SCENESETTER: YOUR VISIT TO OMAN

S E C R E T SECTION 01 OF 02 MUSCAT 000252

SIPDIS

TO CSAF POLAD AMBASSADOR FRAZIER FROM THE AMBASSADOR

E.O. 12958: DECL: 02/14/2015
TAGS: PREL PGOV OTRA MU
SUBJECT: SCENESETTER: YOUR VISIT TO OMAN

Classified By: Ambassador Richard L. Baltimore III.
Reason: 1.4 (d).


1. (U) Greetings and welcome from Team Muscat. We are
confident you will gain a great deal from your participation
in the upcoming MEAS IV Conference, and are proud that the
Sultanate of Oman is hosting this year's event with excellent
assistance and cooperation from CENTAF. In addition to the
briefing materials you will receive on the military aspects
of your visit, I am pleased to provide the following
political and economic backgrounder on some of the key issues
in our bilateral relationship with Oman.

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Political Development and Cooperation
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2. (SBU) Oman continues to chart a careful path toward
modernization while preserving a powerful and proud cultural
heritage. Sultan Qaboos exercises full authority in Oman,
although he does delegate responsibility for government
operations to a Cabinet of Ministers, which now includes four
women. A bicameral proto-parliament exists in the form of
the Majlis Oman (Council of Oman),a consultative body
composed of the appointive Majlis al-Dawla (State Council)
and the elected Majlis al-Shura (Consultative Council).
While not imbued with full legislative powers, these bodies
can review important policy elements such as the state budget
and offer formal recommendations. The Majlis al-Shura is
elected via universal suffrage for all Omanis over the age of

21. In the October 2003 elections, two women were elected to
the 83-member council. Nine of the 59 appointed members of
the State Council are female. The USG funds some limited
training programs for State Council staff and, just recently,
members too.


3. (SBU) The thrust of Oman's foreign policy is to maintain
amicable relations with all nations, particularly given
historical tensions in the Gulf and the prickliness of
several of the Sultanate's neighbors. The U.S.-Oman
relationship spans almost 200 years, as the Sultanate was the
first Arab state to send an Ambassador to Washington. More
recently, Oman was one of the first nations to recognize the
Iraqi Interim Government, and the Omani government also
offered its strong support for the IIG's inclusion in the
Arab League and other regional bodies. An Iraqi Ambassador
recently presented his credentials to the Sultan, though Oman
has yet to reopen its embassy in Baghdad. Despite generally
positive press coverage of the January 30 elections, however,
Oman remains one of the few states in the region not to have
publicly acknowledged that historic development. Oman's
relationship with Iran is perhaps its most sensitive, as the
two states share stewardship of the strategic Strait of
Hormuz. Iranian President Khatami paid his first-ever Oman
state visit October 6-7, 2004. The Sultan is determined to
maintain cordial relations with Iran, with the topic of
illegal immigration into Oman being perhaps the prickliest
aspect of the relationship. Oman is emphatic in urging
diplomatic means and dialogue to resolve U.S. issues with
Tehran.


4. (S) A potential set-back in the foreign policy realm to
which we are seeking clarification was a February 9 note from
the Foreign Ministry that, while stressing Oman's commitment
to proliferation security, stated that Oman would not "join"
or "be committed" to the Proliferation Security Initiative
(PSI). This note came despite the Omani MOD's participation
in a PSI-related event as part of the Beacon Flash 2005
exercise later this month. The Embassy is likewise heavily
engaged with Omani agencies under the Export Control and
Border Security (EXBS) program, with two seminars slated for
2005, and an active counter-terrorism agenda through military
programs and State DS's ATA program.

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Political Waters Roiled
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5. (C) Rumors of arrests in several parts of the country in
recent months have captivated the Omani public's attention.
While international wire services have reported wildly
exaggerated statistics and theories about the detainees, the
Omani government has assured the diplomatic community that
"fewer than 20" persons have been detained for suspicion of
belonging to an "illegal association." While the actual
number may be higher, the government's insistence that none
of the detainees were captured with weapons or appeared to
have violent intent seems to be true. Our best guess is that
the detainees were a network of Ibadhi Muslim scholars or
activists who have taken issue with perceived moral decay in
the Sultanate, and who may have been advocating for Oman's
return to rule by an Imam rather than a Sultan. The Sultan's
father abolished the Imamate in the 1950's.

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TIFA, FTA, and Beyond
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6. (U) U.S. Trade Representative Robert Zoellick and Omani
Minister of Commerce and Industry Maqbool bin Ali Sultan
signed a Trade and Investment Framework Agreement (TIFA) on
July 7, 2004 in Washington. Minister Maqbool traveled to
Washington again in September heading Oman's delegation for
the first bilateral U.S.-Oman TIFA Council meeting. On
November 15, 2004, USTR announced its intention to begin
negotiations with Oman (and the UAE) on a Free Trade
Agreement. While consultations have been actively underway,
formal negotiations begin in Muscat in March. USTR is
hopeful the treaty can be concluded in short order. The FTA
would mark the most significant economic agreement in the
history of our bilateral relationship with Oman. The volume
of bilateral trade is currently about USD 1 billion annually.

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Economic Conditions
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7. (SBU) Oman faces two major challenges as it heads into the
35th year of Sultan Qaboos' reign: a young and growing
population and declining oil production. The government
budget has been buoyed recently by high oil prices, with
Omani crude attaining a historic high average in January of
$39.26 per barrel. This windfall has been offset, however,
by the weak dollar and a significant drop in oil production,
from over 950,000 barrels/day (b/d) in 2001 to around 780,000
b/d today. Oman's total oil reserves stand at just over 5.5
billion barrels, good for around 18 years of production at
the current pace. Oil accounts for nearly 42 percent of GDP
and over 70 percent of total government revenue, a clear
indication that Oman's program of economic diversification
urgently needs to show results.


8. (SBU) Natural gas is one area showing signs of promise, as
the government seeks to develop gas-based industry such as a
petrochemical complex (with the American firm Dow),an
aluminum smelter (to be announced with American firm
Bechtel),fertilizer and methanol plants, a second oil
refinery, and an expanded liquefaction facility for LNG
exports. Other prime avenues for diversifying the economy
include tourism, fisheries, light manufacturing, IT, and
filmmaking. On the labor front, Oman's reliance on
expatriate labor has led to an extensive program of
"Omanization," or nationalization of the workforce. Under
this policy, employers in specific industrial sectors are
given guidelines to follow regarding the minimum percentage
of Omanis to be employed. In addition, the government
actively pursues training opportunities for young Omanis,
although the demand for such training far outstrips supply.
There is booming growth in the number of privately funded
post-secondary schools.

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2005 - A Landmark Year
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9. (SBU) This year, 2005, is shaping up to be a banner year
for U.S.-Oman relations in several ways. In addition to
marking the 35th anniversary of Sultan Qaboos' accession to
the throne, 2005 will witness Oman's participation as the
first Arab nation to be featured in the Smithsonian Folklife
Festival on the Washington capital mall. Beyond this
valuable opportunity to introduce Americans to Omani culture
and heritage, we are encouraging the government to send
commercial and tourism officials to the U.S. to develop
stronger economic ties and to promote the FTA. Oman also
plans to feature the first of its U.S.-built F-16's in the
National Day celebrations -- coincident with the Sultan's
65th birthday -- in November. If things stay on track, 2005
should see substantial progress and an elevated profile in
U.S.-Omani relations.
BALTIMORE