A Saudi-U.S. Divorce?

Probably not, but relations are deteriorating fast

President George W. Bush doesn't normally stoop to meeting with mere foreign ambassadors when he's down tending the ranch in Crawford, Tex. But the high-profile tête-à-tête on Aug. 27 with Prince Bandar bin Sultan, Saudi Arabia's influential man in Washington, was a big exception. And both the Saudis and the Americans made sure everyone was aware of that. After his hour-long meeting with the President and a Texas barbecue for family members of the President and the Prince--nephew of King Fahd and son of the powerful Saudi defense minister--officials on both sides praised the "strong friendship" between the U.S. and Saudi Arabia.

But one back-slapping Texas get-together is unlikely to reverse an unprecedented worsening in what has been one of the most stable, long-lived, and mutually beneficial alliances the U.S. has going. The hastily arranged meeting is a sign that both sides are sufficiently worried about the deterioration to try doing something about it. The bad feelings, however, keep leaking out (table). In recent days, even Saudi Arabia's tightly controlled press has been openly talking about the need to "reconsider Saudi-U.S. strategic relations," as the Saudi daily Al-Riyadh put it on Aug. 16. That's a clear signal that the traditionally pro-American House of Saud is unable to contain growing anti-American sentiment in the Kingdom. "I think we're heading for a divorce," says Youssef Ibrahim, a Middle East expert coordinating a task force on the U.S.-Saudi relationship at New York's Council on Foreign Relations.

That is probably an overstatement. But it is no longer unthinkable. Even before September 11, Saudi Arabia had begun diversifying its weapons purchases away from the U.S., while Crown Prince Abdullah, the effective ruler of the country, has been busy forging stronger relationships with Russia, China, and the European Union. Within the royal family, there is talk of turning to neighboring powers such as Pakistan to provide the kind of strategic umbrella now offered by the Americans. "It would be cheaper and a lot less of a problem," says one adviser in the Saudi Foreign Ministry. Even India is mentioned as a possible ally and protector, despite the fact that Delhi has been working more closely with Israel and the U.S. since September 11.

The unprecedented tremors in the U.S.-Saudi relationship are already having far-reaching consequences. Saudi opposition to military action to remove Iraq's Saddam Hussein is complicating Pentagon war plans. And Saudi intransigence makes it difficult, if not impossible, for other traditionally pro-U.S. states in the area to support moves against Iraq. Indeed, the strategically important gulf state of Qatar, where the Pentagon has been setting up staging facilities at the Al Udeid Air Base partly as a way to rely less on Saudi facilities, has followed the Sau-dis' lead in publicly opposing action against Iraq. Even as Vice-President Dick Cheney laid out the case on Aug. 26 for a U.S. strike, Qatari Foreign Minister Hamed bin Jassim was embracing Saddam Hussein in Baghdad.

The economic consequences of fraying U.S.-Saudi ties are already starting to be felt. American private bankers in Europe concede that the traditional preference of many Saudi investors for U.S. assets is being reassessed because of the increasing political estrangement between the two countries--and by fears among Saudis that a punitive Washington may one day freeze such holdings, which some estimates put at $600 billion. Although politically motivated withdrawals are probably insignificant compared with portfolio diversification for financial reasons, one mid-August press report suggesting that Saudis had pulled as much as $200 billion out of the U.S. caused a brief run on the greenback.

The estrangement also has had an impact on the world oil industry, in which Saudi Arabia is the most influential player and has traditionally supported oil-price moderation. With anti-American feelings running high in Saudi Arabia, its rulers may be in no position to be seen as doing favors for the West when OPEC meets on Sept. 19 to discuss hiking oil production--even though Riyadh has promised to keep oil flowing if there is a conflict with Iraq. "The price of oil is much higher than anybody was expecting at the beginning of the year, and OPEC and the Saudis will probably opt to keep the status quo," says Peter Gignoux, chief oil trader at Salomon Smith Barney.

Those same pressures are also one reason for the recent collapse of negotiations between Saudi Arabia and a handful of big oil groups such as Exxon Mobil, Royal Dutch/Shell Group, and Total Fina Elf over $25 billion in investments to develop the country's huge natural gas resources. The eagerly awaited projects would have been the first real move to open Saudi Arabia's lucrative oil-and-gas sector to foreign investment since the country moved to nationalize oil production in the 1970s. "But it's now a politically impossible situation since Riyadh can't oppose the U.S. on things like Iraq and then say yes to Exxon--and that means we are stuck," says a frustrated executive at one European oil group involved in negotiating with the Saudis over the gas projects.

Why have ties continued to deteriorate? Many Americans, including senior policymakers, believe the Saudis have yet to acknowledge a degree of responsibility for the events of September 11, in which 15 of the 19 hijackers were found to be Saudi citizens. There's also a feeling that the Saudis haven't moved fast enough to reform a backward educational system that helps breed intolerance. "The feeling in Washington toward the Saudis is, `You are part of the problem,"' says Vahan Zanoyan, president of Washington consultant Petroleum Finance Co. and an expert on the region.

In Saudi Arabia, meanwhile, anti-American sentiment has been rising, not receding. Worsening Israeli-Palestinian confrontations, which are relentlessly broadcast by pan-Arab satellite television, are only pouring gasoline on the fire. Saudis and other Arabs believe that Washington is now all but uncritically backing Israeli policies. Bush's references to Israeli Prime Minister Ariel Sharon as a "man of peace" seem to confirm Saudi fears that Washington can no longer be an honest power broker in the turbulent Middle East.

Signs of the growing anger are everywhere in Saudi Arabia. A grassroots boycott of American goods organized through the Internet, newspapers, and mobile-phone text messages has helped drive U.S. exports to Saudi Arabia down 30% this year, to a 12-year low. Sales of products such as Marlboro cigarettes and Coca-Cola soft drinks, which are easily identifiable as American, have plunged by more than half this year. "The more the Saudis see this pressure from the American media, the more anti-American they become," says former Saudi arms dealer Adnan Khashoggi.

Saudis are also angered by what they perceive as the neoconservative and fundamentalist Christian influence in Washington. Many Saudis can readily cite examples, from conservative columnist William Kristol suggesting that U.S. troops seize gulf oil fields to the Reverend Billy Graham's son Franklin, a leading evangelist in his own right, describing Islam as "an evil and hateful religion." Such declarations may receive little notice in the U.S. but are immediately picked up by mass media in the gulf. "What is said about Islam and Saudi Arabia on outfits like Fox News is sick," says a prominent Saudi businessman. "If it weren't for September 11, they would have been sued. It's like Nazi propaganda against the Jews."

There's still much that binds the two countries. Saudi Arabia remains the biggest source of crude oil imports into the U.S., even if its overall share has gone down in recent years. Generations of Saudi professionals have been educated at leading American universities. And the royal family, at least for now, still looks to the U.S. as protector of last resort. But September 11 set in motion a damaging dynamic that just might break up these old friends. It will take more than a Presidential powwow to reverse that.

By John Rossant in Paris

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