SCENESETTER FOR AA/S FELTMAN'S VISIT TO THE EASTERN PROVINCE

C O N F I D E N T I A L SECTION 01 OF 02 DHAHRAN 000187 NOFORN SIPDIS PLEASE PASS TO NEA/EX MIRIAM SCHWEDT, NEA/ARP JOSHUA HARRIS E.O. 12958: DECL: 7/24/2019 TAGS: PGOV ENRG EPET SA SUBJECT: SCENESETTER FOR AA/S FELTMAN'S VISIT TO THE EASTERN PROVINCE OF SAUDI ARABIA CLASSIFIED BY: Joseph Kenny, Consul General, EXEC, DOS. REASON: 1.4 (b),(d) INTRODUCTION: -------------- ¶1. (SBU) The U.S. Consulate General Dhahran welcomes you to the Eastern Province (EP) of Saudi Arabia. In addition to being the Kingdom's largest province, the EP also represents the industrial engine of Saudi Arabia and sits atop the world's largest oil reserves. Saudi Aramco, the well-run and modern state oil company, is based in the EP and the Consulate enjoys an excellent working relationship with its executive management. The EP is also the staging point for the country's efforts to diversify their economy into the petrochemical and mineral processing industries. ¶2. (C/NF) The EP is home to the highest concentration of Saudi Shi'a in the Kingdom, the most significant minority religious sect representing an estimated ten percent of the population. The most prominent Shi'a religious and political leaders reside in the EP. Earlier this year sectarian tensions resulted in rare public protests and demonstrations by Shi'a youth in several EP towns. The potential for Shi'a unrest is of particular interest due to the minority sect's geographic location atop the Kingdom's oil wealth. The SAG monitors the Shi'a closely and rarely allows unrest to progress beyond the initial stages. THE OIL PROVINCE: -------------- ¶3. (SBU) The most important player in the EP is without question the government-owned oil company, Saudi Aramco. We have requested a tour of their headquarters and meetings with top executives, including the Senior Vice President for Industrial Relations, Abdulaziz al-Khayyal (the CEO, Khalid al-Falih, will be in New York during your visit). The USG enjoys a very close working relationship with Aramco, largely due to the deep American roots and corporate culture the company values so highly even today. Many of the top management officials have studied and worked in the U.S. In fact, the CEO is a self-proclaimed "Aggie," having completed his undergraduate studies at Texas A&M. ¶4. (C/NF) In May 2008, the Secretary and the Saudi Interior Minister signed an agreement creating the Office of Program Management - Ministry of the Interior (OPM-MOI). OPM-MOI is a State-led interagency effort to assist the Saudi MOI with protection of critical infrastructure, including Aramco's petroleum production and transport facilities. The main aspect of this initiative is a new 35,000-man Facilities Security Force, largely trained and equipped by DOD elements, which will protect key critical infrastructure sites throughout the Kingdom. Aramco is anxious to maintain its prerogatives and thus is apprehensive about having these security forces on and around their facilities. These tensions between Aramco and the Saudi MOI on this topic are well-known and remain a sensitive issue for the company's executives. Needless to say, this is an internal Saudi issue, and we should not be drawn into it. THE SHI'A: -------------- ¶5. (C/NF) If oil is the EP's top economic issue, then the Shi'a is without doubt the top political subject of the province. The majority of Saudi Arabia's Shi'a live in the EP oases of Qatif and al-Ahsa, as well as substantial population centers in Dammam and al-Khobar. Their religious and political leaders also reside in the EP. The relationship between the Shi'a and the Saudi authorities is distrustful at best. The Shi'a demand more basic rights, greater representation in the government, and access to educational institutions and other civic organizations, and have become increasingly vocal with their requests. Following a February 2009 sectarian altercation between Saudi authorities and Shi'a worshipers in Medina, tensions in the EP flared resulting in public protests, demonstrations, and numerous arrests. Though the situation has settled down in recent months, many of our Shi'a interlocutors describe the present state of relations with the SAG as troubling, and worse than it has been in years. ¶6. (C/NF) In addition to our dedication to promoting international religious freedom, the USG is particularly interested in a stable Shi'a population because of their geographic location atop the world's largest oil reserves and proximity to the facilities that brings it to market. Furthermore, a disenfranchised Saudi Shi'a population may look increasingly to Iran for political support and/or ideological guidance. MERCHANT FAMILIES: -------------- ¶7. (C/NF) Several of the powerful business family groups that dominate the EP trace their origins to modest but industrious Saudi employees of Aramco, encouraged by their American managers to become private contractors in the late 1940s and 1950s. Many of the younger generations of these families have been educated in the U.S. and have strong relationships with the Consulate reaching back several decades. Due to the important economic and political status of these merchant families, they have been invaluable contacts for our reporting efforts and often share informed and insightful views on a whole host of issues with surprising candor. We have arranged to host a dinner in your honor that will include some of the EP's most notable merchant families should your schedule allow. ECONOMIC DIVERSIFICATION: -------------- ¶8. (SBU) The EP also hosts the country's most substantial efforts to diversify the economy away from exclusively petroleum exports. The so-called second and third pillars of the Saudi diversification strategy are petrochemicals and mineral processing, respectively. The Royal Commission port city of Jubail and the currently underway Jubail II expansion represent the largest petrochemicals complex in the Middle East and have attracted tens of billions of dollars of private sector investment over the past three decades. Also, Dow Chemical recently signed a joint venture contract with Saudi Aramco (valued at $ 22 billion) to construct a petrochemical complex in the Aramco coastal town of Ras Tanura. Further to the north along the Gulf coast, Ras al-Zour minerals city is under construction and will host large-scale phosphate processing and aluminum smelting complexes, water desalination, and power generation (which will be used to meet the industrial requirements of Ras al-Zour as well as elsewhere in the Kingdom). U.S. COMMERCIAL OPPORTUNITIES: -------------- ¶9. (SBU) While the rest of the world is still reeling from the economic crisis, the EP continues to see large and complex industrial projects move forward. The EP accounts for one half of all investment in major industrial projects in the Kingdom, with the petrochemical city of Jubail accounting for one half of all foreign direct investment. Historically, the U.S. has enjoyed a privileged position as the main trading partner for EP companies and receptivity to U.S. products and services is extremely high. Despite the best efforts and hard work of our commercial section, there is still ample opportunity for U.S. businesses to prosper in the EP. VISAS:A SOURCE OF COMPLAINTS -------------- ¶10. (SBU) A popular subject that is often raised by both Saudi business men and Aramco employees alike is access to U.S. visas. Consulate General Dhahran reinstated full visa services in May 2008 after a fifteen-year hiatus of very limited service, and has issued a total of 8,300 visas over the past 12 months. This has been highly successful and has been received very positively by the business (and student) communities of the EP. However, staffing shortages (we have one vice consul) and ever-increasing visa processing times has led some leading business figures to complain that the U.S. is difficult to do business with. Visas will almost certainly come up in conversation during your visit in Saudi KENNY