Identifier
Created
Classification
Origin
06RIYADH5548
2006-07-12 09:05:00
SECRET
Embassy Riyadh
Cable title:  

SCENESETTER FOR THE VISIT OF DEPUTY TREASURY

Tags:  OVIP EAID ECON EFIN PREL IZ SA 
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FM AMEMBASSY RIYADH
TO RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 9563
RUEKJCS/JOINT STAFF WASHDC IMMEDIATE
RHEHNSC/NSC WASHDC IMMEDIATE
INFO RUCNRAQ/IRAQ COLLECTIVE
RUEHGB/AMEMBASSY BAGHDAD 0381
RUEHRL/AMEMBASSY BERLIN 0116
RUEHBS/AMEMBASSY BRUSSELS 0921
RUEHLO/AMEMBASSY LONDON 2696
RUEHFR/AMEMBASSY PARIS 0631
RUEHKO/AMEMBASSY TOKYO 0455
RUEHJI/AMCONSUL JEDDAH 7461
RUCNDT/USMISSION USUN NEW YORK 0678
RUEHBS/USEU BRUSSELS
S E C R E T SECTION 01 OF 04 RIYADH 005548 

SIPDIS

SIPDIS

TREASURY FOR DEPUTY SECRETARY KIMMITT, STATE FOR EB AND
NEA/ARPI, NSC FOR BOUZIS, JOINT STAFF FOR BRIGADIER GENERAL
JONES

E.O. 12958: DECL: 07/12/2016
TAGS: OVIP EAID ECON EFIN PREL IZ SA
SUBJECT: SCENESETTER FOR THE VISIT OF DEPUTY TREASURY
SECRETARY KIMMITT TO SAUDI ARABIA

SIPDIS

REF: A) STATE 114028 B) RIYADH 5547 C) JEDDAH 449 D)
JEDDAH 450 E) 05 JEDDAH 140

Classified By: Ambassador James C. Oberwetter
for reasons 1.4(b) and (d).

S E C R E T SECTION 01 OF 04 RIYADH 005548

SIPDIS

SIPDIS

TREASURY FOR DEPUTY SECRETARY KIMMITT, STATE FOR EB AND
NEA/ARPI, NSC FOR BOUZIS, JOINT STAFF FOR BRIGADIER GENERAL
JONES

E.O. 12958: DECL: 07/12/2016
TAGS: OVIP EAID ECON EFIN PREL IZ SA
SUBJECT: SCENESETTER FOR THE VISIT OF DEPUTY TREASURY
SECRETARY KIMMITT TO SAUDI ARABIA

SIPDIS

REF: A) STATE 114028 B) RIYADH 5547 C) JEDDAH 449 D)
JEDDAH 450 E) 05 JEDDAH 140

Classified By: Ambassador James C. Oberwetter
for reasons 1.4(b) and (d).


1. (C) The U.S. Mission to Saudi Arabia warmly welcomes your
visit to Jeddah July 23. Ambassador Oberwetter and Consul
General Tatiana Gfoeller look forward to meeting you and will
accompany you on a number of your calls on Saudi leaders.
Per your request, appointments are being requested in Jeddah
with King Abdullah, Foreign Minister Saud al-Faisal, National
Security Advisor Prince Bandar bin Sultan, Finance Minister
Dr. Ibrahim bin Abdul-Aziz al-Assaf, and Islamic Development
Bank President Dr. Ahmed Mohamed Ali al-Madani.


2. (S) Your visit to the Kingdom takes place at a time of
relative internal stability but continuing concern over
regional developments. Saudi leaders always look to USG
visitors for assessments on regional security issues,
especially with regard to Iran, Iraq, and Afghanistan. The
SAG shares most U.S. concerns about a range of regional
issues, including Iran and Iraq, and is quietly pursuing
initiatives to help promote political stability in Iraq and
urge Iran to cooperate with the international community
regarding its nuclear program. The February 24 terrorist
attack on the Abqaiq oil facility came much closer to success
than the SAG has been willing to acknowledge publicly,
causing Saudi leaders to intensify internal security and
counterterrorism efforts -- and to look to the U.S. for
assistance.


3. (S) Your visit also comes during a time of some tension in
U.S.-SAG relations. On the one hand, Saudi leaders have
warmly welcomed a large number of senior USG visitors and
confirmed the strength of the bilateral relationship.
Counterterrorism cooperation remains strong and effective,

and the importance of the U.S.-Saudi military relationship
has been repeatedly reaffirmed by Saudi officials to visiting
senior U.S. commanders. Strategic Dialogue meetings in May
in Washington went well, and the thousands of Saudis,
especially students, now seeking U.S. visas offer clear
evidence that we have progressed beyond the decline that
followed 9/11. Nevertheless, obvious tensions exist. Saudi
public opinion is on edge after the recent two suicides at
Guantanamo, and the SAG is working with us to keep this
matter low profile. Further, recent independent polling
shows an 11% approval rating for the U.S. among Saudis. While
Saudi leaders do share U.S concerns about Iran, Iraq, and
other regional issues, there is a clear reluctance by the SAG
to cooperate directly and openly with the U.S. to address
them. Saudi leaders are very worried about nuclear
proliferation, but they perceive a double standard in
U.S.-driven pressure against Iranian nuclear weapons
development and have argued instead for a nuclear-free Middle
East that would include Israel. King Abdullah, who has in
the past accused the U.S. of handing Iraq to Iran "on a
golden platter," told General Abizaid May 13 that the U.S.
regional and possibly world reputation was "broken."

--------------
Iraq Stability
--------------


4. (S) During the course of the past few weeks, senior U.S.
officials have held meetings with senior SAG leaders
regarding Iraq. The SAG leadership continued to express
concern about engaging former Baathists in Iraq, and stated
that "it would be very wise to co-opt the former Baathist
elements into the new Iraqi government." The King and Crown
Prince both expressed concern over what they perceived to be
a growing Iranian threat, including their growing influence
in Iraq, and questioned the wisdom of consulting with Iran
about Iraq. Additionally, the transfer of Saudi detainees
from Iraq to SAG authority as well as the recruitment of

RIYADH 00005548 002 OF 004


terrorists from Saudi Arabia to fight in Iraq were key
concerns. It was noted that both the U.S. and the SAG want
to see the transfer of detainees, but that the SAG must
engage the GOI to do so. SAG officials were pleased to hear
that the USG and GOI decided to allow Saudi detainees in Iraq
to return to the Kingdom.


5. (S) On June 27, Ambassador Khalilzad had several meetings
with senior SAG leadership, including King Abdullah, Crown
Prince Sultan, and Foreign Minister Saud al-Faisal. During
the meetings they discussed the new Iraqi government, the
recently announced Iraqi national reconciliation plan, Saudi
detainees, and the continuing destabilizing influence of Iran
in Iraq. Ambassador Khalilzad reiterated earlier requests
for the Kingdom,s political and economic assistance to help
reconstruct and stabilize Iraq, and contain Iran,s
increasing influence among Iraqi Shi'a. The SAG received
Iraqi Prime Minister al-Maliki four days later in its first
public showing of support for the new Iraqi government. He
was warmly received by the King, the Crown Prince, the
Foreign Minister, the Defense and Aviation Minister, the
Secretary General of the National Security Council, the

SIPDIS
Inspector General and the Transportation Minister among
others (Ref C, Ref D). The SAG considers the Maliki
government a marked improvement and believe that PM Maliki is
more likely to achieve stability and development in Iraq.


6. (S/NF) Throughout discussions in recent months, senior SAG
leaders have told us that the SAG is taking steps to promote
Iraqi stability and unity, including encouraging the
involvement of other regional governments and consideration
of targeted media campaigns and humanitarian aid. The SAG
believes that its support was critical to the increased
participation of Sunni elements in the most recent elections
but, in the face of continuing sectarian violence, Saudi
leaders also likely believe there is little they can directly
do to foster peace. They remain particularly sensitive about
being perceived as supporting only the Sunni side, as this
would damage their credibility with Shi'a Iraqis and put them
in direct conflict with Iran.

--------------
SAG Position on Iraq Debt Relief
--------------


7. (S) The Saudis have still not implemented their pledges on
Iraqi debt relief and the provision of economic aid. Despite
repeated Saudi promises to offer Baghdad debt relief on terms
more favorable than that announced by the Paris Club in 2004,
no debt deal has been achieved. Initial technical level
discussions on the size and character of Iraq,s debt (the
Saudis claim a bulk of the debt is commercial, rather than
government to government) were held in early 2005, but there
have been no further talks since then. The Saudis blame
Baghdad for the lack of follow up. The Ministry of
Finance,s position is that no political-level decision can
be taken on the final terms of Saudi debt relief until the
two sides have agreed on the exact amount and nature of the
debt. Our arguments that the SAG should move forward to make
the political decision to forgive one hundred percent of the
debt, and thus make working-level negotiations unnecessary,
have failed to produce progress. If we can tell the Saudis
that the Iraqis are ready to send a delegation to the Kingdom
to discuss the debt issue, it would put the ball back in the
Saudi court.

--------------
SAG Aid to Iraq
--------------


8. (S) The SAG has made no progress in disbursing the roughly
one billion USD in aid, trade credits and concessional loans
it pledged at the Madrid Donors Conference. The SAG,s
rationale for this failure has evolved over the last twelve
months from their original concern about the lack of security

RIYADH 00005548 003 OF 004


on the ground to a current argument that the Saudi
Development Fund and other agencies cannot release project
development funds and other aid until the Iraqi Government
has in place national development priorities, recognized by
all Iraqi political elements (Ref E). It would help break
this logjam ) or at least call the Saudis, bluff -- if we
can assure the SAG that the Iraqis have such a plan and a
working ministerial-level committee to coordinate assistance
priorities.


9. (S) The SAG is interested in increasing Saudi-Iraqi
cross-border trade over the long-term, but any discussion of
a trade zone along the border now would have to address the
Saudi concern about cross-border terrorist activity and the
safety of Saudi nationals in Iraq. We have not had
discussion with the SAG about this proposal. Saudi import
and customs duties are already quite minimal, so the
attraction to the Iraqis of such a proposal would have to be
easier customs and immigration rules, always a sensitive
issue for the SAG.


10. (S) Primarily for security reasons, the Saudis remain
hesitant to expand diplomatic representation. Saudi leaders
have missed few opportunities since the December 15 Iraqi
elections to convey to us their view that Iraq is now more
susceptible to political instability and Iranian influence.
Despite their willingness to quietly encourage Iraqi unity
and stability, Saudi leaders, especially King Abdullah, have
been very worried about the chances for success. Saudi
leaders continue to worry that Sunni Takfiri insurgents in
Iraq will eventually redeploy to Saudi Arabia just as they
did after the Soviet-Afghanistan War and target the regime.

--------------
Domestic Issues
--------------

Terrorism and Counterterrorism


11. (S) Dealing with the Symptoms: Saudi Arabia continues to
enjoy significant successes in its offensive against
terrorists in the Kingdom. Saudi Arabia's campaign against
the terrorists has significantly degraded al-Qaeda operations
in the Kingdom and largely isolated terrorists from the rest
of Saudi society. Nonetheless, SAG leaders have acknowledged
publicly and privately that their war on terrorism will not
be won for many years, a view reinforced by the February 24
terrorist attack against the Abqaiq oil facility. Though the
attack failed to cause significant damage, a senior Saudi
security official has told us that "we did not protect
ourselves, God did" at Abqaiq. Although the SAG publicly
maintains that the Abqaiq attack was a demonstration of the
impenetrability of the energy infrastructure, it is clear
that there were serious lapses in security, and that
terrorism is still a dangerous presence in the Kingdom.


12. (S) Dealing with the Causes: Saudi leaders recognize that
the war on terrorism is as much a campaign of ideas and
education as it is a military and law enforcement offensive
against violent extremists. The Saudi government has
continued an ambitious media and public education campaign to
dissuade Saudis, particularly the young, from accepting the
extremist message. The campaign includes weekly television
programs, often in which former terrorists or would-be
terrorists describe their experiences, and the error of their
ways, pointing to a path that Saudis should not follow.

Border Control - Border Guard Modernization Program


13. (S) Control of Saudi borders in general remains a high
priority for the SAG. Saudi leaders continue to be concerned
about both the historically porous border with Yemen and,
more recently, about the potential for insurgents from Iraq
crossing into the Kingdom. The Ministry of Interior (MOI) is
engaged in a lengthy process to identify vendors for an

RIYADH 00005548 004 OF 004


extensive border guard modernization program, for which a
Raytheon-led consortium, the "American Team," is a key
contender. The USG has endorsed the American Team consortium
to compete for the modernization program. NSC Homeland
Security Advisor Townsend endorsed that candidacy during a
meeting with then-Crown Prince Abdullah in June, 2005 and
Secretary Rice wrote the Saudi Foreign Minister reconfirming

SIPDIS
our endorsement of the American Team proposal. MOI Prince
Nayif spoke favorably of the candidacy during a meeting with
visiting Secretary of Commerce Gutierrez.

Reform


14. (S) King Abdullah appears committed to the incremental
but steady implementation of a range of reforms. Municipal
council elections were held in the Spring (half of the
municipal councils' 592 members were elected). The 178
councils were completed in December when the remaining
members were appointed by the King. The issue of women's
rights, an area of concern, has seen some notable progress,
including the recent decision to grant women a more active
role in business organizations and the inclusion of women's
empowerment as a central element of the SAG's 2005 five-year
plan. While important changes are underway, some areas in
urgent need of reform remain to be addressed. Additionally,
there has been pressure put on the SAG from conservative
religious circles about recent reforms, including the
issuance of a May 23 open letter signed by sixty-one
religious conservatives that, for the first time from the
main-stream religious circles, threatened advocates of reform
with possible violence.

The Economy


15. (C) Saudi Arabia's current oil-driven economic boom gives
the SAG resources and the ability to damp down discontent,
and buy off potential terrorist sympathizers, with increased
social spending and job-creation public works projects. The
vast public expenditures on gold-plated infrastructure
projects which characterized past oil booms are not being
repeated under King Abdullah. This year's government surplus
is being used to significantly reduce government debt, raise
public sector salaries by 15% (70 % of Saudis work for the
government),and increase spending on targeted social
infrastructure projects, such as health, education and
vocational training programs that will reduce the number of
under-educated, under-employed Saudi youths who otherwise
would be open to extremist influence. Moreover, the King and
his economic advisors stress that, in contrast to the 1970s
and 1980s, the government's current oil bonanza -- estimated
in excess of 700 billion USD over ten years -- will be
reinvested in the Kingdom to generate future wealth-creating
industries and infrastructure, rather than used for overseas
investments and acquisitions.


16. (C) King Abdullah is also creating the mechanisms - a
well-regulated stock market, a mortgage housing industry - to
distribute this new wealth to the Saudi population and create
an "ownership society" which should, given time, reduce
support for extremists by giving the average Saudi a stake in
the continued stability of the Kingdom. Although the Saudi
stock market has lost almost a third of its value since
beginning a steep dive in late February - a decline mirrored
in other Gulf stock markets, the decline is likely a
necessary, though painful, correction to what was a grossly
overheated market. The market has stabilized in the last
several weeks, without government intervention, and the
decline did not reflect the fundamentals of the Saudi
economy, which remain exceptionally positive with all
observers predicting continued double-digit GDP growth and
low inflation.
OBERWETTER