded inflation of 8.9% in October, on par with the increase in the rental index. Hence, consumers have been more active than they were a year ago.

Strong consumer activity likely continued in November in conjunction with the annual Hajj pilgrimage, which attracted a record number of pilgrims from abroad, according to preliminary data. This likely had a ripple affect the wider hospitality and services sectors in the country and should reflect positively on consumer statistics.

The central bank, meanwhile, built its net foreign asset holdings up 10.4% in October from the month earlier as it benefitted from an average oil price of almost $82 a barrel. Net foreign assets of SR1.61 trillion ($429.4 billion) are now the highest since January 2009. Most of the new foreign assets went into deposits with banks abroad, which grew almost 14% from the month earlier, data show. Whatever scenario may evolve in the coming months globally, this substantial cushion will shield Saudi Arabia’s economy from contagion and enable the state to continue spending heavily push forward its $384 billion five-year development plan.

Disclosures and disclaimers in the original document

Source: Banque Saudi Fransi

[Visit HERE for the complete report including insightful charts and graphs.]

Contact Info:

Dr. John Sfakianakis – Chief Economist
Tel: +966 1 289 1797 – Email: johns@alfransi.com.sa

Turki A. Al Hugail – Economic Research Analyst
Tel: +966 1 289 1163 – Email: talhugail@alfransi.com.sa

Daliah Merzaban – Economic Analyst
 Tel: +971 4 428 3608 – Email: dmerzaban@alfransi.com.sa

Related:

Editor’s Note:

“Women in Saudi Arabia need to work,” according to an editorial published by Arab News on December 8, 2010, in the wake of a two-day conference on empowering women in the Kingdom. The “Women in Leadership Forum” focused mostly on business issues but also discussed other challenges facing women. “Networking with women who are in different situations, positions and cultures within the same society,” said Jeddah United Sports Company co-founder Lina Almaeena, adding, “Indeed, this conference was about uniting Saudi women.” Among the take-aways from the conference was the idea to create a government ministry to address women’s issues. In an op-ed, reprinted today in SUSRIS, distinguished journalist Samar Fatany, explored the concept of a “Women’s Affairs Ministry,” that would manage the full range of complicated issues affecting women in Saudi Arabia. Provided here for your consideration, alongside today’s reprinting of the report on the conference and the Fatany op-ed, is the Arab News editorial that urges expanded involvement of women in the workplace.

Jobs for women
Arab News Editorial

In Saudi Arabia, it is not the glass ceiling that is the prime issue, it is the “glass floor.”

Ahmad Al-Ghamdi, head of the Commission for Promotion of Virtue and Prevention of Vice in Makkah Region, speaks to journalists at the forum on Women's Participation in National Development in Jeddah. (Arab News)

The two-day Women In Leadership Forum held in Jeddah this week has made is an important contribution to the ongoing process of improving the status of women in Saudi society. This is a country where leaders are held in the highest respect; their views on a wide variety of issues are listened to and commended and their lifestyle and business choices emulated. So when people see — as we do — women taking up leadership positions in banks and businesses, chambers of commerce and municipalities, universities and hospitals, in training, IT and PR companies and even in government and the diplomatic service, it sends a positive message that this is approved at the highest levels and should be spread throughout society. That is indeed happening.

Nonetheless there is a serious problem. It is extremely encouraging that women are bringing their skills into the boardroom. But what does it say about a society where that is acceptable but there are arguments whether they can work in women’s lingerie stores or as cashiers in supermarkets? The fact is that there is strong resistance to women being employed, even in the most mundane of jobs. This is a different issue to the one about workplace gender separation. There is a significant section of society, not just men, totally opposed to women going out to work.

Ministers and officials can talk eloquently and newspapers can write at great length about the need to use all resources of the country to ensure its growth and prosperity, especially its human resources. That is true. But there is a more basic imperative. Women in Saudi Arabia need to work. The cost of living has soared. It is increasingly difficult for families, other than the very well off, to survive on a single income. Despite the belief abroad, only a miniscule minority of Saudis can be classed as super-rich.

In the West, there is considerable debate about the “glass ceiling” faced by women in the work place. Almost all areas of employment are open to them but when it comes to the boardroom, to top management, the doors close. It is slowly changing but these jobs are still largely a male preserve.

In Saudi Arabia, it is not the glass ceiling that is the prime issue, it is the glass floor. At present, women account for just 16 percent of the work force, and the vast majority of them schools teachers. Only when women are employed in far greater numbers in ordinary jobs in administration, in IT, in businesses, banks and a host of other areas, will that glass floor be broken.

It has to go. The government is spending billions to develop women’s potential, such as the new Princess Noura bint Abdulrahman University in Riyadh, which will be the largest women’s university in the world. What is the point if they are going to be denied the work they seek? Neither they nor Saudi Arabia will benefit from this massive investment.

On Tuesday, in this paper, Saudi journalist Samar Fatany called for a Ministry of Women. Other countries have such ministries. It is time for Saudi Arabia to have one as well. It would be a major tool in empowering women, ending discrimination against them and fostering not just their development but that of the country as a whole.

Source: Arab News

Related Items:

• Institutionalizing Empowerment: A Women’s Ministry – SUSRIS – Dec 9, 2010
• “Women in Leadership Forum” Calls for Action – SUSRIS – Dec 9, 2010
• Saudi Arabia: Participation of Women in National Development – American Bedu – Dec 10, 2010
• Woman empowerment stressed – Arab News – Dec 1, 2010
• Women’s leadership forum kicks off – Saudi Gazette
• Interfaith Dialogue Shared in Chicago – Fatany – SUSRIS – May 16, 2010
• New Media in the Gulf – SUSRIS – Dec 9, 2010
• Women’s Rights Gain Focus in Saudi Arabia – Alshayeb – SUSRIS – May 27, 2010
• Boosting Small and Medium Enterprises in Saudi Arabia – SUSRIS – Dec 4, 2010
• Has 9/11 Changed Saudi Arabia for the Better? – Robert Lacey – SUSRIS – Sep 12, 2010
• Saudi Women to Stand Against Breast Cancer – SUSRIS – Aug 23, 2010
• Saudi Domestic and Regional Policies – Gause – SUSRIS – Jun 22, 2010
• Higher Education Opportunities for Women – SUSRIS – Mar 12, 2010
• King Abdullah: An Outstretched Hand – Sobhani Book – SUSRIS – Mar 6, 2010
• Saudi College Women Build Social Entrepreneurship Skills – SUSRIS – Jul 22, 2009
• U.S.-Saudi Women’s Forum on Social Entrepreneurship Summer Symposium Opens – SUSRIS – Jul 14, 2010
• Saudi Arabia Shuffles Government Posts – SUSRIS – Feb 14, 2009
• Rights Commission Opens Women’s Branch – SUSRIS – Sep 5, 2008
• Women’s Political Participation in the Gulf – SUSRIS – Apr 14, 2008
• Abdullah Pardons ‘Qatif Girl’ – SUSRIS – Dec 18, 2007
• A Slap in the Face of Justice – SUSRIS – Nov 21, 2007
• For Cloaked Saudi Women, Color Is the New Black – SUSRIS – May 30, 2007
• Government Jobs for Saudi Women – SUSRIS – May 29, 2007
• Saudi Businesswomen Seek Greater Participation – Mar 21, 2007
• Challenges and Opportunities: Saudi Arabia in the 21st Century – SUSRIS – Jan 23, 2007
• On Relations and Reforms: A Conversation with Usamah al-Kurdi – SUSRIS – May 30, 2006
• Young and Restless – Afshin Molavi – SUSRIS – May 17, 2006
• The Time is Now in Saudi Arabia – Part 2 – SUSRIS – Apr 27, 2006
• The Time is Now in Saudi Arabia – Part 1 – SUSRIS – Apr 26, 2006
• Saudi Professional Women Advancing – SUSRIS – Dec 28, 2005
• Women Create History in JCCI Poll – SUSRIS – Dec 1, 2005
• U.S. critics miss the real Saudi Arabia – SUSRIS – Nov 30, 2005
• On Relations and Reforms: A Conversation with Usamah al Kurdi – SUSRIS – Sep 30, 2005
• Building Bridges: A Conversation with Princess Loulwa Al-Faisal – SUSRIS – Jun 2, 2005
• Saudi Women Moving Up in Business Remarks by Princess Lolowah Al-Faisal – SUSRIS – May 18, 2005
• Women of the Holy Kingdom By Sharmeen Obaid-Chinoy – SUSRIS – Apr 4, 2005
• Saudi Municipal Elections – Round Two – SUSRIS – Mar 3, 2005
• Reforms and Relations: Saudi Arabia’s Foreign Minister Discusses Developments in the Kingdom – SUSRIS – Feb 24, 2005
• Women’s Employment Initiative – SUSRIS – Jan 27, 2005
• Saudi Women and the Jeddah Economic Forum – SUSRIS – Feb 12, 2004
• “A Saudi Vision For Growth” Women Make Their Mark at Jeddah Economic Forum – Lubna Olayan’s Keynote Address -SUSRIS – Jan 21, 2004
• Al-Ikhbariya Makes Waves – SUSRIS – Jan 15, 2004
• On A Dagger’s Edge — Saudi Women, Long Silent, Gain a Quiet Voice [Part 4 in a Series] – SUSRIS – Jan 14, 2004
• Women’s Rights in Saudi Arabia – SUSRIS – Jun 19, 2003

Editor’s Note:

Today we shared a report on the “Women in Leadership Forum” recently held in Jeddah. The event focused on assisting women entrepreneurs in five areas: government help, finance, knowledge and education, commercialization and support, according to Maha Sami Amoulola writing for the Saudi Gazette. The forum, however, addressed a host of issues beyond the business sector. The “American Bedu” blog noted, “Other topics addressed and discussed by panel members included the ease with which a man can receive a divorce, character assignation and difficulties women face when attempting to deal with the judicial system. The forum concluded with the following recommendations made by Maha Fitaihy, the forums chairperson to draw up of a national plan to improve the image of women, especially in the workplace, set up of a commission for women’s affairs, their inclusion in provincial government councils, set up of a committee at the Muslim World League to take care of women in Saudi Arabia and the Muslim world, and launch a television channel to promote the image and achievements of Saudi women to the outside world.”

This week Samar Fatany, a distinguished journalist in Jeddah, in an op-ed published by Arab News, called for the government to create a Women’s Affairs Ministry to address a wide spectrum of issues, including many of those aired at the forum. We are pleased today to provide her op-ed for your consideration. It is accompanied by an Arab News editorial on the subject of employment for women in the Kingdom.

A Women’s Ministry to Foster Progress and Development
Samar Fatany
Dec 7, 2010

Perhaps the most significant call to come out of the recent forum “Participation of Women in National Development” was to establish a Ministry for Women’s Affairs.

A ministry directed to implement a national strategy to support the empowerment of women in Saudi Arabia would assure that progress is made on one of our society’s greatest impediments. Such a ministry is very much needed to implement equal treatment policies and to put an end to discrimination against women and maximize their contributions toward Saudi Arabia’s economic development.

Saudi women need a positive force to influence change and dispel misconceptions about women that lead to negative attitudes. Such a ministry could eliminate the barriers that stand in the way of women’s participation, and it could be a credible power in society to propose measures to counter current discriminatory practices.

There is no shortage of research and case studies of women facing hardship and social injustice, but there also is no governmental body directly charged to do anything with the findings. According to Saudi social scientists, the reasons behind the exploitation of women by husbands and guardians within our society are mainly the absence of deterrent laws or the failure to implement them. Therefore, such a ministry could develop policies and directives to address the rights of women and find remedies for those who suffer in silence, the abused and the underprivileged.

If new civil or commercial codes have to be created to empower women, such a ministry also could serve as the women’s advocate during governmental deliberations on the amendment of current codes.  There are many women’s issues requiring both a governmental and a societal change, including unemployment, domestic abuse, sexual harassment, emotional blackmail and that pervasive attitude of disrespect. A Ministry for Women’s Affairs would be an appropriate defender of women’s legal rights and could also outline their duties and responsibilities as citizens.

The integration of women into the workforce is key to the nation’s progress and development. Such a ministry could eliminate the barriers that exist in the labor market. Many issues need to be addressed including wage parity, maternity leave, childcare centers and perhaps pension reforms. Hopefully it would work hand-in-hand with the business community and current regulatory bodies so that needed reforms are understood, accepted and put into play.

Another important objective for our society should be to include women in the decision-making process within governmental and nongovernmental organizations. There are many Saudi women with great capabilities and impressive credentials who would qualify for ministerial posts and leadership positions. It would not be difficult to identify women capable of running a Ministry for Women’s Affairs.

Women also should have a say on public matters, political, civil and business affairs. There is a need to recognize the crucial role of women as decision makers in order to address the challenges that face half of our society. There is a need for the political will to empower women as equal citizens so they may contribute toward the security, prosperity and advancement of the country. The opportunity to influence change and progress no longer should be disputed or denied to Saudi women.

Strengthening the image of Saudi women in the international community is another area that needs work. It is unfortunate that the rigid position of Saudi women has harmed the image of all the Muslim women in the world. It has compromised the role of Saudi Arabia as the leader of the Muslim world. Therefore we need to establish a strong and reliable entity to reach out to women leaders in other countries and international women organizations in order to bridge the gap between Saudi women and the world.

The global marketplace is evolving rapidly, and Saudi Arabia cannot afford to effectively sideline half its population any longer without dire consequences to the nation’s prosperity. A Ministry for Women’s Affairs could ensure that progress is orderly and in step with our faith and culture and that it happens instead of remaining a discussion point for years to come.

The women of Saudi Arabia sincerely hope the government will seriously consider this recommendation and address the biggest challenge facing our nation today. Please let women step up and help our great nation; we cannot afford to say no to them.

— Samar Fatany is a Saudi radio journalist; she can be reached at samarfatany@hotmail.com.

Source: Arab News

Related Items:

• “Women in Leadership Forum” Calls for Action – SUSRIS – Dec 9, 2010
• Jobs for Women – Arab News Editorial – SUSRIS – Dec 9, 2010
• Saudi Arabia: Participation of Women in National Development – American Bedu – Dec 10, 2010
• Woman empowerment stressed – Arab News – Dec 1, 2010
• Women’s leadership forum kicks off – Saudi Gazette
• Interfaith Dialogue Shared in Chicago – Fatany – SUSRIS – May 16, 2010
• New Media in the Gulf – SUSRIS – Dec 9, 2010
• Women’s Rights Gain Focus in Saudi Arabia – Alshayeb – SUSRIS – May 27, 2010
• Boosting Small and Medium Enterprises in Saudi Arabia – SUSRIS – Dec 4, 2010
• Has 9/11 Changed Saudi Arabia for the Better? – Robert Lacey – SUSRIS – Sep 12, 2010
• Saudi Women to Stand Against Breast Cancer – SUSRIS – Aug 23, 2010
• Saudi Domestic and Regional Policies – Gause – SUSRIS – Jun 22, 2010
• Higher Education Opportunities for Women – SUSRIS – Mar 12, 2010
• King Abdullah: An Outstretched Hand – Sobhani Book – SUSRIS – Mar 6, 2010
• Saudi College Women Build Social Entrepreneurship Skills – SUSRIS – Jul 22, 2009
• U.S.-Saudi Women’s Forum on Social Entrepreneurship Summer Symposium Opens – SUSRIS – Jul 14, 2010
• Saudi Arabia Shuffles Government Posts – SUSRIS – Feb 14, 2009
• Rights Commission Opens Women’s Branch – SUSRIS – Sep 5, 2008
• Women’s Political Participation in the Gulf – SUSRIS – Apr 14, 2008
• Abdullah Pardons ‘Qatif Girl’ – SUSRIS – Dec 18, 2007
• A Slap in the Face of Justice – SUSRIS – Nov 21, 2007
• For Cloaked Saudi Women, Color Is the New Black – SUSRIS – May 30, 2007
• Government Jobs for Saudi Women – SUSRIS – May 29, 2007
• Saudi Businesswomen Seek Greater Participation – Mar 21, 2007
• Challenges and Opportunities: Saudi Arabia in the 21st Century – SUSRIS – Jan 23, 2007
• On Relations and Reforms: A Conversation with Usamah al-Kurdi – SUSRIS – May 30, 2006
• Young and Restless – Afshin Molavi – SUSRIS – May 17, 2006
• The Time is Now in Saudi Arabia – Part 2 – SUSRIS – Apr 27, 2006
• The Time is Now in Saudi Arabia – Part 1 – SUSRIS – Apr 26, 2006
• Saudi Professional Women Advancing – SUSRIS – Dec 28, 2005
• Women Create History in JCCI Poll – SUSRIS – Dec 1, 2005
• U.S. critics miss the real Saudi Arabia – SUSRIS – Nov 30, 2005
• On Relations and Reforms: A Conversation with Usamah al Kurdi – SUSRIS – Sep 30, 2005
• Building Bridges: A Conversation with Princess Loulwa Al-Faisal – SUSRIS – Jun 2, 2005
• Saudi Women Moving Up in Business Remarks by Princess Lolowah Al-Faisal – SUSRIS – May 18, 2005
• Women of the Holy Kingdom By Sharmeen Obaid-Chinoy – SUSRIS – Apr 4, 2005
• Saudi Municipal Elections – Round Two – SUSRIS – Mar 3, 2005
• Reforms and Relations: Saudi Arabia’s Foreign Minister Discusses Developments in the Kingdom – SUSRIS – Feb 24, 2005
• Women’s Employment Initiative – SUSRIS – Jan 27, 2005
• Saudi Women and the Jeddah Economic Forum – SUSRIS – Feb 12, 2004
• “A Saudi Vision For Growth” Women Make Their Mark at Jeddah Economic Forum – Lubna Olayan’s Keynote Address -SUSRIS – Jan 21, 2004
• Al-Ikhbariya Makes Waves – SUSRIS – Jan 15, 2004
• On A Dagger’s Edge — Saudi Women, Long Silent, Gain a Quiet Voice [Part 4 in a Series] – SUSRIS – Jan 14, 2004
• Women’s Rights in Saudi Arabia – SUSRIS – Jun 19, 2003

Editor’s Note:

Today we are pleased to provide the December 2010 “Saudi Arabia Economics” from Dr. John Sfakianakis of Banque Saudi Fransi. The report looked at the likelihood that inflation rates will trend downward into 2011 even as economic activity picks up pace and at the extent to which escalating state expenditures have raised the oil price needed to balance the fiscal budget. It also examined the data showing strong private and government sector growth performance this year. We thank Dr. Sfakianakis and his staff for their work and for sharing it here.

[Visit HERE for the complete report including insightful charts and graphs.]

Saudi Arabia Economics – December 2010

Dr. John Sfakianakis

Banque Saudi Fransi

Inflation strain subsides

Outlook highlights lower inflation amid steady economic upturn

• Inflation likely to fall in 2011 to 4.7% on lower annual rents as pressures ease
• Slow turnaround in private credit leads to reduction in 2011 lending growth forecast to 8.5%
• Preliminary private and government GDP growth rates look strong
• Record hajj pilgrims increase domestic retail consumption

The Saudi economy is finishing off 2010 in better form than it started due to healthy oil prices, recuperating business and financial activity, improved trade and tourism, and inflationary pressures that are beginning to taper off from summer peaks. Oil prices have averaged a secure $78.76 a barrel in the first 11 months of 2010, almost 30% above prices during the same period last year. Along with growing global energy demand, robust oil prices are strengthening the kingdom’s fiscal position and outlook and enabling the state to continue engaging thoroughly in the economic recovery process.

Government sector GDP growth rates in the first half of the year exemplify the fundamental role played by state and quasi-state investors in the economy. Nominal GDP of the government sector expanded 13.5% in the first six months, more than double the private sector’s rate of growth at current prices. While state-led growth is likely to continue in 2011, we do see the starting signs of greater involvement by the private sector, although its reintegration into economic activity is likely to take place slowly over the next two to three years.

Against a backdrop of a relatively inactive, deleveraging private sector, the government’s fiscal expenditures will continue to expand, although we have reason to believe the pace of expansion may slow in the coming years. Authorities are becoming more cognizant of the fact that higher spending raises the risk for fiscal deficits in the medium term, especially as the oil price needed to balance the budget has leapt to $72 a barrel this year. We have raised our state revenue forecast to SR658.9 billion this year as a result of sustained higher oil prices. Following this revision, and a reduction in our expenditures forecast, it looks likely that Saudi Arabia will swing a surplus in 2010 amounting to 2.5% of GDP.

Accelerating price pressures due to a combination of global and local factors have characterised 2010. High soft commodity prices, continued real estate supply constraints and imperfect domestic competition came together to nudge Saudi inflation to 6.1% in August for the first time in 18 months. Inflation rates dipped back below 6% since then, and we anticipate the deceleration in inflation rates will continue in 2011 as a consequence mainly of high base effect adjustments for rents and stabilising food prices. Although rents are poised to continue climbing month on month, the rate of annual increase is set to decline, thus removing a great deal of the burden on the annual inflation rate. Our forecast of 5.3% inflation in 2010 remains intact, and we foresee inflation subsiding in 2011 to 4.7%, against a prior estimate of 5.1%.

The very guarded pick up in bank credit growth is poised to continue in the coming months, prompting us to reduce our 2011 forecast for growth in bank claims on the private sector to 8.5% from 12.2%. Momentum behind credit growth is likely to continue to lag until a substantial pipeline of project financing is integrated into bank balance sheets and the private sector moves toward expansion financed through a combination of equity and debt. These trends should start to unfold in the second half of 2011 and encourage a return to double-digit rates of credit growth in 2012 and 2013.

Reduced inflationary pressures and expectations for a stronger U.S. dollar in 2011 will relieve speculation that Saudi authorities will rethink a long-standing policy of pegging the riyal to the dollar. Credit Agricole CIB, our joint- venture foreign partner, expects the euro-dollar to end 2011 at 1.18, signalling a serious trend reversal. Euro weakness is likely to result from the spillover effect from debt-troubled nations elsewhere in the eurozone as well as a robust U.S. economic outlook.

A weaker dollar tends to raise the cost of imports into Saudi Arabia, particularly for food items, but it also increases the appeal of non-oil exports to global customers and makes tourism into the kingdom, primarily for religious purposes, more affordable for those whose currencies strengthen against the greenback. November’s hajj pilgrimage illustrated this strong demand, with preliminary estimates indicating a record number of pilgrim visits. This is bound to have a positive ripple effect on the wider services and hospitality sectors for this year and 2011.

Reduced inflation rates on the horizon

As we stated briefly in our November Monetary Watch, inflationary pressures in Saudi Arabia – now the highest in the Gulf – are poised to decline in 2011, leading us to reduce our inflation forecast for next year to 4.7% from 5.1%. We anticipate inflation will average 5.3% in 2010, higher than 2009′s 5.1%.

The primary downward pressure should stem from falling rental inflation. The rent and utilities index, which comprises about a fifth of the index, is likely to record average inflation of 9.5% this year, although next year we see the rate falling to 6.7%. While we still expect moderate month-on-month gains in rental inflation, the annual rate of rental inflation is likely to decline during 2011 due to the higher base effects. In 2009, rental index inflation averaged 14.3%, down from about 18% in 2008.

We are also anticipating a slowdown in home furniture inflation, and in other expenses and services, which together comprise more than 20% of the index. The largest weighting in the Saudi cost of living basket is food and beverages, accounting for almost a third of the total. Food price trends are somewhat more difficult to predict because they depend on movements in global commodity prices, and may also be influenced by fluctuations in the U.S. dollar. When the dollar is weaker, this raises the cost of importing food into Saudi Arabia, heightening imported inflation. A stronger U.S. dollar in 2011 and some softening in food commodity prices should be anticipated, although food inflation rates will likely hover in a similar range as this year. Any decline in food price inflation will be slight given price stickiness.

In recent months, data of the Food and Agriculture Organisation show some food prices, particularly sugars and cereals, are on the rise again, although there is evidence that food prices are near peaks and are unlikely to face significant upward pressure in 2011. Saudi Arabia’s food price index broadly tracks trends in the FAO food price index, albeit much more moderately. Sustained higher food prices globally are likely to be offset by the stronger dollar, and while we expect food inflation to rise in the first part of 2011, it should ease during the second half of next year. Food and beverage inflation in 2011 is likely to be slightly lower than the projected 6.2% average we foresee for this year, although the index has varied widely in recent years based on global circumstances. In 2008, food and beverage inflation averaged around 15% and fell to 2% in 2009.

Money supply growth in the kingdom, traditionally a contributor to inflation, is beginning to pick up due to greater lending and economic activity in general, although remains far from levels that we expect would lead to a build up in inflationary pressures. In September, M3 money supply growth was 5.1%, compared with between 10% and 27% in every month between 2005 and the end of 2009. By comparison, M3 money supply growth averaging 5% this year and 9.6% next year, according to our forecasts, would have a much less-pronounced impact on inflation rates.

Record hajj visitors augur well for services

This year’s hajj provided a robust signal about the return of domestic retail activity, with early data indicating that 1.8 million foreigners travelled to the holy city of Makkah in November to perform the annual pilgrimage – a record number. Pilgrim traffic from outside of Saudi Arabia declined in 2009 due to concerns about the H1N1 flu and the global recession. But as concerns dissipated, religious tourist traffic for hajj and umrah, a lesser pilgrimage that can be taken at any point of the year, has rebounded in 2010.

Since 2002, more than two million Muslims each year have performed hajj, an obligation on all able-bodied Muslims. In 2009, in addition to the 1.61 million pilgrims flying in to the kingdom, there were almost 700,000 domestic pilgrims. The government expects local and incoming tourists to the kingdom – almost half of whom travel for religious purposes – will spend SR81.9 billion on tourist trips this year. Tourist expenditures are expected to jump almost 60% by 2015 to SR129.5 billion in 2015 and to more than double by 2020, according to Tourism Information and Research Centre forecasts cited by SAMA.

Religious tourism provides an important contribution to the Saudi non-oil economy, including a positive ripple effect on services, hospitality, transportation and aviation. For a country attempting to diversify its economy away from a heavy reliance on hydrocarbon exports, religious tourism offers a crucial contributor to expansion of the non-oil sector. Still, tourism GDP of SR50.2 billion in 2009 accounted for only 3.6% of total GDP and 6.9% of non-oil GDP.

H1 nominal GDP bodes well for government, private sectors

Nominal GDP showed solid performance in the first half of the year, according to quarterly data released by the Central Department of Statistics & Information. GDP at current prices grew 24% year on year in the first six months of 2010, according to the numbers, due primarily to a 42.5% jump in oil sector GDP, which comprised more than half of the total nominal figure for the period.

Oil prices in the first half of 2010 averaged $78.46 a barrel – up 52% from an average of $51.7 a barrel in the same period a year earlier. Still, with Saudi oil production in the first six months falling to 8.13 mbpd from 8.19 mbpd a year earlier, according to figures of the Joint Oil Data Initiative (JODI), the impact of high oil prices on real oil GDP will be negligible.

Nonetheless, the nominal GDP numbers also indicate a good comeback in non-oil private and government sector GDP, which are the main components driving real GDP growth this year. Private sector GDP growth in the first half came in at 6.5% in current prices, while the government sector’s current price GDP growth came in at 13.5%, according to the data.

The government did not release real GDP growth data for the same period, although analysis of the correlation between real and nominal GDP growth trends in recent years does indicate fairly strong real GDP expansion for both the private and government sectors in the first six months. In the five years to 2009, the average median correlation between real and nominal private sector growth was 70%, while for the government sector it was 57%. Applying these ratios to the first-half numbers yields real growth rates of, roughly, 4.5% in the first half for the private sector and 7.7% for the government sector.

Annual growth rates are likely to have slowed in the second half, mainly because of a higher base effect; the performance of the Saudi economy began picking up in the second half of 2009 and the first part of 2010. Since then, momentum has stagnated. We maintain our forecasts for 4% real growth of the private sector for 2010 and 4.6% for the government sector, although government sector expansion may be higher due to the state’s inclination to steer the recovery process by investing in strategic projects.

Gross fixed capital formation (GFCF) growth rates improve when investment improves, and thus it can be used as a measure of the potentiality of the economy. As a percentage of GDP (at current prices), we expect GFCF to reach 26.8% this year up slightly from 2009 levels, which is positive for business activity. It is clear that the government has outpaced the private sector in driving investments to spur economic growth. Private gross fixed capital formation fell in 2009 by 2.2%, while the government sector’s capital formation rose 8.9%, according to SAMA data. As a percentage of GDP, non-oil private sector investments rose to 11.9% in 2009 from 9.6% in 2008. We expect the ratio rose to 13.2% this year and should climb again to 13.6% in 2011. GFCF as a percentage of GDP is still lower than rates attained in other emerging markets, which have tended to surpass 30% during crucial growth phases. Authorities are, however, taking crucial measures to boost capital investments.

Expenditure surge raises breakeven oil price

With state investments leading the way, the burden on public fiscal balances is clear. The government announced in November it would not phase out an inflation allowance that had raised salaries of state employees by 15% over the last three years. The allowance was meant to be re- moved after this year – but due to continued high infla- tion the finance ministry has decided to keep it intact, costing the government an estimated SR33 billion a year (inclusive of public sector employees and pensioners). We do not expect the allowance to create any significant in- flationary pressures. Overall for this year, we have revised down our state expenditures target to SR618 billion as we expect additional expenditures will be billed forward.

We anticipate the government will slow the pace of budget expansion in 2011 and unveil a budget later in December including announced expenditures of not more than SR590 billion, up from SR540 billion this year, a 9.3% increase. Budgeted expenditures in 2010 budget were 13.6% bigger than 2009, which itself was 15.9% bigger than the year- earlier budget. This slowdown in budget expansion is necessary and prudent following years of overspending budget targets by more than 20%.

But it is not only the growth of projected spending that we expect will slow – growth in actual spending is also likely to outpace forecasts by a smaller degree as the government moves to better rationalise spending and implements efforts to rein in excessive spending by government departments. In 2009, the Saudi government overspent its budget targets by 26%. Such exorbitant overspending is not sustainable over the long term.

In the meantime, however, budgets are easily financed with rich foreign asset reserves which, due to higher oil prices, the kingdom has been in a position to enlarge this year. In the first nine months of the year, Saudi Arabia’s central bank added SR61 billion to its net foreign asset holdings, taking them to SR1.58 trillion, the highest since February 2009. At that time, the central bank was drawing down foreign assets to pay for its growing budget during a period of low oil prices. Sustaining big budgets does not pose a major concern in the short term because it is part and parcel with the government’s current five-year development plan to stimulate the economy and create the right backdrop for the private sector to operate.

Still, mushrooming expenditures – which have tripled since 2002 – will raise the oil prices needed to balance Saudi budgets. In the early part of the decade, the kingdom had traditionally based its budget on very conservative oil price assumptions that made it easy to post respectable surpluses. But budget breakeven oil prices have risen rapidly along with state expenditures in the last few years and are now very similar to the actual oil price. According to our estimates, the budget breakeven price of oil for this year’s budget is around $72 a barrel – compared with $66 a barrel in 2009 and $52 a barrel in 2008. Next year, the budget breakeven price could rise again to more than $75 a barrel – giving the kingdom very little room to manoeuvre should oil prices weaken from current levels.

At the current pace of government spending, the breakeven price of oil could rise to $98 a barrel by 2017. Current high state spending could be replaced by spending that creates additional multiplier benefits and a trickle down that has cross-sector reach.

Oil GDP growth lags on stagnant production

A revival in oil prices during 2010 has played a role in ameliorating the state’s fiscal position and reviving domestic demand, but it is unlikely to render much of a rise in real oil sector economic growth. While energy demand globally, and particularly from Asia, has climbed this year, Saudi Arabia’s oil production levels are not following suit, leading us in October to reduce our real oil GDP growth forecast to 2.7%.

According to data of JODI, Saudi oil production in the first nine months of 2010 averaged 8.13 million barrels per day (mbpd), which is actually lower than the same period last year, when the kingdom produced 8.19 mpbd of crude, on average. This leaves little scope for growth in oil GDP in 2010. Our forecast for oil GDP growth of 2.7% this year stems from a view that the government integrates investments in oil infrastructure into its calculation of oil GDP at constant prices.

OPEC has cited a pick up in oil demand in the third and fourth quarters, particularly due to better-than-expected oil demand in OECD countries which prompted the cartel to revise its world oil demand growth forecasts upward by 0.19 mbpd, or 1.6%, to 1.32 mbpd. Developing countries account for 83% of that total, including a 6.4% climb in demand from China, according to OPEC estimates in its monthly Oil Market Report. OPEC also upwardly revised 2011 projections for oil demand growth to 1.36% in 2011, driven mainly by 5.1% growth in China and 2.1% in developing countries of Asia, Latin America, the Middle East and Africa.

The kingdom is a key beneficiary of strong oil demand growth from Asian clients since about 54% of exports in 2009 were destined for Asia, up from 45% just nine years earlier. We anticipate Saudi oil sector GDP growth will accelerate to 3.7% in 2011.

Current account surplus poised to double

Greater energy demand from Asia has been a key catalyst for better export flows during 2010 following declines in much of 2009. Non-oil exports, too, are on the rise, according to preliminary data of the Central Department of Statistics & Information. In the first nine months of 2010, CDSI data show non-oil exports climbed about 16% compared with the same period a year earlier. Final foreign trade data tend to vary, but the CDSI trends show a pick up that can be attributed to enhanced petrochemical and plastics sales. In September, the latest data available, non-oil exports grew 15.3% from the year earlier. We anticipate total exports, including oil and non-oil, will rise 16% this year to $223.4 billion (SR837.77 billion), and climb another 10.4% next year.

Growth in imports, on the other hand, has been more muted, with import flows into Saudi Arabia declining in value in August and September compared with the corresponding months in 2009. Preliminary CDSI data show a small decline of 1.8% in imports over the first nine months. In view of these weaker – than – expected data, we have reduced our total imports forecast for 2010 to $90.7 billion from an earlier $95.4 billion. This marks a near 5% rise in total imports during 2009, reflecting our expectation for a pick up in imports in the final months of 2010, and an additional 10% gain in 2011.

Port activity also exemplified a decline in activity in August and September, with cargo loaded and discharged easing from June-July levels. Cargo travelling through ports is, however, higher on the whole than a year ago; in September, cargo discharged at ports grew 9.2% year on year, while cargo leaving ports was up 8%.
With improved export earnings this year, the country’s current account surplus has recovered following weakness during 2009, including current account deficits in the first and second quarters. The Saudi current account surplus rose to SR74.5 billion in the first quarter of this year, the highest since the onset of the financial crisis in the third quarter of 2008, SAMA data show. Given the strong Q1 performance and slower import activity, we are raising our current account surplus forecast for 2010 to SR154.15 billion ($41.1 billion), or 9.5% of GDP – almost double last year’s surplus.

Balance of payments data also show growth in workers’ remittances did not lose steam in 2009, a good indication that there was not a notable drop in employment for expatriates. About 8.4 million expatriates officially live in Saudi Arabia, or almost a third of the total population. Another 500,000 to one million expatriates overstay their visas. In the first quarter, expatriates remitted SR26.7 billion home, up 12.8% from the fourth quarter.

Credit growth challenge

A key challenge in the coming two years will be in striking the right funding mix balance for strategic projects between government funding, bank credit and financing raised through debt markets. Over the past two years, the government has foot the bill for many strategic projects largely because doing so made financial sense due to rising costs of credit. As credit and debt markets stabilise, the government should seek where possible to ensure that a share of financing for strategic projects – particularly those in energy, transportation and utilities – is set aside for banks. Banks, still risk averse in the aftermath of the financial crisis and domestic non-performing loans, continue to prefer extending credit to large-scale projects with government backing. It will take time before small- and medium-sized enterprises are able to catalyse a good revival in bank credit growth, so engaging banks in large projects will set the stage for a wide-scale, diversified lending in the coming years.

In late October, state-run Saudi Aramco and France’s Total signed a $1.3 billion loan agreement with the Saudi Public Investment Fund for a joint oil refinery being built at Jubail to boost capacity by 400,000 barrels per day. The joint venture has so far secured about $9.8 billion in financing for the $12.8 billion refinery. PIF and export credit agencies have contributed more than half of the tab so far. While it is encouraging to see banks getting involved, the government should strive to reduce its financing role to minority status in the coming year.

Third-quarter bank lending data show the bulk of growth in lending stems from loans to government and quasi- government bodies and utilities, which grew 17.9% and 14.3%, respectively, compared with the year earlier. Lending to companies categorised under “commerce” also rose 5.1% in Q3, according to data of SAMA. In other sectors, loan growth continues to lag; credit to transport and communications fell 2.5% year on year in the third quarter, manufacturing was down 1.1% and lending to services fell 27.4%.

The gradual pace of the credit recovery cycle is not a Saudi-specific phenomenon. Historical evidence from Latin America and South East Asia show credit booms are followed by a slowdown phase. Recent IMF work shows that a credit recovery may take three years following a financial crisis. Saudi Arabia, while it didn’t suffer a financial crisis per se, witnessed a sharp contraction in demand and supply of credit in 2009. The reversal of this trend should be gradual to permit bankers to allocate credit effectively and enable the private sector enough time to re-engage in both productive and equity market investments. Even private property owners are freezing positions, neither selling nor buying substantial tracks of land.

Disclosures and disclaimers in the original document

Source: Banque Saudi Fransi

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Contact Info:
Dr. John Sfakianakis – Chief Economist
Tel: +966 1 289 1797 – Email: johns@alfransi.com.sa

Turki A. Al Hugail – Economic Research Analyst
Tel: +966 1 289 1163 – Email: talhugail@alfransi.com.sa

Daliah Merzaban – Economic Analyst

Tel: +971 4 428 3608 – Email: dmerzaban@alfransi.com.sa

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SUSRIS EXCLUSIVE INTERVIEW

Editor’s Note:

In late October two explosive devices were posted from Yemen by “Al Qaeda in the Arabian Peninsula” operatives into the international airborne package delivery system bound for the United States. A coalition of global intelligence and security organizations tracked down and neutralized the bombs based on critical information provided by Saudi Arabian intelligence. As demonstrated by the unusual public acknowledgement of the “tip” by the White House it was a testimony to both the focus on Al Qaeda by the Kingdom’s intelligence service and to the close cooperation between Saudi Arabia and its allies like the United States and the United Kingdom. It was our good fortune then that the timing of an interview SUSRIS had planned with HRH Prince Turki Al-Faisal, a former head of the Saudi General Intelligence Directorate (1977-2001), fell just days after the Al Qaeda bombing plot was thwarted.

In addition to sharing his insights on the decades of intelligence and security cooperation between the United States and Saudi Arabia when we sat down with Prince Turki we were also fortunate to talk about his perspective on current issues in the relationship. He served the Kingdom as Ambassador to the United States (2005-2007) and talked about what he learned in his travels across America and experiences meeting people in many parts of the country. Prince Turki, Chairman of the King Faisal Center for Research and Islamic Studies in Riyadh, is spending the Fall semester as a distinguished visiting professor at Georgetown University and shared his thoughts on his time in the academic community. We thank Prince Turki Al-Faisal for taking time to share his insights with you here. Prince Turki was interviewed November 2, 2010 (Election Day in the United States), by SUSRIS at the Center for Contemporary Arab Studies at Georgetown University in Washington. [Video segments of the interview are posted on SUSRIStube.com.]

A Conversation with Prince Turki Al-Faisal

[SUSRIS] Intelligence reporting from Saudi Arabia to her allies has been acknowledged as the critical warning that Al Qaeda was planning attacks in France and elsewhere in Europe last month. In recent days two attacks against aircraft through the use of parcel bombs were thwarted when Saudi Arabia alerted its intelligence partners to the plans. However, the decades long coordination and cooperation between Saudi Arabia and the United States and other countries in the West is mostly understated and not understood by many. Can you describe how the cooperation, in your view, has played out to the benefit of Saudi Arabia and her partners in the West, especially the United States?

Prince Turki Al-Faisal sat down to talk with SUSRIS at the Center for Contemporary Arab Studies at Georgetown University.

[PRINCE TURKI AL-FAISAL] The Kingdom has been cooperating with the United States for decades. There was ongoing cooperation before I became Director of Intelligence. During my directorship that cooperation continued. I assume it continues today from what we have seen in the press.

For all intelligence and security organizations information is a primary tool, method and endgame, so the acquisition of information makes your work productive and successful. When the Kingdom and other countries cooperate in information sharing they share the methods and means and the tools of that process.

I have not, in my experience, seen specific examples of what happened recently, of a very precise piece of information passed on from one service to another like that between the Kingdom and the United States vis a vis these parcel bombs. It is an indication of not only the closeness of the cooperation between the two countries on issues like that — indicated by the timeliness of the information and the ability of the U.S. to act upon it successfully — but also of increased sophistication and expertise. And that is not only Saudi Arabia but, I am assuming, the ability of general security and intelligence apparatus throughout the world to be able to identify and to stop such matters before they do harm.

So to me it comes as a culmination of decades of preparation and exchange of information that has come about now at a much higher level of sophistication and expertise. It makes me very happy that my country has reached those levels of expertise and is able to share the benefits from that heightened skill work that it put into the intelligence and information collection efforts.

[SUSRIS] The sensitivity of much of the information that is shared makes it difficult to publicly address specific cases but can you talk about instances where information sharing produced a benefit that people in the West, especially Americans, might not know about, the type of cooperation that informs an understanding of the relationship?

[PRINCE TURKI] I remember when I started work in the ‘70s and continuing into the 80s and 90s until I retired, there were several incidents on both sides where the exchange of information helped in either meeting a specific challenge or overcoming a specific difficulty.

I can’t refer back to the specific details but I can give you general examples of, let’s say, what was happening in Lebanon during the civil war. There would be challenges to meet. At the time, people were working in all directions, so finding a compass on how these things operated was very difficult — assassinations, attacks on positions, arms smuggling, etcetera, etcetera. There was much information exchanged between the Kingdom and other security and information agencies, particularly the CIA at that time. It helped, in some cases, to overcome, or thwart, or prevent incidents from taking place, or avoiding pitfalls that would have affected the Saudi side by receiving that kind of information from the American side or vice versa.

Yemen, which is in the news lately, was a perfect example. Back at the time South Yemen was a Marxist regime under the guidance of the Soviets it was doing harm in North Yemen. In those days there was the exchange of information on both sides that helped in certain instances prevent or overcome or challenge some of the difficulties that were on both sides, whether it was Saudi interests that were being affected, or American interests.

Afghanistan, of course, is a perfect example of cooperation between Saudi and American intelligence agencies. The principal aim was opposing the Soviet invasion of Afghanistan and further to prevent the Soviets from invading Pakistan. It seemed that was a likely extension of what had happened in December 1979 with the Soviet attack on Kabul. So helping the Pakistanis thwart that ambition was the main aim of Saudi and American support at that time.

The Mujahideen were helped to engage the Soviets in Afghanistan so they would not come across the border and take over in Pakistan. It was a very successful operation and led to the Soviet defeat in Afghanistan and, in my view, helped very much in the breakdown of the Soviet Union.

That kind of cooperation existed in those days, now I have absolutely no idea what has happened since I left the Intelligence Directorate in the Kingdom but I am sure that expansion of cooperation has taken place.

[SUSRIS] Clearly given the news of recent days the cooperation is continuing. It must be frustrating for those in the intelligence business who cannot speak about the details but who hear the critics, especially in the United States, of the Kingdom, to be unable to refute the criticism with the facts. How do you size up the criticism of the Kingdom in terms of the terrorism and security issues in light of what you know as the realities of these situations?

[PRINCE TURKI] Let me just say as a comment that not taking credit is par for the course in the intelligence business. You don’t want to take credit. You don’t want people to know that you scored successes. Because if you do, then you may reveal sources or methods and things like that and that would be bad for your business. That’s one thing.

As far as the Kingdom is concerned let’s look at the time since September 11th as a measure. If you look at what the Kingdom has done since then – whether it is in combating the perpetrators of that deed, Al Qaeda, or in sharing its experience of that combat against the Al Qaeda cult, as I call it – there should be no question as to whether Saudi Arabia is or is not on whose side.

I read today the New York Times editorial [“Disaster Averted”] about thanking Saudi Arabia for its efforts. The Times didn’t have to do that, but they did and I say thanks to them. But they couched it in terms where they put a question mark, or at least a question mark on previous Saudi cooperation, or lack thereof, vis a vis that issue. There was never any previous lack of either cooperation or effort to prevent or to combat or to meet the challenge of Al Qaeda or groups like it.

So within the media, at least, I think there is a gap of knowledge, if you like, of where the real situation is today and where it came from say thirty years ago. However, in the actual conduct of affairs that gap does not exist. We combated terrorism 35 years ago and continue to combat terrorism since then.

I’m glad that the media has come around now to realize that Saudi Arabia contributes to the welfare of the world community by its own capabilities and skills and that those contributions have an effect. But it’s not the first time that we have done it. That’s my point.

[SUSRIS] I’m mindful of words shared by the Custodian of the Holy Mosques when he was Crown Prince. He shared an Arabic expression, “A friend is someone who will be straightforward with you.” In May and October you were very frank, very straightforward, in public addresses about official American policy in the Middle East and Afghanistan. As someone who has been among those with a seat at the table in very important government-to-government work between Saudi Arabia and the United States for decades, during times that have seen ups and downs between Washington and Riyadh, can you characterize the health of the Saudi-US government relationship given these tensions?

[PRINCE TURKI] I don’t think it is tension. But there are differences of opinion as to how we can go about accomplishing what both of us agree are common aims as I said in my speech the other day.

We have a lot in common on where we want to go, specifically on issues like the Middle East both of us agree on a two-state solution. Both of us agree on the rights of the Palestinians to a nation with defined, contiguous borders, one that is viable, which allows Israel to live in peace and security with the community of the Arab world. Those are the aims of where America and Saudi Arabia are going. How to achieve those aims is another matter and there has been disagreement on that.

What the Kingdom sees as the imperative in achieving that aim is to convince Israel that she has no option but peace. Yet as we continue and especially since the Arab Peace Initiative was promulgated in the Summit in Beirut in 2002, it is an Israel that has continuously thwarted any efforts to bring finality to this issue.

In 2002 the Arab world adopted King Abdullah’s, then Crown Prince Abdullah’s initiative, and made clear to the rest of the world that the Arab strategic choice is peace, but not only peace but peace through negotiation. There was no war mongering, there was no hyperbole or bellicosity attached to the Arab Peace Initiative. It proposed a very equitable quid pro quo for Israel to be brought into the sphere of an Arab world at peace with it.

Israel has to recognize a Palestinian State with the June 4, 1967 borders, withdraw from the Golan Heights, relinquish any lands in Lebanon and reach a mutually acceptable solution to the refugee problem. There is no imposition of anything on Israel, but rather the extension of a hand to the Israelis – asking them to put their hand in our hand to reach amicable solutions to what everybody recognizes are existing problems.

There has not been an acceptance of that offer by the Israelis, not one Israeli government has said, “Yes, I accept this and this is where I want to go.” As I said in my speech, the previous government made some sounds. You know, like this is a positive step by the Arabs. There are some workable ideas there but nothing definitive. This Israeli government has totally ignored the initiative while the rest of the world, including the United States, are defining the Initiative. In the words of Mrs. Clinton it is a central core of reaching peace between the Arabs and Israel. That’s the basic problem that we have here. The Kingdom has brought 22 Arab countries as well as the 57 members of the Organization of the Islamic Conference to choose peace as a strategy but the United States has not been able to push Israel to likewise choose peace as a strategy.

[SUSRIS] So the relationship overall, there are differences of opinion in areas such as Middle East peace..

[PRINCE TURKI] How to achieve that peace, not on the peace itself.

[SUSRIS] You also addressed some concerns about Afghanistan but overall the nature of the government-to-government relationship is sound?

[PRINCE TURKI] It is sound. It has been sound for some years. I think the credit goes to Crown Prince Abdullah, now King Abdullah for working to get beyond the sensitivities from what happened after the 2001, September 11th attacks. There was acrimony, distrust and suspicion built up from those attacks. But in April 2002 and 2005, in those two meetings [with President Bush at Crawford] the then Crown Prince got over the difficulties between the governments — the acrimony and the suspicion – that had developed as a result of September 11th.

There was creation of the Strategic Dialogue, a commitment to increase the number of Saudi students in America, removing visa restrictions in the United States, more business engagements on both sides, a joint energy policy. People forget that now, but there was an agreement by both sides to a joint energy policy with the U.S. increasing research and development in finding solutions to the carbon emissions of fossil fuels, building more refineries on U.S. soil so that there won’t be shortages of petroleum products and Saudi Arabia increasing production and increasing refining capacity as well. We stuck to our part of the bargain, the U.S. hasn’t. No new refineries in the United States yet. And as far as research is concerned, most of the research that is going on in America is going to developing energy alternatives, rather than improving oil and gas emissions.

[SUSRIS] Based on your education, professional duties and service as Ambassador to the United States you have special insight into the nature of Washington.

[PRINCE TURKI] I wouldn’t claim that. [Laughter]

[SUSRIS] Special insights into the relationships among the White House, Congress, the media and the American public when it comes to making policies concerning the Middle East. How would you describe what Saudis see when they look at the way the United States – the actors in Washington – determines and conducts affairs important to the Kingdom?

[PRINCE TURKI] I think for me it is still a work in progress. How to understand America? From that context I have a very disturbing concern about these present elections. I don’t know if it is justifiable or not. We saw the Obama election for President, at least I saw it in many ways, as a rejection of the previous Administration’s policies on many issues, and I had hoped particularly the way the Middle East had been treated.

So when Mr. Obama made his initial gestures and made his initial words it seemed to confirm to me the view that the Obama Presidency was going to be different from the Bush Presidency as far as the Middle East was concerned.

I could see a reaction inside the Washington Beltway, as it is described by people here. There was an immediate reaction to President Obama’s new thrust on the Middle East. Among those who had championed Israel’s positions in the past there was a very negative reaction to this new attention and direction that Mr. Obama seemed to be taking.

Alas, there was backtracking on the part of Mr. Obama and his team when it came to the issue of what I prefer to call colonies instead of settlements, and other such issues, without commensurate extension of recognition, if you like, of Arab concerns. Not enough praise, for example, I think, has been given to Mahmoud Abbas. Not enough effort was put on the table to allow him to accomplish things on the ground for his people so that he could take credit for it. Israelis were left to do things according to their devices. It was basically a Palestinian effort on the part of Mahmoud Abbas and Salam Fayyad that really built up the institutionalization of the Palestinian Authority’s polity in the West Bank and so forth.

So, today’s election, in my view, depending on how badly the Democrats do is going to have a reflection on the Middle East. If they do extra-badly I think it will be the worst solution, the worst situation for the Middle East. People will say, the pundits will come out and say, “Ah ha, there is a rejection of the Obama rhetoric, if not his substance; and we must go back to our tried and tested positions over the previous Administration.”

[SUSRIS] They would not be looking at it as the Americans view the election as a referendum on the economy?

[PRINCE TURKI] They will interpret it in their own way. You will have newspaper people. You will have think tank people. Experts, between quotation marks. You know, capturing the public ground on that issue and proclaiming that this is the interpretation of the election on that specific issue.

That’s where I think things will get even dicier for us in the Arab World, and more particularly for Palestine. The new Congress will definitely, if it comes with that view in mind, be even less willing to go along with a President Obama who wants to see the final solution if you like, and I’m not using that in historic terms, but rather a description of where we want to reach on the Middle East.

[SUSRIS] When you were Ambassador to the United States one of the things you said was that people should not try to read signals, that they should ask you questions directly, and that the King gave you the mission of engaging Congress. In retrospect, how did that go?

[PRINCE TURKI] I think we had the beginnings of movement. After September 11, 2001 the number of congressional visitors to the Kingdom dropped from a height in the early 90s during the Gulf War, the Liberation of Kuwait. There were some 200 Congressmen and women visiting the Kingdom in one year, actually in those six months of the crisis. In the years 2001-2005, the year I became ambassador, I think it was 12 in total, in five years.

So there was a significant drop in the number of visitors from Congress, not just from Congress but even Congressional staffers, an equally dramatic drop in Congressional staff. I remember urging in my visits to the Congress, for Congressmen and women and their staffers to visit the Kingdom.

Since I left office and went back to the Kingdom I have seen a significant increase in the number of staffers visiting the Kingdom. They call on me at the King Faisal Center for Research and Islamic Studies. I have seen scores, if not more than that, of Congressional staffers visiting the Kingdom. I still haven’t seen members of Congress, either the Senate or Congress coming in significant numbers. I hope that as time goes by and things happen like this parcel bomb issue, when Saudi Arabia is no longer a radioactive item for Congressional members, and after this election is over people will, at least for a year, year and a half, be comfortable in taking trips to the Kingdom.

[SUSRIS] Saudi Arabia has joined a small group of nations providing leadership on the global stage. It is the only Middle Eastern, Arab and Islamic country in the Group of Twenty, it has made impressive gains in world economic rankings, it plays a central role in the life of Islamic nations and it is a key strategic player in political affairs. How does Saudi Arabia see its position and responsibilities in light of this standing in the region and in the world? Would it be fair to say the Kingdom is becoming more assertive in global affairs?

[PRINCE TURKI] As a citizen of Saudi Arabia, of course, there is a pride as well as gratitude for the fact that the Kingdom is more engaged at such high level plateaus as the G-20 and what comes from there. To me that pride and gratitude is also accompanied by a sense of feeling that we do deserve to be there because of what we do.

In the economic arena the Kingdom, because of its wise policies and how it invested its money and its resources, was one of the countries least affected by the economic downturn of the past few years. So it was able to stand up as an example of what can and should, and should not, be done in circumstances of scarcity of resources.

On another point of husbanding resources – basically what the Kingdom did for the last 50 years since it started accruing foreign reserves through the sale of oil was to buttress its currency. It has a very good track record of doing the right thing and never being swayed by opportunity or opportunism to fiddle with, or be lax in how we consider our financial resources and reserves.

Another part of being on the world stage has been the Kingdom’s humanitarian efforts, whether in the Middle East or elsewhere. There is the issue of poverty in the world. The World Food Program for example is a recipient of Saudi money. On health issues like eradicating malaria the Kingdom is a huge contributor to the Clinton Global Initiatives in that field, and in so many other areas. The Kingdom has a feeling of responsibility toward humanity in general.

Another matter to be proud of and to be grateful for is the King’s outreach to the world’s religions and cultures by his dialogue for religions and cultures that he started in 2008. It went from Mecca first, as a stepping stone by getting all the Muslim sects together under the leadership of the holy place in Mecca and the Kaaba, to reach a common Muslim position on how to deal with other faiths and cultures. Then carrying that on to Madrid where King Juan Carlos played host to the world religions and cultures assembled.

King Abdullah carried that message to the United Nations General Assembly in November 2008. The process is actually putting in place a Secretariat affiliated with the United Nations that will carry on the practical work of how to achieve this dialogue and understanding and approach to other religions and cultures.

This is, in my view, a sign and a symbol of the King’s own commitment to where he sees Saudi Arabia playing a role in service to all of humanity. Going beyond simply one’s own nationality as far as Saudi Arabia is concerned, or religion as far as Islam is concerned, to include the other members of the human race who would benefit from such a common outlook on matters that should bring us together rather than keeping us apart.

[SUSRIS] You were probably the most widely traveled Saudi Ambassador to the United States in terms of American cities visited. In 2006 a SUSRIS article referred to your travels being like the Johnny Cash song, “I’ve Been Everywhere.” In your talks with Americans outside the Beltway when it came to the subject of the Saudi-US relationship, what did you learn?

[PRINCE TURKI] There were two qualities that I found common to all Americans when I visited them in my trips then and in previous trips. One is a tremendous hospitality. People open homes for you and invite their friends and their neighbors, and put on a meal and openly discuss any matter with you. This is gratifying to see total strangers, basically, willing to open themselves up so much to try to bring you in and hug you and shake hands with you and so on.

The other characteristic also which I find very endearing in Americans, and very, very indicative in my view of why America enjoys its predominance in world affairs is their intense curiosity about everything. When you talk to Americans they will ask you everything about your life. Who you are? Where do you come from? How do you live? How big is your family? What is your business? Are you happy? Does this place please you? Are we providing what you need? Questions and questions and questions. Which is also gratifying because I think many people accuse Americans of being insincere by being very facile and easygoing. I found it to be the opposite. Posing these questions and making the issue one of getting to know you better shows interest in you as a person and where you come from and what your culture is, and so on. So it was for me very endearing and very, very much a quality that I found uniquely American. I must say that I’ll add to that it is also uniquely Arab. When you go in the desert and meet with the Bedouin, perhaps because of the impermanent nature of life that they lead, they have to know where you’re from and what you are, immediately, to get over any potential misgivings or risks that they may face from you. So that they are equally inquisitive about you. So that is another example of where we and the American people come from and agree on, on a specific issue like that.

[SUSRIS] Can you talk about your teaching position at Georgetown University? What attracts you to teaching and what have you learned from your work here?

[PRINCE TURKI] I was invited by Doctor DeGioia, the President of Georgetown to be a visiting professor at the Contemporary Arab Studies Center at the University. They have a grand name for it, distinguished visiting professor.

I have benefited from it in that I have engaged with, not just professors and teachers, but also with the students. What I found in this program – mostly post-graduate but I’ve also had undergraduate classes – is that these students come from everywhere. Not just from everywhere in this country but from all over the world. From Asia, from Europe, from Latin America, from Africa, from America, and so forth.

I must note that the quality of scholarship that one of them has to undergo to be admitted. I saw the list of books that they have, to prepare for one of the classes here. In one case before they come they have to read over 20 books over the summer on that specific subject as well as a list of newspaper and magazine articles that are required for them to read.

Then during the course from September to December another number of books and articles that they have to at least acquaint themselves with if not fully read. Add to that the number of papers that they have to write. In one course I think in a three to four months period they had four or five papers to write. Add the quizzes they have to take and so forth. I’d never make it. I remember when I came to Georgetown in the mid-60s one of the most distinguished courses at the time, particularly in the Foreign Service school, was Dr. Quigley’s course, the History of Civilization. And it was Dr. Quigley’s textbook that he wrote about the history of civilization that you had to read and engage in, and you had to listen to him on these things. Of course, you’d have to write a paper at the end of the term and you would have to go to other sources. But it was nowhere near what these students now have to do. So it was a startling realization about how much advancement, in terms of the knowledge level, students have undergone since my days.

A student applying to Georgetown today is much more knowledgeable before he comes here than I was when I left Georgetown. It is extraordinary. And it is so competitive. For a class of maybe a thousand students admitted to a place like Georgetown, there are 5000 or 6000 applicants. So you are really getting the cream of the crop, not just at Georgetown but at other universities. That’s a challenge for someone like me, with my background to be able to engage with this high level of intellectual ability that the students come with to the university. So it has been beneficial to me. I can’t tell you how they benefited. You will have to ask them.

[SUSRIS] It’s probably harder to get into your class than it is to get admitted to Georgetown.

[PRINCE TURKI] I doubt it. For me it has been a benefit and a pleasure.

[SUSRIS] What are your plans for future service in government?

[PRINCE TURKI] Well I am retired, Alhamdulillah. [Praise to God] You know in the Kingdom whatever you do is a matter of service. In government, outside government, in business, in industry, in farming. Anybody who can get up at a certain time and go to a place of work and produce or contribute or whatever and come back and retire to his home, bring up children, or in my case, grandchildren now, I think is of service to the government. So this is how it is.

[SUSRIS] I was hoping we would made some news today.

[PRINCE TURKI] Absolutely not. [Laughter]

Whatever you read in the news is slightly exaggerated.

[SUSRIS] I’m sure SUSRIS will get the first clues

[PRINCE TURKI] No clues to be gotten.

[SUSRIS] Thank you, your Royal Highness, for your time today.

HRH Prince Turki Al Faisal Al Saud

Prince Turki is Chairman of the King Faisal Center for Research and Islamic Studies and is one of the founders of the King Faisal Foundation. He served as the Ambassador of the Kingdom of Saudi Arabia to the United States of America from September 13, 2005 until February 2, 2007. He also serves as a member of the Boards of Trustees of the International Crisis Group and the Oxford Center for Islamic Studies and is co-chair of the C100 Group, which has been affiliated with the World Economic Forum since 2003. Prince Turki was appointed an Advisor in the Royal Court in 1973. From 1977 to 2001, he served as Director General of the General Intelligence Directorate (GID), the Kingdom’s main foreign intelligence service. In 2002, he was appointed Ambassador to the United Kingdom and Republic of Ireland by then Custodian of the Two Holy Mosques King Fahd bin Abdulaziz.

Born on February 15, 1945 in Makkah, Saudi Arabia, Prince Turki began his schooling at the Taif Model Elementary and Intermediate School. In 1963, he graduated from the Lawrenceville School in Lawrenceville, New Jersey and subsequently pursued undergraduate studies at Georgetown University in Washington, D.C.

The King Faisal International Prizes, awarded by the King Faisal Foundation, are presented to “dedicated men and women whose contributions make a positive difference.” These annual prizes, which are awarded in five fields of endeavor – Service to Islam, Islamic Studies, Arabic Language and Literature, Science, and Medicine – have been likened, for the Arab and Islamic worlds, as similar in stature to, and nearly as coveted as, the more renowned and longer established annual Nobel Prizes. The King Faisal International Prizes, in addition to being bestowed upon Arabs and Muslims, have been granted to outstanding achievers from virtually all corners of the world.

For more information: www.kff.com

Related Material:

• Disaster Averted – Editorial – New York Times, Nov 1, 2010
• Turki al Faisal Speech – Addressing U.S. Strategy in Afghanistan and the Middle East – May 15, 2010
• Turki al-Faisal and US performance – Sic Semper Tyrannis blog – May 2010

On SUSRIS

• Turki Al-Faisal on U.S. Middle East, Afghan Policy – SUSRIS – May 15, 2010
• When A Handshake is Not Just a Handshake – SUSRIS – Feb 7, 2010
• Land First, Then Peace – Prince Turki Al-Faisal – SUSRIS – Sep 15, 2009
• “Energy Independence” and Kissing Babies: The Politics of Oil – Prince Turki Al-Faisal – SUSRIS – Aug 27, 2009
• Gulf Forum: US-Gulf Relations Post-Election – Prince Turki al-Faisal Critical of US Gaza Stand – SUSRIS – Jan 7, 2009
• Peace for the Mideast Prince Turki al-Faisal – SUSRIS – Dec 29, 2008
• “What does Mr. Kissinger propose”? – Prince Turki Al Faisal – SUSRIS – Nov 25, 2008
• Saudi Ambassador Abruptly Resigns, Leaves Washington – SUSRIS – Dec 12, 2006
• A Voice of Peace; A Move Towards Stability – Prince Turki al Faisal – SUSRIS IOI – Nov 30, 2006
• Saudi Arabian Constitutional Evolution – Prince Turki al Faisal – SUSRIS IOI – Nov 6, 2006
• A Vision for the Future of Saudi-US Relations – Prince Turki al Faisal – SUSRIS IOI – Nov 4, 2006
• Region in Crisis: A Call for American Leadership and a Lasting Peace – Prince Turki al Faisal – SUSRIS IOI – Aug. 3, 2006
• I Think We Need to Talk – Prince Turki Al-Faisal – SUSRIS – Jun 20, 2006
• Educational Reforms in Saudi Arabia: We’re Trying Hard to Change – Prince Turki al-Faisal – SUSRIS – Jun 8, 2006
• Perspectives on Conflicts, Cooperation and Crises: A Conversation with Saudi Arabia’s New Ambassador to the United States – Part 2 – SUSRIS Exclusive Interview – Mar 14, 2006
• Outreach and Engagement: A Conversation with Saudi Arabia’s New Ambassador to the United States – Part 1 – SUSRIS Exclusive Interview – Mar 9, 2006
• Tackling the Information Gap – Saudi Arabia’s New Ambassador to U.S. Promises Openness and Engagement – Patrick W. Ryan – SUSRIS – Mar 8, 2006
• Prince Turki al-Faisal Talks With Charlie Rose – Saudi Arabia’s Ambassador to the US Takes His Message to Americans – Part 1 – Relations, Oil – SUSRIS – Feb 18, 2006
• Prince Turki al-Faisal Talks With Charlie Rose – Saudi Arabia’s Ambassador to the US Takes His Message to Americans – Part 2 – Iraq, Iran, War on Terror – SUSRIS – Feb 18, 2006
• Prince Turki al-Faisal Talks With Charlie Rose – Saudi Arabia’s Ambassador to the US Takes His Message to Americans – Part 3 – Middle East Peace – SUSRIS – Feb 18, 2006
• Issues of the Day: Saudi Ambassador to the US On Sunday Talk Show – SUSRIS – Feb 6, 2006
• Community and Cooperation – Prince Turki Al-Faisal – SUSRIS – Dec 2, 2005
• The Global Scourge of Terrorism: Ambassador Prince Turki al Faisal Shares His Outlook – SUSRIS – Nov 8, 2005
• Prince Turki Al-Faisal’s Views on Terrorist Attacks and Bin Laden – SUSRIS – Dec 7, 2004
• Biography – Prince Turki al-Faisal – SUSRIS

Saudi-US Intelligence Cooperation and the War on Terror

Elizabeth R. Pfiester | SUSRIS

What is the role of small and medium-sized enterprises, or SMEs, in the Saudi economy and how can their prospects be boosted? That’s what Dr. Muhammad Al-Jasser, Governor of the Saudi Arabian Monetary Agency, addressed at a symposium organized by the Institute of Banking in November. He spoke about SME’s important role, the challenges to their growth and expansion, and the measures Saudi Arabia has taken to ensure proper funding for these businesses. Throughout his speech to the Kingdom’s banking and financial professionals, Al-Jasser emphasized the need for SMEs to contribute more to the Saudi economy.

Saudi Arabian Monetary Agency Governor Muhammad Al-Jasser at the CIT/NAF 2009 US-Saudi Relations Forum in Washington.

The Governor pointed out it is a mistake to think that large-scale businesses are the main driver of economic activity but rather small and medium-sized enterprises “are considered the most efficient and capable instrument to accelerate the pace of economic and social development” in both advanced and developing countries. Unemployment has been a concern in Saudi Arabia, but SMEs have the capacity to employ a large labor force, according to Al-Jasser, especially the young demographic, and can take pressure off the public sector to do so. SMEs are attractive for other reasons, including the simplicity of their establishment and administrative structure because of the small amount of capital needed for initial foundation and operation. He pointed out that limited liability allows SMEs to exit the market with little significant impact. The main challenges to establishing SMEs are their inability to secure adequate financing and weak capacities to facilitate governmental procedures, which would allow them to expand their work.

SMEs make up 92 percent of the businesses in Saudi Arabia and employ over 80 percent of the work force according to the National US-Arab Chamber of Commerce’s Tradeline. The Chamber’s President, David Hamod, attributed progress in boosting entrepreneurship to “forward looking” programs of Saudi leaders. He compared the entrepreneurial environment just fifteen years ago as akin to the Saudi Arabian “Empty Quarter” with today’s “start-up ‘desert’” as being in full bloom. Al-Jasser in his November speech, however, pointed out the SME contribution to total GDP is too low. While the share of SMEs in GDP is 64.3 percent in Spain, 44 percent in Austria, and more than 50 percent in the United States, the total share of private sector gross product in Saudi Arabia is only 33 percent. To combat this issue, the Ministry of Finance, through its Saudi Industrial Development Fund, along with Saudi banks have teamed up to establish the “Kafalah” program, a new system for financing SMEs. The program encourages banks to finance businesses up to SR200 million ($53.3M) with loan guarantees that cover up to 75 percent of the amount financed. Since the start of the Kafalah program in 2006, it has been performing well according to Al-Jasser. He noted there had been 1,668 guarantees approved so far with a total value of SR644 million ($171.6M) against SR1.6 billion ($426M) in loans. He said so far the program has benefited approximately 1,113 small and medium-sized enterprises.

Other efforts are spurring SME development in the Kingdom. As SUSRIS reported in July, the World Bank provided funding to Saudi SMEs for renewable energy and cleaner production projects in the Kingdom. The Bank’s International Finance Corporation (IFC) signed off on a SR75 million ($20M) investment in Saudi Orix Leasing Company “to expand sustainable energy financing and increase access to finance for smaller businesses in Saudi Arabia,” according to Arab News. The IFC promotes sustainable economic growth in developing countries by supporting private sector development through generation of capital for private businesses. IFC’s CEO Lars H. Thuell, who attended the Institute of Banking session, noted that “Saudi Arabia is moving in the right direction by promoting SMEs throughout the Kingdom to develop its economy further,” but he encourages banks to be more considerate of them. Other measures have been implemented in the Kingdom to finance young people, small enterprises, and youth training courses such as the Saudi Credit and Savings Bank, the Centennial Fund, Abdul Latif Jameel’s “Finance Program” and the Prince Sultan Abdulaziz Fund for women entrepreneurs.

President Barack Obama addressing the April 2010 Summit on Entrepreneurship in Washington. Saudi young professionals participated in the two-day event.

Encouragement of SMEs and entrepreneurship has also come from American sources, in government and academia. President George Bush during this May 2008 visit to the Kingdom met with young professionals for a roundtable discussion to encourage small business development. In April President Obama hosted “A New Beginning – The Presidential Summit on Entrepreneurship,” a fulfillment of a promise from his 2009 Cairo address to the Muslim world.  Tradeline’s report on the event noted it was an effort “to strengthen relations between social entrepreneurs in the United States and Muslim communities around the world.” Six Saudi Arabians, four women and two men, were among the conferees, including Maria Mahdaly of Jeddah who told Tradeline, “It was inspiring to be among all those successful and creative entrepreneurs from so many different countries.” She added, “This was an incredible opportunity for young entrepreneurs like myself to be able to share our experiences, struggles, and challenges with each other.”

American higher education has also played a role alongside universities in the Kingdom. Kent State University in Ohio established an entrepreneurship curriculum in Riyadh with King Saud University, which is also the home of the Riyadh Technology Incubation Center and the Entrepreneurship Center. Last year SUSRIS talked with Babson College’s Dr. Jan Shubert about an innovative program sponsored by the U.S. State Department called the “U.S.-Saudi Women’s Forum on Social Entrepreneurship.” The collaborative effort among Babson, Wellesley College and the State Department worked with up and coming college students from Dar Al Hekma College in Jeddah who are focused on business opportunities in the Kingdom.

About SAMA

The Saudi Arabian Monetary Agency (SAMA) was established in 1952 and is the central bank of the Kingdom of Saudi Arabia. SAMA is in charge of issuing the national currency, the Saudi Riyal, and conducts monetary policy for promoting price and exchange rate stability. It supervises commercial banks, manages the Kingdom’s foreign exchange reserves, and promotes the growth and soundness of the financial system.

About H.E. Muhammad Al-Jasser
Governor, Saudi Arabian Monetary Agency

Muhammad Sulaiman Al-Jasser was appointed governor, Saudi Arabian Monetary Agency (SAMA) in February 2009. He joined SAMA as Vice Governor in 1995. His previous positions include Acting Deputy Minister of Finance for Budget and Organization as well as Executive Director for Saudi Arabia at the International Monetary Fund. He was awarded the King Abdulaziz Medal of the First Order. Mr. Al-Jasser has been and is still involved as chairman and member of the board / council in various organizations and projects. They include Saudi Telecom Co., The Arab Investment Company, “Technical Saudi Negotiating Team” for negotiations with the international oil companies, Eisenhower Fellowships Nominating Committee for Saudi Arabia, Fund for Supporting Research and Educational Programs at King Fahd University of Petroleum and Minerals, Saudi Arabian Mining Co. (MA’ADEN), and Saudi Arabian Negotiation Team on the accession of Saudi Arabia to the WTO, among many others.

Related Items:

• A New Beginning: A Conversation with James Smith, U.S. Ambassador to the Kingdom of Saudi Arabia – SUSRIS – Oct 22, 2009
• Saudi Arabia Economics – May 2010 – SUSRIS – May 25, 2010
• Saudi Arabian Monetary Agency
• IFC in Saudi Arabia
• Saudi Orix Leasing Company
• Saudi Credit & Savings Bank
• Institute of Banking
• Saudi Arabia Replaces Head of Central Bank – SUSRIS – Feb 15, 2009
• Presidential Summit on Entrepreneurship Press Briefing – White House – Apr 23, 2010

SPECIAL REPORT

Patrick W. Ryan | SUSRIS

Hundreds of thousands of sensitive U.S. Government documents, including many diplomatic cables, were released by Wikileaks, a whistle-blowing web site, to five news organizations in Europe and the United States according to press reports. Those news organizations, the Guardian of Great Britain, Der Spiegel of Germany, Le Monde of France, El Pais of Spain and the New York Times, began publishing reports and selected cables today.

The leaked cables included diplomatic reports of candid, private discussions among Saudi leaders and American officials concerning relations with Iran, Iraq, China and other important bilateral and regional issues.

In one instance a cable sent from the U.S. Embassy in Riyadh to the State Department in Washington on April 4, 2008 by Charge d’Affaires Michael Gfoeller, published by the New York Times, recounted a meeting where U.S. Ambassador to Iraq Ryan Crocker and U.S. General David Petraeus met with King Abdullah, Foreign Minister Prince Saud al-Faisal, Director of Intelligence Prince Muqrin and Interior Minister Prince Nayef. They talked about developments in Iraq and the bilateral relationship between Riyadh and Baghdad. The discussion turned to the regional challenge posed by Iran and was reported by the U.S. Embassy in this way:

“The Need to Resist Iran
10. (S) The King, Foreign Minister, Prince Muqrin, and 
Prince Nayif all agreed that the Kingdom needs to cooperate 
with the US on resisting and rolling back Iranian influence 
and subversion in Iraq. The King was particularly adamant on
 this point, and it was echoed by the senior princes as well.
 Al-Jubeir [Saudi Ambassador to the U.S. and Foreign Affairs Adviser to the King] recalled the King’s frequent exhortations to the U.S.
 to attack Iran and so put an end to its nuclear weapons 
program. “He told you to cut off the head of the snake,” he 
recalled to the Charge’, adding that working with the U.S. to 
roll back Iranian influence in Iraq is a strategic priority
 for the King and his government.
11. (S) The Foreign Minister, on the other hand, called 
instead for much more severe US and international sanctions 
on Iran, including a travel ban and further restrictions on
 bank lending. Prince Muqrin echoed these views, emphasizing 
that some sanctions could be implemented without UN approval. 
The Foreign Minister also stated that the use of military 
pressure against Iran should not be ruled out.”

Iranian nuclear ambitions remained a hot topic in multilateral diplomatic discussions. In January 2009 the Russian and Netherlands Ambassadors to Saudi Arabia along with a U.S. Embassy Riyadh Political Officer met with Prince Turki Al-Kabeer to deliver a joint demarche on the Global Initiative to Combat Nuclear Terrorism. The U.S. Embassy’s report, published in its entirety by the Guardian (UK), noted the “meeting evolved into a pointed exchange between the Russian Ambassador and Dr. Prince Turki on Iran’s nuclear ambitions. Prince Turki [al-Kabeer] warned that if Iran tried to produce nuclear weapons, other countries in the Gulf region would be compelled to do the same, or to permit the stationing of nuclear weapons in the Gulf to serve as a deterrent to the Iranians. Turki then pointedly demanded that the U.S. keep Saudi officials informed about US plans for Iran.” It added that the position was not new but was “the most explicit mention we have heard of Saudi willingness to see nuclear weapons deployed in the GCC as a deterrent to Iran.”

A cable from Ambassador Ford Fraker in Riyadh to the State Department, published by the Guardian (UK), reported on the March 15, 2009 meeting between White House Counterterrorism Adviser John Brennan and King Abdullah. The “Key Points” noted were:

– (S) Saudi King Abdullah welcomed White House counterterrorism adviser John Brennan, S/WCI Ambassador Williamson, and Ambassador Fraker to his private palace March 15 for a 90-minute discussion focused on U.S. Saudi-relations, counterterrorism cooperation, the Yemeni Guantanamo Bay detainees, Iran, and Iraq.
– (S) Brennan presented the King with a letter from President Obama expressing a personal message of friendship, appreciation for our close and collaborative relationship and concern over the disposition of Yemeni detainees at Guantanamo.
– (S) The King said he had told Iranian Foreign Minister Mottaki only minutes before that Iran should stop interfering in Arab affairs, and had given Iran a one-year deadline to improve its relations with Saudi Arabia.
– (S) The King expressed a complete lack of trust in Iraqi PM al-Maliki and held out little hope for improved Saudi/Iraqi relations as long as al-Maliki remains in office.
– (S) When asked what advice he had for President Obama, the King said he had “one request”: that it was “critically important to restore America’s credibility” in the world.

The cable also laid out “pledges of friendship” between Riyadh and Washington:

“Brennan asserted that the U.S./Saudi alliance must remain strong, and assured the King of President Obama’s wishes for a long and healthy U.S./Saudi relationship, and the President’s personal commitment that Saudi Arabia had a friend in the White House. The King replied that he appreciated the sentiments and that he had great respect for President Obama. “We (the U.S. and Saudi Arabia) spilled blood together” in Kuwait and Iraq, the King continued, and Saudi Arabia valued this tremendously. Friendship can be a difficult issue that requires work, Abdullah said, but the U.S. and Saudi Arabia have done it for 70 years over three generations. “Our disagreements don’t cut to the bone,” he stated.”

The proposed large-scale arms sale from the United States to Saudi Arabia — the U.S. Congress was notified of the $60 billion package of warplanes, combat helicopters and munitions last month — was among topics discussed in one meeting between American and Israeli officials reported in a leaked cable. The report from the U.S. Embassy, Tel Aviv, of November 18, 2009, published by the Guardian (UK), discussed the “Executive Session of the 40th Joint Political Military Group” between U.S. and Israeli counterparts. It was signed off by Assistant Secretary Andrew Shapiro, who participated in the talks. Among the comments noted in the cable:

Qualitative Military Edge
————————-
3. (S) The Executive Session continued discussion from the September 30 Qualitative Military Edge (QME) meeting in Washington. Both sides presented their primary points of contact for the four newly proposed working groups focusing on previous agreements, mitigation measures for the F-15 sale to Saudi Arabia, technical mitigation issues, and intelligence/policy. Agreement was reached to begin working on the details of each working group’s meeting schedule and timeline.
4. (S) The GOI [Government of Israel] continued to express concern over the F-15 sale to Saudi Arabia. U.S. participants noted that the USG is unable to provide more detailed information about the sale until Saudi Arabia officially sends a Letter of Request (LOR). The GOI expressed additional concerns about stationing these new aircraft at Tabuk airfield in the northwest corner of Saudi Arabia — close to the Israeli border. U.S. participants stated the USG understanding that this should not be an issue, as the Saudis are considering stationing new Typhoon aircraft at Tabuk. The GOI also raised AMRAAM sales to Jordan; U.S. participants explained that the new C-7 AMRAAM is an export version with capabilities similar to the C-5 version — and therefore provides little to no increase in capabilities.

Earlier this year Chinese Foreign Minister Yang Jiechi was in Riyadh for discussions. The visit was reported, according to the New York Times, in a cable from Ambassador James Smith in Riyadh to the State Department:

1. (C) Chinese Foreign Minister Yang Jiechi met with King 
Abdullah and FM Prince Saud Al-Faisal on January 13, during
 the last stop of a five nation Africa and Middle East tour.
 During the visit, FM Yang discussed deepening Saudi-Chinese
 ties in a variety of fields, emphasizing trade, in
 particular, with his Saudi counterparts. Responding to 
statements made by FM Saud, Yang also briefly discussed 
Chinese support for Iraq, concern about Iranian nuclear 
ambitions, and hopes for the Middle East Peace Process. FM
 Yang’s foray into regional political commentary appears to
 have been a result of FM Saud’s prodding, both publicly and 
behind closed doors, and is a reflection of the developing
 Saudi-Chinese relationship.

The documents release by Wikileaks and their publication in the media are creating a diplomatic crisis for Washington of global proportions, as many of the sensitive cables addressed relations with many American allies as well as foes. The White House commented on the debacle noting, “When the substance of private conversations is printed on the front pages of newspapers across the world, it can deeply impact not only U.S. foreign policy interests, but those of our allies and friends around the world.” It added, “To be clear — such disclosures put at risk our diplomats, intelligence professionals and people around the world who come to the United States for assistance in promoting democracy and open government.”

More sensitive documents are likely to be published in the media in coming days as the extensive holdings of materials, said to be about 250,000 documents, are reviewed by the news outlets that received the cables from Wikileaks.  SUSRIS will be tracking these developments in articles and a new Special Section titled “Wikileaks.”

Related Items:

On SUSRIStube.com

• Wikileaks Releases State Department Cables – CNN Report – Nov 28, 2010

In the Media

• The U.S. Embassy Cables – Browse the Database – The Guardian (UK)
• “Counterterrorism Adviser Brennan’s Meeting with Saudi King Abdullah,” U.S. State Dept Cable  - Guardian UK – Nov 28, 2010
• Cables Obtained by WikiLeaks Shine Light Into Secret Diplomatic Channels – NY Times – Nov 28, 2010
• Saudi King Abdullah and Senior Princes on Saudi Policy Toward Iraq,” U.S. State Dept Cable – NY Times “State’s Secrets” – Nov 28, 2010
• “Chinese FM Yang Visits Riyadh,” U.S. State Dept Cable – NY Times “State’s Secrets” – Nov 28, 2010
• Diplomats tread in spy territory in WikiLeaks’ disclosures – LA Times – Nov 28, 2010
• WikiLeaks documents reveal Arab states’ anxiety over Iran – CNN – Nov 28, 2010
• Wikileaks: Saudi Arabia urged attack on Iran – SkyNews – Nov 28, 2010 (with video)
• Around the World, Distress Over Iran – NY Times – Nov 28, 2010
• State’s Secrets – NY Times Portal for WikiLeaks related materials

Patrick W. Ryan | SUSRIS

Security forces in Saudi Arabia averted ten attacks on government and military installations and officials and media personalities being planned by Al-Qaeda terrorist cells in the Kingdom and detained 149 suspects in the past eight months according to an Interior Ministry spokesman. At a press conference today General Mansour al-Turki, in providing an update on progress fighting Al Qaeda, told of the arrest of 124 Saudis and 25 others from Arab, African and South Asian nations.

One of the 19 cells rolled up by security forces was charged with raising money for the group, according to al-Turki. About SR2.24 million, equal to about $600,000 was seized and Saudi TV showed film clips of some seized cash, weapons and computers. Al-Turki said, “No doubt al-Qaeda seeks to raise funds from within Saudi Arabia,” adding “Al-Qaeda wants to exploit the enthusiasm of Saudis to do charity work and philanthropy.” He accused Al-Qaeda of trying to raise money and spread their ideology during the Hajj and Umrah pilgrimages in the Kingdom.

Saudi Arabia has been the target of terrorist attacks for decades, especially since 2003 when an Al-Qaeda campaign was launched against Saudi and Western targets to destabilize the Kingdom. The Saudi government has been very effective in countering Al-Qaeda through aggressive policing and rehabilitation. Its intelligence penetration of Al-Qaeda was recently lauded by the White House as key to thwarting a plot to destroy aircraft with parcel bombs. The bombs were built and shipped from Yemen by Al-Qaeda in the Arabian Peninsula and were intercepted in the UK and UAE based on information provided by Riyadh. Officials believe the bombs were set to detonate aboard aircraft when airborne enroute to destinations in the United States.

Over 100 Al-Qaeda suspects were arrested earlier this year according to General Mansour who spoke with reporters in March. Suspects in those arrests were preparing for attacks on police officers and 12 were planning suicide attacks against oil installations in the Kingdom. In August 2009 a suicide bomber, a member of Yemen-based Al Qaeda in the Peninsula (AQAP), made an unsuccessful attempt to kill Prince Muhammad bin Naif, Assistant Interior Minister for Security Affairs. The Yemen base of operations for AQAP gained notoriety following the attempted bombing of a Northwest Airlines jetliner bound for Detroit from Amsterdam last December 25th, by Abdul Farouk Umar Abdulmutallab. The suicide bomber, a 23 year old Nigernian equipped with an underwear bomb, was dispatched by AQAP from Yemen. The attacker failed but it highlighted the ongoing threat to American interests posed by Al Qaeda elements and gave renewed focus for American and Saudi counter terrorism specialists on Yemen.

Related Material:

• Saudi-US Intelligence Cooperation – SUSRIS Special Section
• In Saudi Arabia, scores of arrests – CNN – Nov 26, 2010
• Saudis trumpet al-Qaeda arrests – BBC News – Nov 26, 2010
• 149 Al-Qaeda suspects arrested in Kingdom – Arab News – Nov 26, 2010
• The Road to Victory in the War on Terror – Sobhani – SUSRIS – Nov 17, 2010
• No room for terrorism in islam: hajj sermon – The Peninsula – Nov 16, 2010
• Prince Turki al-Faisal on U.S.-Saudi Terrorism Cooperation – SUSRIStube – Nov 8, 2010
• Statement from John Brennan, Assistant to the President for Homeland Security and Counter-Terrorism – Saudi Terrorism Intelligence Assistance – Oct 29, 2010
• Major Roundup of Terrorists Reported in Kingdom – SUSRISblog – Mar 25, 2010
• “Terror Plot” Arrests – SUSRIStube – Mar 25, 2010
• The Hajj (2010) – SUSRIS Special Section
• Suicide Bomber Attacks Prince Muhammad bin Nayef – SUSRIS – Aug 28, 2009
• Rehab the Terrorists.. With Love – Robert Lacey – SUSRIS – May 22, 2009
• Saudi Contributions to Counterterrorism – SUSRIS – May 2, 2009
• U.S.-Saudi Collaboration on Counterterrorism – SUSRIS – May 2, 2009
• State Department Annual Report on Terrorism – SUSRIS – May 2, 2009
• Saudi Al-Qaeda Leader Outlines New Strategy and Tactics of Al-Qaeda in the Arabian Peninsula – SUSRIS – April 16, 2009
• Saudi Strategies to Counter Terrorism – SUSRIS – Oct 20, 2008
• Militant Crackdown: Plots and Arrests – SUSRIS – Jun 26, 2008
• The Militarization of Energy Security – SUSRIS – Mar 7, 2008
• Saudi Forces Foil Al-Qaeda Terror Plot – SUSRIS – Dec 22, 2007
• Extremist Reeducation and Rehabilitation in Saudi Arabia – SUSRIS – Aug 15, 2007
• Captured Al-Qaeda Militants Confess to Massive Terror Plot – SUSRIS – May 16, 2007
• Foiling Al Qaeda Plots Highlights Saudi Anti-Terror Campaign – SUSRIS IOI – Apr 30, 2007
• Mass Arrests of Terrorist Suspects Foil Attacks – SUSRIS – Apr 27, 2007
• Foiled Terror Plot Update – SUSRIS Special Report – May 16, 2007
• Mass Arrests of Terrorists – US State Department Reaction – SUSRIS Special Report – Apr 27, 2007
• “Evil in Action” – Arab News Editorial in response to terror attack – SUSRIS IOI – Mar 3, 2007
• US Ready to Help Saudi Arabia Defend Oil Facilities – SUSRIS – Oct 27, 2006
• The Impact of the Abqaiq Attack on Saudi Energy Security – SUSRIS – Feb 28, 2006
• Terrorist Attack at Abqaiq Oil Facility Thwarted – SUSRIS – Feb 25, 2006
• Saudi Oil Facilities: Al-Qaeda’s Next Target? – SUSRIS – Feb 24, 2006
• “The Fight Against Extremism and the Search for Peace” – SUSRIS – Sep 28, 2005
• “Saudi Arabia: Friend or Foe in the War on Terror” – SUSRIS – Nov 9, 2005
• The Global Scourge of Terrorism: Ambassador Prince Turki al Faisal Shares His Outlook – SUSRIS IOI – Nov 8, 2005
• A New List, Continued Resolve: The War on Terrorism in the Kingdom – SUSRIS – Jun 30, 2005
• Saudi Arabia and the Struggle Against Terrorism – Dr. Anthony Cordesman – SUSRIS – Apr 11, 2005
• Counter Terrorism International Conference Opens in Riyadh – SUSRIS – Feb 5, 2005
• International Counter Terrorism Conference – SUSRIS – Jan 30, 2005
• Keeping Cool about Jeddah By Anthony H. Cordesman – SUSRIS – Dec 9, 2004
• Why Reforge the U.S. and Saudi Relationship? An Interview with Anthony Cordesman – Sep 28, 2004
• U.S.-Saudi Relations: A Glass Half Empty, Or Half Full? – SUSRIS – Aug 26, 2004
• The Crisis Within: In Saudi Arabia, Rebellion and Reform Seize Center Stage – SUSRIS – Jun 24, 2004
• Bombings, Attacks At Riyadh Security Sites – SUSRIS Special Report – Dec 30, 2004
• Al Qaeda Shifts Its Strategy in Saudi Arabia – SUSRIS – Dec 28, 2004
• A Diplomat’s Call for War Prince Bandar bin Sultan bin Abdulaziz Al-Saud – SUSRIS – Jun 6, 2004
• Attack in Khobar: Counterattack on Hostage Takers – SUSRIS – May 30, 2004
• The Saudi Effort and Its Aftermath National Commission on Terrorist Attacks Upon the United States – SUSRIS – Apr 7, 2004
• How an Al Qaeda Hotbed Turned Inhospitable – SUSRIS – Jan 9, 2004
• Terrorists Strike Multiple Targets in Riyadh – SUSRIS Special Report – May 15, 2003
• Terrorists Strike Multiple Targets in Riyadh – SUSRIS Special Report – Crown Prince Abdullah’s Address – May 14, 2003
• Terrorists Strike Multiple Targets in Riyadh – SUSRIS Special Report – May 13, 2003

SPECIAL REPORT

King Abdullah bin Abdulaziz Al Saud successfully underwent back surgery today at the New York Presbyterian Hospital according to the SPA, citing Saudi Arabia’s Royal Court. The King, said to be 86 years old, was suffering from a “lumbar spine disc prolapse complicated by a haematoma pressing on lower nerve roots causing pain” according to a Saudi Health Ministry spokesman. The painful but not life-threatening condition led to his transfer from the Kingdom to New York City on Monday.

Related Reporting:

• Leadership in the Kingdom: A Conversation with Thomas Lippman – SUSRIS Exclusive Interview – Nov 23, 2010
• King Abdullah to U.S. Monday for Medical Care – SUSRIS Special Report – Nov 21, 2010
• King Abdullah Sidelined – SUSRIS – Nov 13, 2010

EXCLUSIVE

Editor’s Note:

King Abdullah bin Abdulaziz

King Abdullah of Saudi Arabia arrived in New York City yesterday for medical treatment for a “lumbar spine disc prolapse complicated by a haematoma pressing on lower nerve roots causing pain” according to a Saudi Health Ministry spokesman. The monarch’s condition does not appear to be life threatening but the age and health of Saudi Arabia’s rulers are frequently discussed as observers ponder the future of the Kingdom’s leadership. To help us pick through the questions that surround King Abdullah’s condition and prospects for transitions we called on author and journalist Thomas Lippman, an adjunct senior fellow at the Council on Foreign Relations who has regularly shared his insights on the Kingdom with SUSRIS. [Links below]

Thomas Lippman is author of “Inside the Kingdom: America’s Fragile Partnership with Saudi Arabia,” an important contribution to an understanding of the Saudi-US relationship, and “Arabian Knight: Colonel Bill Eddy USMC and the Rise of American Power in the Middle East,” which detailed the early era of American diplomatic ties with the Kingdom. Lippman completed a distinguished career with the Washington Post including a posting as the Middle East bureau chief. He is completing work on his next book, “Saudi Arabia on the Edge,” which is expected to be released in May 2011. Mr. Lippman was interviewed today by phone from his home in Washington, DC.

Leadership in the Kingdom: A Conversation with Thomas Lippman

SUSRIS: King Abdullah flew to the United States on Monday for treatment of a disc problem complicated by a blood clot, according to reports, which appears not to be a life threatening condition. However, such hospitalizations, especially treatment abroad, of elderly leaders fuels speculation about succession in any country, particularly an important American partner as Saudi Arabia. The Royal Court appears to have been forthcoming with details about King Abdullah’s medical condition. How well do you think the situation has been handled?

Thomas Lippman: I would say that compared to previous episodes, especially those involving the health of Crown Prince Sultan, there has been quite a bit more information put forward this time. It does appear Saudi authorities are trying to be more transparent but we have no basis for knowing if what they are saying is the whole truth. As for the fact the King left Saudi Arabia to seek medical treatment, I think it is a pretty deeply ingrained habit in the senior princes and I don’t draw too many conclusions from that.

SUSRIS: Let’s talk about leadership issues in the Kingdom. The Crown Prince has been chronically ill in the past few years, spending much of last year abroad for medical care. He returned from an extended stay in Morocco to the Kingdom before the King left for treatment on Monday. The Interior Minister Prince Nayef was appointed Second Deputy PM to fill in last year, when King Abdullah had to travel abroad for a summit, while the Crown Prince was ill. What’s your assessment of the state of leadership at the top?

Lippman: My assessment is that they certainly are concerned about the appearance of creating a vacuum. I think it is correct to say that Nayef’s appointment as second deputy, which could have happened at any time, was done at a point when the King and the Crown Prince were both going to be out of the country and they didn’t want a vacuum in the leadership. Some others have speculated on different motives for giving the second deputy prime minister position to Nayef but I don’t want to get into that. I don’t like to speculate and there’s a lot we don’t know about the internal maneuverings. I do think that you can certainly say that they have to be aware of their own fragility at this point. They are concerned about giving the impression that this is a situation that they are managing, that there is no cause for alarm.

SUSRIS: What do you think about the timing of King Abdullah turning over the top spot in the Saudi Arabian National Guard to Prince Miteb, his son, a position he held for 48 years, during the week his medical situation was in the headlines?

Lippman: I was a little surprised by the timing. It could have been done any time in the past five years, since Abdullah took the throne. It’s tempting to assume that the King did it now to cut back on his own commitments because of his health. It is equally possible, and we won’t know, we may never know, that it was done because there’s posturing going on involving the grandsons, especially those who control different parts of the security apparatus. It may have been that it was time for Miteb to move up to ensure that Abdullah and his son would maintain their control over the National Guard, whatever happens at the very top. We don’t know for sure; it’s pure speculation by those on the outside. However, I don’t think you can say with certainty that it’s related to the King’s health.

SUSRIS: In 2006 King Abdullah announced the establishment of the Bay’ah Council, a way to formalize the succession process. What’s your understanding of how Saudi Arabia is prepared to handle succession of the monarch?

Lippman: On paper the Allegiance Council takes care of any contingency the Kingdom might face including the complete incapacitation of the King and Crown Prince. It provides very specifically for dealing with that contingency, with simultaneous deaths, and sets up a process of succession and choosing subsequent leaders. I assume, as I thought at the time it was announced, that Abdullah, whose brothers are very powerful people, would not have created this system and announced it to the world if he didn’t have “buy-in” from everybody who mattered. That having been said, that system has not been tested. Saudi Arabia has not been called upon to implement the provisions of the Allegiance Council law. If Abdullah and Sultan pass from the scene and Nayef becomes King there will be a key test, when the process needs to be put in place. He will be the first King not to have the absolute right to designate his own crown prince. We don’t know how Nayef would respond to that until the time comes.

SUSRIS: In January 2009, as rumors about the Crown Prince’s health swirled, we asked you, “ What should people be thinking about Saudi leadership?” You answered that the Allegiance Counsel appeared to be a “wise system” but the important questions involved the “musical chairs” of who would head which ministry after the question about the ruler were resolved. So, almost two years later, what should we be thinking about Saudi leadership?

Lippman: I assume there’s a relatively small number of princes, probably fewer than ten who would be considered contenders. We don’t know who all of them are. Some who might be on my list, or your list, might not actually be on their list. We don’t know who they all are.

I also assume that there’s a certain amount of bargaining going on in which prince X says to prince Y, if I back you in the Allegiance Council what about my son’s aspirations to be “whatever.” I think it’s only natural that those conversations are taking place. Again, it’s details like that we will probably never know. But I’d be surprised if they weren’t having those conversations.

The succession issue is not going to unfold in a vacuum. There are powerful, ambitious people, some of whom are better positioned than others, to stake a claim and win support from others. I think the most important concern is that it be done in an orderly way, in compliance with the stated rules, and then everybody signs off on the outcome.

There really are a lot of moving parts here. We can assume for example, that in addition to the monarch, the Defense Ministry and command of some of the security units, that the Foreign Ministry may also be in play. So there’s a lot going on. And I would be shocked if there was not some serious camel-trading going on among some of the princes.

SUSRIS: Beyond the top spot in the Kingdom and the movement of deck chairs at the various leadership levels in the short term, how do you see things evolving in terms of long-term leadership in Saudi Arabia?

Lippman: I have amused audiences for years with a little joke about how the next couple of kings will be the Andropov and Chernenko of Saudi Arabia. I don’t like to speculate but there are a certain number of inescapable facts. Abdulllah and Sultan are men in their mid-80s. Sultan has been ill for a long time. Nayef is apparently healthy as far as we know, but he is a man in his late 70s. There is chatter that Prince Salman is not well. There is one other of the so-called Sudairi Seven, Prince Ahmed, who is a behind the scenes figure. I don’t know what his role is.

The really crucial moment is going to come when it is finally unavoidable to make the transition to the so-called grandsons generation. There is no way to avoid that moment in the next ten years. Even if Nayef and then Salman become kings, they are old enough and there are questions about their health that we are going to get to that point.

We don’t know with certainty who will emerge. What I do think will happen is that whoever emerges in the top positions will function within a certain range of domestic and international and economic policies.

You’re unlikely to get either a religious zealot or a democratizing liberal out of the process that is in place. I just don’t see that. So the differences, it seems to me, are likely to be relatively marginal, unless you’re a Saudi woman. In which case the differences could turn out to be crucial.

SUSRIS: Can you expand on that?

Lippman: I think it is more likely that some of these individuals are more likely to do the “driving deal” than others.

I want to make sure that you take my point that I am a little bit less concerned about the identity of the individuals who emerge from this process than about the way the process plays itself out, about maintaining an orderly set of transitions. I think they have the tools in place to do this in an orderly way, a way that does not fragment the family or result in any kind of open turmoil. And I think that is what is going to happen.

Thomas Lippman

SUSRIS: Thank you for again sharing your perspectives on developments in the Kingdom.

About Thomas Lippman

Thomas W. Lippman is a senior adjunct scholar at the Council on Foreign Relations in Washington. His career in journalism at the Washington Post included four years as the Washington Post’s Middle East bureau chief, three years as the Post’s oil and energy reporter and a decade as the newspaper’s national security and diplomatic correspondent, he traveled extensively to Saudi Arabia. He is the author of “Arabian Knight: Colonel Bill Eddy USMC and the Rise of American Power in the Middle East,” “Inside the Mirage: America’s Fragile Partnership with Saudi Arabia,” ” Madeleine Albright and the New American Diplomacy,” ” Understanding Islam, and Egypt After Nasser”. A writer and journalist specializing in U.S. foreign policy and Middle Eastern affairs, he lives in Washington, DC.

Biography

More on SUSRIS:

• A Conversation with Thomas Lippman – SUSRIS – Sep 10, 2010
• Business Forum Perspectives – Lippman – SUSRIS Exclusive Interview – Apr 28, 2010
• Middle East Peace and the U.S.-Saudi Relationship: A Conversation with Thomas Lippman – SUSRIS Exclusive Interview – March 2, 2009
• Exclusive – Leadership Transitions: A Conversation With Thomas Lippman – January 9, 2009
• Gulf Forum: US-Gulf Relations Post-Election – Prince Turki al-Faisal Critical of US Gaza Stand – SUSRIS IOI – Jan 7, 2009
• Exclusive – Arabian Knight: Colonel Bill Eddy USMC and the Rise of American Power in the Middle East – A Conversation with Thomas Lippman – Sep 15, 2008
• Exclusive – The Proud Heritage of Aramco: A Conversation with Thomas Lippman – SUSRIS Interview – May 30, 2008
• “Good Morning, Mr. President” Thomas Lippman’s Briefing for POTUS – SUSRIS IOI – January 11, 2008
• Exclusive – Political and Economic Developments in Saudi-US Relations – A Conversation With Thomas Lippman – SUSRIS Interview – Sep 29, 2007
• Discovery! The Search for Arabian Oil – Wallace Stegner – Foreword by Thomas Lippman – SUSRIS IOI – Sep 18, 2007
• Exclusive – Determined to Remain Friends – A Conversation with Thomas Lippman – Exclusive – SUSRIS Interview – Aug 7, 2007
• A New Regional Leadership – Thomas W. Lippman – SUSRIS IOI – May 10, 2007
• Exclusive – Region in Crisis: Fine Lines and Consequences – A Conversation with Thomas W. Lippman – SUSRIS Interview – Aug 2, 2006
• Exclusive – Crawford Summit Perspective: A Conversation with Thomas Lippman – SUSRIS Interview – May 9, 2005
• Exclusive – Insight on the Kingdom from the Author of Inside the Mirage — A Conversation with Thomas Lippman – Part One – SUSRIS Interview – March 30, 2005
• Exclusive – Insight on the Kingdom from the Author of Inside the Mirage — A Conversation with Thomas Lippman – Part Two – SUSRIS Interview – Apr 18, 2005
• Exclusive – U.S.-Saudi Relations: A Glass Half Empty, Or Half Full? – An Interview With Thomas Lippman – SUSRIS Interview – Aug 28, 2004
• Thomas Lippman – “Inside The Mirage” – US-Saudi Relations — SAIS Panel – SUSRIS IOI – Dec 16, 2003

SUSRIS SPECIAL REPORT

Saudi Arabian King Abdullah bin Abdulaziz will travel to the United States on Monday for medical evaluation and treatment of a back condition according to a statement by the Royal Court November 21, SPA said. The King was sidelined by back pain last week and his condition became complicated by Friday when the Royal Court reported “tests revealed that a blood accumulation accompanied the herniated disc, pressuring its adjacent nerves.” The 86-year-old Saudi monarch underwent tests Friday at the King Faisal Specialist Hospital in Riyadh.

Earlier in the week King Abdullah transferred his duties as Commander of the Saudi Arabian National Guard to his son, Prince Miteb bin Abdullah a move that was a long time coming according to analysts. The Guard, a standing force of about 125,000 that performs domestic and external security functions separate from the army, has been led by King Abdullah since 1962.

Meanwhile, Crown Prince Sultan is expected to return to Riyadh Sunday evening from Morocco where he was on “special leave” according to the Royal Court. The Crown Prince went to Morocco in August according to a Reuters report which mentioned he had been abroad in Morocco and the United States for much of last year for medical treatment.

In March of last year King Abdullah named Interior Minister, Prince Nayef as Second Deputy Prime Minister during the period when the Crown Prince was receiving medical care abroad and the King was preparing to leave the Kingdom for an Arab League Summit in Doha.

Any mention of medical treatment for the Kingdom’s elderly leaders fuels speculation about Royal succession and Saudi Arabia’s future leadership. In December 2006, SUSRIS spoke exclusively with Thomas Lippman, an adjunct senior fellow at the Council on Foreign Relations and author of “Inside the Mirage: America’s Fragile Partnership with Saudi Arabia,” about the then newly devised mechanism for succession in the Kingdom.

“If there is one thing the ruling princes of Saudi Arabia have shown they are good at, it is self-preservation. They demonstrated their skill once again last month with an adroit political maneuver.. .. King Abdullah announced a new system for choosing future kings, designed to ensure smooth continuity whenever the monarchy is vacated. He issued a new “Allegiance Institution Law” designed to cover every eventuality: death of the king; simultaneous death of the king and crown prince; temporary incapacity because of illness; and long-term disability. This news can only be encouraging to those who wish to see long-term political and economic stability in that vital country.” [More information about the Allegiance Law is in SUSRIS at some of the links below.]

King Abdullah bin Abdulaziz ascended the throne of Saudi Arabia upon the death of his half-brother King Fahd in August 2005. Abdullah had served as de facto regent since 1996 following a stroke suffered by Fahd. In that time Abdullah led the Kingdom through many of its most daunting challenges including: the economic downturn of the late 1990s; the strain on relations with the United States following 9/11; the search for peace between Arabs and Israelis; the proliferation of regional security threats; the domestic threat posed by Al Qaeda’s deadly terrorist campaign across the Kingdom; and plans for political, social and economic reform.

In the five years King Abdullah has been on the throne he has maintained a very active international travel schedule, including visits to world leaders in the United States, Europe, and Asia. This summer he traveled to Canada for the Group of Twenty (G-20) Summit in Toronto and to the United States for meetings with President Obama.

Related Material:

• King Abdullah Sidelined – SUSRIS – Nov 13, 2010
• Saudi Crown Prince Meets Senior Royals in Morocco [Oct 6] – SUSRIS News – Oct 6, 2010
• Group of Twenty – G-20 Summit – Toronto – June 2010 – SUSRIS Special Section
• King Abdullah to Visit United States – Jun 20, 2010
• Saudi Arabia: Succession Steps – Apr 10, 2009
• Prince Nayef Named Second Deputy Prime Minister – SUSRIS Mar 28, 2009
• Crown Prince Sultan Medical Update – SUSRIS – Feb 25, 2009
• Leadership Transitions: A Conversation with Thomas Lippman – SUSRIS Exclusive Interview – Jan 9, 2009
• Solving the Saudi Succession Puzzle – SUSRIS – Jan 9, 2009
• Crown Prince Sultan Health Report Questioned – SUSRIS – Jan 8, 2009
• The Rule of King Abdullah: A New Paradigm
A Conversation with Jean-Francois Seznec – SUSRIS Exclusive Interview – Aug 1, 2008
• Saudi Arabian Constitutional Evolution: Prince Turki al-Faisal on the Bay’ah Council – SUSRIS – Nov 6, 2006
• Saudi crown prince meets Saudi royals in Morocco – Reuters – Oct 6, 2010
• Executive Law of the Saudi Allegiance Council – SUSRIS – Documents – 2009

Editor’s Note:

“The United States is grateful to the Kingdom of Saudi Arabia for their assistance in developing information that helped underscore the imminence of the threat emanating from Yemen. Their assistance, along with the hard work of the U.S. counter-terrorism community, the United Kingdom, the UAE, and other friends and partners helped make it possible to increase our vigilance and identify the suspicious packages in Dubai and East Midlands Airport.”

- John Brennan, Deputy National Security Advisor for Homeland Security and Counterterrorism and Assistant to the President, Oct 29, 2010

It’s a new tactic. Sending bombs disguised as airborne delivery parcels carried on cargo and passenger planes, outside the level of the scrutiny reserved for people and their baggage. But it’s not a new story that Saudi Arabian Intelligence officials and Western agencies are sharing information. “The Kingdom has been cooperating with the United States for decades,” according to Prince Turki Al-Faisal, former Director General of the Kingdom’s Intelligence Service and Saudi Ambassador to the United States in a recent interview with SUSRIS. [Coming out later this week.]

Today we are pleased to share an essay by S. Rob Sobhani that explores the relationship in countering terrorism, a topic that is richly shared in SUSRIS archives as well, and King Abdullah’s leadership role in the partnership and in the battle against Al Qaeda in the Kingdom. His book, “King Abdullah of Saudi Arabia: A Leader of Consequence,” was discussed during the SUSRIS Exclusive Interview with Sobhani. [Link]

You can find more information on this topic at the new SUSRIS Special Section “Saudi-US Intelligence Cooperation.”

The road to victory in the war on terror passes through Riyadh
S. Rob Sobhani

The recently foiled terror plot that uncovered two bombs aboard airplanes headed for Chicago underscores Al-Qaeda’s ongoing determination to strike at American targets. How the plot was discovered reflects an equally important reality: Saudi Arabia has emerged as one of Washington’s most important allies in the war on terror, a vital player in the worldwide fight against Islamic extremists.

Saudi Arabia provided the key intelligence that unraveled the plot – from the intent of the bombers to the tracking numbers on the packages. Were it not for that vital Saudi tip, Americans may have experienced the most devastating terrorist attack on its soil since the 9/11 tragedy.

John Brennan, a top adviser on homeland security and counter-terrorism to President Obama, said the United States is “grateful” to Saudi Arabia “for their assistance in developing information that helped underscore the imminence of the threat emanating from Yemen.” Other American officials have noted bluntly that without the Saudi tip-off, the bombs would likely have found their way aboard cargo flights bound for Chicago – and potentially detonated midair.

The vital role Saudi Arabia played in saving American lives brings us full circle, one year before the 10th anniversary of the horrific Sept. 11 terrorist attack. On that day, 15 of the 19 hijackers hailed from Saudi Arabia, and the Kingdom’s security and intelligence apparatus was not hard-wired to adequately deal with Al-Qaeda or the rising tide of jihadi terrorism that threatened the Kingdom just as much as it did Americans.

Since then, Saudi Arabia has developed one of the most widely admired jihadist rehabilitation programs in the Muslim world, rolled back Al-Qaeda in its own borders, and developed wide-ranging sources to disrupt Al-Qaeda activity in neighboring Yemen. It has been dangerous work – many Saudi national guardsmen and police officers have lost their lives in this battle.

Meanwhile, the highly regarded Assistant Interior Minister For Security Affairs Prince Muhammad bin Naif, whose work in fighting Al-Qaeda has been lauded by a slew of Western officials, averted an assassination attempt simply because a suicide bomber’s explosives detonated too early.

But in addition to the hard intelligence work – the hardware of the war on terror – the reform-minded Custodian of the Two Holy Mosques King Abdullah has been quietly transforming the “software” within the Kingdom and in the broader Muslim world that had, for too long, created an environment conducive to radicalism. This “software” transformation will be even more important, in the long run, than the “hardware” intelligence battles.

The king has reoriented the Saudi education system away from the religious excesses of the past, sponsored global religious dialogue conferences that include Jews and Christians, and spoken out dramatically against the religious “deviancy” that produces terrorists. His five-year rule has been marked by new openings in the media, civil society, and women’s rights.

The king’s signature initiatives – from wide-ranging domestic and international dialogue conferences to the creation of new universities for women to the launch of the King Abdullah University of Science and Technology earlier this year – have all revolved around themes of tolerance, dialogue, and education. While it is true that the king’s lofty ambitions are often not matched by realities on the ground, his goals and actions have indubitably moved the heavy Saudi ship of state in a new direction.

The Saudi king’s influence does not end within his own borders. As custodian of the Two Holiest Mosques in the Muslim world, in Makkah and Madinah, and as the home of the birthplace of Islam, Saudi Arabia casts a long shadow on Muslim world affairs and holds a unique place in the views of world’s Muslims.

For far too long, Saudi Arabia either shirked its responsibility to build a more moderate Muslim world, or actively supported radical elements outside its borders as part of its geopolitical strategies. That has changed under King Abdullah. After all, a Saudi king who shakes hands with a rabbi in a conference on dialogue and pushes all other Arab states to come to peace terms with Israel and is described as “a remarkable leader” by former Israeli Prime Minister Shimon Peres is certainly a new kind of Saudi king.

While the news of Saudi Arabia’s intelligence cooperation wins plaudits from US policy-makers, we also ought to be aware of the “software” transformation engineered by King Abdullah within his own borders and beyond. Those policies, too, will go a long way toward keeping us safe from the scourge of terrorism.

- About S Rob Sobhani

Dr. S. Rob Sobhani is the President and founder of Caspian Energy Consulting. Dr. Sobhani is a business consultant, with an academic background, who specializes in corporate and government relations.

Dr. Sobhani founded Caspian Energy Consulting (CEC) in 1991 to specialize in negotiating projects for clients with business interests in the Middle East and former Soviet Union. As a means to achieving a company’s goal, CEC puts together a comprehensive strategy that includes country risk analysis, public relations, lobbying the host government on behalf of the project, and maintaining the image of the client as a corporate citizen in the host country.

Until 2005, Dr. Sobhani was an Adjunct Professor at Georgetown University where he taught courses on U.S. foreign policy and energy security. He is a frequent contributor to op-ed pages of major U.S. newspapers and has appeared on domestic and international television and radio programs discussing U.S. foreign policy and energy markets. Dr. Sobhani is also a guest lecturer at major conferences dealing with international energy security.

In addition to his professional and academic background, Dr. Sobhani sits on the Board of or is otherwise affiliated with a number of organizations. He sits on the Board of Mohawk Innovative Technologies in Albany, New York. He is Deputy Chairman of Washington Capital Partners. Dr. Sobhani also serves on the Board of Directors of c5I Corporation and General Magnetic Sciences. Dr. Sobhani is also a member of the bi-partisan Committee on the Present Danger.

Source: Caspian Energy Consulting

Editor’s Note:

Over 2.5 million Muslims began their five-day pilgrimage, the annual Hajj, today following the route taken by the Prophet Mohammad over 1400 years ago. The Kingdom of Saudi Arabia, home to the two Holy Places of Islam, has met its special responsibility in ensuring access to the places of the pilgrimage and the safety of the pilgrims by investing billions of dollars in infrastructure and deploying tens of thousands of people to support and protect during the Hajj. Today we are pleased to mark this day with a report from Siraj Wahab writing for Arab News, which provides an excellent overview of the Hajj. It complements other SUSRIS reporting on the Hajj including David Long’s article on the impact of Hajj on Saudi Arabia and our interview with him, “The Hajj in Perspective,” both included among resources in the SUSRIS Special Section on this year’s Hajj.

Pilgrims set out for Mina
Siraj Wahab

Hundreds of thousands of pilgrims began their slow and steady trek to the tent city of Mina on Saturday night in the first leg of their five-day journey. Almost all pilgrims will be in their tents by Sunday afternoon. They will spend a day in contemplation before moving to the Plains of Arafat Monday in what is described as the most significant ritual of the pilgrimage.

Earlier in the day, Custodian of the Two Holy Mosques King Abdullah appointed Second Deputy Premier and Interior Minister Prince Naif to oversee Haj. Prince Naif, who is also chairman of the Supreme Haj Committee, has been in Makkah this last week, supervising security arrangements for the pilgrimage.

Prince Naif’s designation came a day after doctors asked the king to rest due to a disc problem.

In Makkah, hundreds of buses and smaller shuttles packed with pilgrims were headed toward Mina. Young and healthy pilgrims, however, decided to walk the distance. Saudi authorities said all arrangements were in place for the world’s largest Muslim gathering.

The logistics required to support the millions of pilgrims are astounding.

Interior Ministry officials told foreign journalists that all preparations for Haj were complete. In addition to the thousands of vehicles, pilgrims will use a train service to travel between the holy sites. The Mashair Railway is expected to reduce congestion on roads leading into and out of Mina, Arafat and Muzdalifah.

Thousands of food outlets have been set up to cater to the faithful. Bakeries are equipped to prepare 10 million loaves of bread a day. The Ministry of Health is geared and waiting to serve the guests of God. It has opened dozens of health centers in the holy sites to aid the faithful who should find Haj easier this year thanks to the moderate weather. Local temperatures varied between 25 and 30 degrees Celsius.

The Civil Defense has also made arrangements in the event of rain and flash floods. “We’ve made special plans based on detailed studies analyzing the possible dangers that could be caused by the geography of Mina, which is surrounded by mountains on all sides,” said Brig. Gen. Fhaid Al-Faidi, head of the Civil Defense in Mina.

Over 100 Civil Defense teams and paramedics are at hand to deal with any eventuality; the teams also have some 200 motorbikes at their disposal.

Al-Faidi called on pilgrims to follow instructions and said the Civil Defense is working closely with Tawafa establishments. “We’re receiving constant weather forecasts about rain. We’ve also got a note of key areas where rain could cause serious issues. There’s also a team of divers at our disposal, along with boats and other flood-related rescue equipment — these are located in the north side of Mina where flooding could be a problem if it rains,” he said.

A special team is in place to monitor the level of pollution in Mina’s 12 tunnels. “The team has advanced equipment to reduce pollution, if the need arises. Tunnels will also be closed if the quality of air is not suitable,” said Al-Faidi.
Among the early arrivals to Mina were old and young pilgrims who felt it was better to start out in advance rather than getting caught up in the general rush on Sunday.

“We came in early because the weather is pleasant, and we came on foot from Makkah,” said Ibrahim Taj, a Sudanese national. “It took us two hours to reach Mina, and we took a lot of breaks,” he said.

Shaukat Piracha of Pakistan’s Aaj TV was also among the early arrivals in Mina. “This is fascinating. I am not here to report on the event. I am here in my personal capacity. I decided to come in early to avoid traffic congestion,” he told Arab News. “Mina is not a city of tents; it is a city of lights as well. I have never seen such magnificent illumination. Hats off to Saudis for such meticulous arrangements.”

“I have been waiting for this moment all my life,” said an excited Malaysian citizen, Habib Rasool. “I am overwhelmed by this sea of white tents. I had an idea about what to expect, but then the picture in my mind’s eye was nowhere near what I experienced here today.”

Traffic moved swiftly down the highway from Jeddah. Busloads of pilgrims and trucks packed with sheep drove along the right lanes while police escorting VIPs whizzed by on the left. The four checkpoints on the Jeddah-Makkah Expressway are fully manned but caused no delay. In Mina, traffic congestion is being kept to a minimum by keeping small vehicles away. Only 4×4 vehicles with permits were being allowed in.

If spirituality and peace could ever be personified then it is here — the tent city in Mina surrounded by Jabal Al-Noor (Mountain of Light) and other hills, an abode of millions of pilgrims who are all set to sacrifice their self to the will of God.

At the time of writing this report, the tent city was not yet crowded; however, it was already teeming with life. As each group of pilgrims enters the valley of Mina, it reverberates with chants of “Labbaik Allahumma Labbaik” (O God, here I am answering your call).

Once in the city and in their fireproof tents, the pilgrims busy themselves reciting the Holy Qur’an and performing prayers or trying to locate relatives. Many try to catch some sleep after a tiring journey from Jeddah and Makkah that on average takes five hours.

On Monday morning, the pilgrims will move toward Mount Arafat where the Prophet Muhammad (peace be upon him) delivered his last sermon more than 14 centuries ago. The pilgrims will then return to Mina after spending the night in Muzdalifah. They will throw stones at Jamrat Al-Aqaba representing the devil and sacrifice animals to mark the Eid Al-Adha, which starts Tuesday and will spend the final two days in Mina to take part in the symbolic stoning of the devil.

Source: Arab News

Related Material

• The Haj 1431/2010 – SUSRIS Special Section
• David Long Interview – The Hajj in Perspective – SUSRIS Exclusive Interview – Nov 13, 2010
• The Hajj and Its Impact on Saudi Arabia and the Muslim World – SUSRIS – Nov 13, 2010

Editor’s Note:

This exclusive interview originally appeared in SUSRIS on January 23, 2005 and is reprinted today to mark the eve of this year’s Hajj. You can find these reports and more articles, links and resources at a SUSRIS Special Section on Hajj 1431/2010.

The annual Hajj, the annual pilgrimage of Muslims performing one of the basic duties of their faith – a joyous profession of their faith, is about to begin in Saudi Arabia. Today we are pleased to mark the Hajj with an interview with Dr. David E. Long. For more on the Hajj we suggest you read Dr. Long’s essay “The Hajj and Its Impact on Saudi Arabia and the Muslim World,” which is also being reprinted today (links below).

A career foreign service officer before retiring to become a consultant on Middle East affairs, he is author of numerous books on the Middle East and his “Kingdom of Saudi Arabia,” which was released in its second edition in September, is among the definitive texts on the subject.  Long is also author of “Culture and Customs of Saudi Arabia.”

The Hajj in Perspective: A Conversation with David Long

SUSRIS: Thank you, Dr. Long for taking time today to talk with us about the Hajj. What is the Hajj and why do people do it?

Dr. Long: The Hajj is one of the five pillars or the foundation of Islam and therefore it is the obligation of everyone who is physically and financially able to do so to make the Hajj once in their lifetimes. Pilgrimages to Makkah actually predate Islam, but the Hajj is considered by all Muslims to be divinely inspired by God as set down in the Qur’an and the Sunna. It is one of the Five Pillars of Islam, the others being: the profession of faith – “there is no God but God and Mohammed is the messenger of God”; Zakat or charity; prayer five times a day, and fasting during Ramadan. The rites are based on the instructions Muhammad gave in his Farewell Hajj just before he died. They have remained virtually unchanged to this day

SUSRIS: What role has Saudi Arabia played in hosting the pilgrims?

Dr. Long: That is a fascinating question. There was great fear when the Saudis took Makkah and annexed the Hijaz that they would do things that were not in line with the established practices. The fear first arose when the puritanical Islamic revival movement of Muhammed Ibn Abu Wahhab spread from Najd throughout Arabia, beginning in the 18th century.

Ibn Abu Wahhab preached that all sorts of innovations had been introduced into Islam since the time of Mohammed; his reform movement was basically a movement to get back to the original Islam. The centerpiece of his reform movement was Tawhid, or monotheism. The religious establishment who ran the Hajj feared that if the people followed the reform movement, it would cost them both economically and influence they held with the people. For example, one of the things that the movement called for was banning the practice of seeking intercession with God through Muslim saints by making pilgrimages to their tombs – very lucrative for those who controlled the tombs. Mohammed Ibn Abu Wahhab considered intercession heretical as it denigrated the sovereignty and omnipotence of God.

But when the Al Sauds annexed the Hijaz and took over the administration of the Hajj in 1925-1926, it soon became apparent that the fears were unfounded. From that time to this, the Saudi regime has gone all out to make sure it was available to all those who were able to attend. As a token of this responsibility, King Fahd assumed the title Khatim al-Haramain (Custodian of the Two Holy Places, i.e. Makkah and al-Madinah).

The job has not always been easy. Not only are the administrative tasks of providing services to over two million pilgrims enormous, but there have been all sorts or political divisions and problems that posed dilemmas for the Saudis.

For example, during the period of Nasserism and secular Arab nationalism there were many people who wanted to use the Hajj as a platform for political protest and the Saudis absolutely forbade that. They said it was not a time for politics; the Hajj was purely religious and they wanted to keep it that way. They would not allow protest over secular political issues — even if they agreed with them — that they did not feel were legitimately in the context of religious celebration.

After the 1979 revolution, Iranian provocateurs stirred up trouble at the Hajj. It was partly religious but it was mostly political. It was an attempt to undermine the Islamic world’s acceptance of Saudi custodianship, to undermine their reputation for running Hajj. But it backfired; it did not work, in fact, just the opposite. On the whole, I think that the record of the Saudis has been fairly good in terms of their striving to help people meet the obligation to come to the Hajj without being subjected to political protest.

Now that’s on the political side. The administrative problems the Saudis have had to encounter have in many ways been even more daunting. In the beginning, the Saudi Government was far less advanced than the former Hijazi government and not capable of administering such a huge task. What they came up with, I think, was pretty ingenious: a public utility concept — my term not theirs – similar to public utilities in the United States. The Hajj is administered primarily by the private sector but it is closely regulated by the government, which even collects the fees from the Hajjis and remits it to the private Hajj service sector to insure that the pilgrims are being fairly treated. Had the government tried to nationalize Hajj administration, there would likely have been chaos. But instead, they allowed private guilds (somewhat like guilds in medieval Europe) that had been guiding pilgrims for centuries, to continue to administer the Hajj but under strict supervision.

The principal guild consists of mutawwiffin (sing. mutawwif). They are sort of like family-run religious tour guide companies, if you will. Collectively, the mutawwiffin are responsible for pilgrims from every country in the world. For example, there is a mutawwif responsible for all the pilgrims coming from the United States. Closely associated with the mutawwifin are the Wukala’ (sing Wakil), or Agents. Located in the port city of Jiddah, they are responsible for meeting pilgrims arriving by air or sea, seeing them safely off to Makkah and seeing them off on the return trip home. (With the creation of an all-weather road system, an increasing number once again travel overland by car or bus.)

There is another guild in Makkah, the Zamazimah (sing. Zamzami). Historically, their task was to provide pilgrims with the holy water of Zamzam, a well inside the Haram Mosque. That has become a major undertaking with the great increase in numbers. Can you imagine when you have two million people who want to drink Zamzam water that’s a pretty big task? They do that, but their skill has expanded and that is why they are called Zamazimah. In fact they bottle Zamzam water — the real Zamzam water — send it all over the world. It is a non-profit foundation to raise money for worthy causes.

Finally, to meet, guide and see off the Hajjis that visit al-Madinah, the guild of Adilla (sing. Dalil) are located in al-Madinah where they meet, guide and see off the Hajjis that visit that city.

Compare the Hajj to a city of two million people. Over two million people attend the Hajj each year. Think about it – providing transportation, sanitation, health care, food, and drink. What happens if somebody gets lost and speaks an uncommon language? There are some pilgrims in their 60s and 70s who have saved up for a lifetime to make the Hajj. The chances of a medical emergency among this group are high, particularly in the summer months when the temperature can reach 135 degrees Fahrenheit, and they are usually outside or living in a tent. Throughout the area, the government has installed high overhead sprinklers to lower the chances of heat stroke. These are not conditions on the magnitude of the South Asia tsunami, but they must be dealt with on a yearly basis. It is truly a mind-boggling task.

SUSRIS: Your analogy of a population, an overnight collection, of two million people, equivalent to a US metropolitan region is interesting. Can you give us a sense of the magnitude of the event?

Dr. Long: I think that puts it in the right perspective. When you have that many people, there are bound to be glitches here and there. What is amazing is that there aren’t more. For example, let’s talk about transportation. Let me walk you through the Hajj.

When pilgrims near Makkah, whether by air, land or sea, they must enter a ritual state of purification called Ihram. It includes wearing Hajj garments — women do not wear veils – and refraining from cutting hair or nails, or having sex. Those in Ihram are easily recognizable by the garments they wear – two seamless pieces of white terry cloth for men and a long white robe for women. Women do not wear veils.

Upon reaching Makkah, one goes to the great Haram Mosque. The first rite is the Tawaf, the seven-fold circumambulation of the Kaaba, the dark stone cubic building in the center of the main mosque area. One then takes a drink of holy Zamzam water and then makes seven one way trips between Safa and Marwah, which are two little hills that are now incorporated into the mosque complex. That commemorates when Hagar was frantically looking for water for her infant son, Isma’il. In response, according to Islamic tradition, God struck open a rock and out came the water of Zamzam.

The logistics of moving the pilgrims through these rites are not particularly difficult. They are done ad seriatim as people arrive, not all at the same time. Afterwards, all the pilgrims travel east of Makkah to the Plain of Arafat. The choicest place to be is a small hill called the Mount of Mercy, but as all two million arrive, a tent city to accommodate them, replete with shops, first aid stations, fire stations, sanitations facilities, communications and transportation, stretches for miles across the plain.

It is at the Plain of Arafat that the Hajj culminates at sunset on Standing Day, the ninth day of the Muslim lunar month of Thul-Hijjah (which occurs eleven days earlier each year on the solar calendar – this year on January 20). Everyone – all two million plus– must say prayers at Arafat at sunset on that day else the Hajj is forfeited.

Following prayers, everyone must travel back toward Makkah to another location, Mina for the beginning of the Eid al-Adha (The Great Feast of the Sacrifice), which is celebrated throughout the Muslim world. The trek is called the Rush (Nafrah), but it takes about 12 hours to get everyone there. Think about two million people leaving from the same place at the same time, and going to the same place. Think about the Super Bowl or a World Series game, and what kind of traffic jam that causes. Multiply that by twenty, but instead of going north, south, east and west think of them all going in the same direction and out of piety many of them want to walk. We’re talking about the biggest traffic jam ever.

So transportation, the problems they have to address are mind-boggling. They have everything from taxicabs to big buses that come down from Turkey and Central Asia with the Hajis living in them. Think of all the fender benders and that’s just one thing.

SUSRIS: And they are from all corners of the globe?

Dr. Long: Yes, from all corners of the globe. And speaking over 100 languages or dialects and a large number of them up in years. But the gargantuan logistical task does not end there. During the Eid al Adha each family is supposed to sacrifice an animal. Of course many insist on a sheep, nothing smaller. For years, hundreds of thousands of sheep were slaughtered, and after families took what they could use, the rest was simply buried because of the lack of processing facilities for sheep sacrificed one day of the year. But the goal of the Eid is to give up something valuable, not blood sacrifice, and so now it is possible to purchase a sheep, have it slaughtered in the correct way and have the meat distributed worldwide to the needy. It is both practical and a suitable act of piety.

These are just some of the logistical problems that confront the Saudis. It is a Herculean job. One of the things that makes it all work is the attitude of the people. The Hajj is an incredibly and deeply joyous time — not the sort of the manufactured happiness of New Year’s Eve West where everyone goes out and tries to pretend they are having a great time. People from all over the Muslim world who attend are overflowing with good will.
One can feel it feel it even watching on Saudi television where it is broadcast. Watching the broadcast, one can hear a spontaneous chanting of the Talbiyyah, a ritual prayer repeated throughout the Hajj. First will come one or two voices, then a dozen, and then thousands are chanting it. Even for those not physically present, it is hard not to have chills run up and down your back

SUSRIS: How does the role of Saudi Arabia as the custodian of the two holy places and the role as host for the pilgrimage effect the thinking of the people and government of Saudi Arabia?

Dr. Long: The attitude toward the Hajj in Saudi Arabia may be somewhat analogous to being a Catholic living in Rome. You might take it for granted, but at the same time it permeates your whole life. Proximity to the Muslim holy places can indeed be taken for granted by Saudis, particularly those who live in Makkah and al-Madinah and nearby towns and cities. But on the other hand, Islam in all its dimensions is just a part of one’s daily life in a way that is difficult to duplicate in many other places throughout the Muslim world.

One of the issues now facing Saudis and others from the Gulf is that physically there are only so many people who can do this each year and they are about to max out. They have spent literally millions of dollars expanding the capacity of the holy cities and the holy mosques to accommodate these people. You remember when I said the two little hills that were incorporated into the complex — Safa and Marwah. You’ve seen pictures of the Prophet’s Mosque in Al-Madinah. These are huge places, and they can accommodate over a million people at the same time — that is just mind-boggling.

But still, the government has had to say to people who live in Saudi Arabia and neighboring states that they cannot go to the Hajj more than once every five years. Because there are so many people living in Saudi Arabia, there are three million people living in nearby Jeddah — what if they all showed up? It is a difficult dilemma for the government to limit local attendance at the holy places during the Hajj, but it must be done to make room for those attending for the first and perhaps last time in their lives.

SUSRIS: A news report said this year’s visa quota for the Hajj was 1.2 million.

Dr. Long: Yes they do limit visas. They have to. The people in the Arabian Peninsula don’t need a Hajj visa.

They have to do this in order to accommodate people because it is a religious obligation and they take it very seriously. Again that is another logistic problem they have to address. Security is the same way. As people found out back during the Arab nationalist era and as the Iranians discovered after the Islamic revolution, there is a backlash against people who try to use the Hajj for political purposes. This is a very holy celebration and anybody who tries to stir up trouble is subject to a backlash, a feeling against them.

SUSRIS: Does Saudi Arabia exercise any special place in the Islamic world since it is the home of the holy sites?

Dr. Long: I think that it would be precise to say that Saudi Arabia feels a special responsibility to the rest of the Muslim world as the birthplace of Islam and the location of its two holiest places. They do place great importance on their relations with other Muslim states, and to increase good relations throughout the Muslim world they created the OIC [Organization of the Islamic Conference]. It is probably fair to say that they do exercise a special place in the Islamic world, but it is not an ‘imperial’ thing. They feel that as the keepers of the holy places and the birthplace of Islam they have to be concerned about the hearts and minds of Muslims. But that doesn’t translate into Saudi hegemony over anything because it wouldn’t be Saudi hegemony, it would be God’s hegemony over the world in an Islamic context.

SUSRIS: How does the Hajj fit into the changing security posture in the Kingdom – given the Al Qaeda attacks of recent years?

Dr. Long: People should always be mindful of the security situation anywhere they go. But there are two other considerations here: one, any terrorist group that seeks legitimacy from some Muslim constituency would be foolish indeed to commit an act of violence at such a holy celebration. Those who have tried in past years have found it overwhelmingly counterproductive. One must assume that they seek to recruit followers and it is not going to win hearts and influence people to kill your own people during the holiest gathering of the year.

SUSRIS: Is there potential for some activity to embarrass the Saudis as the hosts.

Dr. Long: There is always that potential but as the Iranians found out the odds that it would be totally counterproductive and backfiring are huge. The terrorists in Saudi Arabia have found out that the people turned against them when they started killing Muslims. One of the reasons they went for the Interior Ministry last month was to isolate them in the minds of people as the enemy rather than as Muslims.

Al-Qaeda is expounding a cause, but no matter how fanatical they might be, they cannot succeed by alienating the very people you are supposedly trying to protect from the outside enemy. There may be some organization with a kind of Jim Jones mentality that does something really irrational, but Al-Qaeda does not appear to me to be that irrational. They may be zealots but they think rationally. You can’t rule it out but I would find it incredible that they would be so stupid.

SUSRIS: So the security challenges are just the physical accommodation of over two million people.

Dr. Long: Nothing of the magnitude of the Hajj is that simple, and of course, the Saudis are going to have to worry about political security. But Hajj administration is such a gigantic undertaking that they will have plenty of other, more mundane forms of security to worry about.

SUSRIS: What is it about the Hajj that people should understand? How should people put it in the context of world events?

Dr. Long: There are many ways you can do that. The first that comes to mind is that the Hajj creates an opportunity for non Muslims and people who don’t know much about Islam — particularly those people who have a totally negative view of Muslims as terrorists and the other images that are prominently displayed in the media — that this is a gathering of 2 million faithful people in a joyous time in the 21st century. With all the strife and all the suffering going on in the world it is just absolutely amazing.

It shows as much as anything can, the collective heart of the largest religious group in the world — 1.2 billion people, more of them than anyone else. That in itself is not the lesson, the lesson is to get along in this world with anybody you need a sense of perspective. This is a great way of gaining perspective by looking at how so many people do an act of piety and religious obligation in an atmosphere of joy every year regardless of what’s going on in Iraq, or anywhere, and I think that would be a lesson to contemplate.

SUSRIS: That’s a great observation. Thank you, Dr. Long for sharing your insight on the Hajj

About the Author:

David E. Long is a consultant on Middle East and Gulf affairs and international terrorism. He joined the U.S. Foreign Service in 1962 and served in Washington and abroad until 1993, with assignments in the Sudan, Morocco, Saudi Arabia, and Jordan. His Washington assignments included Deputy Director of the State Department’s Office of Counter Terrorism for Regional Policy, a member of the Secretary of State’s Policy Planning Staff, and Chief of the Near East Research Division in the Bureau of Intelligence and Research Bureau. He was also detailed to the Institute for National Strategic Studies of the National Defense University in Washington, 1991-92, and to the United States Coast Guard Academy, 1989-91, where he served as Visiting Professor of International Relations and in 1990-91 as Acting Head of the Humanities Department.

A native of Florida, he received an AB in history from Davidson College, an MA in political science from the University of North Carolina, an MA in international relations from the Fletcher School of Law and Diplomacy and a Ph.D. in International Relations from the George Washington University.

In 1974 -1975, Dr. Long was an International Affairs Fellow of the Council on Foreign Relations and concurrently a Senior Fellow at the Georgetown University Center for Strategic and International Studies. While on leave of absence from the State Department, he was the first Executive Director of the Georgetown University Center for Contemporary Arab Studies, 1974-1975. In 1982-1983, he was a Senior Fellow of the Middle East Research Institute and Adjunct Professor of Political Science at the University of Pennsylvania, and in 1987-1989, he was a Diplomat in Residence and Research Professor of International Affairs at Georgetown.

Dr. Long has been an adjunct professor at several Washington area universities, including Georgetown, George Washington and American Universities and the Johns Hopkins University’s School of Advanced International Studies. He has also lectured extensively in the United States and abroad on topics relating to the Islam, the Middle East and terrorism.

His publications include The Government and Politics of the Middle East and North Africa (co-editor with Bernard Reich, 4th ed. 2002), Gulf Security in the Twenty-First Century (co-editor with Christian Koch, 1998), The Kingdom of Saudi Arabia (1997), The Anatomy of Terrorism (1990), The United States and Saudi Arabia: Ambivalent Allies (1985), Saudi Arabian Modernization (with John Shaw, 1982), The Hajj Today: A Survey of the Contemporary Makkah Pilgrimage (1979), Saudi Arabia (1976) and The Persian Gulf (1976, revised 1978).

Related Material:

• The Haj 1431/2010 – SUSRIS Special Section
• David Long Interview – The Hajj in Perspective – SUSRIS Exclusive Interview – Nov 13, 2010
• The Hajj and Its Impact on Saudi Arabia and the Muslim World – SUSRIS – Nov 13, 2010
• Ministry of Hajj – Kingdom of Saudi Arabia

Doctors recommend rest for King Abdullah who suffers from a herniated disc.

Doctors have recommended rest for King Abdullah bin Abdulaziz as treatment for a herniated disc according to a Royal Court statement yesterday. It said the announcement was consistent with the King’s “principle of transparency.” Abdul Aziz Khoja, Minister of Culture and Information, said the King deserved a period of rest before returning to his normal duties. According to Arab News, Khoja said, “We all wish the king perfect health and long life and we should all pray for him.”

An AFP report noted 86-year-old King Abdullah had cut back on his activities since June and last week’s Council of Ministers meeting was chaired by Second Deputy Prime Minister and Interior Minister, Prince Nayef bin Abdul Aziz. Crown Prince Sultan bin Abdul Aziz has been in Morocco since August and last month his son, Prince Khaled bin Sultan, said the he was in good health and on private holiday. Sultan was out of the Kingdom much of last year for medical treatment.

Related Items:

• Saudi king suffers herniated disc – AFP
• King Abdullah Advised Rest – Royal Court – Asharq Alawsaat
• King Abdullah wished early recovery – Arab News
• Saudi crown prince in good health, on holiday – Reuters

Editor’s Note:

Each month Banque Saudi Fransi (BSF) takes a look at the latest monetary indicators provided by the Saudi Arabian Monetary Agency (SAMA) to produce its “Monetary Indicators” report. The key findings for today’s report, drawn from September 2010 SAMA data, include: private sector credit growth made good month-on-month gains in September but lending momentum remained modest and public sector credit jumped almost 10% from August; the broad money supply growth rose to a seven-month high but it is not stoking inflation, which is likely to follow a downward course; SAMA foreign assets gained almost 11% year on year in September as oil prices above $75 support the Saudi fiscal position; and new letters of credit were the weakest of 2010 and consumer activity, represented by point-of-sale transactions and personal cheques, declined amid a slowdown partly linked to Ramadan and Eid. Today we are pleased to provide the November 11, 2010 BSF “Monetary Watch” and thank Dr. Sfakianakis and his staff for sharing it with you on SUSRIS.

[Visit HERE for the complete report including insightful charts and graphs.]

Monetary Watch
Banque Saudi Fransi
November 11, 2010

Monthly monetary indicators

Saudi loan growth still weak, liquidity and deposits strong in September

• Private sector credit posts slight gains in September, deposits jump
• Money supply growth at 7-month high, but little inflation pull
• SAMA foreign assets up almost 11%, biggest advance in 17 months
• Trade, consumer activity slowed amid Ramadan, Eid celebrations

The bank lending atmosphere in Saudi Arabia remained relatively stationary in September, with only a slight pick up in private sector credit growth taking place even as money supply growth improved to a seven-month high and deposits made their biggest monthly gains since early 2009. Data of the Saudi Arabia Monetary Agency (SAMA) show that in September, which corresponded with the end of the holy month of Ramadan and a holiday to mark the Eid Al-Fitr celebration, commercial and consumer activity was subdued.

The world’s top oil exporter continued to benefit, however, from robust oil prices, which averaged $77 in August and $75.50 in September, enabling the central bank to build its net foreign assets by almost 11% in the year to September. At a time when private sector lending activity is muted, the state’s ability to finance key expansion projects without drastically deteriorating its fiscal position is crucial. In late October, for instance, the state-run Public Investment Fund granted SR4.88 billion in financing to joint venture Saudi Aramco Total Refining.

SAMA numbers highlighted yet again the banking sector’s wariness and vigilance toward new lending as well as subdued demand for credit from the private sector. Claims on the private sector accelerated 3.6% year on year to SR773.17 million, including a 0.8% increase from the month earlier. Growth in claims on the private sector had fallen from 4.9% in July to 3.3% in August. Without a big turnaround in the fourth quarter, growth in private sector claims may fall slightly short of our 8% forecast for the year. Stripping out investments in private securities, outstanding bank credit to the private sector grew 2.6% in September, from 1.7% in August – again underpinning hesitation among the country’s banks. Bank credit grew 4.4% in the first three quarters; between 2005-2009, it had surged almost 70%.

Credit to public sector enterprises, meanwhile, jumped nearly 18% in September, including a 9.6% gain from August, to SR33.94 billion. Government agencies are bearing the brunt of the financing burden for strategic projects in infrastructure, energy and utilities, so the rise in lending by more than 20% in the first nine months of the year is not surprising. The government granted 3,184 contracts worth SR101.2 billion for construction and education projects alone in the first three quarters, according to Ministry of Finance data.

Subdued lending caused the banking sector’s loan-to-deposit ratio to fall to 81% in September from 82.6% in August as loan growth failed to build momentum as quickly as deposits, which expanded 4.8% year on year. Demand deposits, which do not pay interest and are easily accessible, have been favoured this year due to the low interest rate environment, although their pace of growth in September was slower than deposits in time and savings, and foreign currency accounts, data show. Demand deposits expanded 0.9% from August, while time and savings deposits grew 3.8%, and foreign currency deposits jumped 10.9% from the month earlier. Demand deposits still make up 51.9% of total deposits in Saudi banks, up from 41.8% at the beginning of 2009. Over all deposit growth of 3.2% from August was the fastest month-on-month increase since February 2009.

The recovery in credit expansion is taking longer than earlier anticipated, but the gradualist approach is more prudent than the exuberance practiced by many banks prior to 2009. We are unlikely to see a return of double-digit rates of credit growth before 2012 and 2013, when private sector appetite picks up following a period of deleveraging.

Bank liquidity, money supply improves

Reinforcing the pace of bank credit growth remains a key challenge for the Saudi banking system, although sentiment on the outlook for loan accessibility is gradually improving. The proportion of business leaders who described banks’ lending attitude as “not good” in the fourth-quarter BSF Business Confidence Index fell sharply to 21% in Q4 from 46.5% in Q3 – and almost 60% in Q1. The credit scenario is likely to recuperate in 2011 as a greater volume of project financing deals comes on stream, although a majority of respondents to the survey said banks had tightened requirements for loan approvals to businesses and households “substantially” in the past year.

For the time being, banks are looking for other ways to invest their liquidity aside from lending it. Banks’ investments in foreign assets jumped 34.2% between January and September, including an 11.1% month-on-month rise in September. The money banks held in the central bank’s reverse repo window, meanwhile, surged 38.7% in September from August, having dropped by a similar amount in the prior two months.

Money supply growth in Saudi Arabia has also been extremely sluggish this year after almost tripling between 2005 and 2009. Growth in broad money (M3) made a good comeback in September, rising 2.7% from the month earlier and 5.1% year on year, the fastest growth since February. M2 money supply growth rose to a 10-month high of 8%. The monetary base, including highly liquid currency in banks and held by the public, also rose 3.4%, although the money multiplier fell to 4.63 in September. Monetary base growth indicates that additional capital is being held in bank coffers and less deployed in the economy. Despite this, private sector credit grew SR6.69 million in September resulting from a lag in the two prior months.

Subdued money supply growth rates have not be an important trigger of inflation in recent months, nor do we expect it to be in the medium term. Inflation – driven by food prices, higher rents and steeper goods and services costs – is likely to average 5.3% this year, exceeding 2009′s 5.1%. Inflation rates are on a declining path in our view due to peaking food prices and rents, base effect adjustments and the stronger dollar moderating domestic inflationary expectations.

Consumer, trade indicators weak; foreign assets swell

Trade and consumer activity, meanwhile, looked weaker in September than during the summer months. The number of point of sale transactions fell 9.3% in September from the month earlier and their overall value slumped 14.7% to SR5.6 billion, according to SAMA data. Since a good degree of transactions continue to take place using cash rather than plastic cards, point of sale data are not an entirely accurate barometer for consumer activity, but can be taken as an indication. The final 10 days of Ramadan, in addition to a several-day celebration to mark the end of the holy month, fell in September, which could explain the drop in POS transactions, as well as the 30% drop in the value of personal cheques from August to SR31.6 billion.

The value of letters of credit signed to finance imports also provides an indication about the health of trading activity. In September, year on year growth in new LCs was only 4% to SR9.5 billion, the lowest level for any month in 2010. This development corresponds with the 7.1% decline in imports recorded that month by the Central Department of Statistics & Information. The value of LCs for food imports was the lowest this year in September, while LCs for cars, building materials and machinery also posted declines, according to the data.

As the monetary situation struggles to pick up, SAMA continues to build a cushion of foreign assets that will enable the state to shoulder the economic recovery effort until a good revival takes place in the private sector. Net foreign assets held by the central bank, which fell during much of 2009, gained 10.9% in September to SR1.58 trillion ($421.83 billion) – the highest level since February 2009. SAMA has been building deposits with banks abroad, which are up 22.9% from a year ago. Bank deposits can be easily drawn down by the state to finance its budget. We expect Saudi Arabia could face a slight fiscal deficit this year as it supports a projected 20% overspending of budgeted expenditures, according to our forecasts. The revival of oil prices above $80 a barrel in November may enable the government to break even on its budget, however. Investments in foreign securities, which make up 73% of total foreign assets, grew 8.2% in September, the data showed.

[Visit HERE for the complete report including insightful charts and graphs.]

Disclosures and disclaimers in the original document
Source: Banque Saudi Fransi

Contact Info:

Dr. John Sfakianakis – Chief Economist
Tel: +966 1 289 1797 – Email: johns@alfransi.com.sa
Turki A. Al Hugail – Economic Research Analyst
Tel: +966 1 289 1163 – Email: talhugail@alfransi.com.sa
Daliah Merzaban – Economic Analyst
Tel: +971 4 428 3608 – Email: dmerzaban@alfransi.com.sa

Related:

Editor’s Note:

America’s Federal Reserve engaged in the first round of quantitative easing in 2008, a controversial tactic said to be a means of “creating massive amounts of money out of thin air with the hope of getting the economy back on track,” according to an NPR blog economics primer this week. This week the Fed launched the second round, dubbed QE2, when it announced a buy of another $600 billion in Treasuries. President Obama noted the “legitimate concern that we’ve had a very low inflation, that a huge danger in the United States is deflation .. we had to be mindful of those dangers going forward because that wouldn’t be good for the United States or for the rest of the world.” What does QE2 mean for Gulf economies, like Saudi Arabia, that peg their currencies to the dollar? We are pleased today to share with you this report from Dr. John Sfakianakis examining the implication of these developments. We thank him for sharing this timely report with you.

[Visit HERE for the complete report including insightful charts and graphs.]

Knocking on the wrong door: Gulf currencies, the peg and QE2
Emerging Market Focus
Credit Agricole Corporate and Investment Bank
Dr. John Sfakianakis, Chief Economist BSF-Credit Agricole Group
November 8, 2010

Summary

• QE2-linked USD weakness could raise questions about those Gulf currencies that are pegged (Saudi Arabia, UAE, Oman, Qatar, Bahrain) or heavily linked (Kuwait) to the USD.
• Our view: revaluation pressure is likely to remain limited, and governments are highly unlikely to alter the currency regime, for two reasons.
• Firstly, the forces at play today – both domestic and external – are quite different from 2007-08, as Gulf economies are on a recovery path, as is the US economy; hence no harm in following the US policy (rates and FX). Gulf central banks are preoccupied with credit recovery and non-oil private sector growth.
• Secondly, inflation is not a source of concern even if price pressures have been building in some countries, notably Saudi Arabia. Double-digit inflation in all Gulf economies is not forecast through to 2011.

The likelihood of the USD weakening further in light of the new wave of quantitative easing (QE2) by the US Fed once again risks exposing the vulnerabilities of Gulf Arab countries whose currencies are pegged to the USD. The extent of the USD’s depreciation in the months ahead, as well as the extent of complementarities between US and Gulf economic cycles, is likely to renew focus on concerns surrounding imported inflation, the cost of trade and the sustainability of regional currency policies.

However, in our view, a shift in currency regime would be highly unlikely.

Gulf inflation still not ringing alarm bells

Gulf economies are on a recovery footing and inflation rates are not a concern in most of the region like they were in 2007-08. At that time, vigorous currency reform speculation stemmed from the underlying disparity between the US’s struggling economy (forcing Fed rates to fall) and the then-booming economies in the Gulf. Economic cycles are no longer completely out of sync, with loose monetary policy serving the interests of both, and hence upholding the viability of Gulf dollar pegs.

Inflation rates in most Gulf states are rising after a period of rapid deceleration, and deflation in the case of Qatar and the UAE, during 2009. It was inflation reaching double-digit levels in 2007 and 2008 that steered currency speculation as the weak USD drove up imported inflation for import-dependent Gulf economies. In 2008, inflation averaged 15.2% in Qatar, 12.5% in Oman, 12.3% in the United Arab Emirates and 10.6% in Kuwait. Saudi Arabia’s inflation rate accelerated at an alarming average pace that year to a decades-high 9.9% while Bahraini inflation was more subdued at 4.7%. Any USD appreciation in 2011 would dissuade anyone from expecting a quick change in policy. The region is known for not changing its mind based on temporary, short-term fluctuations and views.

Even with the current phase of USD weakness, a return to such levels of inflation is unlikely through to the end of 2011. Inflation in Saudi Arabia is now the region’s steepest – climbing about 6% in August – but it is resulting more from domestic supply pressures rather than any acute import inflation pressures and a commensurate depreciation in the real effective exchange rate. In the UAE, for the first nine months of 2010 inflation was 0.6% while Qatar experienced deflation of -3.2% in the first three quarters.

Saudi inflation is neither comforting nor alarming at the moment, reaching a historically high 5.2% in the first nine months of 2010 due to a mix of high food prices, continued steep rents and a general rise in the cost of goods and services. Even in Saudi Arabia, though, inflation is nearly half its 2008 peak – and price rises are not fixable with monetary policy at the moment.

Gulf economic cycle today more in sync with US

Economic circumstances in the Gulf region are starkly different to what they were during the cycle of USD weakness that spurred streams of ‘hot money’ into Gulf currencies and assets in 2007 and 2008. Gulf economies are recovering following a challenging 2009, during which aggregate private demand has declined across the region. Money supply growth is subdued throughout the region and private sector investment is taking a very gradual path towards recovery. Banks are holding on to their liquidity due to their reluctance to jump-start lending, while the private sector’s appetite for expansion remains anaemic compared with pre-2009 realities. Capital inflows into emerging markets are expected to remain strong; however, Gulf economies are likely to receive a small fraction. Regional equity markets could receive a bit more foreign capital, on a selective basis, but real estate would not as investors still foresee further price corrections due to oversupply. Moreover, as the revaluation debate is not making a comeback, an inflow of capital in the form of bank deposits is not expected to recur.

Across the Gulf, aggregate demand remains a far cry from pre-crisis levels, the real estate frenzy has subsided, wage inflation is subdued and an abundant labour supply is available. We expect inflation in Saudi Arabia and the UAE – the largest Gulf economies – to be contained. Saudi inflation is likely to average 5.3% this year and 4.7% in 2011, while UAE inflation should not exceed 1% in 2010 and 3.1% next year.

Still, further USD weakening does not bode well for Gulf economies. Gulf states are heavily dependent on imports of food, machinery, cars, luxury goods and other items from Asia and Europe. Sharp fluctuations in the USD could lead to additional variations in the cost of importing various commodities. We do not expect imported inflation to pass through immediately, however, since Gulf economies denominate more than 60% of their letters of credit in the US currency. Inflationary pressures among key trading partners – more than 50% of Gulf imports are sourced from China, Japan, the Eurozone and the US – have also not reached alarming levels.

While Gulf import bills may swell in the coming months should USD weakness be sustained, the cost will be largely offset by greater state revenues stemming from stronger exports to Asia and higher oil prices. Still, higher oil revenues cannot cushion local populations from short-term price shocks, and the previous policy of subsidising food and increasing wages and salaries has price pressure perils, negative market consequences, harbours inefficiencies and furthers entitlement expectations.

Currency speculation likely to remain at bay

The USD is still far from – nor do we forecast it to cross –the key 1.50 mark vis-à- vis the EUR, last crossed in late 2009 when oil prices were about USD10 lower than they are now. As a result, we do not anticipate the return of ‘hot money’ speculating on a change in currency policy away from dollar pegs or revaluations. The decision by the Central Bank of Qatar to lower by 50bp the overnight rate in mid-August was prudently intended to curtail additional capital inflows without encouraging a capital exodus at the same time. The overall rhetoric of Gulf policymakers points to unity vis-à-vis currency policy, equity markets have not rallied substantially, real estate prices are still facing downward pressure in most of the Gulf and interest rates remain low.

Yet, bets on an appreciation of the Saudi riyal have widened in the past two months. As at early November, bids on contracts to buy SAR in two years showed investors are pricing in a 0.6% appreciation in the SAR in two years to 3.7255 per USD. One-year forward rates at the beginning of November showed expectations for a 0.4% rise in a year. At the height of speculation in the spring of 2008, the expectation was for a 2.2% appreciation in the SAR in a year and a 2.7% appreciation in the SAR versus the USD in two years – so speculative pressures are comparatively mild. The current forward levels reflect funding swap positions due to a shortage of USD liquidity.

While momentum is building behind the recovery in Gulf economies, economic growth in the Gulf of a projected 3.8% in Saudi Arabia, 2% in the UAE, and above 3% in Kuwait, Oman and Bahrain is being steered by state stimulatory spending. Gulf governments are drawing on foreign assets to finance expansion plans, such as Qatar’s push to build natural gas capacity, the key factor supporting our real GDP growth of 14.8% this year. Saudi Arabia overspent budget targets by 25% in 2009 and is likely to continue spending with similar force in 2010, likely contributing to its second straight budget deficit.

These investment programmes are not in our view propelling inflationary pressures as they were in the pre-crisis years. In the case of Saudi, food price hikes have a pass-through effect of around 75%; housing supply shortages are a structural impediment. Oman and Kuwait are also facing some housing supply shortages that should persist over the medium term.

Gulf economies are, hence, in sync with the recovery focus and low-interest-rate environment in the US. Maintaining dollar pegs is therefore not at odds with the region’s economic ambitions and outlook. With regional governments still struggling to re-engage the private sector in the development process and attract foreign investment, weaker Gulf currencies would better enable the countries to promote their non-tradable (tourism) and tradable sectors (manufacturing) and pick up capital injections from European and Asian companies.

The choice of the currency regime must also be understood in the context of the structural importance of the oil sector for GDP, exports and state revenues. Oil and gas production contributes to about half of GDP and three-quarters of exports for Gulf states. The primary challenge for the Gulf is to diversify its economies away from a reliance on oil as much as possible; only the non-oil private sector will be able to create jobs for rapidly growing national workforces. We maintain our view, therefore, that the region is highly unlikely to move away from the dollar peg regime in the medium term.

Disclosures and disclaimers in the original document
Source: Banque Saudi Fransi
Contact Info:
Dr. John Sfakianakis – Chief Economist
Tel: +966 1 276 4611 – Email: johns@alfransi.com.sa

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Editor’s Note:

The Saudi Arabian Ambassador to the United States, Adel Al-Jubeir and his counterpart at the U.S. Embassy in the Kingdom, Ambassador James Smith, traded perspectives on the relationship from their respective posts in Washington and Riyadh at the Arab-U.S. Policymakers Conference last week. It was a welcome update and overview on the health of the relationship and the challenges the United States and Saudi Arabia face.

Ambassador Al-Jubeir updated appraisals he shared at last year’s AUSPC and the April 2010 Chicago Business Opportunities Forum with a review of: the history of U.S.-Saudi ties; the positive story of the 30,000 Saudi students in America – up tenfold since 2003; the vibrant travel between the countries reflected by the 70,000 visas for the U.S. and 65,000 visas for the Kingdom last year; record investment levels; and the recent, robust defense cooperation marked by a landmark arms sales package. He reminded the conferees about the daunting regional issues that confronted Saudi and American decision makers as well as the Kingdom’s role in the world. Ambassador Al-Jubeir reflected that the relationship still faces challenges and disagreements but that he was optimistic about the future of the ”very pragmatic and solid” strategic partnership. A day later Prince Turki Al-Faisal, Ambassador Al-Jubeir’s predecessor at the Kingdom’s diplomatic top spot in Washington, focused sharply on the disagreements with a blunt assessment of the U.S. Government’s performance in Middle East policymaking. Prince Turki’s keynote address, Ambassador Smith’s presentation and other AUSPC panels and speeches will be posted to the new SUSRIS Special Section. [Link]

Ambassador Adel Al-Jubeir
Arab-US Policymakers Conference
Washington, DC, October 21, 2010

“Saudi Arabian-U.S. Relations: The Saudi Arabian Ambassador’s View from Washington”

[Remarks as delivered]

Saudi Arabian Ambassador to the United States Adel Al-Jubeir addressed the 19th Annual Arab-US Policymakers Conference, Washington, DC, October 21, 2010. (Photo: SUSRIS)

In the name of God, Most Merciful, Most Compassionate.

Thank you for the very kind words and allow me to express my appreciation to the National Council for hosting this very important conference once again.

The subject matter of my talk is the “Ambassador’s View from Washington.” That’s a fairly tall order. There are many, many views in Washington and many, many ambassadors in Washington. So I will talk a little bit about the history of our bilateral relationship, the challenges that they face, the state of our relationship today, and the steps that the Kingdom of Saudi Arabia has taken and continues to take in order to bring our worlds closer together. And then I will be happy to take questions.

The relationship between our two countries is now in its seventh decade. In the 1930s, when your Army Corps of Engineers was building the Golden Gate Bridge in San Francisco, your business community built an 8,000 mile bridge to Saudi Arabia. Americans came. They discovered oil. They put down roots among us. They launched what was to become a very important relationship to both countries as well as to the world.

The relationship took on a political dimension when the late King Abdulaziz Ibn Saud met with the late President Franklin Roosevelt on the USS Quincy at The Great Bitter Lake in Egypt in 1945 at the end of World War II. That cemented the diplomatic aspect of the relationship. And then of course the military relationship began in the early 1950s when the U.S. started its first military training mission to Saudi Arabia.

Over the past seven decades, our relationship has seen the coming and breaking of many storms. We have dealt jointly and effectively in facing the challenges to our respective nations as well as to the Middle East region. And with every decade and with every experience, our relationship has come out stronger than it was before.

Allow me to very quickly go through some of the history of that relationship, because people tend to forget or not put things in their proper context.

In the 1950s and 60s, when it was not fashionable to be America’s friend, Saudi Arabia was. In the 1950s and 60s, when our region was consumed by radicalism, the Kingdom of Saudi Arabia and the United States were able to confront that radicalism, and in fact prevail over it. In the 1970s and 80s, when the Soviet Union was on a rampage … expanding its influence or seeking to expand its influence in Central Asia, in the Horn of Africa, and even in the Middle East, it was Saudi Arabia that was one of the key countries in preventing a Soviet takeover of the region.

Of course, we all remember the joint effort between the Kingdom of Saudi Arabia and the United States in the 1980s in support of the Mujahadeen in Afghanistan, which led to their defeat of the Soviet Union, the withdrawal of the Soviet Union from Afghanistan and subsequent to that the collapse of the Soviet Union as a communist state.

The relationship was again tested and came out with flying colors in 1990/1991, when Saddam Hussein invaded Kuwait and when our two countries put together a coalition of over 32 countries to liberate Kuwait and restore its legitimate government.

Then of course our next big challenge was the tragic effects the criminal effects of 9/11, when we discovered that 15 of the 19 hijackers hailed from Saudi Arabia. It was devastating to us. It was a big blow potentially to the relationship. It cast doubts in the minds of Americans about Saudi Arabia. It unleashed a tremendously critical and negative portrayal of Saudi Arabia in the United States and in the rest of the world. We in the Kingdom dealt with this issue. We examined the threat that we faced. We confronted it head-on and we came out of this experience — we meaning the United States and Saudi Arabia — with a much healthier and much stronger relationship than we had before the events.

Today, when I look at our relationship, I like to quote, as I always do, but that doesn’t mean I agree with the political philosophy but Ronald Reagan. He used to say that “facts are stubborn things.” And when we look at the facts of the relationship between our two countries today versus where they were even as recently as 10 years ago, I think the numbers are staggering.

Today as we speak, we have over 30,000 Saudi students studying at American colleges and universities. This is an all-time high number. We have never had that many students studying in the United States. They will come back and they will be advocates of the bilateral relationship. They will be ambassadors for the Kingdom of Saudi Arabia while they’re here. And they will be ambassadors for the United States when they go back.

This is a very important and strategic step and decision that was made by the Custodian of the Two Holy Mosques after his meeting with President Bush in Crawford in 2005. To put the number in perspective in 2003 the number of students in the United States did not exceed 3,000. So we have ten times as many students today as we had back then.

Another example is the travel between our respective countries. The number of visas issued by the American Embassy and consulates in Saudi Arabia last year, to Saudi citizens was about 70,000. That is an all-time high number. And the number of visas that our Embassy and consulates in the United States issued to Americans is about 65,000. That also is an all-time high number.

When I look at investments between the two countries, they’re at record numbers. We are on track to double the American investment in Saudi Arabia over a 60-year period in a matter of five years, if we exclude the investments in Aramco. I can cite a joint venture between Aramco and Dow Chemicals that will amount to over 20 billion dollars. Alcoa is doing a joint venture with Ma’aden to produce one of the biggest aluminum smelting complexes in the world at the value of over 14 billion dollars, and the list goes on.

So when I look at the numbers and the facts, I see a very healthy and robust relationship. When I look at the interaction between our two governments, we have worked very hard, both of us, over the last six or seven years, to institutionalize our relationship. To build bridges directly between different agencies of our government so that they can handle problems at a working level rather than have each problem grow and literally grow out of context.

We are able to deal with consular matters that involve visas and duration of visas and child custody cases. We are able to deal with commercial issues like commercial disputes between companies. We put them in channels where they can be dealt with at a working level rather than turning them into political problems. We have a very close cooperation in the field of counterterrorism and terror finance. We have programs in term for critical infrastructure protection. We have programs for exchanging information on identifying radicalism and extremism and ways of dealing with it. I believe these issues have helped to solidify and cement a very strong and very important relationship.

The arms package that the Kingdom of Saudi Arabia is discussing with the United States is a testament to the strength of the relationship. It is the largest package in the history of the two countries’ and I believe that it reinforces the commitment of both nations to the relationship as well as to the security to our region.

Though having said all of this, it doesn’t mean we don’t have disagreements. We do in a number of areas. And where we have these disagreements, we don’t shy away from expressing them. We are frank and open with each other. We believe that honesty is the most important element in any relationship—honesty and clarity. And we make sure that, we try our best, to make sure that we are very clear and direct with our American friends on a number of issues and also on the challenges that we believe we need to pay attention to.

I don’t have to remind you that our region is full of challenges, whether it’s Afghanistan, Pakistan, Iran, Iraq, the situation in Lebanon, the peace process, or the situation in Yemen, in Somalia we have to worry about terrorism and pirates. We have a financial crisis globally that we have worked closely and with our G20 partners to overcome. And then of course there is the continuing situation involving energy security and the supply demand situation in energy.

Having said this I would like to give you a sense of the Kingdom’s view on how we see our role in the region as well as in the world. The Kingdom’s objective is to seek stability and security for its people and for the region. Saudi Arabia is a status quo power. We have no ambitions beyond our borders. We would like to live in a safe peaceful and prosperous neighborhood. Our efforts have been geared towards building bridges, not destroying bridges.

You see this approach translated domestically in the launching of the national dialogues in Saudi Arabia so that we bring our nation together to face the challenges that we have to confront or deal with as a nation.

Externally the Custodian of the Two Holy Mosques has launched an Interfaith Dialogue that began in Makkah with the gathering of over 600 scholars and religious figures from the Islamic world representing all sects in order to look at the issue of dealing with each other and dealing with other faiths. That was subsequently followed by an interfaith conference in Madrid that was attended by representatives of all the major religions and cultures, and it culminated in November of 2008 at a high-level meeting at the United Nations that brought together all representatives of all the faiths in order to reinforce the common values handed to us by our Creator and in order to use religion and the values enshrined in all religions to bring people together rather than to divide them.

Irrespective of one’s faith, we believe that all faiths believe in the principles of compassion and mercy and love and peace and taking care of the less fortunate. All religions reject violence and extremism and crime. All people of faith share the same values when it comes to the importance of maintaining the integrity of the family, the importance of protecting the environment, because if one part of our globe suffers, the rest of the globe suffers with it. And so faith, as part of this initiative, is to be used as an objective to bring people together rather than divide them.

You also see it in the universities that the Kingdom of Saudi Arabia has launched. This connecting with the world I mentioned earlier that we send our students abroad. We also established the King Abdullah University for Science and Technology that is essentially an international university. Its students and faculty hail from over 50 countries. It has cooperative relationships with over 40 of the world’s top academic institutions. We share research. We share knowledge. We share students. And this is another way of connecting with the world.

So to go back to the original headline, or title of my talk, “An Ambassador’s View from Washington,” I believe that the view of the relationship is a very positive and healthy one. I think the future of our bilateral relationship will continue to grow stronger and deeper and more robust. I have no doubts about this. I believe that the ability of our two countries to deal with the challenges either that they both face, or that the relationship will inevitably face from time to time is a very pragmatic one and I think a very solid one. So I’m very optimistic that the future, God willing, will be even better than the past.

[Questions read by Dr. John Duke Anthony, President, National Council on U.S.-Arab Relations]

Question: Status report on King Abdullah’s peace proposal, March 31 2002, in Beirut unanimously endorsed by the 22 Arab countries, members of the league of Arab states. Where is it and why hasn’t it been more positively received by the Israelis on one hand and elements of the United States on the other?

Ambassador Al-Jubeir: The Arab Peace Initiative, which was adopted by the Arab Summit in Beirut remains on the table. It is now become the key reference points for the settlement of the Arab-Israeli conflict. Not only was it adopted unanimously by the 22 Arab countries, by all the members of the Arab League, but also by the countries of the Organization of Islamic Conference at the extraordinary summit in Makkah held in December of 2005. So not only would it bring peace with all of the Arab countries but all of the Muslim countries have committed themselves to peace.

We are puzzled that the Israelis have not responded favorably to this. The Peace Initiative has all the elements for settlement. It stands for peace and just settlement for the refugees. It represents peace and normal relations, with all that entails between Israel and the Arab countries. And the answer probably ought to be directed to our colleagues in parts of the U.S. government in terms of why they haven’t responded.

But in all fairness to the Obama Administration, I believe that from the very beginning, President Obama has made references to the Arab Peace Initiative and to its importance. I believe in one of his very first speeches, he commended the Peace Initiative and saw it as a basis for resolving the conflict. We need a will to reach a compromise, which the Arab world has displayed but we don’t see on the Israeli side. We need a flexibility, which the Arab world has shown but we have not yet seen on the Israeli side. There has to be a strategic decision made that peace is an objective.

I believe the Arab world has done this by agreeing to the two-state settlement based on the ‘67 borders, an end of claims and a beginning of a state of normal relations. We don’t, we haven’t really seen that on the other side. What we see is a focus on details, process rather than substance.

We have been, when I say we, I mean the Arab League as a whole, and the Arab League has made this point repeatedly, that it is important to define the objective of the talks and then invite the parties to negotiate towards that objective so it is clear to everybody where we will be going and where we will end up. I believe that the Arab Peace Initiative has defined this objective and what we need is the will to negotiate towards this objective. Peace making has never been easy and I don’t believe it ever will be easy. It needs strength and resolve and it needs flexibility. I think in terms of the efforts of the Obama Administration, there is no doubt in our minds that they have sincerely and very diligently tried to move the process forward. But our doubts lie with the other side.

Question: We have a question about Saudi Arabia’s concerns with Iran, Iraq, and or Yemen. You can do all three of them if you like or take the one that’s of greatest concern to Saudi Arabia perhaps to dispel some of the myths of the stereotypes that people report about Saudi Arabia’s views, needs, concerns on those three issues.

Ambassador Al-Jubeir: All three countries are neighbors of the Kingdom of Saudi Arabia, and all very important neighbors. Our view in terms of Iran is that we hope the Iranians will abide by international law and subject their nuclear program to inspections. We don’t deny their right to have peaceful nuclear energy as long as they live up to their obligations to the international protocols that define how you exercise this right. We believe, more broadly speaking, that all of the Middle East should be free of all types of weapons of mass destruction, including nuclear weapons.

With regards to Iraq, we feel for our Iraqi brothers. We feel that Iraq is going through a very difficult and very challenging situation. The lack of formation of a government is a matter of a concern not only to us, but to a lot of other countries. We believe that the Iraqis have a constitutional process and the constitutional process specifies how you arrive at the formation of a government. And we would hope that the Iraqis will follow that constitutional process and that they will be able to put together a government fairly expeditiously that is representative of all of Iraq. Iraq has a challenging future ahead of it. But we have no doubt that the energy of the Iraqi people and the resources of the Iraqi nation will help them go back to normalcy.

With regard to Yemen, Saudi Arabia has very close and very historic ties with Yemen. Yemen is facing many challenges and deserves our unwavering support. The Yemenese government is facing challenges and primarily one of the Al Qaeda trying to establish itself in Yemen, and we must do what we can to deny them that ability. Yemen faces economic developmental problems, which we believe the world must come together to support them on. The Kingdom of Saudi Arabia has, and continues to be, one of the largest supporters in terms of economic assistance to our Yemeni brothers and we will continue to do so. We hope that, God willing, that Yemen will be able to overcome the economic challenges that it faces and emerge with a more prosperous future.

Question: Yes, thank you. You mentioned Saudi Arabia’s strategic objectives being stability and security en route to prosperity. Saudi Arabia has an unemployment problem; it has a youth bulge problem. The oil and energy industries are famous for not employing so many human beings but being capital intensive. What can you say about this situation in terms of the youth and the employment situation in Saudi Arabia barring on those strategic objectives of security and stability? We have a whole session later this afternoon, but there’s many people are concerned about the youth aspect and the lack of jobs and the need for placing more than 100,000 people who graduate from secondary school in some forms of employment and if that’s just not successful, it’s a social issue. It could become a political issue. It could become a security and a stability issue.

Ambassador Al-Jubeir: I think that the peace and stability starts at home. If you have a peaceful and stable society, you could work towards a peaceful and stable region. The future of Saudi Arabia lies with its people. Our youth are our most precious natural resource and how we prepare them for a future, the opportunities we give them in terms of education and the opportunities we give them in terms of the marketplace, are critically important to the wellbeing of Saudi Arabia in the decades ahead.

It is ironic that 30 years ago people complained that Saudi Arabia didn’t have enough people. Now they argue maybe we have too many people. I see this as a blessing of riches. The Kingdom of Saudi Arabia embarked on tremendous economic reforms by opening up its economy, by revitalizing its tax systems, by its investment laws, by joining the World Trade Organization. What we have seen as a consequence of Saudi Arabia’s accession to the World Trade Organization at the end of 2005 is we have seen the acceleration of growth rates—almost a doubling of the rate of growth. With it has come acceleration in foreign investment in Saudi Arabia.

We have seen an expansion of the Saudi economy to today. It is close to 500 billion dollars, our GDP. The investments that are taking place in the Kingdom of Saudi Arabia will generate jobs and they are generating jobs. The students that are being sent from Saudi Arabia abroad and we have 100,000 students studying all over the word, of whom 30,000 are in the United States, will come back and be equipped to enter the marketplace and become productive and prosperous citizens.

With regards to the graduates of secondary schools, Saudi Arabia has in place vocational training centers in order to teach people trades and then provide them with loans or grants so they can open small business and join the marketplace.

So I believe the issue of our youth of expanding the Saudi economy, and generating jobs for our citizens, while it is critically important to any government, I wouldn’t make it as dramatic sounding as we hear sometimes when outsiders look at the Kingdom of Saudi Arabia.

Question: Last question focuses on about five years ago, there was a consensus that America’s and Saudi Arabia’s and the other Arab World producer’s strategic interest was energy security. You don’t hear that so much anymore in the United States in comparison to a divorce that in the last two presidential state of the union addresses, in this administration, the last two in the previous administration, the president called for ending, or curbing, America’s reliance of foreign oil. Most people see that as code words for ending reliance on Arab and Islamic oil and gas. How did we get from the energy security to this divorce issue? Not divorce from driving or transportation, but just not driving or having transportation on Arab or Islamic oil or gas. And the implications of this, for the relationship, not just between the United States and Saudi Arabia, but the United States and other energy producers in the region.

Ambassador Al-Jubeir: Well I think this is the function of the political process in the United States. A lot of things take place and a lot of things happen and a lot of things are said during what many people in the U.S. call the “silly season”, so we can’t take it too seriously.

I think that the issue of oil is fungible. It doesn’t matter where it’s produced. It all goes into one theoretical or hypothetical pot and demand for oil takes oil out of this hypothetical pot and provides the supply. If you have a shortage of oil in one part of the world, it is going to have an impact on the price of gasoline in another part of the world.

So whether the United States imports all of its oil from the Middle East or none of its oil from the Middle East, it will have no impact on the price of oil or gasoline in the United States, should there be a crisis in the Middle East or elsewhere.

I think the people realize that the world oil supply is a finite resource. You can’t make it. Once you extract it, it’s gone. The world cannot rely on oil indefinitely as its major source of energy. And Saudi Arabia as the largest oil exporter and as the country with the world’s largest oil reserves, over a quarter of the world’s oil reserves, has been at the forefront for the past 30 years of calling for the development of alternative sources of energy, because we know that there will come a point—it could be 20 years, it could be 50 years, it could be 60 years from now—where the world’s energy needs or demands outstrip the ability of oil-producing countries to supply it. So the as the energy pie, so to speak, increases because of demand, the additional energy, we believe, ought to be supplied by alternative sources.

In order for those alternative sources to become economically viable we have to start now so that in 20 years they make economic sense. We are not afraid of alternate sources replacing oil. Quite the contrary, we believe that if you develop alternatives gradually, you will have a smoother transition away from oil.

In 1960, oil replaced coal as the primary source of energy in the world. And here we are, 50 years later, coal production has not decreased from where it was in 1960. But the energy pie, the energy requirements of the world have gone up and coal’s share of that pie has shrunk but coal production has not. So when people assume that oil producers are against alternative energy, I think that’s a fallacy. It will not affect us in the long run, it will not take away from out market share in the long run, our ability to produce, but it will make for a more stable transition in the future as the world moves away from the supply of energy.

So back to the original question: A lot of things are said during political campaigns. A lot of things are said in order to make headlines. A lot of things are said in order to be sensational and we have learned that we deal with the realities and we don’t deal with the emotions.

H.E. Ambassador Adel A. Al-Jubeir – Saudi Arabian Ambassador to the United States and Foreign Policy Advisor to the Custodian of the Two Holy Mosques

Transcript by Ryan&Associates

Ambassador Adel Al-Jubeir

About Ambassador Adel A. Al Jubeir

Adel A. Al-Jubeir was appointed by the Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz as Ambassador to the United States on January 29, 2007. Ambassador Al-Jubeir presented his credentials to President George W. Bush at the White House on February 27, 2007.

Mr. Al-Jubeir was born February 1, 1962 in Majma’ah (Riyadh Province), Saudi Arabia, and attended schools in the Kingdom, Germany, Yemen, Lebanon, and the U.S. He obtained a B.A. summa cum laude in political science and economics from the University of North Texas in 1982, and an M.A. in international relations from Georgetown University in 1984.

In 1987 Mr. Al-Jubeir was appointed into the Saudi Diplomatic Service and posted to the Royal Embassy of Saudi Arabia in Washington, DC, where he served as Special Assistant to the Ambassador. In 1990-91, he was part of the Saudi team that established the Joint Information Bureau at Dhahran during Operation Desert Shield/Desert Storm. He was a member of the GCC delegation to the Madrid Peace Conference in October 1991, and a member of the Saudi delegation to the Multilateral Arms Control Talks in Washington, DC in 1992. In December 1992 he was dispatched with the Saudi Armed Forces to Somalia as part of Operation Restore Hope.

Mr. Al-Jubeir was appointed Director of the Saudi Information and Congressional Affairs Office in Washington in 2000, and was named Foreign Affairs Advisor in the Crown Prince’s Court in the fall of 2000. In August 2005, the Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz appointed Mr. Al-Jubeir to the position of Advisor at the Royal Court.

Mr. Al-Jubeir was Visiting Diplomatic Fellow at the Council of Foreign Relations in New York, 1994-95. He has lectured at universities and academic institutions in the U.S. and appeared frequently in the media. In 2006, he received an Honorary Doctorate in Humane Letters from the University of North Texas.

Source: Saudi Embassy

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• Summit Press Briefing: Adel Al-Jubeir – Crawford Summit

Editor’s Note:

The 19th Annual Arab-US Policymakers Conference (AUSPC), organized by the National Council on U.S.-Arab Relations, was held in Washington, DC, October 21-22, 2010, to tackle the question, “Arab-U.S. Relations: Going Where?” Over one thousand conferees considered topics across the spectrum of issues: geo-strategic dynamics of Iraq, Iran and Palestine; regional security challenges; defense cooperation; education and employment prospects; energy supply and security; business and financial developments; exports and markets; policy direction at the Arab League; and reports from America’s and Saudi Arabia’s ambassadors to each other’s country.

This is one of 17 SUSRIS posts that will feature AUSPC presentations – keynote addresses and panel discussions – across the broad range of topics discussed. You can track these reports, including SUSRIStube videos and other media reports about the conference at our new SUSRIS Special Section “AUSPC 2010.”  There you will find a listing of all the panels and speeches.

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ARAB-US POLICYMAKERS CONFERENCE
DEFENSE COOPERATION

[Secretary William Cohen] I am delighted to be here to chair this panel. It’s a program that has been in existence now for some 19 years. It’s been a great platform for discussing what I think is one of the most relevant and complicated relationships in the world. And that is the relationship between the United States and the Arab World.

Recent events, I think, tend to highlight the differences between the U.S. and the Arab World. But I travel a great deal to the region and I can tell you that we have far more in common than we do have differences. We share common security issues and these issues must be addressed in a very positive and constructive way.

Today’s panel is one that is going to focus on defense cooperation in the Middle East. I want to set the stage just for a few moments and quickly review some of the more complex and significant security issues that are facing the United States today in the Middle East region.

First, of course, we have Iran. The Iranian nuclear program continues to have a destabilizing effect on the region. It’s quite clear that Israel considers Iran with a nuclear weapon to be an existential threat. It is also clear that Saudi Arabia, the UAE and other Gulf states do not want to see a nuclear-armed Iran that might throw its weight around and also spread its revolutionary ideology. There are some in our country who believe that arms sales to our friends such as the Saudis and the UAE will serve as a counterbalance in the region against a nuclear-armed Iran. There are others who worry that the arms deal might just lead to an arms race in the Middle East. There are others who question why do we want to sell arms to people in the region who can simply cause even more harm to each other. So that will be an issue that will likely be discussed today.

The other issue would be the withdrawal from Iraq. We currently have some 50,000 so-called non-combat troops that continue the training of Iraqi troops for counter terrorism operations. But you may have noticed that the President said we are going to withdraw from Iraq. He said, basically, unconditionally, without regard to the conditions on the ground. And so, when it comes time during the course of this year, we’re likely to see a reduction in the 50,000 troops in Iraq, at a time when it is by no means clear, that Iraq is going to be stable enough to handle the security situation on its own. Also at a time when we’re likely to see a reduction of our troop levels in Afghanistan, all coming at a time when the Iranian nuclear program continues relatively unabated. So that will surely be a subject that will be addressed.

Yemen is ripe with instability. The Houthi rebel group in the north, the separatist region in the south, they continue to cause more instability of this struggling nation. Al Qaeda has moved in, has taken advantage of this. They are using Yemen as a staging and training area for terrorist attacks within the country and abroad.

And I think we could probably spend the rest of the afternoon talking about the Israeli-Palestinian dispute and how it’s going to be moved forward and resolving the very thorny issues that continue to exist especially in talking about settlements. So our panelists will touch on many of these issues as well as the changing nature of the defense cooperation between the U.S., Europe and the Gulf region.

Our first panelist today is Doctor Anthony Cordesman who currently holds the Arleigh A. Burke Chair in Strategy at the Center for Strategic and International Studies, CSIS. He has completed multiple security studies on Iraq, Afghanistan and the Middle East generally among the many other topics that he addresses. I worked with him when I was on the Senate Armed Services Committee and we always turned to him for absolutely brilliant insight into issues affecting our security. He is going to be talking about the changing nature of the Gulf military cooperation with the U.S. and Europe and the changing nature of the Gulf military cooperation within the Gulf States, the GCC. So please welcome Doctor Anthony Cordesman.

Anthony H. Cordesman

[Dr. Anthony Cordesman] Thank you and I will get this right, Mr. Secretary. I’d like to very quickly skim through some key indicators. It’s very easy to talk in generalities. But I think to understand what is happening occasionally you have to found your opinions in hard numbers and hard trends. And let me begin with one of the key realities here.

Before the United States invaded, Iraq was the dominant conventional power, relative to Iran by a decisive margin. [PowerPoint Slides] If you look at the red lines, and these are only a few of the force ratios involved. You can see to the left, that Iraq led Iran in every capacity. Today we are just beginning to give Iraq some capacity in main battle tanks. That is the only conventional land weapon system that we will equip Iraq with before we withdraw. In the case of the air ratios Iraq led in air combat before the invasion. Now it has no armed combat aircraft and has no immediate plans to purchase these aside from a limited up arming of some helicopters.

This is not something that has to continue. The United States worked with Iraqis to develop a modernization plan from 2009 to 2011. It is supplying 144 M1 battle tanks. There has been talk of F-16 sales. But several things have delayed Iraq’s military modernization very, very seriously, and far below the levels we had planned to see when we withdrew. One of them is the lack of the formation of government and the ability to take decisions.

A second is that Iraq’s ministries simply did not have the capacity that we had hoped for and expected to see in implementing plans. But the most critical one has been a budget crisis that began in the spring of 2009 that led to a freeze on the expansion of critical elements of the Iraqi armed forces, that has led to a serious decline in the readiness of Iraqi manning, the underfunding of operations and maintenance and the virtual paralysis of investment programs. This crisis is easing but it cannot really be resolved until a new government is not only chosen, but is in place. So what we had expected to have at the end of 2011 now can still be achieved. But it will be 2013 at the earliest. And for us to complete even the anti-counterinsurgency programs, the anti-counter terror programs will run about two years later than we had originally planned. And at this point in time we do not have, because Iraq does not have, a plan for the modernization of its conventional forces. Worse than that, because of the way the Iraqi budget is structured, most of the budget goes simply to paying for manpower in the Ministry of Interior and the Ministry of Defense.

All of these numbers are presented in much more detail in a briefing we put out on the CSIS web site today. They are Iraqi numbers and quite frankly they’re also numbers, which were made very clear, and their content and impact was made very clear, in reporting by the Department of Defense. But there are no miracles here. We need an Iraqi government, as Ambassador Crocker pointed out, that is unified, willing to act, and can define what strategic partnership means and act upon it. That won’t come with the selection of a government. It will take perhaps another six to eight months to bring the Ministry of Interior and Ministry of Defense back to the level of effectiveness we had hoped for and have it begin decision making.

Iraq will not be able to fund the programs it had thought to fund. Its budget crisis extends far beyond the defense sector and it will be years before its petroleum revenues can fund the programs it wants. The U.S. has put forward, tentatively, plans to provide critical military assistance as well advisory missions after we leave.

I think the Administration has made those plans quite clear. But let me say there are several ways we can lose a war we have seemed to have won. One is in how Iraq’s politics deal with the security agreement and the development of Iraqi forces.

A second is for other Arab states to basically leave Iraq outside the structure of security and economic cooperation. And the third major threat to Iraq at this point, in deterring and in dealing with security issues, is the United States Congress, and perhaps the media and the American people. Unless we see a strategic partnership with Iraq as something we are willing to fund over the next half decade there is no practical way that Iraq can move forward with anything like the effectiveness that it needs.

Let me also note that strategic cooperation in this region is changing radically. We would think a few years ago about the conventional balance. Secretary Cohen has mentioned the nuclear side. But Iran has put most of its assets into creating asymmetric warfare capabilities. And that is the area where it has a significant advantage over other states. We are often fixated on the vulnerability of the Strait of Hormuz but when you look at the overall Gulf it is one of the richest target environments in the world. You can attack almost anywhere in the Gulf, onshore or offshore. Our inability, frankly, to look at the entire Gulf is a serious issue, not within the U.S. military or CENTCOM but often on the part of think tanks and strategic analysts outside the Department of Defense. The vulnerability here is shown in broad terms in this satellite photo of Ras Tanura. Let me note something about modern communications. You can get incredibly high-resolution photos of every sensitive facility in the Gulf, off the web. And frankly looking at some of those photos it is obvious even from them that the security arrangements are dysfunctional. We have not looked at security of facilities and we have not looked at the ability to repair them. And it is no secret because it is in the open literature, when we talk about Gulf cooperation you have probably six of the most critical, vulnerable targets in the world. These are the desalination plants. There is no redundancy, there is no backup. If these plants are hit at a critical point the water that is critical to the cities in the Gulf disappears along with critical parts of the power. And after 20-odd-years of talking about the need for redundancy, to have critical replacement parts to avoid long lead items and to avoid creating added vulnerability the practical progress in these areas could be politely described as zero, if not negative. You do not have security cooperation purely in active defense.

In terms of the capabilities. I have heard people talk rather carelessly about Iran as a hegemon of the Gulf. That bottom line is the level of Iranian defense expenditures since 1997. That darker red line is Saudi Arabia alone. The top line is the Gulf Cooperation Council. The problem is not resources. And none of these figures include our presence in the Gulf. It is efficiency. It is organization. Now we have states that ar