[CRS Issue Brief for Congress]

93113: Saudi Arabia: Post-War Issues and U.S. Relations

Updated December 2, 1996

Alfred B. Prados
Foreign Affairs and National Defense Division

CONTENTS

SUMMARY

MOST RECENT DEVELOPMENTS

BACKGROUND AND ANALYSIS

Current Issues
Arab-Israeli Conflict
Saudi-PLO Relationships
Arab Boycott of Israel
Security in the Gulf Region
Bombings of U.S. Facilities
Arms Transfers to Saudi Arabia
U.S. Arms Sales
Third Country Sales
Saudi External Aid
Bosnia
Trade Relationships
Oil Production
Problems in Commercial Transactions
Human Rights and Democracy
Other Issues
Background to U.S.-Saudi Relations
Royal Succession
Economy and Aid
Economic Conditions
Aid Relationships
Defense and Security
Congressional Interest in Saudi Arabia
Arms Sales
Arab Boycott
Trade Practices


SUMMARY

Saudi Arabia, a monarchy ruled by the Saudi dynasty, enjoys special importance in the international community because of its unique association with the Islamic religion and its oil wealth. Since the establishment of the modern Saudi kingdom in 1932, it has benefitted from a stable political system based on a smooth process of succession to the throne and an increasingly prosperous economy dominated by the oil sector. Decrees by King Fahd in March 1992 establishing an appointive consultative council and provincial councils and promulgating a basic law providing for certain citizens' rights could signal a gradual trend toward a more open political system.

On January 1, 1996, King Fahd entrusted management of the government to Crown Prince Abdullah while the King recuperates from a recent illness, but the King resumed his duties on February 21. The economy has been affected in recent years by increased spending, fluctuations in the oil market, and the burdens of the 1990-91 Persian Gulf war; however, many observers believe it remains strong.

Oil and national security concerns have combined to create a close and cooperative relationship between the United States and Saudi Arabia. Between World War II and 1975, the United States provided a total of $328.4 million in economic and military aid to Saudi Arabia, reducing and ultimately terminating these programs as Saudi oil derived income burgeoned in the 1960s and 1970s. A series of informal agreements, statements by successive U.S. administrations, and military deployments have demonstrated a strong U.S. security commitment to Saudi Arabia. Saudi Arabia was a key member of the allied coalition that expelled Iraqi forces from Kuwait in 1991, and approximately 6,000 U.S. troops remain in the country. Bombing attacks against a U.S. operated training facility and a U.S. military apartment in 1995 and 1996, respectively, have raised some concerns about security of U.S. personnel and further security measures are being implemented. Though a key member of the U.S.-led allied coalition that expelled Iraq from Kuwait in 1991, Saudi Arabia has not publicly endorsed the U.S. missile strikes that followed Iraq's incursion into the allied protected Kurdish region on August 31, 1996.

Principal issues of bilateral interest include the Saudi position on the Arab-Israeli conflict, security in the post-war Gulf region, arms transfers to Saudi Arabia, Saudi external aid programs, bilateral trade relationships, and Saudi policies involving human rights and democracy. Saudi Arabia has supported Arab positions on the Palestinian question and Saudi leaders feel strongly about Muslim claims in Jerusalem, which is the third holiest site in the Islamic religion. At the same time, Saudi Arabia supports the U.S.-Russian sponsored Arab-Israeli peace talks; endorsed the milestone Israeli- Palestinian agreements reached in 1993 and 1995; condemned the November 4, 1995 assassination of the late Israeli Prime Minister Yitzhak Rabin; and condemned the bombings that occurred in Israel in early 1996. On September 30, 1994, Saudi Arabia and its Gulf allies decided to drop the secondary and tertiary phases of the Arab boycott (which penalize companies that deal with Israel), although they have not yet formally renounced the primary boycott, which bans direct dealings with Israel.


MOST RECENT DEVELOPMENTS

A Washington Post article of November 1 reported that Saudi authorities are holding some 40 suspects accused of involvement in the Khobar bombing, and Saudi officials believe they were part of a broader conspiracy backed by the Government of Iran; the article mentioned further speculation over possible Syrian involvement in or foreknowledge of the bombing. The suspects reportedly are Saudi Shi'ite Muslims allegedly affiliated with a group called Saudi Hizballah, which may be affiliated with the Iranian-backed Hizballah organization in Lebanon. Iran has denied complicity in the bombings, and on November 1, Secretary Perry told reporters that U.S. officials "have reached no conclusion about who was responsible for this." Also, on November 2, the FBI denied reports that it was withdrawing agents from Saudi Arabia because of alleged dissatisfaction with Saudi cooperation in the investigation, and on November 23-24, FBI Director Louis Freeh visited Saudi Arabia and spoke favorably of Saudi efforts to investigate the bombing. During a Persian Gulf tour at the end of November, Defense Secretary Perry told reporters that U.S. and Saudi intelligence efforts had averted a new terrorist threat; also, that he had received a "strong commitment" from Saudi King Fahd to support the next phase of base and housing improvements for approximately 6,000 U.S. troops recently relocated to more secure locations in Saudi Arabia.

Under Title IX of the Omnibus Appropriation Act for FY1997 (P.L. 104-208, September 28, 1996), Congress appropriated $122,600,000 to cover force protection activities in Saudi Arabia; these funds are offset by rescissions from previous Defense Department appropriations acts.


BACKGROUND AND ANALYSIS

Current Issues

Arab-Israeli Conflict

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Saudi Arabia has supported Arab positions on the Palestinian question and strongly endorses Muslim claims in the old city of Jerusalem, the third holiest site in the Islamic religion. Saudi media strongly criticized legislation (S. 1322) passed by Congress on October 24, 1995, to move the U.S. Embassy in Israel from Tel Aviv to Jerusalem. On September 30, 1996, Saudi King Fahd charged that Israel's action in opening a tunnel under holy sites (sacred to both Jews and Muslims) in Jerusalem threatened the Middle East peace process and world stability as well. Saudi Arabia has played a minimal military role in Arab-Israeli wars, and Saudi leaders generally have favored a peaceful solution to the Arab-Israeli conflict. Saudi Arabia has participated in the multilateral phases of the Middle East peace talks inaugurated by former President Bush and then Soviet President Mikhail Gorbachev in 1991, and has condemned violence and terrorism.

Saudi-PLO Relationships. Saudi Arabia, like other Arab states, recognizes the PLO as the legitimate representative of the Palestinian people. Saudi financial aid to the PLO, which amounted to an estimated $1 billion from 1980 to 1990, ended after the Iraqi invasion of Kuwait because of Saudi displeasure over PLO support for Iraq. The Saudi Government did continue to provide the PLO with the proceeds of a tax on the income of Palestinians residing in the Kingdom, and reportedly has conveyed private donations of approximately $15 million a year to the PLO. At a donors' conference organized by the United States after the Israeli- PLO Declaration of Principles of September 1993, Saudi Arabia pledged $100 million to support the Israeli-Palestinian peace plan during the first year of its implementation, and is believed to have maintained this level of commitment in subsequent years.

There have been unsubstantiated reports of Saudi assistance to the PLO's rival organization, the fundamentalist Hamas, particularly after the Saudi-PLO rift that began in 1990. Israeli sources have claimed that Saudi Arabia provided Hamas with around $10 million during the period 1991-1992, and a Saudi defector made similar accusations in June 1994. In its report entitled Patterns of Global Terrorism, 1995, the State Department noted that Hamas receives funding "from private benefactors in Saudi Arabia" but does not estimate amounts involved.

Arab Boycott of Israel. In July 1991, Saudi Arabia endorsed an Egyptian proposal to lift the Arab boycott of Israel in return for a freeze on Israeli settlement activity in the occupied West Bank and Gaza. On September 26, Shaykh Fahim bin Sultan al-Qasimi, the then-Secretary General of the Gulf Cooperation Council (GCC) (presumably reflecting Saudi views), was quoted as saying it would be premature to terminate the boycott until Israeli withdrawal from Arab territories has taken place. On September 30, 1994, however, the six GCC states (including Saudi Arabia) decided to terminate their enforcement of the so-called secondary and tertiary boycotts of Israel, while retaining the ban on direct dealings with Israel. (The secondary boycott blacklists companies that deal with Israel; the tertiary boycott blacklists subsidiaries of such companies or other companies that deal with them.)

Security in the Gulf Region

Saudi Arabia was a key member of the allied coalition that expelled Iraqi forces from Kuwait in February 1991. Most Saudi military forces were committed to the allied effort; a senior Saudi army officer (Lt General Khalid ben Sultan) acted as commander of the Joint Arab-Islamic Force, which was a principal component of the coalition; and Operation Desert Storm was staged from Saudi territory. The joint GCC force known as Peninsula Shield, comprising 10,000 personnel drawn from the armed forces of the six GCC states, is also under Saudi command. Plans to expand this small force have been under discussion since the Gulf war. Saudi Arabia is important in post-war security planning for the Persian Gulf region, both through bilateral arrangements with the United States and through regional security cooperation. (See CRS Report 93-586, Persian Gulf Region: U.S. Post-War Security Interests.)

In the past, Saudi and other Gulf leaders preferred that U.S. military forces remain "over the horizon" and confined mainly to the small naval Middle East Force based in the Persian Gulf, with a few exceptions: U.S. Air Force use of the Dhahran Air Base until 1962; the brief deployment of U.S. F-100 fighter aircraft to Saudi Arabia in 1963 to resist Egyptian incursions during the Yemen civil war; and the reflagging and escorting of Kuwaiti ships by U.S. naval units in the late 1980s during the Iraq-Iran war. Agreement to the large scale deployment of U.S. and allied forces to Saudi Arabia and other Gulf states during the Iraq-Kuwait crisis represented a major shift in Saudi policy. Among the U.S. military forces remaining in the Gulf region (averaging about 20,000 personnel at a given time), several contingents are in Saudi Arabia, including U.S. Air Force units involved in enforcing a no-fly zone over southern Iraq and U.S. Army units involved in air and missile defense. The press reported approximately 6,000 U.S. military personnel in Saudi Arabia in late November 1996. In addition, a number of U.S. contractor personnel work with the Saudi Armed Forces and National Guard. (Estimates of U.S. citizens in Saudi Arabia range from 35,000 to 50,000.) According to a November 1995 press report, U.S. firms providing such assistance include BDM/Vinnel Corporation (1,000 employees), Hughes Aircraft Company (500), Booz-Allen & Hamilton Inc. (200 employees), Raytheon Corporation, McDonnell-Douglas Corporation, and General Dynamics Corporation. So far, Saudi Arabia has been reluctant to conclude a prepositioning agreement like those reportedly signed with other Gulf states. Press reports have indicated that the United States and Saudi Arabia are using a 1977 training agreement [see below] as a framework for a broader program of military cooperation between the two countries. During his March 1995 visit, Secretary of Defense Perry said the two countries agreed that continued U.S. access to Saudi bases and ports "is the key to quick, forceful response to aggression."

Bombings of U.S. Facilities. Two bombings at Saudi installations where large numbers of U.S. military personnel were present have raised questions about stability within the Kingdom and created further concerns among Gulf leaders over threats from local elements opposed to a western military presence. The first explosion, which occurred at the Office of the Program Manager for the Saudi Arabian National Guard program in Riyadh, on November 13, 1995, killed seven persons (including five U.S. citizens -- one military and four civilian or retired military) and injured 60 others, including 37 U.S. citizens. U.S. officials described the explosive device as a 45-kilogram (100 lb) bomb filled with semtex. Three little-known groups -- the "Tigers of the Gulf", the "Movement for Islamic Change", and the "Combatant Partisans of God" -- claimed responsibility. The United States and Saudi Arabia offered rewards of $2 million and $800,000, respectively, for information leading to the arrest of those responsible. Subsequently, four Saudi nationals were arrested, confessed to the crime on Saudi state television on April 22, 1996, and were executed on May 31.

A more deadly explosion occurred on June 25, when a bomb containing 3,000-5,000 pounds of explosives destroyed the Khobar Towers apartment complex housing U.S. Air Force personnel near Dhahran Air Base, killing 19 U.S. servicemen and injuring 547 persons including 148 U.S. citizens. U.S. casualties were from the U.S. Air Force's 4404th Air Wing which helps enforce the allied no-fly zone over southern Iraq (Operation Southern Watch). Two previously unknown groups claimed responsibility, one entitled "The Legion of the Martyr Abdullah al-Huzayfi." The United States has offered a $2 million reward for information leading to the perpetrators, supplementing a $3 million reward offered by the Saudi Government. The Administration sent FBI Director Louis J. Freeh to Saudi Arabia on three occasions since the bombing to help pursue the investigation, amid reports of some differences of opinion between FBI agents and Saudi officials over conduct of the investigation. In statements to media on August 2 and August 3, U.S. Secretary of Defense William Perry said the size and sophistication of the bomb indicated international involvement in the atrocity, and U.S. officials reportedly have said there were pieces of evidence pointing to possible involvement by Iran and a Lebanon-based Shi'ite Muslim guerrilla organization.

Investigations by several congressional committees and a Defense Department task force headed by retired U.S. Army General Wayne Downing centered on adequacy of intelligence and sufficiency of defensive measures undertaken by U.S. military authorities prior to the explosion, together with questions of command, control, and manning. A report by the Senate Select Committee on Intelligence, released on September 16, concluded that "the U.S. Intelligence Community provided sufficient information ... to predict probable terrorist targets" in Saudi Arabia and that intelligence assessments of these threats were readily available to senior U.S. military commanders. The Downing report stated that "the ability of the theater and national intelligence community to conduct in-depth, long-term analysis of trends, intentions and capabilities of terrorists is deficient." Both the Downing report and congressional statements were critical of the U.S. military chain of command for not taking sufficient protective measures to guard against terrorist acts; for example, many commentators thought the defensive perimeter fence around Khobar Towers should have been extended from 100 to 400 feet to distance the apartment complex from a possible blast. (Earlier reports blamed Saudi authorities for not acting on a U.S. request to extend the perimeter; however, the Downing report found that U.S. officials had sought an extension of only 10-15 feet, to improve observation by sentries, a minimal extension that would have provided little or no additional protection from an explosion. On September 27, the Chief of the General Staff of the Saudi Armed Forces was replaced, but there was no indication that this action was related to the Khobar bombing.)

In follow-up congressional hearings on September 18, Secretary of Defense Perry accepted responsibility for any lapses that may have contributed to the disaster. A Defense Department spokesman, however, pointed out that U.S. military officials had responded to intelligence warnings and cited 130 steps taken before the explosion to tighten security at Khobar. An unpublished internal U.S. Air Force assessment of September 17 reviewed protective measures taken before the Khobar blast, and reportedly concluded that the U.S. commander on scene had taken all reasonable precautions against terrorist acts before the bombing. Also, on September 18, a congressional committee chairman, while expressing concern over security lapses, commended the "the vigor with which the [Defense] Department has moved out on new ... protection measures."

Press reports of October 24, 1996 quoted CIA counter-terrorism sources as having information linking both the Riyadh and Khobar bombings to Osama bin Ladin, a Saudi expatriate financier with ties to extreme Islamic fundamentalist movements. According to a follow-on press report on October 25, U.S. Administration officials have said judgment regarding bin Ladin's role in the bombings will have to await the outcome of on-going FBI investigations. A Washington Post article of November 1 reported that Saudi authorities are holding some 40 suspects accused of involvement in the Khobar bombing, and Saudi officials believe they were part of a broader conspiracy backed by the Government of Iran; the article mentioned further speculation over possible Syrian involvement in or foreknowledge of the bombing. The suspects reportedly are Saudi Shi'ite Muslims allegedly affiliated with a group called Saudi Hizballah, which may be affiliated with the Iranian-backed Hizballah organization in Lebanon. Iran has denied complicity in the bombings, and on November 1, Secretary Perry told reporters that U.S. officials "have reached no conclusion about who was responsible for this." Also, on November 2, the FBI denied reports that it was withdrawing agents from Saudi Arabia because of alleged dissatisfaction with Saudi cooperation in the investigation, although FBI officials said that only a small number of FBI agents remain in Saudi Arabia out of more than 70 who were originally sent there after the bombing. On November 23, following a third trip to Saudi Arabia by FBI Director Freeh, FBI officials said Freeh was "pleased with the efforts and thoroughness of the Saudi law enforcement authorities to solve this heinous act of terrorism." On November 29, prior to a visit to Saudi Arabia, Secretary Perry told reporters that U.S. and Saudi intelligence efforts had averted a new terrorist threat in Saudi Arabia, but did not give details.

Relocations. The State Department on July 23 authorized evacuation of dependents of U.S. diplomatic personnel. The Defense Department withdrew command sponsorship from about 700-750 dependents of U.S. military personnel in Saudi Arabia, which effectively requires that they return to the United States. Subsequently, the U.S. Defense Department, in agreement with the Saudi Government, moved 4,200 U.S. U.S. military personnel formerly in the Dhahran area to a more secure location at a Saudi air base at al-Kharj, about 60 miles south of the capital of Riyadh; another 1,700 U.S. military personnel in the capital of Riyadh were relocated to more secure quarters at Eskan Village outside of the capital. Tight security facilities and procedures have been installed at both locations. The U.S. Defense Department reportedly has set aside about $150 million to cover costs of relocation (see Congressional Interest in Saudi Arabia, below). On November 30, Defense Secretary Perry told reporters that he had received a "strong commitment" from Saudi King Fahd to support base and housing improvements, to upgrade austere facilities at the new locations. According to press estimates, the additional improvements may cost an additional $150 million.

The U.S.-Iraq September 1996 Confrontation. Saudi Arabia, like other Gulf states except Kuwait, did not comment officially on the U.S. missile strikes against Iraq after the Iraqi attack on the allied-protected Kurdish areas on August 31. 1996. On September 11, Saudi Defense Minister Prince Sultan stated that the United States had not requested use of Saudi bases to launch the missile attacks, and had such a request been made, "we would have rejected it." Still, some commentators believe Saudi officials privately welcomed the U.S. measures to constrain Iraq, and the Saudis agreed to the deployment of two batteries of U.S. Patriot missiles, together with 150 additional U.S. military personnel to operate them.

Arms Transfers to Saudi Arabia

Saudi Arabia has emerged in recent years as the largest arms purchaser in the Third World. During the period from 1988 through 1995, the Saudis bought $67.1 billion worth of military equipment (in current U.S. dollars), accounting for nearly 30% of all Third World arms agreements during the above eight-year period. Of this amount, $34.4 billion represent U.S. sales, and $32.7 billion came from all other sources. For the four most recent years, 1992-1995, however, the U.S. share of $15.6 billion was over twice the share of all other suppliers combined ($6.7 billion).

U.S. Arms Sales. The United States is currently Saudi Arabia's leading arms supplier. Total value of arms agreements with Saudi Arabia from 1950 through March 31, 1993 was $71.8 billion, of which $17.9 billion represent contracts signed since the beginning of fiscal year 1991. This recent increase in Saudi arms purchases from the United States was due in large measure to the Persian Gulf crisis and its aftermath. As Table 1 shows, approximately 19% of the value of U.S.-Saudi arms contracts were for lethal equipment (i.e., weapons, ammunition, and combat vehicles, aircraft, and ships); the largest portion (29%) went for support services (repair, rehabilitation, supply operations, and training). Another major component of the Saudi program has been construction of military bases and facilities, accounting for the largest share (31%) through 1990 and the second largest share (24%) for the entire period. This decrease in the percentage share of construction is attributable both to the completion of many military infrastructure projects by 1990 and to a greater emphasis on combat equipment to enhance Saudi defensive capabilities since the Iraq invasion of Kuwait. (For further information, see CRS Report 93-1054, Arms Sales to Saudi Arabia: 1990-1993.)

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Successive U.S. Administrations have entered into military sales agreements with Saudi Arabia because of its prestige in the Arab world, its importance as a major source of oil, and its vulnerability to threats from neighboring states supported in the past by the Soviet Union. Heightened threats from Iran in the late 1980s and subsequently from Iraq provided rationale for an expansion of the arms supply relationship, and some observers believe further sales are needed to redress a continuing gap between Saudi weapons inventories and those of potential adversaries. Also, the Saudi arms market has helped maintain the U.S. industrial base and create jobs at a time of economic stress.

Some critics doubt that Saudi forces can absorb large quantities of advanced military hardware and voice concerns that such equipment could fall into the wrong hands in the event of external invasion or a radical change in the Saudi regime. Many are concerned that arms being sold to Saudi Arabia might be used one day against Israel. Others doubt that Israel is seriously threatened by Saudi Arabia, but oppose sales to Arab countries technically at war with Israel and fear that enhancement of Saudi air and missile capabilities could increase the costs to Israel of a future conflict. Another concern is that continuing arms sales to Saudi Arabia undermine efforts to restrain the flow of advanced weaponry to an already heavily armed Middle East.

Some observers predict that arms sales to Saudi Arabia will decrease in the next few years, partly because the Saudis have already ordered much of the equipment they wanted after the Gulf war and partly because of straitened finances (see below). Between January and April 1994, senior Saudi and U.S. officials agreed on a plan to restructure $9.2 billion in Saudi purchases of U.S. arms, reportedly through stretching out payments, delaying equipment deliveries, and limited borrowing. (See CRS Report 94-356, Saudi Arabia: Restructuring Arms Payments to the United States.)

Third Country Sales. Saudi Arabia, on its part, has shown a long-standing preference for U.S. equipment because of its high quality and the reliability of U.S. logistical support. Nonetheless, the Saudi Government has bought significant amounts of equipment from other countries, notably Britain and France, when the United States has been reluctant to sell such equipment or has been unable to offer price and availability terms sought by the Saudis. In the mid-1980s, following congressional opposition to selling additional fighter aircraft to Saudi Arabia, Britain and Saudi Arabia concluded a memorandum of understanding code-named "Al-Yamamah" which established a multi-billion dollar procurement program (approximately $30 billion according to a press account) including advanced Tornado jet fighter aircraft, followed by a 1988 addendum covering further procurement. France signed contracts worth between $1 and $1.5 billion with Saudi Arabia, covering the sale of four frigates and two replenishment ships, and the maintenance and renovation of Crotale and Shahine air defense missiles. In August and September 1995, the French firm Giat Industries conducted tests of the Leclerc tank in Saudi Arabia, which is reportedly considering purchasing 200 Leclercs. In 1988, the Kingdom also concluded a controversial purchase of approximately 30 intermediate range CSS-2 surface-to-air missiles from China, in what has so far been its only major arms acquisition from a communist state. With the exception of the Chinese missile sale, the U.S. Administration has not objected to these third country purchases by Saudi Arabia, although some U.S. contractors have deplored the diversion of lucrative military equipment sales to foreign suppliers.

Saudi External Aid

With its oil wealth and its commitment to supporting Islamic causes and moderate policies abroad, Saudi Arabia has been one of the world's leading donors to developing countries since the early 1970s. Total Saudi aid from 1973 through 1991 was over $60 billion, and 1991 aid ($3.7 billion) represented 1.5% of gross national product (GNP), one of the highest ratios in the world (the United States donated 0.2% of GNP). A total of 70 developing countries have received Saudi aid, including 38 in Africa, 25 in Asia, and 7 in other regions. Principal recipients have been friendly but poorer Arab states like Egypt, Syria, and (until recently) Jordan, together with various Arab and Muslim resistance groups: for example, the Afghan resistance groups (mujahedin) both during and after the Soviet occupation; the anti-Marxist Nicaraguan resistance (Contras) during the 1980s; Palestinian groups, as noted above; and Bosnian Muslims. (According to a statement by the King and the Crown Prince on May 22, 1994, Saudi Arabia has given a total of $106 billion in aid to Islamic countries and $14.6 billion to other developing countries, presumably since mid-century.) In addition to financial aid, Saudi Arabia contributed troops (678 in October 1993) to the former U.N. force in Somalia.

Bosnia. Bosnian Muslims have received at least $120 million in official Saudi aid plus another $235 million in private donations from wealthy Saudis. Before the December 1995 Dayton Peace Agreement, which stipulated withdrawal of foreign forces from Bosnia, Saudis formed the majority of a group of 400 volunteers from Persian Gulf countries training and fighting with Bosnian Muslims. On February 2, 1996, a Washington Post article, quoting unnamed Saudi officials, alleged that Saudi Arabia funded a $300 million covert operation to supply weapons to the Muslim- led Bosnian Government with the knowledge and tacit cooperation of the United States. A State Department spokesman denied that the United States was in any way involved with the reported program, but did not say specifically whether or not the United States had knowledge of it. A Saudi spokesman said he could not confirm the report. A Saudi official publication in September 1996 stated that Saudi citizens have contributed $200 million and 150,000 tons of relief supplies to Bosnia.

Trade Relationships

Saudi Arabia is the largest U.S. trading partner in the Middle East. For 1994, Saudi exports to the United States are estimated at $8.0 billion and imports from the United States at $6.4 billion. Comparable figures for the nearest Middle East competitor, Israel, were $5.2 billion in exports and $4.2 billion in imports. To a considerable extent, this high volume of trade is a result of U.S. oil imports from Saudi Arabia and U.S. arms exports to that country.

The Saudis buy significant amounts of U.S. commercial equipment as well. On October 26, 1995, U.S. and Saudi officials announced that Saudi Arabia had signed a $6 billion contract ($7.5 billion by some estimates) to purchase 61 U.S. commercial aircraft (5 Boeing 747s and 23 Boeing 777s; 29 McDonnell Douglas MD-90s and 4 McDonnell Douglas MD-11 freight aircraft), with deliveries over the period 1997 to 2002. Tentative agreement had been reached on the sale in February 1994, but financial constraints delayed final action for almost two years. On August 7, 1995, King Fahd said local Saudi capital would be used to finance the aircraft purchase. In addition, AT&T won a $4.1 billion contract to upgrade the Saudi telecommunications system in May 1994. One member of the Saudi royal family owns a 23.6% stake in the EuroDisney recreational park, although he has agreed to reduce his holdings to one half that of the U.S. Walt Disney company in five years.

Since 1974, a U.S.-Saudi Joint Commission for Economic Affairs has sponsored a wide range of bilateral cooperative activities in the economic sphere. On April 28, 1995, then U.S. Secretary of the Treasury Lloyd Bentsen and then Saudi Minister of Finance Muhammad Aba al-Khayl signed an agreement to extend the joint commission until the year 2000, and opened the first session of a U.S.-Saudi Business Council.

Oil Production. With the world's largest proven oil reserves (estimated at 261.2 billion barrels in January 1994), Saudi Arabia produced an average of 8.23 million barrels per day (bpd) in 1995. Approximately 6 million bpd are exported. Remaining production is allocated approximately as follows: 900,000 for domestic needs; 600,000 to cover payments on a long-term British arms purchase program; 300,000 for expansion and improvement of the two holy mosques; and 200,000 for a strategic oil reserve program. Formerly the largest foreign supplier of oil to the United States, Saudi Arabia took second place to Venezuela in 1995, although Saudi Arabia leads in crude oil supplies to the United States. In 1995, 17.0% of U.S. oil imports and 7.6% of total U.S. oil consumption came from Saudi Arabia. Corresponding figures for Venezuela were 18.7% of oil imports and 8.4% of total U.S. oil consumption.

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Problems in Commercial Transactions. Complaints have arisen within the U.S. business community over commercial disputes that have resulted in hardships for U.S. companies doing business in Saudi Arabia and for their employees. In a letter of May 27, 1992, to a congressional subcommittee, the U.S. Department of Commerce identified 17 major unsettled cases (some of them 8-10 years old) involving 14 American firms with claims of approximately $500 million in Saudi Arabia. The Department also testified that "the Kingdom's system of commercial regulation lacks an effective internationally accepted mechanism to resolve disputes with foreign firms." In some cases, Saudi clients have refused to pay U.S. contractors; on occasion, Saudi officials allegedly have intimidated U.S. businessmen and employees through detention or denial of exit visas in an effort to force U.S. companies to complete additional work not originally contracted for or not reimbursed by Saudi clients. Some U.S. employees claim to have suffered serious injuries resulting from ill treatment during detention. Saudi representatives state that they have a grievance board that successfully handles over 90% of all contractual disputes; they point to instances in which U.S. companies have not cooperated with Saudi contract resolution procedures.

U.S. employees submitting claims for losses or injuries sustained in Saudi Arabia have encountered jurisdictional problems. Such persons in general have been unwilling to seek redress through Saudi mechanisms for conflict resolution, because of fear of returning to Saudi Arabia or lack of confidence in the impartiality of Saudi institutions. In one case (Nelson v. Saudi Arabia), a U.S. citizen alleging disabling injuries inflicted on him during imprisonment in Saudi Arabia lost a case before the Saudi grievance board because he was unwilling to testify in Saudi Arabia. His subsequent attempt to bring suit against the Saudi Government through the U.S. court system failed when a March 1993 decision by the U.S. Supreme Court ruled that U.S. courts lacked jurisdiction in this case, because his injuries were not related to a commercial activity in the United States. Members of Congress have criticized the U.S. executive branch for not doing enough to uphold the rights of U.S. employees caught in contractual disputes. According to the State Department, senior U.S. officials have raised these issues with the Saudi Government and have exerted efforts to resolve commercial disputes.

On July 27, 1994, the Department of Commerce informed the Chairman of the then House Foreign Affairs Committee as follows (the Department of Defense provided similar information to the President of the Senate on September 16, 1995): (1) Only three of the 17 cases cited in the Commerce Department's letter of May 27, 1992 remained unresolved (in two of these cases, the plaintiffs had accepted partial payments awarded by the Saudi Grievance Board). (2) Five out of 8 disputes mentioned in a subsequent letter of June 30, 1993 from the Department of Defense had been resolved. Of the six unresolved cases, according to the Department of Commerce, three are under review by agencies of the Saudi Government and one is being handled by the U.S Federal Deposit Insurance Agency. Two cases remain unresolved: Gibbs and Hill, Inc. vs. Royal Commission for Jubail and Yanbu; and Harbert International Construction, Inc. vs. Ministry of Agriculture. (For further information, see CRS Report 95-666, Saudi Arabia: Commercial Disputes With U.S. Firms.)

Human Rights and Democracy

According to the State Department's annual report on human rights practices for 1995, the Government of Saudi Arabia "commits or tolerates serious abuses." Among human rights problems cited in the report are prohibitions or restrictions of freedom of speech, press, assembly and association; systematic discrimination against women; limitations on suppression of workers' rights; arbitrary arrest and alleged abuse of prisoners; and lack of a mechanism for citizens to change their government. Of particular concern to Westerners are pervasive restrictions on women's activities and an injunction against the practice of other religions throughout the Kingdom. This injunction has been applied not only against non-Islamic faiths but also at times against the Shi'ite Muslim community in Saudi Arabia, estimated at 500,000 persons mainly in the Eastern Province. Reports in October 1993 indicated that the Saudi Government has moved quietly to ease some restrictions on Shi'ites. Application of the death penalty (frequently by beheading) has increased; 192 persons reportedly were executed in Saudi Arabia in 1995, many of them for drug offenses, as compared with 53 in 1994 and 85 in 1993. Fifty-eight have been executed in 1996, as of November 28.

Though committed to enforce Islamic tenets in Saudi Arabia, the government has moved to restrain militant Islamic fundamentalist groups, particularly since the brief seizure of the Grand Mosque in Mecca by an extremist Islamist group in 1979. Recent targets of government suppression include the "Committee for the Defense of Legitimate Rights (CDLR)," a group founded in May 1993 to eliminate "injustice" and defend Islamic law; and a hitherto unknown group called the "Battalions of Faith," which conducted demonstrations in September 1995. CDLR leader Muhammad Masari fled to London, where his presence has caused some friction between the Saudi and British governments. He claims to reject violence. Demonstrations by the Battalions of Faith led to approximately 150 arrests (unofficial sources claimed over 1,000), although the government says it quickly released most of these detainees. On November 26, 1996, Saudi Interior Minister Prince Na'if (Nayef) dismissed the opposition in Saudi Arabia as comprising no more than "a handful," but some observers think the number of opponents may be more significant.

Political reforms promulgated by King Fahd appear to represent a limited move toward democracy and protection of individual freedoms. The "main law" announced by the King on March 1, 1992, bans arbitrary arrest, harassment, or entry of individual homes without legal authority and specifies privacy in telephone calls and mail. On August 26, 1993, in a message to King Fahd carried by the Saudi Press Agency, President Clinton welcomed the recently appointed consultative council "as an important step to widen popular participation in the government, which conforms with your history and traditions." On August 2, 1995, King Fahd appointed a new 28-member cabinet which contains a number of western-educated technocrats, although most key ministries remain in the hands of the Saud family; also, he announced that ministerial appointments normally will be limited to four years instead of an indefinite period. These measures will likely be popular among younger Saudis who have grown skeptical over the immobility of government and lack of new blood. On the other hand, King Fahd has said that free elections are not suitable for his country; he stated on March 30, 1992 that elections "do not fall within the sphere of the Muslim religion, which believes in the al-shura (consultative) system and openness between ruler and his subjects and which makes whoever is in charge fully answerable to his people."

Other Issues. On April 16, 1996, during the annual Muslim pilgrimage season, Saudi authorities allowed a Libyan aircraft bringing pilgrims to the Islamic holy places to land in Saudi Arabia and return to Libya, in violation of U.N. Security Council resolutions that ban air travel to and from Libya. (A similar incident took place during the 1995 pilgrimage season.) A statement by the U.N. Security Council on April 18, supported by the United States, cited Libya's dispatch of an aircraft as a violation of Security Council resolutions; without specifically mentioning Saudi Arabia, the statement reminded all countries of their obligations to enforce these resolutions. Saudi officials maintain that they are obligated to welcome Muslim pilgrims during the annual pilgrimage season, regardless of their means of conveyance.

Background to U.S.-Saudi Relations

Oil and national security concerns have combined to produce a close and cooperative relationship between the United States and Saudi Arabia. Since the award of the first Saudi oil concession to a U.S. company in 1933, both states have had an increasing interest, respectively, in the marketing and acquisition of Saudi petroleum supplies. As regional threats multiplied in the latter half of the century, mutual concerns over the stability of Saudi Arabia and other moderate regimes in the Arabian Peninsula engendered a significant degree of defense cooperation.

As the birthplace of the Islamic religion in 622 A.D. and as the home of Islam's two holiest shrines, the Arabian Peninsula has always occupied a position of special prestige within the Middle East. With the establishment of Arab empires based in Damascus and Baghdad, the peninsula gradually lost its political importance and sank into disunity. In the 16th century, much of the Arabian Peninsula came under the nominal rule of the Ottoman Empire; however, tribal leaders effectively controlled most of the region. During this period, an alliance developed between an influential eastern tribe, the House of Saud, and the leaders of a puritanical and reformist Islamic group known as the Wahhabi movement. During the first quarter of the 20th century, a chieftain of the Saud family, Abd al-Aziz ibn Abd al-Rahman (later known as Ibn Saud) overcame numerous rivals with the support of his Wahhabi allies and succeeded in unifying most of the Arabian Peninsula under his rule, with the exception of Yemen in the southwest and the small, then British-protected principalities along the eastern coast. On September 23, 1932, Abd al-Aziz proclaimed the establishment of the Kingdom of Saudi Arabia, which he ruled until his death in 1953. Four of his sons have succeeded him: Saud (1953-1964), Faysal (1964-1975), Khalid (1975-1982), and the present King Fahd, who acceded to the throne in 1982.

Royal Succession. On November 30, 1995, Saudi officials announced that King Fahd, who suffers from several ailments including diabetes and arthritis, was admitted to a hospital for tests, following what U.S. officials reportedly described as a stroke. Though released from the hospital on December 7, the King left government business to Crown Prince Abdullah, who attended the annual GCC conference in Oman on December 3. On January 1, 1996, King Fahd issued a decree addressed to the Crown Prince in which he stated that "we entrust you in this decree to take over management of government affairs while we enjoy rest and recuperation." A U.S. State Department commented that "In terms of the kingdom [of Saudi Arabia] and its governance, we think it's in good and stable hands." On February 21, King Fahd announced "the end of the effect of our order of January 1," expressed his appreciation to the Crown Prince, and said he was resuming his duties.

In late May, further reports indicated that the King continued to suffer from serious health problems and might leave the country for a while on extended vacation or for medical treatment. On May 22, General Binford Peay, Commander of the U.S. Central Command, made the following observation in a press interview: "I think the general feeling is that King Fahd is going to go off to Spain or somewhere in Europe for a while and Prince Abdullah has the lead on running the country." On May 28, however, Saudi Foreign Minister Saud al-Faysal said the King is "very well" and is carrying out his responsibilities; on the same day, a U.S. State Department spokesman said "we have no word that there's going to be any change in the status quo." Conflicting reports about the King's status continued during the summer of 1996. Meanwhile, the November 1995 and June 1996 bombings have raised some questions about the stability of the Kingdom and durability of the government; however, most observers believe the regime is still fundamentally stable.

Some observers believe the temporary appointment of Crown Prince Abdullah as acting head of state during January and early February put to rest the question of succession in the Saudi monarchy. Prince Abdullah, a half brother of King Fahd, has served as Crown Prince throughout King Fahd's reign; however, some commentators in the past have speculated that other members of the royal family (including full brothers of King Fahd) might challenge Prince Abdullah's position as heir apparent in the future. King Fahd's designation of Prince Abdullah as de facto acting head of state during the King's recent illness suggests a consensus in the royal family to back Prince Abdullah as successor if King Fahd should pass from the scene. With regard to policies, various sources describe Prince Abdullah as more traditional and conservative than King Fahd, less oriented toward the western world, and more inclined to emphasize Saudi ties with the Arab World. Most observers believe, however, that any changes under Prince Abdullah would be more of style than substance and that he is committed to a strong U.S.-Saudi relationship and to the core policies that Saudi leaders have pursued in the past.

Economy and Aid

Economic Conditions. Oil is the dominant factor in the Saudi economy, accounting for 37% of GDP, 75% of budget receipts, and 90% of exports in 1993; however, much more of the GDP is derived indirectly from the oil industry. Despite immense oil revenue, increasing state expenditures, the oil glut of the early 1980s, and the collapse of oil prices in the mid-1980s have put governmental fiscal assets in deficit since 1982, and since 1987 the government has begun to borrow. Added strains resulting from the Persian Gulf crisis of 1990-1991 caused the deficit to rise to approximately one sixth of GDP. External debt was estimated at $30 billion at the end of 1994; however, Saudi Arabia remains a net creditor in world financial markets. As of 1994, foreign assets managed by the central banking authority were estimated at $50 billion (down from $127.7 billion in 1981). Saudi monetary officials estimate that only 10-15% of the $50 billion is readily available, with the remainder earmarked to guarantee the currency or letters of credit. Besides the official $50 billion portfolio, the State Department estimates a $15 billion fund for autonomous government institutions (pension, development, and social insurance) and $19.7 billion worth of foreign assets in the commercial banking system.

Lowered oil revenues, an expanding population, and recent Gulf war costs of $55 billion (including $16.9 billion contributed to the United States to help defray expenses) have placed additional burdens on the Saudi economy. On January 1, 1994, King Fahd announced that the 1994 budget would be cut by 19% to S.R. 160 billion ($42.7 billion), down from S.R. 197 billion ($52.5 billion) for 1993. Since the projected 1994 income of $42.7 billion was the same as the spending target, the budget deficit theoretically was to have been eliminated for the first time since 1982; however, subsequent reports indicated a deficit of $10.7 billion in 1994. On January 1, 1995, the Government announced another budget cut of approximately 6% for 1995, with spending down from S.R. 160 billion ($42.7 billion) to S.R. 150 billion ($40 billion); Saudi banking sources estimate the 1995 deficit at S.R. 15 billion ($4 billion). On January 1, 1996, Crown Prince Abdullah, in the name of King Fahd, announced a $40 million budget for 1996, unchanged from 1995, with an estimated deficit of S.R. 18.5 ($4.93 billion), slightly higher than the estimated deficit in 1995 because of a decrease in projected revenues. Starting in 1995, the Saudi Government imposed some austerity measures including raising the costs of utilities (electricity, water, and communications facilities) and reducing subsidies in an effort to increase revenues and cut spending. Increased oil prices that followed the August 1996 Iraqi attack on Kurdish areas, however, could provide Saudi Arabia with an additional $10 billion in 1996 revenues, which could eliminate the formerly predicted 1996 budget deficit.

Aid Relationships. For some years, Saudi Arabia received very limited income from oil production and was a recipient of small amounts of U.S. financial aid during World War II; in 1951, the United States extended further assistance under development and military aid programs. Economic aid ended in 1959, as oil income rose from $57 million in 1950 to over $300 million in 1958 and $663 million in 1965. Military aid continued through 1975, but was limited to a small international military education and training program, with the exception of two brief periods in the late 1950s and late 1960s when Saudi Arabia faced threats from radical neighbors. Total U.S. aid to Saudi Arabia from 1946 through its termination in 1975 amounted to $328.4 million, of which $295.8 million was military and $32.6 million was economic assistance. Approximately 20% of total aid was in the form of grants and 80% in loans, all of which have been repaid.

Defense and Security

The United States and Saudi Arabia are not linked by a formal defense treaty; however, a series of informal agreements, statements by successive U.S. Administrations (see box), and military deployments have demonstrated a strong U.S. security commitment to Saudi Arabia. Although Saudi forces acquired experience during the Gulf war and are undergoing further upgrading through a large-scale program of arms procurement (see below), both Saudi Arabia and its five smaller Gulf neighbors remain vulnerable to future external aggression. On one hand, both the Iranian and Iraqi armed forces suffered major personnel and equipment losses during the 1980-1988 Iran-Iraq war and Operation Desert Storm, respectively, and neither is in a position to offer an immediate threat to the GCC. On the other hand, as shown in Table 3 (last page), the combined forces of Saudi Arabia and its GCC allies are outnumbered in important categories by those of Iraq and Iran, even after the losses sustained by both countries in recent wars.

Congressional Interest in Saudi Arabia

Under Title IX of the Omnibus Appropriation bill for FY1997 (P.L. 104-208, September 30, 1996), Congress appropriated $122.6 million in FY1996 supplemental funds to reimburse the Defense Department for costs incurred in force protection measures following the June 1996 Khobar bombing; these funds are totally offset by rescissions from previous appropriation bills.

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Arms Sales

Congress has been particularly sensitive to the argument that enhancing Saudi arms inventories could result in an incremental increase in overall threats to Israel, although some Members have supported such sales on the grounds that they help buttress Saudi defense capabilities in the Gulf and enhance the U.S. job market. Since the mid-1970s, several major arms sales to Saudi Arabia have been challenged in Congress: F-15 fighter aircraft in 1978; Airborne Warning and Control System (AWACS) aircraft, advanced tanker aircraft, and advanced Sidewinder air-to-air missiles in 1981; and a large package of air-to-air, surface-to-air, and air-to-sea missiles in 1986. All of these sales ultimately were allowed to proceed, and several larger sales followed before and during the Persian Gulf crisis, without significant congressional opposition. The Bush Administration's proposal in September 1992 to sell 72 improved F-15XP fighters to Saudi Arabia met some opposition, but in the end, resolutions to block or postpone the sale never came to a vote. (For further details on congressional consideration of the F-15XP sale, see CRS Report 93-473, Congress and the Middle East 1992. p. 29-31.)

Arab Boycott

Members of Congress frequently have decried Saudi participation in the Arab boycott because of its impact on Israel and on U.S. businesses. Some have called for linkage between U.S. arms sales to Saudi Arabia and Saudi renunciation of the boycott. Part C of the Foreign Relations Authorization Act for FY1994-95 (P.L. 103-236, April 30, 1994), known as the Anti-Economic Discrimination Act, under a provision that took effect on April 30, 1995, bars the sale or lease of U.S. defense articles or services to any country that sends letters to U.S. firms requesting compliance with, or soliciting information regarding compliance with, the Arab League primary or secondary boycott of Israel. This provision permits a Presidential waiver on national security grounds, and President Clinton exercised waiver authority for Saudi Arabia and several other Arab states in Presidential Determination 95-20, May 1, 1995.

Trade Practices

On March 15, 1995, Representative Robert E. Andrews introduced H.R. 1243, which would lower the dollar values of thresholds that trigger a requirement for Presidential reporting of arms sales to Saudi Arabia until the Secretary of State certifies that all unpaid claims of American firms against the Government of Saudi Arabia cited in reports by the Secretary of State and the Secretary of Commerce have been resolved satisfactorily. Senator Alphonse D'Amato introduced a companion bill, S. 747, with virtually identical provisions on May 3. Another bill, H.R. 1596, introduced by Representative Saxton on May 9, would lower the thresholds to zero, thus requiring the reporting to Congress of all arms sales to Saudi Arabia regardless of dollar value, until the Secretary of State makes the requisite certification. The same provision is contained in Section 3312, H.R. 1561 (the American Overseas Interests Act of 1995), which President Clinton vetoed on April 12, 1996, for other reasons. By increasing Presidential reporting requirements, these bills would have the effect of broadening the scope of congressional scrutiny of arms sales to Saudi Arabia pending resolution of outstanding commercial claims by U.S. companies.

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