SCENESETTER FOR DEFENSE SECRETARY GATES' VISIT TO

S E C R E T MUSCAT 000237

SIPDIS

NOFORN
SIPDIS

DEFENSE DEPARTMENT FOR SECRETARY GATES FROM AMBASSADOR
GRAPPO

E.O. 12958: DECL: 03/25/2018
TAGS: PARM PGOV PREL PTER KNNP MASS MNUC MOPS ECON
ENRG, OVIP, MU
SUBJECT: SCENESETTER FOR DEFENSE SECRETARY GATES' VISIT TO
OMAN

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


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


1. (C) Secretary Gates: Embassy Muscat and I warmly welcome
you to Oman. As one of our oldest friends in the region --
the Omanis refer to their relationship with us as "strategic"
-- the Sultanate remains a strong and trusted U.S. partner.
We have requested an audience with Sultan Qaboos bin Said --
the second-longest (after Libya's Qadhafi) ruling head of
state in the Arab world -- during your visit, as well as
meetings with General Ali bin Majid al-Ma'amari, Minister of
the Royal Office, and Sayyid Badr bin Saud bin Harib
al-Busaidi, Minister Responsible for Defense Affairs.


2. (C) While the U.S. and Oman enjoy close relations, we do
not see eye-to-eye on all matters, 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 have generated some public
grumbling. The U.S.-Oman Free Trade Agreement (FTA),signed
by both the President and the Sultan in 2006, represents a
new pillar in our bilateral relationship, but still has not
been implemented due to Omani foot-dragging on remaining
issues. 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
problematic bilateral issues with Iran. Iranian President
Ahmadinejad visited Muscat and met with the Sultan in May

2007. The Omani government 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. 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 countries, 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
more credible deterrent options for them.

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


8. (S) Although 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. Because of security concerns, Oman has
not reopened its embassy in Baghdad; Iraq maintains an
accredited ambassador in Muscat, however.


9. (C) The Omani leadership remains 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 express
concern about Iraqi Prime Minister Maliki's interest in and
capability 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. Finally, senior
Omanis warn against making Iraq a "battleground between Sunni
Arabs and Shi'a Persians." They see recent efforts to
encourage greater Arab involvement in Iraq as a bulwark
against the Iranians as playing into the hands of extremists.
The best approach to keeping the Iranians at bay is building
a stable and secure Iraq for all Iraqis.


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 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 participated

at the ministerial level in the November 2007 Annapolis
Conference to promote Middle East peace. Their enthusiasm
had been dampened recently, however, by events in Gaza.
Omani officials warn 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 Sultan will not attend the upcoming Arab
League (AL) summit in Damascus; the Deputy Prime Minister
will instead lead Oman's delegation. According to the
foreign minister, the Lebanese crisis threatens 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.

Overall Mil-Mil Programs
--------------


17. (S/NF) Oman has supported virtually all access, basing
and over-flight requests we have made. NAVCENT flies P-3
patrols from Masirah Island on an irregular single-ship
deployment basis. NAVCENT also uses the Al Qarin bombing
range when U.S. aircraft carriers transit off the coast. In
addition, NAVCENT is dramatically increasing the number of
port calls to the Sultanate, including liberty visits and
logistical re-supply visits. However, Oman does not
currently allow nuclear-powered warships to call at its
ports. Last year, the Omanis turned-down a proposed carrier
visit. I recently informally approached the Minister
Responsible for Foreign Affairs to request an exception to
this policy in order to allow a nuclear-powered submarine to
make a port call, which was also denied. COMUSNAVCENT sees a
submarine visit as a stepping-stone to ultimately opening the
way for carriers to make port calls in Oman. We are
considering another possible approach in order to meet
NAVCENT's needs.


18. (S) Exercises: The planned exercise schedule for FY08 is
robust, with one ground exercise, three JCETs, two air (one
of which will be a combined operation between Oman, the U.S.,
the U.K and France) and two EOD exercises. In addition,
planning for a new amphibious exercise with Oman is underway,
the objective of which will be the delivery of military
assistance from the sea in response to a humanitarian
disaster (i.e. typhoon, earthquake, etc.).


19. (U) IMET/CTFP/NESA: The FY06 IMET program for Oman was
USD 1.089M with Oman sending 27 students to the U.S.; five
Omanis were sent under the Counter Terrorism Fellowship (CTF)
Program. FY07 IMET was USD $1.089M and sent 28 Omani
students to the U.S. for training. The FY 08 budget for IMET
and CT for Oman increased to $1.5M and $100K, respectively.
Currently, there are 58 Omani NESA alumni with two new
participants preparing for travel.

Foreign Military Sales
--------------


20. (C) From a high of USD 24.85 million in FY04, the FY08
Foreign Military Financing (FMF) budget request for Oman was
first reduced to USD 10.10 million, and then again to USD 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. OMC is working with MOD to best manage
the decrease with its five year acquisition plan. Numerous
FMF cases are in process, including NVDs, Naval and Coast
Guard boats, M-16 rifles, Javelin and TOW-IIB missiles.
Declining U.S. FMF poses a challenge for the modernization of
Oman's military, as well as for the future of U.S. weapons
sales to Oman.


21. (S) Key Foreign Military Sales (FMS) cases include:

a. (C) F-16s: Eleven of the 12 aircraft are in country, 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. Overall, the
Omanis are proving very capable as pilots, maintainers and
logisticians. Case value is USD 750M.

b. (U) Tropospheric Scatter Network (Troposcatter) and 1kW HF
Radios: These systems will provide integrated national C2;
they gained in priority after the Omani stepped-up its
operations to intercept and/or detain illegal immigrants.
Company design of system requirements and availability has
taken two years.

c. (C) Counter Narcotics/Counter Terrorism/Border Security:
The Royal Oman Police (ROP),parent organization of the ROP
Coast Guard, used Article 1004 funding to upgrade the command
and control facility at ROP/HQ and to obtain secure HF radios
for Coast Guard boats and stations. The radio upgrade was
completed in December 06 and provided the ROP with the
ability to intercept more smugglers than by using its old
system of cell phones. ROP and OMC are working to obtain
additional 1004 and 1033 money to institute further border
control and counter narcotic/terrorism programs.

d. (S) 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.

Intelligence
--------------


22. (S/NF) Bilateral Intelligence Exchanges: Oman and the
U.S. have an active intelligence exchange program (SEAGULL).
We recently concluded a very successful four-day intelligence
exchange conference between CENTCOM analysts and Oman's
Directorate of Military Intelligence. Oman's intelligence
community is concerned about Iranian military activity and
very interested in U.S. progress in Iraq. Additionally, Oman
and the U.S. operate under an intelligence sharing agreement
that supports a U.S.-provided ELINT system (Cluster
Spectrum). Due to maintenance problems and its advanced age,
the system is ineffective. Oman is seeking new ELINT/SIGINT
equipment to fill the gap. The U.S. intelligence community's
response to Oman's request is being staffed in the Defense
Intelligence Agency (DIA).

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


23. (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. There are no political parties
or interest groups.


24. (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 serve 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.

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


25. (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.

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


26. (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.


27. (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.


28. (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, its
highest level in 16 years.

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


29. (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.

GRAPPO