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Cash Squeeze? What Cash Squeeze?

International Business


The thick haze from Kuwait's burning oil wells clouding Riyadh's sky is a constant reminder of the Gulf war's costly aftermath. But Saudi Arabia's King Fahd remains undeterred by the disruptions brought to his desert nation. Despite signs that the conflict left the country short on cash, Fahd is pushing to ensure that the Saudis remain undisputed rulers of the world of Big Oil.

Proclaiming that Saudi Arabia's tough stance against Iraq won it "a special position," Fahd is launching an aggressive campaign to assure the U. S. and its coalition allies that the oil they fought to safeguard will remain in abundant supply (table). He is financing the spending with international loans and Western and domestic equity investments. His plan may well drive a wedge through OPEC's shaky ranks by vastly expanding Saudi Arabia's exports of crude oil, refined products, and petrochemicals, and it could prove a bonanza for U. S., European, and Japanese contractors.

'NOT SO BLEAK.' Foremost among the King's plans is a $15 billion to $20 billion drilling program to swell the output of the state oil company Saudi Aramco by 25%, to 10 million barrels a day, by 1996. Industry & Electricity Minister Abdul Aziz A. al-Zamil is also prodding Mobil, Exxon, and Mitsubishi--partners with the state in several big plants built in the 1980s--to construct new petrochemical projects and refineries.

Mitsubishi, for example, soon will decide whether to add a $400 million chemical plant to its venture in Sharq with Saudi Arabian Basic Industries Corp., the state-controlled petrochemical organization. SABIC, with as much as $4 billion in cash on hand, is forging ahead with a $1 billion petrochemical plant in cooperation with Japan's Nissho Iwai Corp. And industry sources say that Mobil Corp. may soon launch a $600 million project to produce a clean-air gasoline additive that can be made cheaply from Saudi Arabia's vast natural-gas reserves.

Such ambitious plans would appear to put further strains on the kingdom, which is said to be struggling to meet wartime obligations of $45 billion to $60 billion. The government may stretch out payments on some government contracts and is considering trimming its lavish welfare-state subsidies. But over the long haul, the kingdom's finances may not be so bleak. The world's leading oil exporters, the Saudis "have a short-term cash squeeze but no long-term problem," says a banker.

To help close the gap, the Saudis are borrowing overseas. They are negotiating a $3.65 billion loan from Morgan Guaranty Trust Co. and other international banks. Bankers say Aramco wants $400 million for a fleet of tankers. Saudi Consolidated Electric Co., the state power company, has approached banks for $300 million. And SABIC, already 30% privately owned, may sell more stock to Saudis.

At least one leading Saudi executive, Mahsoun Jallal, chairman of the National Industrialization Co. conglomerate, questions whether foreign investors will respond to Fahd's challenge. "Security and human rights" problems mean the Middle East still is "not an attractive area," he says. But others in the petroleum industry disagree. For close to seven decades, Saudi Arabia has looked just fine to them. It probably will continue to look fine for decades more.Stanley Reed in Riyadh

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