Monday, February 18, 2002 - Page updated at 12:00 AM

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U.S.-Saudi Arabia relationship fueled by 1970s oil embargo

The Washington Post

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(Second in a series)

The worst day in Saudi-American relations was Oct. 20, 1973, when Saudi King Faisal joined an Arab oil embargo against the United States. In a matter of days, the global oil market was thrown into chaos. Americans waited in long lines to buy gasoline. Within weeks, the price of oil more than tripled.

Not for the first or last time, the United States had misread the situation inside Saudi Arabia. When Egypt and Syria launched the Yom Kippur war against Israel that October, U.S. officials said, publicly and privately, that the Saudis would never join an oil embargo to support their Egyptian and Syrian allies.

But when it became clear that Israel was about to humiliate the Arabs once again and the Nixon administration asked Congress for $2.2 billion to pay for arms shipments to Israel, Faisal yielded to the wishes of the Saudi Ulema, the country's Muslim elders, and wielded his oil weapon to punish the United States.

The embargo

The oil embargo, accompanied by production cuts, was short-lived, but it changed the world. Faisal was pleased to find a way, in March 1974, to lift it, but by then the price of oil had risen from less than $3 a barrel to more than $11. It was destined to transfer hundreds of billions of dollars from oil-consuming nations to oil producers, making Saudi Arabia enormously rich. On the foundation of that wealth and the oil that produced it, the modern Saudi-American relationship was constructed.

The Americans hoped the Saudis would use much of their windfall to help finance the U.S. budget deficit by buying Treasury bills and bonds. To keep the petrodollars flowing, Treasury Secretary William Simon and Secretary of State Henry Kissinger proposed a Saudi-U.S. Joint Commission on Economic Cooperation.

The idea, according to Charles Schotta, a senior Treasury Department official at the time, was to create a mechanism that would allow Americans to provide technical advice and assistance to Saudis on a broad range of issues, from how to create a modern customs service and how to collect statistics on a fast-growing economy to how to desalinate and distribute drinking water. The arrangement had one unique aspect: The recipient of the assistance, Saudi Arabia, paid for all of it.

Saudis paid expenses

The Saudis ultimately deposited well over $1 billion in an account at the U.S. Treasury Department to pay the costs of everything done under the auspices of the Joint Commission, including the salaries and living expenses of the Americans who worked for it. Americans administered that fund and, after consultations with Saudis, decided how it would be spent.

Its impact is visible today in many ways. Americans taught Saudis how to create the infrastructure of a modern state. Not surprisingly, the Americans taught them to do what Americans do.

"What the public knew (about the relationship) was not very much," said Don DeMarino, who lived in Saudi Arabia from 1985 to 1987 and was the local director of the Joint Commission. "When I lived there, no Americans were interested."

The Saudis liked it that way, according to an American with experience in Saudi Arabia. They "have always preferred to operate this relationship on a small and high pedestal" — between the most senior officials.

The alliance has been convenient for both parties, giving Saudi Arabia the security it craved in a dangerous neighborhood while assuring the United States a reliable supply of oil at — nearly always — an affordable price. But there were inherent sources of tension.

The Saudis have made a continuing effort to prevent Americans from understanding them, particularly their politics. What goes on inside the councils of the ruling House of Saud, the royal family, has remained hidden. For their part, Americans have given the Saudis ample opportunity to be cynical about U.S. attitudes and intentions.

Corruption on both sides

From the moment the Saudis became rich, Americans materialized who were eager to share their wealth — from reputable giants such as Boeing and Bechtel to fly-by-night crooks. The Saudis have reciprocated with demands that foreign contractors pay "commissions" of at least 5 percent to well-connected locals, often one of the kingdom's 8,000 princes.

Prince Bandar bin Sultan, the Saudi ambassador to the United States, said recently that of the $400 billion or so Saudi Arabia has spent over three decades to construct a modern nation, perhaps $50 billion was lost to corruption or mismanagement.

"So what? We did not invent corruption," he told a PBS interviewer.

U.S. government agencies have always charged the Saudis top dollar while accepting Saudi generosity whenever it was offered. For example, U.S. aircraft have used Saudi jet fuel since the first AWACS flew to the kingdom in 1979.

The U.S. Corps of Engineers supervised billions of dollars' worth of construction projects in Saudi Arabia. The corps has supervised construction of three huge bases, including the $6 billion King Khalid Military City, a Saudi military academy, two deep-water ports for the Saudi navy, airfields, barracks and housing estates, and much more. When signed, the contracts were worth more than $14 billion — several times that much in 2002 dollars.

The Saudis spent well over $100 billion on American weapons, construction, spare parts and support, and for years have ranked first in the world as a customer for American arms makers. They bought F-5 and F-16 fighter jets, AWACS observation aircraft, Abrams M-1 tanks, Bradley armored vehicles, naval vessels and much more.

"Let's face it," said Edward Walker Jr., former assistant secretary of state for Near Eastern affairs. "We got a lot of money out of Saudi Arabia."

Saudis came to America to learn new skills. In the 1950s and 1960s, American-owned Arabian-American Oil (Aramco) sent hundreds of Saudis to American universities. In the 1970s and '80s, the Saudi government financed college educations in the United States for tens of thousands of Saudi students. Today, 21 of the 30 ministers of the Saudi government have American degrees, 16 of them Ph.D.s.

Saudis have used money to make new American friends or reward old ones. In 1991, the governor of Arkansas asked Saudi Arabia to contribute to a new center of Middle East studies at his state university.

There was no reply for more than a year. Then, in November , the governor got a call from King Fahd, who was calling to congratulate Bill Clinton on being elected president of the United States. Fahd told Clinton the Saudi government had decided to give $20 million to fund the Middle East studies program.

In 1985, Fahd gave $1 million to first lady Nancy Reagan's "Just Say No" anti-drug program. In 1989, the king gave another million to first lady Barbara Bush's campaign against illiteracy. The Saudis have contributed to every modern president's presidential library, according to a Saudi source.

Bandar's charitable donations included a multimillion-dollar gift to Children's Hospital in Washington, D.C. In 1991, he put up $250,000 to pay for the Disabled American Veterans winter-sports clinic. He has also used money to do favors for American officials.

The Saudi envoy made a secret trip to Rome to deposit $10 million into a bank account in Vatican City at the request of William Casey, President Reagan's entrepreneurial — and secretive — director of central intelligence. The money was intended for the coffers of Italy's Christian Democratic Party to be used against the Italian communists in an Italian election.

Money for contras

Not long afterward, in June 1984, Robert McFarlane, Reagan's national-security adviser, told Bandar that the contra rebels in Nicaragua were running out of money. Congress would not let the administration give them more, a blow to Reagan's policies, McFarlane explained.

Several days later, Bandar came back to McFarlane with the news that the Saudis would secretly put up $1 million a month for the contras. Later, the stipend was doubled. Ultimately, Saudi contributions to the contras totaled more than $30 million. They were supposed to be a secret but became known when the Iran-contra scandal erupted.

Bandar has told associates that he makes a point of staying close to officials who have worked with Saudi Arabia after they leave government service.

"If the reputation then builds that the Saudis take care of friends when they leave office," Bandar once observed, according to a knowledgeable source, "you'd be surprised how much better friends you have who are just coming into office."

When Iraqi troops marched into Kuwait in August 1990, the oil-for-security bargain at the center of the Saudi-American relationship was fulfilled.

Saddam Hussein threatened the world's greatest oil basin in and around the Persian Gulf, with Saudi Arabia at its center. Within months, a half-million American soldiers had arrived in Saudi Arabia preparing for Desert Storm.

About 5,000 U.S. troops remain today, and their presence has become a source of controversy.

The sharing of power between the secular and religious authorities of Saudi Arabia is one of many factors that have made the Saudi-American alliance "one of the most complicated relationships that we have," in the words of former Secretary of State Madeleine Albright.

Saudi leaders have been criticized by Islamic extremists abroad and religious leaders inside the kingdom for allowing the American military to become a seemingly permanent presence in the land of Islam's two holiest shrines in Mecca and Medina. The ruling House of Saud is particularly sensitive to the views of its Ulema because it depends on their support for its legitimacy.

Muslim clerics have been partners in power in Saudi Arabia since the 18th century, when the king's ancestor, Mohammed Ibn Saud, made a deal with Mohammed ibn-Abd al-Wahhab, a charismatic Muslim who led a fundamentalist religious revival in Arabia.

Fahd pleaded and prodded to win a reluctant endorsement from his Islamic elders. The 1990 fatwa, or religious edict, issued by the most influential elder, Sheikh Abdel-Aziz Bin Baz, suggested this reluctance: "Even though the Americans are, in the conservative religious view, equivalent to nonbelievers, as they are not Muslims, they deserve support because they are here to defend Islam."

But the Bush and then the Clinton administrations decided that as long as Saddam posed a threat to his neighbors, the United States would need the facilities provided by Saudi Arabia, particularly the Prince Sultan Air Base. There, the Pentagon has built a state-of-the-art command center that it used to coordinate the air war against Afghanistan.

In the first flush of victorious enthusiasm after the Gulf War, the Saudis were happy to pick up much of the tab for the allies who helped defend them — a tab of perhaps $60 billion. And the Saudis began an aggressive arms-acquisition program — $33 billion more for America's arms makers.

Oil revenue falls

But by the mid-1990s, the Saudis could no longer afford these purchases. They fell $6 billion to $7 billion into arrears and had to stretch out some payments and slow the delivery of F-16s to avoid canceling contracts.

From a peak of $227 billion in 1981, Saudi oil income fell below $60 billion a year in the '90s to as low as $35 billion in 1998. That led to big deficits in the Saudi budget and severe cuts in military spending. Even the $80 million to $100 million the Saudis paid annually to cover local costs of the U.S. military presence was becoming a burden.

New political problems arose. With Clinton's inauguration in 1993, Bandar and the Saudis lost their comrades-in-arms from the Gulf War.

"The Saudi-American relationship went into auto-pilot basically," said Bandar, himself a former Saudi warplane pilot.

Then in 1995 and 1996, terrorists attacked American targets in Saudi Arabia, in Riyadh and then at Khobar Towers. Twenty-four Americans were killed. The perpetrators had ties to Saudi fundamentalists. Four men who confessed to the Riyadh bombing were quickly beheaded — so quickly that American investigators had no chance to interview them. The four said they were inspired by Osama bin Laden. American investigators also complained about limited access to the Khobar Towers investigation.

Meanwhile, Saudi religious leaders were funding mosques and schools from Turkey to the Far East and actively supporting the Taliban movement in Afghanistan. They had the generous donations of Saudi citizens, led by members of the royal family, who consider charity a fundamental part of life and give primarily to religious institutions.

A lesson not learned?

According to a Saudi analyst, Nawaf Obaid, the U.S., and particularly its intelligence agencies, never grasped the influence of the Wahhabi elders on Saudi policies. In a Harvard master's thesis, the Saudi-born Obaid concluded that "U.S. analysts have underestimated, overlooked or misunderstood the nature, strength and goals of the Wahhabi movement in Saudi Arabia, as well as the extent to which the secular leaders are beholden to this group."

Obaid ended his prescient paper with a warning that Saudi Arabia was entering a period of "rapid and enormous change" featuring dramatic population growth, decreasing oil revenue and an uncertain royal succession.

"In this situation," he predicted, "it is likely that the religious establishment will gain a relatively larger share of power and, therefore, represent a greater challenge to the U.S."

Tomorrow: New tests for U.S.-Saudi relations.


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