2005/2006 REPORT TO CONGRESS ON ALLIED

C O N F I D E N T I A L SECTION 01 OF 03 MUSCAT 000122 SIPDIS SIPDIS STATE FOR PM/SNA SENIOR ADVISER STATE ALSO FOR NEA/RA, NEA/ARPI DOD FOR OAS/PA&E, OASD/ISA/EUR, OASD/ISA/NP DOD ALSO FOR OASD/ISA/AP, OASD/ISA/NESA, OASD/ISA/BTF E.O. 12958: DECL: 01/31/2016 TAGS: PREL MCAP MASS MARR MU SUBJECT: 2005/2006 REPORT TO CONGRESS ON ALLIED CONTRIBUTIONS TO THE COMMON DEFENSE: OMAN REF: A. 05 STATE 223383 ¶B. 03 MUSCAT 2678 Classified By: Ambassador Richard L. Baltimore III. Reason: 1.4 (a, b, d). -------------- General Assessment -------------- ¶1. (SBU) ECONOMIC/POLITICAL FACTORS: There have been no major policy changes since the 2004 report (ref B). Oman remains a stalwart ally in the global war on terrorism and key Arab proponent of regional stability, including USG stabilization efforts in Iraq and Afghanistan. Long-standing military-to-military relations remain both strong and highly sensitive; specifics of those relations (described in classified detail in ref B) must be scrupulously protected. Oman's GDP has grown in absolute terms 8.9 percent annually in the five-year period 2000-2005 as continuing declines in oil production have been more than off-set by rising oil prices. The government recorded its highest budget surplus ever for 2005, totaling $3.8 billion compared to total expenditures of $10.4 billion. Per capita GDP has risen from roughly $9,000 in 2003 to over $13,000 in 2005. The Omani government is under no illusion, however, about its falling oil production (which sector accounts for nearly 80 percent of all government revenues). It is investing heavily in enhanced oil recovery schemes, natural gas-fed industrialization, port development and tourism as a means of both extending its oil income and to lay the foundation for a more diverse, non-oil economy in the future. With regard to the GCC Mutual Defense Agreement, there are no plans to expand the Peninsula Shield force. Oman's contribution remains one battalion which, like other GCC units per recent GCC decision, will soon be returned to the Sultanate. Oman will host a GCC inclusive exercise in 2007; as host, Oman will pay more than its proportional share of the costs of that exercise. ¶2. (SBU) DEVELOPMENTS IN DEFENSE POLICY AND SPENDING: Given falling oil production (currently less than 760,000 barrels per day, down from 955,000 bpd in 2002) and the uncertainty of oil prices, government outlays on defense and security have remained generally flat as a percentage of the budget (on average, around 30 percent),though the budget has generally grown each year. There has been no change in Omani government policy regarding access, basing and overflight requests, particularly with regard to U.S. and UK air and maritime patrols involved in GWOT operations. Supportive of OIF stabilization efforts, Oman has fully engaged the new Iraqi government, receiving senior official delegations and trade missions, credentialing a new resident Iraqi ambassador, and providing training and humanitarian assistance to public and private sector Iraqis. In continuing support of the GWOT, domestically Oman has expanded the role of Army and Special Forces units in guarding border areas against potential transit by terrorists, narcotics smugglers and illegal migrants. The Royal Oman Police Coast Guard is increasing its maritime interdiction capabilities and operations, while its CT capabilities have been significantly enhanced through the FMS program. This includes joint border control training with U.S. counterparts, improving both capability and interoperability. Oman participates in regular dialogue and information sharing with the U.S. on GWOT and maritime security matters in the Arabian Sea, Gulf of Oman and Strait of Hormuz. To help preserve a secure operating environment for U.S. military personnel, Oman and the U.S. reached a bilateral agreement pursuant to Article 98 of the Rome Statute on the International Criminal Court in September 2004. ¶3. (SBU) STEPS TO TRANSFORM CAPABILITIES, INTEROPERABILITY: In 2005, Oman signed the General Security of Military Information Agreement (GSOMIA) with the U.S., thus codifying the security of shared intelligence and classified items and facilitating cooperation on sensitive matters. In 2005, Oman also negotiated the text (still under DOD review) of the Acquisition and Cross Servicing Agreement with the U.S., which will significantly increase both U.S. and Omani forces' abilities to conduct operations. Oman's acquisition of various U.S. equipment is aimed at improving both capability and interoperability, including: -- F-16 aircraft (12),with associated weapons and support equipment valued at $820 million, with the possibility of MUSCAT 00000122 002 OF 003 purchasing an additional 24 aircraft in outlying years. -- Night Vision Goggles (382 units),for $3.2 million in 2005. -- Javelin command launch units (12) and 100 missiles each for $14.8 million in 2004. -- TOW IIB missiles (100 each in 2004 and 2005) for total cost of $4.85 million. -- TOW IIB launchers (24) for $2.4 million in 2004. -- Harris radios for the Sultan's Special Force for $5.6 million in 2004. -- Mark V Fast Boats (3) purchased in 2004 for $25.5 million, with the intent to purchase an additional 6 boats in outlying years. ¶4. (SBU) RECENT NOTABLE EFFORTS IN CONTINGENCY OPERATIONS, MILITARY AND HUMANITARIAN ASSISTANCE: The Omani government organized national relief efforts for several natural and humanitarian disasters. The government chartered at least three flights of relief supplies for Asian victims of the December 2004 tsunami. The Royal Oman Air Force flew over 10 C-130 sorties of donated relief supplies to Pakistan earthquake victims, and leased a Russian AN-124 cargo plane for an unknown number of additional flights. Over 270 tons of food, clothing, bedding, tents and medicine were delivered, in addition to over $170,000 in private cash donations. Oman donated $1 million for reconstruction efforts in Sudan following a sought-after peace accord to Sudan's civil war. Oman has pledged over $3 million for Iraq reconstruction (in addition to training, medical treatment and humanitarian assistance in-kind),as well as funds for Afghanistan reconstruction and Palestine. In the field of counter-proliferation, Oman signed in November 2005 an MOU with the U.S. on the Container Security and MEGAPORTS Initiatives, which will place U.S. Customs officers in the Port of Salalah to inspect targeted cargo containers prior to their entry into U.S. ports, and place U.S. Department of Energy-funded radiation detection equipment in Oman's largest ports. This not only enhances U.S. homeland security, but also improves force protection for U.S. Navy assets when making calls in those Omani ports. Oman continues to participate in joint training and planning programs with U.S. forces on such matters as maritime rescue and oil spill remediation. ¶5. (C) The Sultan donated $15 million to Hurricane Katrina relief efforts in Louisiana, Mississippi and Alabama in 2005 under the strict condition that we did not publicize the gift. ¶6. (SBU) CONTRIBUTIONS TO STABILITY OPERATIONS, MARITIME SURVEILLANCE AND INTERCEPTION: Oman grants all U.S.-requested access, overflight and basing for OIF and OEF. In 2005 alone, this included approximately 4,000 aircraft overflights, 350 aircraft landings, 11 ship dockings at Port Sultan Qaboos (Muscat) and 5 at Port Salalah. Oman hosts the second largest War Reserve Materiel (WRM) site in Central Command's area of responsibility (AOR),and the only generator repair facility in the region. WRM deployments in support of OIF/OEF continue with full support from Oman. While Oman does not contribute directly to the costs of these operations, it bears a significant amount of indirect costs such as force protection, aircraft servicing, etc. Maritime interception operations, described in ref B and previous reports, continue. ¶7. (U) COST SHARING - CASH ASSISTANCE AND IN-KIND CONTRIBUTIONS: None. ¶8. (SBU) DIRECT COST SHARING: In terms of labor, the Omani military and special forces provide 24-hour ramp security and motorcade support/security for MILAIR transit and VIP missions into Oman, at an estimated cost of $750,000 per year. In terms of facilities, Oman does not contribute directly to the costs of relevant sites, but contributes a significant amount in indirect costs for force protection, servicing, and related items. ¶9. (SBU) INDIRECT COST SHARING: With regard to tax and customs concessions, all movement of USG equipment and materiel related to the WRM prepositioning contract is customs/tax exempt. In FY05, this amounted to over 24,000 pieces of time-definite express air shipments valued at $3.8 million. In large equipment moves, more than 800 containers (TEUs) of equipment have processed in and out of Oman for the WRM program, accounting for more than 36,000 pieces of U.S. military hardware. MUSCAT 00000122 003 OF 003 ¶10. (C) CONTINGENCY, MILITARY RELIEF, HUMANITARIAN OPERATIONS: For humanitarian relief, see quantities in para ¶4. Regarding capacity-building, Oman has engaged in civic assistance projects in the Republic of Yemen, including road construction and free medical services. Exact costs are not known but likely exceed several million dollars. In terms of counterproliferation contributions, Oman has privately expressed support to the USG for the Proliferation Security Initiative, but will not make a public declaration. In April 2005, Oman actively considered a PSI-related request to intercept a suspected dual-use machinery shipment bound for a country of proliferation concern, but the request was eventually withdrawn when the source nation and the vessel's flag state could not come to agreement on cost-sharing and indemnity. ¶11. (U) GROSS DOMESTIC PRODUCT: -- 1999: RO 6.041 billion ($15.7 billion) -- 2000: RO 7.639 billion ($19.9 billion) -- 2001: RO 7.670 billion ($19.9 billion) -- 2002: RO 7.809 billion ($20.3 billion) -- 2003: RO 8.307 billion ($21.6 billion) -- 2004: RO 9.545 billion ($24.8 billion) -- 2005: RO 10.83 billion (estimate) ($28.2 billion) (Source: Ministry of National Economy) ¶12. (U) DEFENSE EXPENDITURES: The Omani government does not divulge details of its defense spending beyond a single published line-item in the annual budget entitled "Defense and National Security." -- 2008: RO 886 million ($2.3 billion) - projected -- 2007: RO 886 million ($2.3 billion) - projected -- 2006: RO 1.245 billion ($3.24 billion) - budgeted -- 2005: RO 1.148 billion ($2.98 billion) - budgeted -- 2004: RO 974 million ($2.53 billion) - budgeted -- 2003: RO 1.04 billion ($2.72 billion) - actual Note: The defense expenditure figure for 2005 comes from the budget announcement by the Ministry of National Economy (MNE) at the start of FY2005. Actual total budget expenditures for FY 2005 exceeded the announced budget by $860 million, but the government has not divulged how much of that additional spending may have gone to "Defense and National Security." The FY2006 figure comes from the MNE budget announcement at the start of the fiscal year. The 2007 and 2008 figures are extracted from MNE's announced budget projection from the Seventh Five-Year Plan, spanning FY 2006-2010. The projected expenditures for "Defense and National Security" during the Five-Year Plan is RO 4.79 billion ($12.454 billion); when the FY 2006 defense budget is subtracted, and the remaining sum prorated over the remaining four budget years of the Five-Year Plan, it averages to RO 886 ($2.3 billion). ¶13. (U) Point of Contact: Pol/Econ Chief Michael G. Snowden; tel: (968) 24-698-989, ext. 407; e-mail: (classified) snowdenmg@state.sgov.gov; unclassified e-mail: snowdenmg@state.gov. BALTIMORE