143. Briefing Paper Prepared in the Department of State1


I. Significance of the Country to U.S. Global Policy and Regional Objectives

The Kingdom of Saudi Arabia is important to the United States as the strategically pre-eminent source of energy for the West and because of its massive financial reserves, its political influence in Arab and Third World councils, and its strategic location.

Saudi Arabia is now the primary source for U.S. imports of crude oil, providing 22 percent of our imports and 7 percent of our total consumption. Continued access to Saudi oil is essential if our economy is to sustain a healthy growth rate while it pursues the goal of greater energy self-sufficiency. Many of our allies in Western Europe, as well as Japan, are even more dependent on Saudi oil. Only Saudi Arabia—with about one-quarter of the world’s petroleum reserves—can rapidly expand petroleum production, and this endows Saudi Arabia with more influence over the price of oil than any other producing country.2

Because Saudi Arabia is accruing revenue faster than its domestic needs require, the Kingdom has amassed over $40 billion in foreign assets. We need to insure that this money is employed constructively so as not to create instability in international financial markets. We also need to encourage Saudi assistance to underdeveloped countries whose needs exceed our own ability to help.

This rapid accumulation of over one billion dollars per month of surplus wealth gives Saudi Arabia increasing influence in regional affairs. In recent years the Saudis have begun to exploit the needs of Egypt, Syria, Jordan, and Lebanon for financial aid in a manner giving Saudi Arabia growing political influence. This is being used in support of our interest in moderation in the Arab world, but it could also be used against us—albeit reluctantly and not without costs to themselves—if the Saudis see our positions diverging too far. Saudi Arabia has thus [Page 452] become an important factor in the quest for Middle East peace. It is very unlikely that the Arab “confrontation states” would launch an all-out war against Israel unless they felt they could count on Saudi political support and financial assistance.

We have a longstanding interest in the security of Saudi Arabia and the entire Arabian Peninsula. Growing Saudi self-confidence, ability to provide financial aid, and the development of a modest but modern defense capability foster a constructive Saudi leadership role in the security and orderly development of the smaller Arabian Peninsula states. Saudi Arabia’s policy has been generally supportive of our interest in Saudi-Iranian cooperation to secure the oil-rich Persian Gulf.

Expanding Saudi political influence, and the Saudi proclivity toward moderate positions have made Saudi Arabia an increasingly important source of support for U.S. positions in the U.N. and other multilateral fora. As protector of the two holiest shrines of Islam, Saudi Arabia wields great moral suasion among the Muslim nations. It is rigidly anti-Communist, and uses its influence and financial resources to resist the spread of radical ideologies within the Middle East and elsewhere. Recently the Saudis have widened their regional role to support political order and economic development in South Asia and among Muslim countries in Africa.

II. Political and Economic Situation in the Country

Saudi Arabia is an Islamic monarchy; the King is chosen by consensus of the senior members of the royal Al-Saud family. King Khalid, who became Chief of State upon King Faisal’s assassination in March 1975,3 has delegated to his half-brother, Crown Prince Fahd, authority to oversee most day-to-day affairs, an arrangement which appears to be working satisfactorily. The energetic Fahd is responsible for several Saudi foreign policy initiatives, such as seeking to moderate the Algerian-Moroccan dispute over the Spanish Sahara and an attempt to wean the People’s Democratic Republic of Yemen (South Yemen) away from Communist influence by making Saudi economic assistance available.

The regime is paternalistic and absolute, with no political parties and no elected assembly, but the leadership maintains the tribal tradition of ready public access to the monarch. There is no significant organized domestic political opposition. The ruling family maintains tight control, aided in part by the presence of royal family members in government, the military, and private business, thereby insuring that the leadership is broadly based and well informed of public sentiment. [Page 453] Western-educated Saudis play an important policy role, particularly in economic matters. Important government posts have long been open to talented commoners.

A major element of the stability of the regime is its willingness to permit the educated younger Saudi opportunity to play a responsible role in the nation’s development. This factor plus the gradual liberalization of Saudi society and the increasing distribution of the benefits of oil wealth have mitigated public opposition to the rule of the Al-Saud.

Although the prospects for political stability in Saudi Arabia have remained promising for over a decade, there are possible sources of future unrest: a high rate of inflation (20–40 percent in some sectors), corruption and disparities in distribution of wealth, and clash of traditionalist and modernist views on the pace of social liberalization, a problem exacerbated by the growth of foreign presence in the Kingdom.

In the last five years the Saudis have displayed a notable growth of both confidence and skill in their relations with the Arab world and other neighbors. No longer on the defensive against the revolutionary Arab governments, the Saudis have carefully used their financial influence to develop significant leverage over the policies of Egypt, Syria and other Arab states, have begun to play a more dynamic and sophisticated role as the natural leader of the Arabian Peninsula, and have made sound progress toward cooperation with Iran in the interests of Persian Gulf security. The success of Saudi Arabia in arranging the recent “Riyadh Summit” to seek solution to the Lebanese crisis and Syrian-Egyptian rapprochement4 was vivid evidence of the increase of Saudi influence in the Middle East.

Economically, the Kingdom is essentially poor in trained human resources and basic infrastructure. (As recently as 1973, secondary school enrollment was under 27,000, out of a population of 5 million.) A Five-Year Plan projecting expenditures of $142 billion was announced in May 1975. The attempt to implement this plan has initiated a period of unprecedented economic activity. Many programs are heavily dependent on foreign labor, both skilled and unskilled. Although it is apparent that not all goals of the Plan will be met on schedule, goals in education and health care may be exceeded. The search for quality education will bring more Saudis to the United States, beyond the 5000 presently in our colleges and universities.

While government expenditures have grown abruptly in the past few years, oil revenues continue to be well in excess of the Kingdom’s [Page 454] absorptive capacity. The Saudi Government has invested significant amounts of these surplus revenues in the U.S., mostly in government securities. It is possible that future funds will go into long-term investment in our private sector as the Saudi Government seeks to diversify its holdings. In view of our great need for additional investment capital, it is in our economic interest to seek to attract unutilized Saudi funds into the private sector, but there will be domestic political resistance to doing so.

In Saudi Arabia itself, the Kingdom remains oriented toward free enterprise, although the capital requirements of its own massive modernization and industrialization program necessitate the active participation of the Saudi Government in numerous joint ventures. The Government states that such ventures will eventually be offered for private ownership.

Negotiations are continuing with the Arabian American Oil Company (ARAMCO) toward the objective of 100 percent Saudi ownership. The Saudis wish to retain the owner companies (Exxon, Socal, Texaco, Mobil) to produce and market Saudi oil. Average ARAMCO crude production for 1976 will reach the Saudi Government’s limit of 8.5 million bpd. The question of how much oil should be produced in excess of that needed to fund the country’s internal development and foreign assistance programs (estimated at 5 million bpd) is under constant discussion. Thus the world is faced with the delicate situation of looking for increased oil supplies primarily to the major producer with least economic incentive to increase production.

III. Current State of U.S. Relations and Policy Toward Saudi Arabia

The American interest in the stability and orderly development of Saudi Arabia began forty years ago with the ARAMCO concession. The 1945 meeting between President Roosevelt and King Abdulaziz Ibn Saud5 commenced an unbroken manifestation of official U.S. concern for the Kingdom’s welfare, and began to build a notable Saudi dependence on the United States as the major power which could be trusted to guide Saudi Arabia into the modern world. For over a quarter century our relationship expanded gradually and soundly, reflecting the measured pace of Saudi development and our important but limited interest in a nation with values quite unlike our own. Our direct interest was in protecting American oil investment and opening promising commercial markets; and equally important indirect concern was the need of our NATO allies for Saudi oil.

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Then, some five years ago, the United States became directly dependent on Saudi oil and our relationship intensified abruptly, testing the capacity of both of our societies to respond to an increasing interdependence. Our future national interest in Saudi Arabia can be limited only by our ability to get our domestic energy situation in hand.

In response to these recent imperatives both the U.S. Government and our private sector have hastened, along with other industrial societies, to cope with the abrupt shift of economic power toward Saudi Arabia. As the role of the major oil companies has diminished rapidly, the U.S. Government has for the first time become directly involved in efforts to influence Saudi decisions on petroleum pricing and production. We have developed a Joint Economic Commission to facilitate Saudi purchase of U.S. Government expertise for various development objectives.6 We have sought to encourage relatively unsophisticated Saudi investment institutions to rely on the U.S. market and have attracted over $8 billion of Saudi placement in U.S. Government securities.

Our private sector has been equally responsive. ARAMCO while amicably negotiating the relinquishment of its concession rights has retained a major future role in the development of and access to Saudi oil. Other large American companies such as Bechtel and Parsons have joined ARAMCO in undertaking huge development projects. Over 200 American companies are now established in Saudi Arabia; over 30,000 Americans reside there. In 1976 we anticipate selling over $3 billion of American goods and services (excluding government-to-government military sales) to offset partially our $6 billion Saudi oil bill. American financial institutions are heavily engaged in “recycling” the huge Saudi financial surpluses, to date placing them mostly in short-term instruments.

In the last few years our longstanding security assistance relationship has entered the “take-off stage,” reflecting increasing Saudi capability to absorb modern military equipment and training, a new Saudi regional defense responsibility in the wake of the British withdrawal from the Persian Gulf and Saudi ability to buy costly military equipment and services at no cost to the capital needs of the civil sector. Total sales of U.S. equipment and services under FMS have grown from $2.1 billion in 1966 to a cumulative total of approximately $12 billion by the end of 1976. Although these figures reflect contracts to be implemented over the next several years (only about $1 billion of the $12 billion in equipment and services has been delivered), and [Page 456] although over half the total is the value of construction projects managed by the U.S. Army Corps of Engineers, the acceleration of our involvement in Saudi military modernization raises major policy issues. Last fall Congressional opposition to supplying Mavericks and Sidewinders jeopardized our relationship. Although present U.S. military sales programs reflect the findings of a careful 1974 USG survey of Saudi defense requirements, the limited absorptive capacity of the Saudi armed forces requires that we keep under review the future pace and scope of our security assistance activities if they are to continue to serve our long-term interests in Saudi Arabia.

Until the 1973 embargo the Saudi role in the Arab-Israel conflict was essentially reactive rather than one of leadership. Since then we have successfully sought active Saudi support for U.S. policies on this key problem, as Saudi Arabia has emerged as a critical factor in Arab decision making. Similarly we have encouraged a more active Saudi leadership role in the Arabian Peninsula and greater cooperation with Iran in securing the Persian Gulf. To date U.S.-Saudi cooperation on regional political issues has progressed remarkably well, but the new Saudi posture of leadership makes it increasingly difficult to isolate our interests in Saudi Arabia itself from the state of U.S.-Saudi accord on the Arab/Israeli and other major regional issues. To the extent our interests diverge, we must anticipate increasing Saudi difficulty in reconciling close cooperation with the United States with its growing leadership role in the Peninsula, the Arab World, and of course in OPEC. The Saudis have repeatedly demonstrated an intense desire to rely on the United States as the primary supplier of technology and equipment for both civilian and military development. But the Saudi dependence is not absolute and other nations seek a share of the present predominant American role. Should the Saudi leadership come seriously to doubt the steadfastness of our support, a possibly irreversible unraveling of our carefully built relationship of mutual confidence could ensue.

IV. Specific Major Issues Having Impact on Relationship

A. A Middle East Peace Settlement. The 1973 oil embargo demonstrates that the Arab/Israeli problem will in the final analysis overwhelm the other carefully cultivated aspects of the U.S.-Saudi relationship though Saudi vested interest in the latter can serve as a counterforce up to a point.7 The Saudis count on the U.S. to remove a source of regional instability by bringing the parties to the Arab/Israeli [Page 457] conflict to a mutually acceptable permanent settlement. They wish to avoid an outbreak of hostilities because they believe the likely result would be an Arab defeat leading to the return to power of radical Arab revolutionary governments hostile to the Saudi regime and a resurgence of Soviet influence in the area. The Saudis have exerted a moderating influence on the “confrontation states,” but their patient willingness to support U.S. policy initiatives in the Middle East rests on the assumption that we will rapidly resume the quest for an overall peace settlement. Saudi responsiveness to our position on oil prices in the recent OPEC meeting8 has been linked in public statements to expectation that the U.S. will bring its full influence to bear to make progress toward a Middle East peace. They expect real progress in 1977, which to them translates into U.S. success in bringing Israel to withdraw to the 1967 borders and to accept the establishment of a Palestinian political entity outside those borders.

If we make progress on the other elements of a Middle East peace package, the question of the status of Jerusalem will finally come center stage. The Saudis are likely to be the least flexible of the Arabs on the future of Jerusalem and will almost certainly insist that the Israelis agree to Arab political jurisdiction in East Jerusalem, though they might in the end accept control of the Muslim religious sites by an international body.

B. Oil Supplies. Saudi Arabia has been strongly supportive of our objective of minimizing oil price increases. As world demand for oil grows, we must look to Saudi Arabia for additional production if pressures for future sharp price increases are to be eased. The Saudis are already producing above the level needed to meet their own immediate requirements for revenues, and in terms of their own narrow economic needs there is no reason to raise production further. On the other hand, Saudi leaders have been aware of the extent to which their own economic well-being in a broader sense and that of the world economy in general requires Saudi production of essential oil. Moreover, their overriding interest in encouraging U.S. cooperation in other areas, most significantly the search for Middle East peace, causes them to be particularly sensitive to our interests in the energy area.

On the other hand, the Saudis are not comfortable with their global economic responsibilities thrust upon them because of their massive oil reserves. Also, there are influential voices within the SAG urging that production be held back rather than continuing to generate surplus [Page 458] assets whose value—it is alleged—is eroded through inflation more rapidly than would be the case if the oil itself were left in the ground for the benefit of future generations. In CIEC and elsewhere, the Saudis have made continued production at levels above their own financial requirements conditional upon measures by the industrialized countries to protect the real value of Saudi assets. It remains to be seen how serious the Saudis really are on this point. But at a minimum they are demanding that we recognize politically that their oil production policy may entail certain problems in terms of financial assets and that we be prepared to discuss these problems with them.

C. Arms Supply Relationship. Saudi Arabia has chosen to rely primarily on the United States, and on our NATO allies to a lesser degree, to acquire military training and equipment. The United States is committed on a government-to-government basis to overseeing the development of an effective jet interceptor (F–5) force capable of defending the country against attack; to manage a ten-year program in which Saudi Arabia will acquire an 18-ship navy, two naval bases, and large numbers of trained personnel; to managing a multi-billion dollar program of military construction; to mechanizing two out of four Saudi Arabian army brigades; and to training the Saudi Arabian National Guard. In other programs, the Saudis have contracted directly with American firms to provide an air defense missile system (Raytheon), an air defense radar network (Lockheed), and a fleet of C–130 military transport aircraft (Lockheed). Arms acquisition requests are in many cases based on recommendations made in the 1974 survey of the Saudi armed forces made by a Department of Defense team.9 The scarcity of trained manpower necessitates in many programs that considerable numbers of expatriate personnel assist the Saudis by performing important maintenance, training, and staff work.

Saudi desire for additional military equipment is certain. We have agreed in principle to provide replacements for aircraft due to be phased out of the Saudi inventory during 1978–80; and a specific Saudi request is likely in 1977 for advanced fighter aircraft.

This arms supply relationship is subject to criticism by those who oppose arms sales in principle, and by those who believe arms sold to Saudi Arabia might at some future date be used against Israel. In reply to such criticism, we have maintained that Saudi purchases are reasonable for the defense of a country the size of the United States east of the Mississippi and having vast resources. We have considered it unlikely that Saudi arms will be used against Israel. The Saudis have [Page 459] never shown an inclination to engage the Israelis in combat, and they would be reluctant to endanger the future of the many military and economic programs for which they depend upon the United States by unauthorized transfer of American supplied military equipment. There is, however, no absolute guarantee against some unauthorized transfers in the emotional atmosphere of resumed hostilities. We should therefore continue to guard against this contingency by assuring discreetly that the Saudis understand the costs to them of such action would be high and that transfers of sophisticated equipment to other Arabs would not be very practical in terms of the logistical and infrastructure support required. In addition, we must continue to carefully examine future Saudi military modernization plans to assure they meet reasonable defense needs and are within the limited Saudi absorptive capacity.

D. The Arab Boycott of Israel.10 The Saudis are strict in applying the “secondary” boycott against firms blacklisted by the Central Boycott Office in Damascus. They have made it clear that they will adhere to this form of economic warfare until the achievement of a permanent solution to the Arab/Israeli problem. Yet the Saudis have made certain administrative changes in their manner of implementing the primary boycott and appear to have tacitly accepted that neither the U.S. Government nor another American company can refuse to deal with an American firm because it may have been placed on the boycott list. The Saudis have assured us that their implementation of the boycott reflects strictly political motives and does not reflect religious discrimination.

Similarly, the Saudi Government assures us it does not refuse visas on religious grounds.

The Saudis will be watching closely the attitude of the new Administration toward Congressional initiatives for further anti-boycott legislation. Should the Administration support or accept legislation which discourages American firms from competing for contracts in Saudi Arabia, the Saudis may interpret this as an anti-Arab bias which will make it politically more difficult for the Saudis to support the Administration’s efforts to facilitate the progress of Arab-Israeli negotiations toward a peace settlement. On the other hand, should the Administration seek a delay in acting on anti-boycott proposals to allow it sufficient time to study this complex issue, this would be viewed as indicative of a genuinely even-handed approach toward the problems of the area.

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V. Human Rights Considerations

Saudi Arabia has not been a focal point for groups interested in human rights questions. Within the context of Saudi traditions, the Government considers itself solicitous of the human rights of its citizens and we have no evidence it practices or condones flagrant violations such as torture or arbitrary detention. It is nevertheless evident that Saudi attitudes and practices on many issues are profoundly different from our own. The state supports an established creed, Islam, rather than adhering to our secular concept of the separation of church and state. Though people of all religious faiths are allowed entry into the country, only Muslims are permitted public worship.

Entry into the proximity of the two holiest sites of Islam, Mecca and Medina, is forbidden to non-Muslims. Education for women through college is increasingly common, but the social roles, including employment opportunities, allowed women are generally limited to those which can be carried out without coming into contact with men from outside one’s family. In general, professional associations are discouraged. Labor unions are non-existent. Although positions of responsibility may be achieved by demonstrating education and competency, the feeling persists that one’s true status is determined by one’s genealogical descent, and cannot be altered essentially by legal or administrative actions such as naturalization. Saudi citizenship is awarded to immigrants in rare cases. Justice tends to be punitive rather than reformative in aim. There are no democratic institutions as we know them, and the Koran is still considered the “constitution” of the land. This substantial divergence in attitudes on many social and religious questions is a barrier to the development of broad popular support in the United States for the sort of cooperative relationship our dependence on Saudi Arabia dictates.

VI. Congressional Attitudes Toward Saudi Arabia

The Congressional attitude toward Saudi Arabia is ambivalent. The importance of Saudi Arabia to U.S. economic and political interests is increasingly but still inadequately recognized in the Congress. Congress tends to recognize Saudi moderation on oil and Middle East political issues, and the potential benefits from the use of its financial resources to exert positive leverage within the region as well as in other LDCs. Those who question the desirability of a growing relationship stress Saudi Arabia’s strict adherence to the boycott of Israel, accuse it of religious discrimination in visa issuance (although this is no longer the problem it once was), and doubt the real need for the military equipment it is purchasing, which they suspect will ultimately be used against Israel. They also express concern that U.S. dependence on Saudi oil could be used to “blackmail” the U.S. to weaken its support for Israel.

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Almost all of the approximately 50 members of the Congress who have visited Saudi Arabia and talked with its leaders within the past two years have returned with a greater appreciation of Saudi Arabia’s moderation and of the positive role it is playing in the region. Congress remains concerned, however, over Saudi investment objectives in the U.S., their potential influence over U.S. banks and financial institutions, and the size of their holdings of USG notes and bonds.

The Saudis will continue to look for appreciation for their moderating influence on oil prices and Saudi cooperation in our search for a negotiated peace in the Middle East. Our relationship may be faced, however, with concerted efforts in Congress to restrict the sale of military items to Saudi Arabia—particularly the additional Sidewinder and Maverick missiles which the Saudi Government expects us to provide—and to enact confrontational anti-boycott legislation.

  1. Source: Carter Library, National Security Affairs, Staff Material, Middle East, Subject File, Box 81, Saudi Arabia: 5/75–5/77. Secret. Drafted by Cecil, Countryman, and Twinam on January 3, 1977. Prepared for the transition.
  2. For documentation on U.S. policy toward Saudi Arabia as an oil producer and leader of OPEC, see Foreign Relations, 1969–1976, vol. XXXVII, Energy Crisis, 1974–1980.
  3. Faisal reigned as King of Saudi Arabia from 1964 until 1975 and implemented a number of reforms and modernization efforts. He was assassinated by his nephew on March 25, 1975.
  4. Arab heads of state met in Riyadh October 17–18, 1976, to discuss Egyptian-Syrian rapprochement and ways to end the fighting in Lebanon. Information on the summit is in telegram 6446 from Amman, October 20, 1976. (National Archives, RG 59, Central Foreign Policy File, P850107–2210)
  5. See Foreign Relations, 1945, vol. VIII, The Near East and Africa, pp. 2–3.
  6. The Joint Economic Commission was established in 1974. Documentation is scheduled for publication in Foreign Relations, 1969–1976, vol. E–9, Part 2, Documents on the Middle East Region, 1973–1976.
  7. For documentation on Saudi Arabia’s role in the Arab-Israeli peace process, see Foreign Relations, 1977–1980, vol. VIII, Arab-Israeli Dispute, January 1977–August 1978, and Foreign Relations, vol. IX, Arab-Israeli Dispute, August 1978–December 1980.
  8. At the OPEC Oil Ministers meeting in Doha in December 1976, Saudi Arabia and the United Arab Emirates split with the rest of OPEC over the increase in oil prices, instituting a two-tier price structure. See Foreign Relations, 1969–1976, vol. XXXVII, Energy Crisis, 1974–1980, Document 113.
  9. Documentation on U.S.-Saudi military relations during the Second Nixon and Ford administrations is scheduled for publication in Foreign Relations, 1969–1976, vol. E–9, Part 2, Documents on the Middle East Region, 1973–1976.
  10. The Arab League boycott of Israel was imposed in the wake of the 1948 Arab-Israeli war in a concerted effort by Arab League states to isolate and weaken Israel economically.