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