Saudi - U.S. Relationship Going, Going...

by N Janardhan

In the view of some U.S. observers, the kingdom has changed from a trusted friend in the Middle East to a "kernel of evil," as an analyst from the RAND Corp. think tank, put it.

Thus far, the extent of this deterioration in ties has been contained through clever diplomatic manoeuvreing, aimed at fulfilling mutual, long-term economic and political objectives that include the flow of oil.

But this has the potential to trigger a serious breach in the U.S.-Saudi relationship.

The economic cost of the political strain has also been rising, making the ties more likely to deteriorate than to improve.

This week, a Financial Times report from London suggested that Saudi businessmen had pulled out at least $200 billion of the estimated $600 billion that Saudis have invested in the United States.

Much of the withdrawn amount was held in stocks, bonds and real estate and was pulled out to protest rising anti-Saudi sentiment in the United States, where officials have been portraying the kingdom as the "most dangerous opponent" of U.S. interests in the Middle East.

News of the "capital flight" followed a $1 trillion compensation lawsuit filed by families of victims of the Sept. 11 attacks.

The suit accused three Saudi princes -- including Defense and Aviation Minister Prince Sultan bin Abdul Aziz al Saud -- and several Saudi and other foreign banks and Sudan's government of funding Osama bin Laden, the key U.S. suspect in the attacks.

The lawsuit was followed by a group of Saudis saying they planned to sue the U.S. government and certain media organizations, for causing psychological and financial damage suffered during the past year.

The majority of those in the Saudi lawsuit are students who had been attending American universities and were forced to leave as a result of racial profiling.

"The fear is that the U.S. legal action will block their assets. What they (Saudis) could do is withdraw their capital and channel it back into U.S. assets via international banks for safety," Mohammed Al Muhairi, a Dubai banker, said in an interview.

But Saudi billionaire Prince Alwaleed bin Talal, one of the world's richest businessmen and a nephew of Saudi Arabia's King Fahd, denied the report. "I am holding on to all my investments," he told the British Broadcasting Corp. "What I am telling you represents the position of the Saudi royal family 100 percent."

But Muhairi believes that some funds had already been repatriated, though it is difficult to determine a figure.

"A part of the funds surely reached Europe. Some of it may have gone to Japan and some, back to Saudi Arabia. Investors have also shown interest in Lebanon and the United Arab Emirates," he said.

"There is a fear that the U.S. economy, which is already going through a rough path because of the recent global slowdown, financial scandals and war talk, will slide into a recession, Muhairi added.

"Given the relatively more stable markets in Europe, the euro seems a safer bet than the dollar. Whether or not their gamble will pay off is hard to speculate," he said.

There has also been talk about investing in the Arab world, not just to create a wider capital base, but to encourage an economic boycott of American goods.

According to the U.S. Census Bureau figures, American exports to Saudi Arabia plunged to a 12-year low in the first half of 2002 -- the lowest since 1990, when Iraq invaded Kuwait leading to the 1991 Gulf War.

Part of the lost trade has been in the beverages and tobacco industries, following a grassroots campaign against U.S. products in Saudi Arabia since April to protest the Washington-backed Israeli offensive against the Palestinians.

The hostility between the United States and Saudi Arabia first surfaced after it was revealed that 15 of the 19 Sep. 11 hijackers were Saudi nationals.

That divide widened with the United States suggesting that it may pull its forces out of Saudi Arabia, followed by a report from Riyadh that the government may itself call for the Americans to leave.

In June, Riyadh admitted for the first time that al Qaeda, which Washington says is behind the Sept. 11 attacks -- is active in Saudi Arabia and poses a threat to its security.

The latest round of tensions began in mid-July, after news reports came out revealing an analyst from the U.S.-based Rand Corporation, a conservative think tank, as telling the Pentagon that Saudi Arabia ought to be considered an adversary of the United States.

"The Saudis are active at every level of the terror chain, from planners to financiers, from cadre to foot soldier, from ideologist to cheerleader. Saudi Arabia supports our enemies and attacks our allies," Rand analyst Laurent Murawiec was quoted as telling U.S. officials in a July briefing. "It is the kernel of evil, the prime mover."

The White House distanced itself from those "unofficial" statements, which were leaked to the media, but U.S. Defense Secretary Donald Rumsfeld did acknowledge difficulties in the relationship with Saudi Arabia

"The Pentagon briefing leaks to the media were not a slip, but designed to warn the Saudis that they must act more effectively against terrorism," said Ali Jaber al Sabah, a political analyst in Kuwait, in an interview.

In effect, the Saudis were also being warned "to take part in the war on Iraq, which they have rejected so far, or risk seizure of its oil fields and its financial assets invested in the United States," he added.

Saudi analyst Khaled al Maeena said, "There is no empirical or factual evidence to substantiate any of the U.S. accusations (against the Saudis). No matter what U.S. leaders have had to say in defence, the damage will take a long while before being repaired."

Writing in the 'The Gulf News' newspaper here, Maeena said: "What we ought to do now is reach out to the U.S. public and explain our position. Let's admit we have problems and that we have our own priorities in solving these problems."