LATEST ON SAUDI-BAHRAIN FTA ISSUE

C O N F I D E N T I A L MANAMA 001866

SIPDIS

E.O. 12958: DECL: 12/13/2014
TAGS: ETRD PREL BA GCC
SUBJECT: LATEST ON SAUDI-BAHRAIN FTA ISSUE

REF: A. MANAMA 1839 B. MANAMA 1829

Classified By: Ambassador William T. Monroe. Reason: 1.4 (B)(D)


1. (C) Minister of Finance Abdulla Seif, just back from the
Forum for the Future meeting in Rabat, was short on details
about discussions on the margins of the Forum about the FTA
dispute with Saudi Arabia, but expressed confidence that a
formula will be found to resolve the issue within the GCC.
He noted that GCC Finance Ministers will meet in Manama on
December 18 (followed by a Foreign Ministers meeting on the
19th),and said he thought the situation would be much
clearer after the Finance Ministers meeting.


2. (C) Separately, Saudi Ambassador in Bahrain Dr. Abdulla El
Khuwaiz told the Ambassador that he had been surprised when
Prince Saud had raised the issue during his speech at the
IISS conference in Bahrain on December 5. Asked why he
thought his government was raising it at this point, he said
that the Saudi government looks at these FTAs with the GCC
countries, especially when they are being extended beyond
Bahrain, as an attempt by the USG to weaken Saudi Arabia. He
contrasted U.S. eagerness to negotiate FTAs with other GCC
countries with its apparent efforts to block Saudi entrance
into the WTO, even though in some ways Saudi's market is more
open than other GCC countries (as an example, he said that
Saudia Arabia's financial sector is more open than Kuwait's).
The Ambassador replied that he was not up-to-date on the
specifics of Saudi Arabia's WTO accession effort, but was
certain the discussions were driven purely by technical
WTO-related considerations.


3. (C) Asked about Bahraini perceptions that Saudi Arabia is
putting an economic squeeze on Bahrain, most notably through
the cut-off of sales of sand and the dropping of a 50,000
barrel per day oil grant, Ambassador Khuwaiz made the
following points:

-- on the sand, he said it grew out of a dispute among Saudi
companies that had licenses to sell sand to Bahrain from the
Eastern Province. Apparently, a loser in a recent contract
got angry and retaliated by putting together a case that
showed environmental degradation at the sand pits, with water
filing up the pits and causing a health hazard. This got the
attention of Riyadh, which put a stop to the sand sales until
the issue could be resolved. On the table now is a proposal
to form a Saudi-Bahrain joint venture to sell sand from the
Eastern Province, but this is languishing on the desk of the
Minister of Petroleum (also responsible for minerals such as
sand).

-- on the oil cutoff, he said this was dropped after Bahrain
convinced the Saudis, against their wishes, to expand the
existing oil field (the Saudis felt this would prematurely
degrade the field). Ending the 50,000 b/d oil gift, he said,
was part of the deal, but now the Bahrainis want to reclaim
it. There is resistance to restoring it because people in
Riyadh question why Saudi Arabia should continue to subsidize
Bahrain when in fact Bahrain's per capita income is higher
than Saudi Arabia's. The Saudi government is now looking at
some sort of compromise that would restore the 50,000 b/d
temporarily in order to allow Bahrain to use it to repay the
loan it took out to finance the expansion of the field.
MONROE