Order Code IB93113
CRS Issue Brief for Congress
Received through the CRS Web
Saudi Arabia: Current
Issues and U.S. Relations
Updated March 6, 2002
Alfred B. Prados
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Current Issues
Security in the Gulf Region
Containment Policies toward Iraq
U.S. Troop Presence
Bombings of U.S. Military Facilities
Response to September 11 Terrorist Attacks
Arab-Israeli Conflict
Crown Prince Abdullah’s Peace Initiative
Arms Transfers to Saudi Arabia
U.S. Arms Sales
Trade Relationships
Problems in Commercial Transactions
Oil Production
Foreign Investment
Human Rights, Democracy, and Other Issues
Background to U.S.-Saudi Relations
Political Development
Saudi Leadership
Royal Succession
Economy and Aid
Economic Conditions
Aid Relationships
Defense and Security
Congressional Interest in Saudi Arabia
Arms Sales
Arab Boycott
Trade Practices

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Saudi Arabia:
Current Issues and U.S. Relations
SUMMARY
Saudi Arabia, a monarchy ruled by the
expelled Iraqi forces from Kuwait in 1991, and
Saudi dynasty, enjoys special importance in the
approximately 5,000 U.S. troops remain in the
international community because of its unique
country. Saudi Arabia continues to host U.S.
association with the Islamic religion and its oil
aircraft enforcing the no-fly zone over south-
wealth. Since the establishment of the modern
ern Iraq; however, Saudi Arabia has not of-
Saudi kingdom in 1932, it has benefitted from
fered the use of its territory for major air
a stable political system based on a smooth
strikes against Iraq in response to Iraqi ob-
process of succession to the throne and an
struction of U.N. weapons inspections in
increasingly prosperous economy dominated
recent years. Bombing attacks against a U.S.
by the oil sector. Decrees by King Fahd in
operated training facility and a U.S. military
March 1992 establishing an appointive consul-
apartment in 1995 and 1996, respectively,
tative council and provincial councils and
have raised some concerns about security of
promulgating a basic law providing for certain
U.S. personnel and further security measures
citizens’ rights could signal a gradual trend
have been implemented. Saudi Arabia con-
toward a more open political system.
victed and executed four Saudi nationals for
carrying out the 1995 bombing. After ex-
Since late 1995, King Fahd has suffered
tended investigations, on June 21, 2001, a
increasingly from ill health, and Crown Prince
U.S. federal grand jury indicted 14 members of
Abdullah has assumed many routine govern-
Middle East terrorist organizations for the
mental functions. The upsurge in oil prices
1996 bombing. None is believed to be in U.S.
that began in 1999 has relieved pressure on
custody at this time. Top Saudi leaders exten-
Saudi budgets but created concern in the U.S.
ded condolences after the terrorist attacks on
Administration and Congress. In March 2000,
September 11, 2001, and offered to help track
Members of Congress introduced legislation to
down the perpetrators.
reduce or end U.S. assistance or arms sales to
countries engaged in oil price fixing.
Principal issues of bilateral interest in-
clude the Saudi position on the Arab-Israeli
The United States and Saudi Arabia have
conflict, security in the post-war Gulf region,
long-standing economic and defense ties.
arms transfers to Saudi Arabia, Saudi external
Between World War II and 1975, the United
aid programs, bilateral trade relationships, and
States provided a total of $328.4 million in
Saudi policies involving human rights and
economic and military aid to Saudi Arabia,
democracy. Saudi Arabia has supported Arab
reducing and ultimately terminating these
positions on the Palestinian question and Saudi
programs as Saudi oil derived income bur-
leaders feel strongly about Muslim claims in
geoned in the 1960s and 1970s. A series of
Jerusalem, which is the third holiest site in the
informal agreements, statements by successive
Islamic religion. At the same time, Saudi
U.S. administrations, and military deployments
Arabia supports Arab-Israeli peace talks and
have demonstrated a strong U.S. security
has endorsed several key Israeli-Palestinian
commitment to Saudi Arabia. Saudi Arabia
agreements reached during the 1990s.
was a key member of the allied coalition that
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MOST RECENT DEVELOPMENTS
On February 17, 2002, New York Times columnist Thomas Friedman reported a
conversation with Saudi Arabia’s Crown Prince Abdullah, who has been largely running the
country during the extended illness of King Fahd. Crown Prince Abdullah said he had
prepared (but not yet given) a draft speech calling for full Israeli withdrawal from Israeli-
occupied territories in return for full normalization of relations between Arab states and
Israel. On February 26, a White House spokesman told reporters that in a telephone call
to Prince Abdullah, “[t]he President praised the Crown Prince’s ideas regarding full Arab-
Israeli normalization once a comprehensive peace agreement can be achieved.”
A Washington Post article on January 18, 2002, described Saudi leaders as
increasingly uncomfortable with the U.S. military presence in their country . U.S. officials,
including President Bush and Secretary of State Colin Powell, have denied that there has
been any change in long-standing U.S.-Saudi defense relationships. Saudi Crown Prince
Abdullah told reporters on January 23 that U.S.-Saudi relations are “excellent” and
criticized what he called “the mercenary media.” In an interview carried by media on
February 26, the Crown Prince said Saudi leaders have not brought up the question of U.S.
military forces in Saudi Arabia: “If and when the time comes, it will be discussed by both
governments.”
BACKGROUND AND ANALYSIS
Current Issues
Security in the Gulf Region
Saudi Arabia and the United States maintain a close defense relationship, although they
do not have a formal defense pact. Saudi Arabia was a key member of the U.S.-led allied
coalition that expelled Iraqi forces from Kuwait in 1991, and over 5,000 U.S. military
personnel are still in Saudi Arabia. Most of these are from U.S. Air Force units involved in
enforcing a no-fly zone over southern Iraq and from U.S. Army units involved in air and
missile defense. In addition, a number of U.S. contractor personnel work with the Saudi
Armed Forces and National Guard, and many U.S. civilians work in the commercial sector.
Press reports variously put the number of U.S. personnel in Saudi Arabia between 35,000 and
40,000, but according to some other estimates this number has declined to approximately
27,000.
Containment Policies toward Iraq. Saudi Arabia remains committed to the
containment of Iraq and has called on Iraq to implement resolutions of the U.N. Security
Council. Although permitting U.S. and other allied overflights to enforce the no-fly zone over
southern Iraq (Operation Southern Watch), Saudi authorities are opposed to large-scale
military action against Iraqi targets. On several occasions, Saudi Minister of Defense Prince
Sultan has said his country would not permit allied aircraft to launch preemptive or major
retaliatory campaigns against Iraq from bases in Saudi Arabia. Saudi officials have not usually
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opposed smaller scale U.S. responses to Iraqi aircraft or air defense units when they challenge
U.S. or British aircraft conducting overflights under Operation Southern Watch. In the
aftermath of the September 2001 terrorist attacks, Saudi authorities have expressed concern
over any expansion of the U.S. campaign against terrorism [see below] to Iraq or Iran. In an
interview published on February 25, 2002, Saudi Crown Prince Abdullah told reporters that
“I do not believe that the war on terrorism applies to Iran and Iraq.”
U.S. Troop Presence.
With regard to the U.S. military
Saudi Arabia in Brief
presence, Saudi Defense Minister
Prince Sultan stated on April 10,
Population (July 2000):
22,023,506*
(includes 5,360,526 foreign residents)
2000, that U.S. troops in Saudi
Growth rate: 3.28%
Arabia “are within the frame of
Area: 1,945,000 sq. km. (750,965 sq.mi.)
United Nations assignments and
(almost 3 times that of Texas)
directions to continue the
Ethnic Groups: (native Saudis only)
surveillance of southern Iraq, and
Arab 90% Afro-Asian 10%
also the border of Kuwait and Saudi
Religion: (native Saudis only)
Arabia, as well as the other GCC
Muslim 100% (Sunni 85-95%; Shi’ite 5-15%)
[Gulf Cooperation Council]
Literacy (1995):
countries.” Some commentators
63% (male 72%, female 50%)
suggest that the U.S. troop presence,
GDP: $142.7 billion (1999);
which is unpopular among some
$164.8 billion (2000)
Islamic fundamentalists both in the
Government Debt:
kingdom and elsewhere in the
Domestic (1999) $130 billion
region, could undermine the stability
External (1998) $4.3 billion
of the Saudi regime. Others believe
Inflation: (-0.2%, 1998; -1.2%, 1999; 0%, 2000)
the U.S. presence is crucial to U.S.
*Some estimates are 15-30% lower.
efforts to maintain security in the
Gulf region. Both for reasons of
security and host country
sensitivities, U.S. military personnel are housed in remote compounds away from major
population centers or Islamic holy places.
A Washington Post article on January 18, 2002, described Saudi leaders as increasingly
uncomfortable with the U.S. military presence in their country and indicated that senior
Saudis would like to devise “other forms of less conspicuous military cooperation” once the
Afghan campaign is over. Earlier, on January 15, a Member of the U.S. Senate had
reportedly expressed “unease about our presence in Saudi Arabia.” Officials of the Bush
Administration and Saudi officials have denied that there has been any change in long-
standing U.S.-Saudi defense relationships. White House spokesman Ari Fleischer said
President Bush “believes that the current arrangements [with Saudi Arabia] are working and
working well.” In an interview on January 20, Secretary of State Colin Powell said he had
had no suggestions from Saudi officials that they were about to ask U.S. forces to leave; he
went on to say that “[t]he Saudis have been good hosts and our troops have been good
guests.” Saudi Crown Prince Abdullah told reporters on January 23 that U.S.-Saudi relations
are “excellent” and criticized what he called “the mercenary media.”
Prince Abdullah made similar statements in two subsequent interviews. In a January 28
interview, he told The New York Times and The Washington Post that “there has been no
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discussion over military forces.... With regards to the relationship between us and the United
States, there has been absolutely no change in any of the fields at all. The relationship is
exactly as it was and it continues as it is.” In an interview carried by media on February 26,
when asked if “the U.S. military has worn out its welcome in Saudi Arabia”, Prince Abdullah
replied that “[w]e don’t think about raising this issue at all. If and when the time comes, it
will be discussed by both governments.”
Bombings of U.S. Military Facilities. Two attacks on U.S. military facilities in
Saudi Arabia in the mid-1990s created concern in the United States over the security of U.S.
military personnel stationed in Saudi Arabia and other U.S. service members stationed
elsewhere in the Gulf. The first, which occurred on November 13, 1995, at the headquarters
of a U.S. training program for the Saudi National Guard in the capital of Riyadh, killed seven
persons (including five U.S. citizens). Several months later, Saudi authorities charged four
Saudis with the crime. The four, who confessed to being influenced by Islamic fundamentalist
exiles, were convicted and executed.
The second and more lethal explosion, which occurred at Khobar Towers (a housing
facility for U.S. Air Force personnel near Dhahran Air Base) in June 1996, killed 19 U.S. Air
Force personnel, wounded many others, and prompted the relocation of most U.S. military
personnel to more remote sites in Saudi Arabia to improve security. Press reports allegedly
based on Saudi investigations and reported statements by other suspects have suggested
involvement by Iran, but Saudi officials have called these reports inaccurate. Earlier reports
had suggested involvement by exiled Saudi terrorist Osama bin Ladin, who has praised the
bombings in Saudi Arabia but has not claimed responsibility for them. On May 22, 1998,
Saudi Minister of Interior Prince Nayif told reporters from Kuwait that the Riyadh and
Khobar bombings “were carried out by Saudis with the support of others” (whom he did not
identify). The Minister further stated in November that bin Ladin was not responsible for
either the Riyadh or the Khobar bombings but acknowledged that individuals influenced by
bin Ladin might have conducted the attacks.
In September 1999, media cited purported U.S. intelligence information that three Saudi
men linked to the bombing had taken refuge in Iran. On October 2, 1999, Iran’s foreign
minister rebuffed an alleged request from President Clinton to Iranian President Khatemi for
Iranian assistance in resolving the case. Asked on March 12, 2000, if any suspects in the
Khobar case were currently in Iran, Prince Nayif told reporters that “we cannot hold anyone
responsible until the facts become clear to us.” Later, on October 30, 2000, he commented
that “[t]he main suspects are not in Saudi Arabia” and added that “[w]e are making efforts
for their return to the kingdom.” There have been numerous reports, denied by both the U.S.
and Saudi governments, that both governments fear that a finding of Iranian involvement
could complicate relations with Iran or force U.S. retaliation against Iran.
On June 21, 2001, U.S. Attorney General John Ashcroft announced that a federal grand
jury had indicted 14 individuals in connection with the Khobar Towers bombing. According
to the Justice Department, 13 of those indicted belong to the pro-Iranian Saudi Hizballah
organization and the 14th is linked to the Lebanese Hizballah organization. (Saudi Hizballah
appears to be a chapter of the parent Hizballah organization in Lebanon.) According to the
press, none of the persons indicted is in U.S. custody at this time; 11 of them are in Saudi
jails. Although no Iranian is named or charged in the indictment, Ashcroft said “[t]he
indictment explains that elements of the Iranian government inspired, supported and
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supervised members of Saudi Hizbollah [variant spelling]. In particular, the indictment alleges
that the charged defendants reported their surveillance activities to Iranian officials and were
supported and directed in those activities by Iranian officials.” Ashcroft said the investigation
is continuing and additional charges will be brought, as appropriate.
During the investigation, U.S. law enforcement officials criticized Saudi counterparts for
not providing U.S. investigators with access to suspects in the Khobar bombing. According
to a May 14, 2001 article in The New Yorker and other media reports, starting in late 1998,
Saudi officials began allowing FBI agents to watch behind a one-way mirror as Saudi
interrogators posed questions provided by the FBI to suspects and witnesses. In a phone call
on June 21, 2001–the day the indictments were announced–President Bush thanked Saudi
Crown Prince Abdullah for Saudi cooperation in the investigation. The FBI Director also
expressed his appreciation, along with his hopes that the suspects would be brought to justice
in the United States. In an interview published on June 23, however, Saudi Interior Minister
Prince Nayif appeared to rule out extradition of the suspects to the United States, stating that
“[t]he trials must take place before Saudi judicial authorities....” He added that “[n]o other
entity has the right to try or investigate any crimes occurring on Saudi lands.” In a CNN
interview on September 23, 2001, Prince Nayif added that some of the suspects may be in
Europe.
Response to September 11 Terrorist Attacks. Top Saudi leaders expressed
condolences to the United States after the terrorist attacks of September 11, 2001, and
offered assistance in tracking down the perpetrators. Crown Prince Abdullah, who is
effectively running the country (see below), told President Bush that “[w]e in the kingdom
of Saudi Arabia are fully prepared to cooperate with you in every way that may help identify
and pursue the perpetrators of this criminal incident.” On September 25, Saudi Arabia
severed relations with the Taliban leadership in Afghanistan. Earlier, in 1994, the Saudi
government had revoked the citizenship of prime suspect Osama bin Laden. Some
commentators have expressed concern over the extent of popular support Osama bin Laden
may enjoy among the Saudi rank and file and over possible pressures from Islamic militant
groups on the Saudi government. On November 10, the press reported that Saudi authorities
had arrested 400 people after the attacks and had broken up several cells linked to bin
Laden’s Al Qaeda organization.
Saudi officials were non-committal about their willingness to allow allied use of bases
in Saudi Arabia to launch strikes against targets in Afghanistan. At a press conference on
September 26, Saudi Foreign Minister Prince Faysal told reporters that “Saudi Arabia will do
what is within its capability” to support the coalition against terrorism but did not provide
specifics. On October 3, Secretary of Defense Donald Rumsfeld told reporters that “[w]e are
not going to be making requests of the Saudi Arabian government. We have a long-standing
relationship with them.” Some speculate that Saudi leaders bases may have allowed the use
of bases for logistical support of allied operations targeting Afghanistan but not as points of
departure for combat missions.
President Bush’s Executive Order 13224, which has blocked assets of 168 individuals
or organizations with ties to exiled terrorist leader Osama bin Laden or other terrorist groups,
reportedly includes a Saudi businessman and a Saudi-based charitable organization. On
October 21, Saudi Minister of Interior Prince Nayif said Saudi authorities have not found any
bank accounts linked to bin Laden or other terrorist organizations, but according to press
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reports, U.S. officials are not sure how thorough the Saudi investigation was. On December
11, the Saudi embassy in Washington released a progress report enumerating steps taken by
Saudi Arabia to combat money laundering and terrorist financing. Among these steps is a
requirement for all Saudi banks to have anti-money laundering units to work with the Saudi
Arabian Monetary Agency (SAMA) and with law enforcement agencies. On February 5,
2002, a Saudi official was quoted as saying that every charity in Saudi Arabia (reportedly
230) will be monitored. On the following day, news agencies reported that SAMA is
monitoring 150 bank accounts associated with prominent Saudi businessmen to prevent the
possible diversion of funds in these accounts to terrorist organizations. On March 6, during
a visit to Saudi Arabia, U.S. Secretary of the Treasury Paul O’Neill told reporters he thought
Saudi cooperation in tracing terrorist financing has been good but said that he hoped there
will be more initiative taken from the Saudi side in addressing this issue. Meanwhile, at a
donors’ conference in Tokyo on January 21, 2002, Saudi Arabia pledged $220 million over
a 3-year period to help rebuild Afghanistan after 23 years of war.
On November 4, 2001, Saudi Arabia’s Crown Prince Abdullah complained that U.S.
media were trying to damage relations between the United States and Saudi Arabia by
publishing numerous articles critical of Saudi Arabia. Statements by U.S. officials continued
to emphasize Saudi cooperation with the United States; on November 27, presidential
spokesman Ari Fleisher said that “the Saudi Arabian government has done everything the
United States has asked it to do in the war against terrorism.” He specifically mentioned
Saudi help in extending economic assistance to Pakistan, providing humanitarian relief to the
people of Afghanistan, and sharing intelligence with the United States. On December 13,
Saudi Ambassador to the United States Prince Bandar bin Sultan, in a statement regarding
the just-released videotape of bin Laden, said that “[t]he tape displays the cruel and inhumane
face of a murderous criminal who has no respect for the sanctity of human life or the
principles of his faith.”
Arab-Israeli Conflict
Saudi Arabia supports Palestinian aspirations and strongly endorses Muslim claims in the
old city of Jerusalem. It has supported Israeli-Palestinian peace agreements, and joined with
neighboring Gulf states in 1994 in terminating enforcement of the so-called secondary and
tertiary (indirect) boycotts of Israel while retaining the primary (direct) boycott. Saudi leaders
have been increasingly critical of Israel since the Palestinian uprising began in September
2000. According to a New York Times article of May 17, 2001, Crown Prince Abdullah
declined an invitation to visit the United States in June 2001, to indicate displeasure over what
Saudis regard as insufficient U.S. efforts to restrain Israeli military actions against
Palestinians. In an interview with a London journal on June 25, the Crown Prince called for
a more effective U.S. role but described Secretary of State Colin Powell’s recent initiatives
to deal with the Israeli-Palestinian fighting as “a positive first step.” On November 8, the
Saudi Foreign Minister described his government as “angrily frustrated” that the U.S.
Administration had not begun a promised new peace initiative in the Middle East, and said
the U.S. President cannot be an honest broker and only meet with one side (in an apparent
reference to President Bush’s decision not to meet Palestinian leader Yasir Arafat).
Saudi Arabia, like other Arab states, recognizes the Palestine Liberation Organization
(PLO) as the legitimate representative of the Palestinian people and provides some financial
support to Palestinian institutions. At an Arab League meeting on October 22, 2000, Crown
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Prince Abdullah took the lead in creating a $1 billion fund: $800 million to help preserve the
“Arab and Islamic identity of Jerusalem” and $200 million to help families of Palestinians
killed in the current unrest. Saudi Arabia reportedly pledged a total of $250 million to these
two funds, and provided an additional $30 million to the Palestinian Authority (PA) on
November 5 as a separate donation. At an informal international donors’ conference at
Stockholm on April 11, 2001, Saudi Arabia pledged $225 million in direct monetary support
to the PA over a 6-month period to cover emergency expenses. PLO/PA Chairman Yasir
Arafat received a $45 million grant during a visit to Saudi Arabia on July 23, 2001, but it is
not clear whether this represented part of the $225 million grant pledged by Saudi Arabia in
April.
There have been unsubstantiated reports of Saudi assistance to the PLO’s rival
organization, the fundamentalist Hamas, particularly after the Saudi-PLO rift that occurred
after the PLO supported Iraq in 1990. In its report entitled Patters of Global Terrorism,
2000, the State Department noted that Hamas receives funding from “private benefactors in
Saudi Arabia” and some other countries but does not estimate amounts involved.
Crown Prince Abdullah’s Peace Initiative. On February 17, 2002, New York
Times columnist Thomas Friedman reported an off-the-record conversation with Crown
Prince Abdullah. According to Friedman, the Crown Prince said he had prepared a draft
speech calling for full Israeli withdrawal from Israeli occupied territories in return for full
normalization of relations between Arab states and Israel. The Crown Prince added that he
had planned to give the speech before an Arab summit conference at the end of March but had
delayed doing so after what he regarded as Israeli Prime Minister Ariel Sharon’s resorting to
increased oppression in the Palestinian territories. However, Prince Abdullah’s office did
authorize Friedman to put the prince’s comments on the record. Abdullah did not provide
details of his proposal, and some commentators believe the prince’s comments represent
nothing new over and above long-standing Arab land-for-peace proposals. Other
commentators believe that such comments from an Arab leader of Abdullah’s stature carry
special weight and could portend a breakthrough in Arab-Israeli peace negotiations.
The initiative has been welcomed to varying degrees by some European and Arab
leaders, as well as U.S. officials. On February 25, Secretary of State Colin Powell described
it as “an important step that we have welcomed” and expressed the hope that it would be
elaborated with more detail. Secretary Powell reiterated these comments during two press
conferences on March 4, adding that “I think what makes it [the peace initiative] significant
is that it’s coming from the Crown Prince of Saudi Arabia at this time.” Meanwhile, on
February 26, White House spokesman Ari Fleischer told reporters that in a telephone call to
Prince Abdullah, “[t]he President praised the Crown Prince’s ideas regarding full Arab-Israeli
normalization once a comprehensive peace agreement can be achieved.”
Arms Transfers to Saudi Arabia
U.S. Arms Sales. The United States is currently Saudi Arabia’s leading arms supplier.
Total value of arms agreements with Saudi Arabia from 1950 through March 31, 1997, was
$93.8 billion, while arms agreements with Saudi Arabia from 1991 through 1998 amounted
to $22.8 billion. The upsurge in Saudi arms purchases from the United States after 1990 was
due in large measure to the Persian Gulf crisis and its aftermath. The largest recent sale was
a $9 billion contract for 72 F-15S advanced fighter aircraft, signed in May 1993. As Table
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1 shows, approximately 21% of the value of U.S.-Saudi arms contracts from 1950 to 1997
were for lethal equipment (i.e., weapons, ammunition, and combat vehicles, aircraft, and
ships); the largest portion (32%) went for support services (repair, rehabilitation, supply
operations, and training). Another major component of the Saudi program has been
construction of military bases and facilities, accounting for 19%, although most military
infrastructure projects were completed by 1990.
A downward trend has marked Saudi arms procurement since the mid-1990s as Saudi
Arabia completed many of its post-Gulf War purchases and the country faced straitened
finances. Since the late 1990s there have been occasional reports of Saudi interest in
renovating further their model combat aircraft fleet, but no significant deals have emerged.
On May 7, 2001, the Saudi Assistant Minister of Defense described his country’s priority as
sustaining existing weapon systems rather than large-scale procurement of new weaponry,
despite mounting oil revenues. He ruled out additional F-15 fighters aircraft to replace aging
F-5s this year as well as tank modernization. Reports in April 2001, however, indicated
continued Saudi interest in more and newer F-15s or possibly F-16 or F-22 fighter aircraft
(both made by Lockheed Martin Corporation in Bethesda, Maryland.)
On September 8, 2000, the U.S. Defense Department announced that Saudi Arabia has
asked to buy three arms packages from the United States: (1) $416 million in light armored
vehicles, anti-tank missiles, and advanced communications equipment for the paramilitary
Saudi National Guard; (2) $690 million in contractor training and maintenance support for
Saudi Arabia’s fleet of F-15 fighter aircraft; and (3) $1.6 billion in flight simulators, repair
parts, and other technical services for the F-15 aircraft. The prime contractors for the first
package would be the Diesel Division of General Motors of London, Ontario, and Raytheon
Corporation of Tuscon, Arizona. The prime contractor for the second package would be al-
Salam Aircraft Company of Saudi Arabia, which is 50% owned by Boeing Co. The prime
contractor for the third package has not yet been determined.
Table 1. U.S. Arms Transfers to Saudi Arabia, 1950-1997
Orders
Deliveries
Category
$ in
% of Total
% of Total
$ in Billions
Billions
Orders
Deliveries
Weapons & Ammunition
19.893
21.2
9.092
15.6
Support Equipment
16.614
17.7
9.815
16.8
Spare Parts & Modifications
9.778
10.4
5.259
9.0
Supply, Repair, Training
29.615
31.6
17.804
30.6
Construction
17.924
19.1
16.197
27.8
TOTALS
93.824
–
58.167
–
Note: All figures are current through March 31, 1997.
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Successive U.S. Administrations have entered into military sales agreements with Saudi
Arabia because of its prestige in the Arab world, its importance as a major source of oil, and
its vulnerability to threats from neighboring states supported in the past by the Soviet Union.
Heightened threats from Iran in the late 1980s and subsequently from Iraq provided rationale
for an expansion of the arms supply relationship, and some observers believe further sales are
needed to redress a continuing gap between Saudi weapons inventories and those of potential
adversaries. Also, the Saudi arms market has helped maintain the U.S. industrial base and
create jobs.
Some critics doubt that Saudi forces can absorb large quantities of advanced military
hardware and voice concerns that such equipment could fall into the wrong hands in the event
of external invasion or a radical change in the Saudi regime. Many are concerned that arms
being sold to Saudi Arabia might be used one day against Israel. Others doubt that Israel is
seriously threatened by Saudi Arabia, but oppose sales to Arab countries technically at war
with Israel and fear that enhancement of Saudi air and missile capabilities could increase the
costs to Israel of a future conflict. Another concern is that continuing arms sales to Saudi
Arabia undermine efforts to restrain the flow of advanced weaponry to an already heavily
armed Middle East.
Trade Relationships
Saudi Arabia was the largest U.S. trading partner in the Middle East in 2000. For that
year, Saudi exports to the United States were estimated at $14.3 billion and imports from the
United States at $5.9 billion. Comparable figures for Israel, the second largest U.S. trading
partner in the Middle East, were $12.9 billion in exports and $6.2 billion in imports. To a
considerable extent, this high volume of trade is a result of U.S. oil imports from Saudi Arabia
and U.S. arms exports to that country. The Saudis buy significant amounts of U.S.
commercial equipment as well. Also, a Washington Post article of February 11, 2002,
estimates that Saudi nationals have invested between $500 and $700 billion in the U.S.
economy.
Saudi Arabia has applied to join the 128-member World Trade Organization (WTO) as
a developing country, an arrangement that would give it a special transition period to bring
its commercial procedures in line with WTO rules. The U.S. State Department notes that
accession will require the Saudi government to initiate substantial reforms, including tariff
reduction, opening up financial services (insurance and banking), allowing competition in
telecommunications and other services, and better protection of intellectual property rights.
In recognition of its progress in protection of intellectual property rights, Saudi Arabia was
removed from the U.S. Trade Representative’s Priority Watch List in 1996, but remains on
the basic Watch List pending further progress. The U.S. Trade Representative reportedly has
also cited Saudi observance of the secondary boycott against Israel as an obstacle to
admission to the WTO. In March 2001, WTO officials reportedly expressed disappointment
over a recent list issued by the Saudi government of activities off limits to foreign investment
(see below) and predicted that these restrictions could delay Saudi accession to the WTO.
Problems in Commercial Transactions. Complaints have arisen within the U.S.
business community over commercial disputes that have resulted in hardships for U.S.
companies doing business in Saudi Arabia and for their employees. These disputes center on
allegations by U.S. firms that Saudi clients have not paid for services rendered or have sought
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to expand terms of a contract without further reimbursement, and in some cases have taken
reprisals against U.S. employees of the firms involved. (For further information, see CRS
Report 95-666, Saudi Arabia: Commercial Disputes With U.S. Firms.).
Oil Production. With the world’s largest proven oil reserves (estimated at 263.5
billion barrels in January 2000), Saudi Arabia produced an average of 7.83 million barrels per
day (bpd) of crude oil during 1999. Approximately 14.1% of U.S. oil imports and 8.0% of
total U.S. oil consumption came from Saudi Arabia during 2000. Formerly the largest foreign
supplier of oil to the United States, Saudi Arabia has been exceeded in this role by Venezuela
and/or Canada during recent years (see Table 2).
Table 2. Oil Consumption and Imports
(in millions of barrels per day)
Category
1997
1998
1999
2000
Total U.S. Consumption
18.620
18.917
19.519
19.476
Total U.S. Imports
10.162
10.708
10.852
11.093
Imports from Saudi Arabia
1.407
1.491
1.478
1.566
Imports from Venezuela
1.773
1.719
1.493
1.519
Imports from Canada
1.563
1.598
1.539
1.686
Source: DOE.
In recent years, Saudi Arabia has alternately supported cuts and increases in production
as oil prices on the international market have fluctuated. Resurgence of oil prices to their
highest post-Gulf War levels by January 2000 created concern in the U.S. Administration and
Congress, prompting proposals in Congress to increase domestic production of oil and to
restrict trade with oil producers unless they agreed to increase production. On March 22,
2000, by a vote of 382 to 38 (with one present and 13 abstentions, Roll Call 65), the House
passed of H.R. 3822, which requires the President, inter alia, to determine which oil
producing nations are engaged in oil price fixing to the detriment of the U.S. economy, submit
reports to Congress, and “take the necessary steps to begin negotiations to achieve
multilateral action to reduce, suspend, or terminate bilateral assistance and arms exports to
major net oil exporters engaged in oil price fixing as part of a concerted diplomatic campaign
with other major net oil importers....”
Since then, with strong Saudi backing, nine OPEC members agreed on the following
three increases in oil production during 2000:
! March 27: 1.452 million barrels per day (bpd), including 585,000 bpd from
Saudi Arabia;
! June 21: 708,000 bpd, including 230,000 from Saudi Arabia; and
! September 10: 800,000 bpd, including 260,000 from Saudi Arabia.
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Under a “gentlemen’s agreement” reached at the June 21 meeting, OPEC also established a
mechanism to adjust the supply of oil by 500,000 bpd if the 20-day average price of oil moved
outside a $22 to $28 price band. Members disagree, however, as to whether this mechanism
is automatic or requires separate action by OPEC to implement, and Saudi Arabia has spoken
of a target price of $25 rather than a price band. After initially rejecting calls for a production
cut as oil prices dropped by 20% in December 2000, Saudi leaders became concerned that oil
supply was exceeding demand; consequently Saudi Arabia supported a series of four cuts in
oil production in 2001, as follows:
! January 17: 1.5 million bpd, including 486,000 bpd from Saudi Arabia;
! March 18: 1 million bpd;
! July 25: 1 million bpd; and
! December 28 (effective January 1, 2002): 1.5 million bpd, including 488,000
bpd from Saudi Arabia.
According to a February 12, 2002 press article, on the day after the September 11 attacks on
the United States, Saudi leaders revoked a previous promise to other OPEC countries to cut
production; instead, Saudi Arabia rushed additional oil to the United States to ensure
adequate oil supplies to meet U.S. needs during the crisis. It was not clear whether this
involved a delay in Saudi implementation of the July 25 production cut or cancellation of
some other projected cut.
Foreign Investment. Saudi leaders have shown increasing interest in attracting
foreign investment in their energy sector, although projects in upstream oil apparently remain
off limits. On April 10, 2000, King Fahd approved a new foreign investment law which
allows international investors to have full ownership of projects and related property in Saudi
Arabia, reduces taxes from 45% to 30% on corporate profits, and restructures (but apparently
does not abolish) requirements for foreign businessmen to have a Saudi sponsor. On
February 11, 2001, the Saudi Supreme Economic Council issued a so-called “negative list”
of those investment activities that remain off limits to foreign investment. In general, the list
covers oil exploration and production, some manufacturing activities, radio and
telecommunications, transport, electricity transmission and distribution, and a range of
services including tourism, publishing, real estate brokerage, and insurance. According to
news reports in March 2001, international trade officials expressed disappointment over the
length and scope of the list. The list will be reviewed annually, however, and some observers
have speculated that it will be shortened as the country adjusts to an expansion in foreign
investment.
On June 3, 2001, Saudi Arabia signed preliminary agreements worth approximately $25
billion with eight international oil companies to develop three natural gas fields, together with
related power plants, transmission pipelines, and water desalinization projects. Five of these
companies are U.S.-based, including Exxon Mobil Corporation, Conoco, Phillips Petroleum
Company, Occidental Petroleum Corporation, and Marathon. Exxon Mobil is the lead
manager for two of the three gas field projects. Final agreements were to be signed in mid-
December, but as of February 2002, Saudi and company negotiators are still attempting to
resolve several issues including taxes, rate of return on investments, and size of the gas
reserves being offered. Press reports suggest that the final agreements may not be completed
until later in the year 2002.
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Human Rights, Democracy, and Other Issues
According to the State Department’s annual report on human rights practices for 2000,
the Saudi government’s human rights record has remained generally poor but has shown
limited improvement in some areas. Problems include prohibitions or restrictions of freedom
of speech, press, assembly and association; discrimination and violence against women;
discrimination against ethnic and religious minorities; strict limitations on workers’ rights;
arbitrary arrest and detention; reported abuse of detainees; and lack of a mechanism for
citizens to change their government. During 2000, the government did undertake limited
measures to participate in several international human rights mechanisms.
Of particular concern to Westerners are pervasive restrictions on women’s activities and
an injunction against the practice of other religions throughout the Kingdom. This injunction
has been applied not only against non-Islamic faiths but also at times against the Shi’ite
Muslim community in Saudi Arabia, estimated at 500,000 or more persons mainly in the
Eastern Province. Since 1990, the Saudi government has moved quietly to ease some
restrictions on Shi’ites. Also, according to the State Department, high-level Saudi officials
have said that Saudi policy allows for private non-Muslim worship, for example, in private
homes or secluded compounds. On April 6, 2000, responding to criticisms by the London-
based Amnesty International, a Saudi Under Secretary in the Foreign Ministry maintained that
“non-Muslims enjoy full freedom to engage in their religious observances in private.” Earlier,
in April 1999, Crown Prince Abdullah told a local audience: “Taking into account the
teachings of Islam, we will do our best to enable Saudi women to continue to contribute.”
Political reforms promulgated by King Fahd appear to represent a limited move toward
democracy and protection of individual freedoms. The “main law” announced by the King
on March 1, 1992, bans arbitrary arrest, harassment, or entry of individual homes without
legal authority and specifies privacy in telephone calls and mail. On August 20, 1993, the
King appointed a 60-member consultative council (increased to 90 in 1997), with limited
powers to question cabinet members and propose laws. On the other hand, King Fahd has
said that free elections are not suitable for his country; he stated on March 30, 1992 that
elections “do not fall within the sphere of the Muslim religion, which believes in the al-shura
(consultative) system and openness between ruler and his subjects and which makes whoever
is in charge fully answerable to his people.”
Background to U.S.-Saudi Relations
Oil and national security concerns have combined to produce a close and cooperative
relationship between the United States and Saudi Arabia. Since the award of the first Saudi
oil concession to a U.S. company in 1933, both states have had an increasing interest,
respectively, in the marketing and acquisition of Saudi petroleum supplies. As regional
threats multiplied in the latter half of the century, mutual concerns over the stability of Saudi
Arabia and other moderate regimes in the Arabian Peninsula engendered a significant degree
of defense cooperation.
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Political Development
Saudi Leadership. As the birthplace of the Islamic religion in 622 A.D. and as the
home of Islam’s two holiest shrines, the Arabian Peninsula has always occupied a position of
special prestige within the Middle East. With the establishment of Arab empires based in
Damascus and Baghdad, the peninsula gradually lost its political importance and sank into
disunity. In the 16th century, much of the Arabian Peninsula came under the nominal rule of
the Ottoman Empire; however, tribal leaders effectively controlled most of the region. During
this period, an alliance developed between an influential eastern tribe, the House of Saud, and
the leaders of a puritanical and reformist Islamic group known as the Wahhabi movement.
During the first quarter of the 20th century, a chieftain of the Saud family, Abd al-Aziz ibn
Abd al-Rahman (later known as Ibn Saud) overcame numerous rivals with the support of his
Wahhabi allies and succeeded in unifying most of the Arabian Peninsula under his rule, with
the exception of Yemen in the southwest and the small, then British-protected principalities
along the eastern coast. On September 23, 1932, Abd al-Aziz proclaimed the establishment
of the Kingdom of Saudi Arabia, which he ruled until his death in 1953. Four of his sons have
succeeded him: Saud (1953-1964), Faysal (1964-1975), Khalid (1975-1982), and the present
King Fahd, who acceded to the throne in 1982.
Royal Succession. King Fahd, a dynamic leader for many years, is almost 80 years
old and suffers from medical problems including diabetes and arthritis. In early 1996, King
Fahd temporarily turned over affairs of state to his half-brother, Crown Prince Abdullah, for
a six-week period while the King recuperated from a stroke. More recently, amid conflicting
reports about the King’s condition, Crown Prince Abdullah has increasingly carried out many
governmental functions since 1996, together with other senior princes of the royal family.
Another key figure is Defense Minister Prince Sultan, a full brother of King Fahd, who is
generally considered next in line of succession after Prince Abdullah. (King Fahd, Prince
Abdullah, and Prince Sultan also hold the positions of Prime Minister, First Deputy Prime
Minister, and Second Deputy Prime Minister, respectively.)
Most commentators believe the royal family would back Crown Prince Abdullah in a
smooth transfer of power if King Fahd should pass from the scene. Various sources describe
Prince Abdullah as more traditional and less western in outlook than King Fahd and more
oriented toward the Arab world. On balance, the Crown Prince seems likely to maintain
Saudi Arabia’s long-standing strategic and economic ties with the United States. Some
speculate, however, that succession could become more intricate after Abdullah (who is only
two years younger than Fahd but believed to be in better health) and fear that future intra-
family rivalries could weaken the Saud dynasty over the long term. Possible future candidates
include some 25 brothers and half-brothers of King Fahd and a number of sons and nephews.
In June 2000, Saudi Arabia formed a council consisting of 18 senior princes representing
leading branches of the royal family, chaired by Crown Prince Abdullah with Prince Sultan
as deputy chairman. An observer speculated that its role seems to be to organize family
matters, provide a family forum, and deal with other family issues.
Economy and Aid
Economic Conditions. Oil is the dominant factor in the Saudi economy, accounting
for 35-40% of GDP, 75% of budget receipts, and 90-95% of export earnings as of April
2000; even more of the GDP is derived indirectly from the oil industry. Despite immense oil
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revenue, a combination of fluctuating oil prices, domestic welfare spending, and military
spending have caused periodic budget deficits (see Table 3). For example, the 1990-1991
Gulf war cost Saudi Arabia approximately $55 billion (including $16.9 billion contributed to
the United States to help defray expenses). Although the government was able to retire its
external debt in May 1995, it had to borrow $4.3 billion again from external sources in
December 1997 to finance purchase of aircraft.
In 1994, the Saudi government instituted austerity measures to deal with shrinking
revenues, and during the following year, the government announced additional measures
including raising the costs of utilities (electricity, water, and communications facilities) and
reducing various subsidies in an effort to increase revenues and cut spending. The budget for
2000, announced on December 21, 1999, entailed a $7.5 billion deficit, but original Saudi
revenue projections were overtaken by the surge in oil prices since early 1999. Increased
revenue led to an estimated surplus of $12 billion in 2000, the first budgetary surplus in over
a decade. For 2001, the government has projected a balanced budget. The 2001 budget,
announced on December 18, 2000, is based on a relatively conservative oil price forecast of
$22 per barrel and continued fiscal restraint.
Table 3. Saudi Budget Figures
(In billions of U.S. dollars, at exchange rate of $1.00=S.R. 3.75)
1999
2000
2001
2002
Category
Budget
Actual
Budget
Actual
Budget
Est.
Budget
Expenditure
44.0
48.3
49.3
54.1
57.3
68.0
53.9
Revenue
32.3
39.2
41.9
66.1
57.3
61.3
41.9
Balance
-11.7
-9.1
-7.5
12.0
0
-6.7
-12.0
Source: Saudi Ministry of Finance; Saudi government announcements; press estimates.
Aid Relationships. As Saudi oil income expanded, U.S. economic aid ended in 1959.
Small amounts of aid continued through 1975, limited to a small international military
education and training (MET) program after 1968. Total U.S. aid to Saudi Arabia from 1946
through its termination in 1975 amounted to $328.4 million, of which $295.8 million was
military and $32.6 million was economic assistance. Approximately 20% of total aid was in
the form of grants and 80% in loans, all of which have been repaid. A small MET program
of $25,000 per year to help defray some expenses of sending Saudi officers to U.S. military
service schools was resumed in FY2002, and the same amount was requested by the
Administration for Saudi Arabia in FY2003.
Defense and Security
The United States and Saudi Arabia are not linked by a formal defense treaty; however,
a series of informal agreements, statements by successive U.S. Administrations (see box), and
military deployments have demonstrated a strong U.S. security commitment to Saudi Arabia.
Although Saudi forces acquired experience during the Gulf war and are undergoing further
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upgrading through a large-scale program of arms procurement (see below), both Saudi Arabia
and its five smaller Gulf neighbors remain vulnerable to future external aggression. On one
hand, both the Iranian and Iraqi armed forces suffered major personnel and equipment losses
during the 1980-1988 Iran-Iraq war and Operation Desert Storm, respectively, and neither
is in a position to offer an immediate threat to the Gulf Cooperation Council (GCC). On the
other hand, as shown in Table 4, the combined forces of Saudi Arabia and its GCC allies are
outnumbered in important categories by those of Iraq and Iran, even after the losses sustained
by both countries in recent wars.
Congressional Interest in Saudi Arabia
The terrorist attack on Khobar
Key U.S. Statements
prompted resolutions in the 104th
Congress (H.Con.Res. 200 and S.Res.
“An attempt by any outside force to gain control of the
273) honoring slain U.S. and other
Persian Gulf Region will be regarded as an assault on
victims and (in S.Res. 273) expressing
the vital interests of the United States of America and
support for Saudi efforts to apprehend
such an assault will be repelled by any means
the perpetrators. In the 105th Congress,
necessary, including military force.”
–President Jimmy Carter, Jan. 23, 1980
Section 1052 of the Defense
(The Carter Doctrine)
Authorization Act for FY1998-1999
(P.L. 105-85) required the Secretary of
“There’s no way that we could stand by [and see Saudi
Defense to report on the roles of
Arabia] taken over by anyone that would shut off that
various Defense officials in providing
oil.”
counter terrorism guidance to U.S.
–President Ronald Reagan, Oct. 1, 1981
military personnel before and after the
(The Reagan Corollary)
1995 and 1996 attacks on U.S. facilities
“The sovereign independence of Saudi Arabia is of
in Saudi Arabia. An amendment
vital interest to the United States.”
(S.Amdt. 605) incorporated as Section
–President George Bush, Aug. 8, 1990
8161 of S. 1122, the Department of
(following Iraq’s invasion of Kuwait)
Defense Appropriations bill for
FY2000, expresses the sense of the
“President Clinton’s commitment to the security of
Senate that the FBI together with the
friends in the Gulf, like that of every President since
State Department should report to
Franklin Roosevelt, is firm and constant.”
Congress by December 31, 1999, on the
–Secretary of State Warren Christopher,
Feb. 21, 1993)
status of the Khobar investigation and
that the U.S. government should take
steps to punish the parties responsible,
once they are identified. The Senate
passed S. 1122 on June 8, 1999 by 93 to 4, Record Vote No. 158; however, the provision
regarding the Khobar bombing did not appear in the companion House bill H.R. 2561 or in
the conference report. In early 2000, the precipitate rise in international oil prices prompted
several legislative initiatives designed to restrain oil price increases, as described in a previous
section of this issue brief. In the 107th Congress, H.R. 334, the Persian Gulf Security Cost
Sharing Act, introduced on January 31, 2001, would direct the President to seek further
contributions from Saudi Arabia and other Persian Gulf states to defray the costs of U.S.
military deployments in the region.
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Arms Sales
Congress has been particularly sensitive to the argument that enhancing Saudi arms
inventories could result in an incremental increase in overall threats to Israel, although some
Members have supported such sales on the grounds that they help buttress Saudi defense
capabilities in the Gulf and enhance the U.S. job market. Since the mid-1970s, several major
arms sales to Saudi Arabia have been challenged in Congress: F-15 fighter aircraft in 1978;
Airborne Warning and Control System (AWACS) aircraft, advanced tanker aircraft, and
advanced Sidewinder air-to-air missiles in 1981; and a large package of air-to-air,
surface-to-air, and air-to-sea missiles in 1986. All of these sales ultimately were allowed to
proceed, and several larger sales followed before and during the Persian Gulf crisis, without
significant congressional opposition. The Bush Administration’s proposal in September 1992
to sell 72 improved F-15XP fighters to Saudi Arabia met some opposition, but resolutions to
block or postpone the sale never came to a vote.
Arab Boycott
Members of Congress frequently have decried Saudi participation in the Arab boycott
because of its impact on Israel and on U.S. businesses. Some have called for linkage between
U.S. arms sales to Saudi Arabia and Saudi renunciation of the boycott. Part C of the Foreign
Relations Authorization Act for FY1994-1995 (P.L. 103-236, April 30, 1994), known as the
Anti-Economic Discrimination Act, under a provision that took effect on April 30, 1995, bars
the sale or lease of U.S. defense articles or services to any country that sends letters to U.S.
firms requesting compliance with, or soliciting information regarding compliance with, the
Arab League primary or secondary boycott of Israel. This provision permits a presidential
waiver on national security grounds; then President Clinton exercised waiver authority for
Saudi Arabia and several other Arab states in Presidential Determination (PD) 95-20, May
1, 1995, and again in PD 96-23, April 30, 1996. On April 24, 1997, the President delegated
waiver authority under this act to the Secretary of State.
Trade Practices
In the 105th Congress, Section 2801 in Division G of the Consolidated and Emergency
Supplemental Appropriations Act, 1999 (P.L. 105-277, October 21, 1998, 112 Stat. 2681-
845) required reports every 120 days by the Secretary of State, in coordination with the
Secretaries of Defense and Commerce, on actions taken by the three departments to resolve
commercial disputes between U.S. firms and Saudi Arabia as listed in a June 1993 letter from
the Secretaries of Defense and Commerce. In the 106th Congress, this requirement was
retained in Section 209 of the Foreign Relations Authorization Act for FY2000-2001 (H.R.
3427, passed by reference in H.R. 3194, the Consolidated Appropriations Act for FY2000,
P.L. 106-113, November 29, 1999. Currently, this provision appears in Section 201 of H.R.
1646, the Foreign Relations Authorization bill for FY2002-2003, which was passed by the
House on May 16, 2001, by 352 to 73, Roll no. 121.
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Table 4. Selected Middle East Armed Forces
Main Battle
Combat
Surf. Surf.
Chem
Nucl.
Country
Force Size
Tanks
Aircraft
Mslsa
Warf. Cap
Cap.b
Iran
513,000
1,135
291
S
X
D
Iraqc
429,000
2,200
316
S
X
D
Saudi Arabiad
183,500
910
417
I
–
–
Yemene
66,300
840
49
S
–
–
U. A. E.
65,000
331
101
–
–
–
Oman
43,500
117
40
–
–
–
Kuwait
15,300
310
82
–
–
–
Bahrain
11,000
106
34
–
–
–
Qatar
12,330
44
18
–
–
–
a S = short-range (70-1,000 km); M = medium-range (1,001-3,000 km); I = intermediate-range (3,001-5,000
km).
b D = reportedly under development (now or in the past).
c Figures represent estimates of Iraqi forces and equipment after Operation Desert Storm. Some older tanks
are believed unserviceable. The aircraft total does not include approximately 112 combat aircraft
impounded in Iran.
d Force total includes active members of the Saudi Arabian National Guard (estimated at 57,000). Tank total
does not include an estimated 145 French-manufactured AMX-30 tanks in storage.
e Force total includes conscripts (estimated at 25,000). Tank total does not include 150 obsolescent Soviet-
manufactured T-34 tanks.
Source: The International Institute for Strategic Studies, The Military Balance, 2000-2001.
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