BACKGROUND ON OMAN FOR CENTCOM ASSESSMENT TEAM

S E C R E T SECTION 01 OF 06 MUSCAT 000812 NOFORN SIPDIS E.O. 12958: DECL: 11/24/2018 TAGS: PARM PGOV PREL PTER ECON EFIN ETRD MASS MOPS MNUC, KNNP, KPAL, IR, IZ, MU SUBJECT: BACKGROUND ON OMAN FOR CENTCOM ASSESSMENT TEAM VISIT TO MUSCAT Classified By: Ambassador Gary A. Grappo for Reasons 1.4 (b, d) Introduction -------------- ¶1. (C) One of our oldest and most dependable friends in the region, Oman remains a valued ally. This year marks the 175th anniversary of the U.S.-Oman "Treaty of Amity and Commerce," second oldest in the Middle East and North Africa. In 2009, we will begin negotiations on renewal of our bilateral Base Access Agreement which, when originally signed in 1980, was unprecedented (and highly criticized) in the region. Despite our strong record of cooperation with Oman, however, we do not always share the same views, particularly with regard to Iran. ¶2. (C) Oman's stability, prosperous economy, and forward-leaning policies are directly traceable to one man: Sultan Qaboos bin Said. A graduate of the Sandhurst Military Academy in the UK and a veteran officer of a British NATO unit in Germany, he is a polymath and intellectual whose interests range from sustainable agriculture to classical music. As the second-longest serving Arab ruler (38 years), the Sultan remains an invaluable source of advice and will be key in forwarding U.S. interests in Oman and the region for the foreseeable future. In keeping with the traditions of Ibadhi Islam and of the Al Sa'id sultans, he has no designated successor. End Introduction. Bilateral Security Relationship -------------- ¶3. (C) U.S. security and military cooperation with Oman remains strong. The U.S.-Oman Base Access Agreement (BAA), first signed in 1980 and still a cornerstone of our bilateral security relationship, is up for renewal in 2010. Through the BAA, the U.S. has used Omani military facilities to great advantage for Desert Storm, OEF, OIF and other operations. The U.S. will ask to expand its scope to include the growing Port of Sohar in northern Oman, a new drydock facility in al-Duqm, and the new al-Musanah airbase (close to Sohar) to help compensate for the phased closure of military facilities at Muscat International Airport (MIA). U.S. AFCENT hopes to build a new War Reserve Materiel (WRM) site at al-Musanah to house equipment currently at MIA. Currently, AFCENT maintains three WRM sites in Oman, which house almost USD 10 billion in weapons, equipment and supplies to support U.S. military operations in the Middle East and South Asia. ¶4. (S/NF) Oman has supported virtually all access, basing and over-flight requests we have made. The government grants more than 100,000 U.S. over-flight clearances annually. NAVCENT is attempting to increase the number of port calls to the Sultanate, including liberty visits and logistical re-supply visits. However, Oman has curtailed U.S. naval vessels into Muscat due to port congestion and economic-related reasons, and does not currently allow calls by nuclear-powered warships. Post informally approached the Ministry of Foreign Affairs to request an exception to this policy in order to allow a nuclear-powered submarine to make a port call, but this was denied. NAVCENT sees a submarine visit as a stepping stone to ultimately opening the way for additional submarines and even carriers to make port calls in Oman, near but outside the Gulf. ¶5. (C) According to the Foreign Minister, Oman is preparing a paper for discussion at the December GCC summit which will lay out Omani ideas for strengthening cooperation in areas relating to security between the U.S. and GCC as a whole, as opposed to individual GCC members. The paper will reportedly address Gulf regional security as well as security challenges throughout the Middle East and South Asia in which the GCC, working with the U.S., might play a constructive role. The minister also indicated that Oman might propose a conference focusing on how regional states might respond to extra-regional problems and crises, e.g., Pakistan, Afghanistan, Iran, etc. Such a conference would include Gulf states as well as outside governments with an obvious interest, including the U.S. Omani FMF and Defense Needs -------------- ¶6. (S/NF) Omani leaders remain persuaded that Iran would not attack GCC countries with missiles in response to a military strike staged in the Gulf. They see asymmetrical, terrorist operations conducted by Iran against Gulf states, including U.S. targets in these countries, as a greater danger. MUSCAT 00000812 002 OF 006 Consequently, the Omanis have little appetite for high price-tag Patriot missiles, but are very interested in Shared Early Warning (SEW) and seek to modernize their capability - both defensive and deterrent - to help counter what they view as more likely threats. To this end, Oman has made ATACMS/HIMARS a top priority due to its strong deterrent capability. ¶7. (C) From a high of USD 24.85 million in FY 04, the FY 08 Foreign Military Financing (FMF) budget request for Oman was reduced to USD 4.7 million. Despite our assurances to the contrary, the Omanis question whether the reduction for FY 08 was intended as a political message. 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. The USD 12 million FY 09 target for FMF for Oman is a significant step in the right direction, but more assistance is needed to help achieve U.S. security goals here. Oman is considering replacing some of its aging military aircraft with either additional F-16s or Eurofighter Typhoons; problems with servicing Oman's existing F-16 squadron may hinder our efforts to compete against the Europeans for this purchase. IMET funding has not experienced a decline and continues to play an important role in building relationships with rising Omani officers. Iran -------------- ¶8. (C) Free of boundary disputes or other divisive issues, Oman enjoys the best relations with Iran of any GCC state and is careful not to antagonize its neighbor to the north. Senior officials of both countries conduct reciprocal visits and the Omani police and military maintain open channels of communication with their Iranian counterparts on matters of joint concern, such as the smuggling of illegal migrant workers and drugs. Iranians and Omanis invite one another to observe each other's military exercises; Iranian naval vessels have been allowed to make port calls in Muscat. Despite the premium placed on good relations with Tehran, Oman's strategic relationship still clearly lies with the United States (and the U.K.). Oman uses its access to Iranian officials to encourage a more cooperative approach with the P5 1 on Tehran's nuclear program and to warn against meddling in the affairs of other countries in the region. Directly after the January 2008 incident between Iranian Revolutionary Guard Corps (IRGC) and U.S. naval vessels in the Strait of Hormuz, Oman, which presides over all shipping lanes in this vital waterway, issued a private rebuke to Iran and warned against further such provocations. ¶9. (S) While keen to maintain amicable relations with Tehran, Oman has traditionally maintained a comfortable distance from its Persian neighbor. Apart from a few subjects, meaningful bilateral cooperation is scant. Economic ties and commercial trade are limited and Oman's security establishment closely vets Iranian visa applicants. Oman's small Shi'a population (less than 5% of the Sultanate's population) has little affiliation with Iran. There are indications, however, that both Oman and Iran are trying to strengthen their bilateral relationship. Iran as of late is pushing to increase tourism, trade and investment with Oman, as well as the level of mil-mil cooperation. The Omani government has responded positively, albeit cautiously, to some of these overtures. One certain factor in Oman's evolving approach towards Iraq is natural gas. Oman urgently needs large quantities of gas to fuel its ambitious industrial development plans and, after extensive review of alternatives, sees Iran as the only realistic source. In April 2008 the Sultanate signed a Memorandum of Understanding on the development of Iran's nearby Kish gas field and continues difficult and protracted negotiations on the terms of a final deal that reportedly calls for Oman to invest billions of dollars in the project. ¶10. (C) Oman's leadership shares U.S. concerns about Iran's nuclear activities and its trouble-making in Iraq, Lebanon and elsewhere. Although Omani officials verbally deny that Iran poses a direct threat to the Sultanate's national security, Oman's defense posture, including its staging and acquisition of military hardware, shows that it clearly recognizes the risk that Iran poses to regional stability. Despite these common concerns, Oman's views on how to respond to Iranian behavior continue to diverge from our own, as well as from the views of its GCC partners. Senior Omani officials repeatedly claim that sanctions will only strengthen hard-line attitudes in Iran and instead advise us to initiate direct talks with Tehran without preconditions as MUSCAT 00000812 003.2 OF 006 the best way to mitigate Iranian threats. Leaders in Oman's military and security services, including the Sultan's top security official and advisor, take a more pragmatic and hard-line view about the dangers posed by Iran than their civilian counterparts, who are more apt to downplay Iran's destabilizing activities and bellicose statements. Iraq -------------- ¶11. (C) The Omani leadership remains concerned that extremist and sectarian violence in Iraq could spill over into other states in the region. Although encouraged by security improvements due in part to the U.S. troop surge, Omani officials continue to harbor doubts about Prime Minister Maliki's ability to maintain effective control of the country and to achieve reconciliation with Sunni leaders. Accordingly, the Sultan and his senior military officers back a continued U.S. military presence in Iraq until Iraqi armed forces and police are able to preserve stability. The Sultan told the Ambassador in the spring that he recognizes that Oman and other Arab states should "do more" to support the Iraqi government; a senior Omani economic delegation consequently staged a three-day visit to Baghdad from July 29 - July 1. The Sultan and government officials have declined to re-open Oman's embassy in Baghdad for security reasons. Pakistan -------------- ¶12. (C) Oman is growing increasingly concerned over instability in Pakistan. During the recent visit of Indian Prime Minister Manmohan Singh to Muscat, Indian and Omani officials discussed the likelihood of events in Pakistan spiraling out of control. Oman's Foreign Minister told the Ambassador on November 18 that victory by Pakistani forces over factions in tribal areas was patently "unachievable;" the best the Pakistani government could hope for was some modus vivendi in which tribal groups were granted a form of autonomy in exchange for closer security cooperation and a pledge to keep terrorists and other extremists out. Posing further challenges in Oman's view is the lack of confidence in the new and untested president, worries over the ruling party's ability to stay in control, a looming economic crisis and consequent fear of another army take-over. Middle East Peace -------------- ¶13. (C) Oman strongly but quietly supports efforts to peacefully resolve the Israeli-Palestinian conflict through the establishment of an independent Palestinian state. Oman's senior diplomats periodically talk and meet with officials from both sides. However, the Omani government is currently very pessimistic on the prospects for achieving a comprehensive peace agreement in the near future. Omani officials blame Israel for continuing settlement expansion and failing to offer meaningful concessions, but recognize that Palestinian political disunity is also at fault for the lack of progress. The U.S. is criticized to a lesser degree for not applying sufficient pressure on Israel to soften its negotiating stance. Oman is also worried that the change of administrations in Washington, and upcoming national elections in Israel, may result in backwards movement in peace talks. The Omani government contributes some funds to health clinics and schools in the West Bank, but has declined requests for budgetary support for the Palestinian Authority. Counter-Terrorism/Internal Security -------------- ¶14. (C) Oman's long coastline and relatively open borders in some inland areas remain vulnerable to smugglers, drug traffickers, and terrorists. Border control accordingly continues to be one of Oman's top priorities and a major area of bilateral cooperation with the U.S. The Royal Oman Police Coast Guard regularly detains smugglers and illegal migrant workers, usually along Oman's northern coast between Muscat and Sohar. Most of the migrant workers cross overland from South Asia to Iran where they then board ships bound for the Sultanate; many of them seek to only transit Oman in their search for jobs in the UAE. More Somalis are allegedly attempting to enter Oman via Yemen. Oman is not a regional financial center and, accordingly, does not have significant money laundering or terrorist financing problems. Non-Proliferation MUSCAT 00000812 004 OF 006 -------------- ¶15. (SBU) The Embassy works closely with Oman to prevent the proliferation of nuclear and other weapons of mass destruction (WMD). The Port of Salalah - one of the busiest container transshipment ports in the world - is participating in the Department of Energy's Megaports program and is a pilot port in the Secure Freight Initiative (SFI). Through ongoing technical and financial assistance from the U.S. Departments of Energy and Homeland Security, Royal Oman Police Customs is able to scan targeted containers utilizing both x-ray and radiation detection equipment. Oman also has received equipment and technical assistance to strengthen its export control regimes under the U.S. Department of State's Export Control and Related Border Security (EXBS) program. Oman's participation in the Proliferation Security Initiative (PSI) has been lukewarm. While it has sent representatives to PSI conferences, it has so far declined to take part in operational exercises. Domestic Politics -------------- ¶16. (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. The Majlis Oman can review and comment on draft laws and budgets, as well as question ministers, but it cannot initiate or veto legislation. It also has no jurisdiction over national security or foreign policy issues. While turn out was higher than expected in generally free and fair elections for the Majlis al-Shura in October 2007, many Omanis chose not to participate due in part to perceptions that the Majlis is largely ineffective. Economic and Energy Overview -------------- ¶17. (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 a modest 4.8 billion barrels, though Ministry of Oil and Gas officials are optimistic that considerably more remains to be recovered. 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, including U.S.-based Occidental Petroleum (the second largest producer in the Sultanate) and invested in enhanced oil recovery (EOR) efforts in a bid to increase output. As a result of these moves, oil production to date in 2008 has risen from the previous year, but will never approach former peak levels. ¶18. (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 12% in 2007 and produced an estimated $4.5 billion surplus, which the government used to strengthen the economy in the long-run by shoring up its pension fund, reducing its debt, and augmenting a number of reserve funds. Formerly flush oil revenues also prompted the government to move forward with plans to diversify Oman's economy through industrialization, port infrastructure expansion, and tourism development. An inflation rate of over 14% and the rising cost of living emerged as significant concerns, evoking much public grumbling. ¶19. (C) The global financial crisis has put a damper on Oman's robust growth and formerly easy credit. While government officials state publicly that Oman's economy has not been affected by the crisis, the Sultanate's stock market MUSCAT 00000812 005 OF 006 has dropped by 50% since May while its banking system, formerly flush with cash, is now facing difficulties in accessing credit from external sources for the financing of real estate construction. Combined with lower oil prices and a general worldwide economic slowdown, the government will need to reexamine its spending priorities and costly development plans. However, even with much tighter credit, a sharp market downturn and decreased oil revenues, Oman's economic growth should continue, albeit at a slower pace, and with less inflationary pressures. Free Trade Agreement -------------- ¶20. (SBU) Over two years have passed since the President and the Sultan signed the U.S.-Oman Free Trade Agreement (FTA), but the trade deal has yet to enter into force as Oman underestimated the amount of legislative, regulatory, technical and administrative work required to fully comply with the Agreement's many provisions. Recent visits by Ambassador Susan Schwab, the U.S. Trade Representative, and by Deputy Secretary of State Negroponte helped clear remaining obstacles, leading to a target implementation date of January 1, 2009. Once effective, the FTA should become another cornerstone of the bilateral relationship and help Oman attract additional foreign direct investment while eliminating tariffs on most U.S. goods. Port Development -------------- ¶21. (C) The government has used oil revenues, in part, to diversify Oman's economy through infrastructure development. The largest single industrial investment target is the northern coastal city of Sohar, which has witnessed over $12 billion in government investment alone. The Port of Sohar, a 50-50 joint venture between the Sultanate and the Port of Rotterdam, anchors the industrial development planned for the region. Oman is confident that the port's advantageous location outside the Strait of Hormuz, approximately 160 kilometers by road from Dubai, will lend to its success. Officials have privately talked about building a "land bridge" between the port and the UAE as an alternative to shipping routes through the Strait, although no pipelines are currently connected to Sohar for the transport of petroleum. In 2007, port traffic reached 600 vessels. Officials anticipate further increases of up to 50% each successive year over the next three years; however, the scaling back of industrial projects due to a shortage of gas and the global economic slowdown will likely dampen this forecast. ¶22. (SBU) The Port of Salalah, located in the far south of Oman, is a key container transshipment hub for Maersk and its parent company, A.P. Moller (APM). Operated by Salalah Port Services (SPS),the port handled approximately 2.5 million 20-foot equivalent units (TEUs) in 2007. It added one berth to its existing four in 2007 and a sixth opened in May of this year. The Omani government is also developing a port at al-Duqm, a lightly populated area along the Arabian Sea. Master plans call for the construction of a drydock facility, oil refinery, petrochemicals complex and fish processing center, as well as an airport to facilitate cargo shipments and tourism. In April 2008, the government awarded a $440 million contract to Korean-based Daewoo and local contractor Galfar for the construction of Duqm's drydock. In November, Oman's Minister of Oil and Gas announced that the building of an oil refinery and petrochemicals facility at al-Duqm had been postponed in light of the global financial crisis. Ground Transportation Infrastructure -------------- ¶23. (SBU) The government is further expanding its system of paved roads, which stood at 17,533 kilometers at the end of ¶2006. Construction is nearing completion in the capital area on the Southern Expressway, which will alleviate traffic congestion in Muscat by providing an alternative artery into and out of the city. According to long-range plans, this dual-lane road will eventually be extended to the border with the United Arab Emirates, providing a safer, more efficient roadway to Dubai. The government is also constructing dual-lane roads from Muscat to Sur to facilitate traffic to the southeastern coastline, as well as from Sohar to the city of Buraimi on the UAE border to promote onward traffic to Abu Dhabi. ¶24. (SBU) Oman is considering establishing its first internal rail network. The Minister of National Economy told media MUSCAT 00000812 006 OF 006 outlets earlier in the year that the government was reviewing plans to construct a 200 kilometer network between Sohar and Barka, located 60 miles north of Muscat, with a possible extension to al-Duqm and, eventually, Salalah. Estimates place the total cost of the dual cargo-passenger project at 20 billion rials (USD 52 billion). GRAPPO