SCENESETTER FOR VICE PRESIDENT CHENEY'S VISIT TO

S E C R E T MUSCAT 000198

SIPDIS

NOFORN
SIPDIS

WHITE HOUSE FOR VICE PRESIDENT CHENEY FROM AMBASSADOR GRAPPO

E.O. 12958: DECL: 03/05/2018
TAGS: PARM PHUM PGOV PREL PTER KDEM KNNP KWMN MASS
MNUC, ECON, ENRG, ETRD, OVIP, MU
SUBJECT: SCENESETTER FOR VICE PRESIDENT CHENEY'S VISIT TO
OMAN

Classified By: Ambassador Gary A. Grappo for Reasons 1.4 (b, d)

Summary
--------------


1. (C) Mr. Vice President: Embassy Muscat and my wife and I
warmly welcome you and Mrs. Cheney back to Oman. As one of
our oldest friends in the Middle East -- the Omanis refer to
their relationship with us as "strategic" -- Oman remains a
strong and trusted U.S. ally. The Sultan will be pleased to
see you and to hear your thoughts on a variety of subjects.
Your visit here will also allow us an opportunity to help
gauge the Sultan's views on important regional issues.


2. (C) While the U.S. and Oman enjoy close relations, we do
not necessarily see eye-to-eye on all things, most notably on
Iran. Oman's leadership recognizes and is deeply concerned
about Iran's nuclear activities and its destabilizing
meddling in the region, but its perspective on the threat
posed by Tehran differs from those of the USG and its GCC
partners. Omani government officials see direct talks with
Tehran without preconditions or sanctions as the best way to
mitigate Iranian threats. Iraq, the Israel-Palestinian
conflict, Lebanon and the future stability of Yemen are other
key regional concerns for Oman.


3. (C) U.S. security and military cooperation with Oman is
robust. The landmark sale of F-16 aircraft in 2002 helped
break Oman's traditional reliance on Great Britain for its
defense procurement needs. Under the U.S.-Oman Base Access
Agreement, unprecedented in the Gulf when first signed in
1980, the Omanis have provided us with consistent use of
their military facilities, including for storage of
approximately $10 billion in U.S. War Reserve Materials.
Recent sharp reductions in Foreign Military Financing (FMF)
for Oman, however, could adversely impact opportunities for
further military engagement.


4. (C) Domestically, Oman continues to enjoy internal
stability and economic prosperity. National elections in
October 2007 for the lower house of Oman's bicameral advisory
body (Majlis al-Shura) went smoothly with higher than
expected voter turnout, although no female candidates were
elected. Oman's economy is enjoying double-digit growth;
strong revenue from oil sales has provided funds for
ambitious industrialization projects to help diversify the
economy. Oil production continues to decline, however, and
rising inflation and living costs are generating public
grumbling. The U.S.-Oman Free Trade Agreement (FTA),signed
by both the President and the Sultan in 2006, still has not
been implemented due to Omani foot-dragging on needed
legislation and concerns over telecommunications
liberalization. We hope that your visit may help prompt the
Omanis to take the final steps needed for the FTA to come
into force. End Summary.

Iran
--------------


5. (C) Oman maintains close, cordial relations with Iran and
is careful not to antagonize the regime in Tehran. Oman
probably has the best relationship of any Arab state with
Tehran and unlike its GCC counterparts, currently has no
bilateral issues with Iran. Iranian President Ahmadinejad
visited Muscat and met with the Sultan in May 2007. The
Omani government strongly seeks to avoid even the suggestion
of friction with Iran, preferring dialogue with its neighbor
to the north on maritime security and other shared interests
-- including possibly importing Iranian gas to fuel Oman's
expanding industrial needs. Apart from a few subjects,
however, the Oman-Iran relationship is largely
non-substantive and there is little in the way of meaningful
cooperation (and only limited trade) between the two
countries. Oman's strategic relationship instead clearly
lies with the United States (and the U.K.),and it regularly
shares its insights and observations concerning Iran with us.



6. (C) While neither the political nor military leadership
wants to describe Iran as a threat to Oman's security, Omani
officials are disturbed by Iran's growing influence in the
region and by its inability to come to terms with the U.S.
and other P5 members over its nuclear program. In addition
to the significantly increased instability a nuclear-capable
Iran would mean for the region, Omanis are anxious about

Tehran's meddling and trouble-making in other states,
particularly Iraq and Lebanon, and its opposition to efforts
to end the Israeli-Palestinian conflict. They also worry
about the long-term consequences if this behavior is left
unchecked. Moreover, the January incident between IRGC and
U.S. naval vessels in the Strait of Hormuz highlighted to
Omani officials the vulnerability of this strategic
chokepoint to unpredictable Iranian behavior. Despite these
concerns, senior Omani government officials repeatedly advise
us that sanctions against Iran are counter-productive and may
strengthen hard-line attitudes in Tehran. They instead
advise dialogue with Tehran without preconditions to mitigate
Iranian threats. Oman has used its ties with Tehran to urge
Iran to adopt a more conciliatory approach in addressing
Western concerns over its nuclear activities and
destabilizing actions in the region.


7. (S/NF) Omani leaders have a unique view of potential
Iranian military action in that they do not believe Iran
would attack GCC countries with missiles in response to a
military strike staged in the Gulf. Instead, they see
asymmetrical, terrorist operations conducted by Iran against
Gulf states, including U.S. targets in these states, as more
likely. To this end, the Omanis are not keen on acquiring
Patriot missiles as proposed by the U.S. in the Gulf Security
Dialogue, and are more interested in Shared Early Warning
(SEW) and HIMARS/ATACMS, which they view as the most credible
deterrent options.

Iraq
--------------


8. (S) Though not a major financial donor, Oman supports USG
efforts to promote security and political stability in Iraq.
Prime Minister Maliki visited Muscat in April 2007 for talks
with the Sultan and senior officials. The Omani government
forgave all Iraqi debt and has publicly condemned several
high-profile terrorist attacks. Oman is not an origin or
transit country for fighters or illegal funds destined for
Iraq.


9. (C) The Omani leadership remains deeply concerned with
Iraq's future. They remain particularly worried that
extremist and sectarian violence in Iraq could spill over
into other states in the region. Though encouraged by the
recent improvement in security in Iraq brought on by the U.S.
troop surge, Omani government officials harbor doubts about
the reliability of Iraq's leadership and whether it can
effectively control the country. They continue to assert
that military force alone will not bring stability to Iraq.
Senior Omanis also doubt that Iraqi Prime Minister Maliki is
interested in, and/or capable of, pursuing reconciliation
with Sunni leaders, which they see as critical to ending the
insurgency. Senior Omani military officers and other
officials, including the Sultan, support a continued U.S.
military presence in Iraq until security is established and
Iraqi forces and police are able to preserve security and
stability.

Middle East Peace
--------------


10. (C) The Israeli-Palestinian conflict remains a matter of
considerable interest, both within the leadership and among
the Omani public. As elsewhere in the Arab world, news
reports of civilian casualties from recent Israeli military
strikes in Gaza have generated strong public condemnation.
Oman closed the Israeli Trade Mission in Muscat in 2000
during the Second Intifada, but maintains good and regular
(though non-public) communications with Israeli officials,
including at the Foreign Minister level.


11. (C) The Omani government continues to play its
traditional role of quiet support for efforts to peacefully
resolve the Israeli-Palestinian conflict based on the
President's two-state vision. Oman endorsed and
enthusiastically participated at the ministerial level in the
November 2007 Annapolis Conference to promote Middle East
peace. Omani officials continually warn, however, that the
U.S. must increase pressure on Israel to take meaningful
action on settlements and to offer genuine concessions if a
peace deal is to be achieved by the end of this year. Oman
supports Palestinian President Abbas in his struggle with
Hamas and pledged approximately $30 million at the December
2007 Paris Donors Conference for education and health

projects in the West Bank. It has declined to provide direct
budgetary support for the Palestinian Authority.

Lebanon
--------------


12. (C) Oman backs the elected government of Lebanese Prime
Minister Siniora, who met with the Sultan in Muscat in
January 2007. It also recognizes Syrian complicity in the
crisis in Beirut over the failure to select a new Lebanese
president. Nevertheless, true to its commitment to peaceful
dialogue, Oman still hopes that Damascus and Lebanese
opposition groups can be coaxed into reaching a solution to
the impasse. The Omani leadership has yet to decide its
level of representation at the upcoming Arab League (AL)
summit in Damascus, although the Sultan has ruled out
attending. The foreign minister recently told me that the
Lebanese crisis and attendant doubts over the AL summit
threaten to fracture the AL and broader Arab unity. The
Omani government deposited $50 million in the Central Bank of
Lebanon in 2007 to fund reconstruction projects, but has not
responded to requests for financial assistance for the
international Hariri tribunal.

Bilateral Security Relations
--------------


13. (C) Oman is of vital geo-strategic importance to the
U.S., many of our allies and the global economy. At the
entrance to the Strait of Hormuz, Oman presides over all the
shipping lanes in this critical chokepoint. In 1980, Oman
decided to enter into a formal security partnership with the
U.S. through a Base Access Agreement, which was unprecedented
in the Gulf at the time. Since then, Oman has fully
supported virtually all access, basing and over-flight
requests we have made. Our use of Omani military facilities
proved invaluable during both OEF and OIF. U.S. CENTAF
maintains War Reserve Materials (WRM) sites at Seeb (Muscat)
International Airport, Masirah Island and Thumrait, which
house almost USD 10 billion in weapons, equipment, and
supplies to support U.S. military operations in the Middle
East and South Asia. The closure of the military portion of
Seeb airport will be a phased reduction starting in 2010 and
completed by 2012. Oman is constructing a new airbase at
al-Musanah, close to the northern port of Sohar, and CENTAF
hopes to build a WRM site at this facility. The Base Access
Agreement is up for renewal in 2010; the U.S. will ask to
expand its scope to include Sohar port in the north of Oman
and the al-Musanah base.

Counter-Terrorism Efforts
--------------


14. (S/NF) The Omani security and intelligence services are
professional, reasonably well-funded and motivated. Oman is
not a regional or offshore financial center and, accordingly,
does not have significant money laundering or terrorist
financing problems. To date, Oman has never experienced, or
been used to stage, a terrorist attack or incident (although
members of extremist groups have been arrested). However,
with its relatively open and welcoming society and increasing
numbers of Western tourists, Oman remains vulnerable to
terrorist attacks.


15. (C) Border control is one of Oman's top priorities and an
increasing area of bilateral cooperation with the U.S. Oman
's long coastline and relatively open borders in some inland
areas remain vulnerable to smugglers, drug traffickers, and -
potentially - terrorists. The Royal Oman Police Coast Guard
regularly detains smugglers and illegal migrant workers,
usually along Oman's northern coast between Muscat and Sohar.
The majority of illegal immigrants are from Pakistan and
Afghanistan, who often travel overland to Iran and then board
boats to cross the Gulf of Oman. Some of those detained are
now coming from the former Soviet republics in Central Asia;
more Somalis are allegedly attempting to enter Oman via
Yemen. One unofficial estimate placed the number of illegal
immigrants apprehended in 2006 at over 25,000, although the
numbers reportedly declined in 2007.


16. (C) The Embassy's Office of Military Cooperation (OMC)
and Export Control and Related Border Security Assistance
(EXBS) program work with the various military and police
services to enhance Oman's ability to both monitor and
enforce its borders. Furthermore, Oman is an active

participant in two-port/cargo security programs sponsored by
the USG: the Secure Freight Initiative (administered by the
Department of Homeland Security),which pre-screens
containerized cargo being shipped to the U.S.; and the
Department of Energy's MegaPorts Initiative, which is working
to install equipment at Omani ports to identify nuclear
material.

Military Relations and Sales
--------------


17. (C) The U.S. maintains strong military-to-military
relations with Oman. There is a robust joint exercise
schedule each year, and almost 30 Omani military members
travel annually to the U.S. under the International Military
Education & Training (IMET) program. Regarding arms sales,
the U.S. has made significant progress in breaking Oman's
traditional reliance on Great Britain for its defense
procurement needs, most notably illustrated by Oman's
purchase of F-16 aircraft in 2002. However, declining U.S.
Foreign Military Financing (FMF) poses a challenge for the
modernization of Oman's military, as well as for the future
of U.S. weapons sales to Oman. From a high of $24.85 million
in FY04, the FY08 FMF budget request for Oman was first
reduced to $10.10 million, and then again to $4.4 million.
The Omanis have not yet been officially notified of this
reduction and we anticipate a very negative reaction, as well
as questioning by the Omanis whether this is intended as a
political message.


18. (S) There currently are numerous Foreign Military Sales
(FMS) cases in process, including F-16 aircraft. There are
now 11 F-16s in Oman, with one more scheduled for delivery in
summer 2008. However, technical problems with the aircraft's
electronic warfare suite and radar system have not been
resolved. Oman is considering purchasing a second squadron
of F-16s in the future, but this decision will likely remain
on hold until the current airplanes are fully operational.
Regarding future sales, Oman has made ATACMS/HIMARS a top
priority due to its strong deterrent capability.
Availability and funding issues (Oman has expressed a need
for "creative financing") for Oman's proposed purchase of
ATACMS are currently under review by the inter-agency process
in Washington.

Domestic Politics
--------------


19. (C) As a result of the strong leadership and pro-Western
tilt of Sultan Qaboos, the country's trade and maritime
heritage, and generally tolerant religious views, Omanis are
known for openness and moderation. The Sultan is considered
an enlightened, benevolent ruler who has won the firm
allegiance of all Omani tribal groups. His commitment to
tolerance and opposition to division among religious or
ethnic lines have resulted in the absence of sectarian or
factional conflict. In 1996, the Sultan promulgated Oman's
"Basic Law" which defines certain rights and privileges for
all citizens and enshrines the role of the Majlis Oman, a
two-chamber advisory body with severely circumscribed
legislative functions. Members of the upper house (the
Majlis al-Dawla) are appointed by the Sultan; members of the
lower house (the Majlis al-Shura) are directly elected by
universal suffrage every four years. While the Majlis Oman
can review and comment on draft laws and budgets, it cannot
initiate or veto legislation. Political parties and interest
groups are banned.


20. (C) Turn out was higher than expected in Oman's October
27, 2007 national polls for the Majlis al-Shura, with over
62% of registered voters casting ballots in a generally free
and fair election. Many Omanis, however, chose not to
register, in part due to perceptions that the Majlis is
largely ineffective. Omanis continued to vote along tribal
lines, although this practice was reportedly less pronounced
than in the 2003 elections. Newcomers won more than half of
the 84 seats; however, none of the approximately 20 female
candidates won their electoral bids. The Sultan was
disappointed with this outcome and, in response, appointed 14
women to service in the 70 member Majlis al-Dawla (the upper
chamber). To assist Oman's domestic reform efforts, the U.S.
has partnered with Oman through the Middle East Partnership
Initiative (MEPI) to institute programs focusing on judicial,
educational, economic and political reform, as well as
women's empowerment. A proposed MEPI campaign training

school for female candidates prior to the 2007 polls was
scrapped by the government due to internal sensitivities; the
Embassy is hopeful that this program can be resurrected prior
to the next national elections.

Trafficking in Persons
--------------


21. (C) While the U.S.-Oman relationship has generally been
free of tension, the Omani government reacted strongly to its
designation as a Tier 3 country in the State Department's
2006 Trafficking in Persons (TIP) report. Despite Embassy
assertions to the contrary, some Omani officials -- who have
much to learn about the global TIP problem -- questioned
whether there was a political reason behind this designation.
With the assistance of a USG-funded American expert, Oman
has since drafted a comprehensive anti-TIP law that expressly
defines and criminalizes trafficking and establishes a
national committee to coordinate anti-TIP initiatives.
Passage of the law would represent a significant step forward
in addressing U.S. concerns, but may not be enough to remove
Oman from Tier 3.

Economic and Energy Update
--------------


22. (C) Oman's economy is based primarily on revenues derived
from petroleum and natural gas, which accounted for 79% of
the government's income in 2007. Proven oil reserves are
estimated at 4.8 billion barrels, though Ministry of Oil and
Gas officials are optimistic that over 35 billion barrels
remain to be recovered. Skeptics suggest a significantly
lower figure. The main oil producer is Petroleum Development
Oman (PDO),a majority government-owned company that partners
with Royal Dutch Shell. It controls approximately 90 percent
of the reserves and the lion's share of total production.
With average daily production falling from 956,000 barrels
per day (bpd) in 2001 to 710,000 bpd in 2007, the government
has opened the sector to greater foreign participation in a
bid to increase output. U.S.-based Occidental Petroleum, the
second largest producer, is investing $3 billion in enhanced
oil recovery efforts for its recently acquired concessions.
Also, BP and British Gas have recently been invited into the
country in an effort to tap Oman's gas and oil potential.


23. (C) Despite declining oil production, high oil prices
over the past several years have led to solid Omani budget
surpluses and GDP growth. Oman's economy grew over 11% in
2007 and produced an estimated $4.5 billion surplus, which
the government will use in part to improve oil production
capabilities and locate additional gas reserves. In
addition, the government is using its revenues to strengthen
the economy in the long-run by shoring up its pension fund,
reducing its debt, and augmenting a number of reserve funds.
Flush oil revenues also have allowed the government to
proceed with plans to diversify Oman's economy through
industrialization, port infrastructure expansion, and tourism
development. The largest single industrial investment target
is the port city of Sohar, which has witnessed over $12
billion in government investment alone. Since domestic gas
supply concerns are dampening the government's
industrialization efforts, Oman is looking to Iran and Qatar
as potential suppliers; discussions with Iran to jointly
develop the Hinjam/Bukha field in the Gulf are ongoing.


24. (C) Inflation and the rising cost of living have emerged
as significant concerns in Oman, evoking much public
grumbling. Prices for many consumer goods, including basic
staples, have risen sharply. Booming real estate values have
led to skyrocketing rents and made home ownership much less
affordable. Significant government spending on various
construction projects, and the currency peg to the declining
dollar, have contributed to rapid increases in the prices of
building materials and consumables. In December 2007, the
government estimated inflation at over eight percent ) the
highest level in 16 years. In response, the Sultan announced
a number of stabilization measures in February, including an
increase in public sector salaries with the largest wage
hikes (43%) for those at the bottom of the pay scale.

Free Trade Initiatives
--------------


25. (C) To encourage further foreign investment and develop
export markets, the government is strengthening its trade

relationships through the negotiation of free trade
agreements with a number of strategic partners, particularly
in Asia. In October 2006, President Bush and the Sultan
signed the U.S.-Oman Free Trade Agreement (FTA),but
implementation remains pending revisions to Oman's
intellectual property, government procurement, and
telecommunications licensing laws and regulations. Omani
officials acknowledge that they are responsible for most of
the remaining issues delaying FTA implementation. While the
Embassy is hopeful that Oman's slow legal review process will
clear the way for adoption of final measures in the next few
months, further movement on telecommunications liberalization
(the substantive impediment to implementation) will depend on
the speed by which the government identifies a strategic
partner for Omantel, its fixed-line monopoly carrier.

Final Comments; Sultan Qaboos
--------------


26. (S/NF) Through a close advisor, the Sultan has
communicated that he very much looks forward to resuming his
dialog with you. While he continues to maintain a low
profile both regionally and domestically -- even Omanis were
heard criticizing his invisibility in the wake of last June's
surprising and destructive cyclone -- the Sultan keeps in
close touch with the functions of his government and on top
of regional and international issues. For example, in a
discussion I had with him in December, he explained to me
that he had returned the draft of the new government
procurement law to the relevant ministry because it had given
too much authority for contract decisions to the tender board
chief. Similarly, in his meeting with CENTCOM Commander
Admiral Fallon last month, the Sultan asked detailed
questions about the factional conflicts in Iraq and the
recent Iraqi budget. By all accounts and appearances, the
Sultan's health is good.


27. (S/NF) Sultan Qaboos recently completed a shake-up in
his internal security service leadership and navy, and rumors
circulate that further changes may be in the offing,
including the departure of his long-time security advisor and
Chief of the Supreme Commander's Office, General Ali Majid
al-Ma'amari. Ali Majid, a stalwart confidant and advisor to
the Sultan for nearly 30 years, returned from Germany in
January following surgery, allegedly for arteriosclerosis.
His rumored retirement may be due to continuing health
problems. His departure would mark a significant change in
Oman's leadership line-up.
GRAPPO