144. Memorandum Prepared in the Central Intelligence Agency1


Key Judgments

—Saudi Arabia’s pursuit of a more active foreign policy in 1976 has significantly increased Saudi influence in intra-Arab affairs and the Arab-Israeli dispute. The Saudis also now approach diplomatic relations with the US from a new perspective, not as clients but as partners.

—Saudi Arabia views itself as of major importance to the United States not only because it controls vital oil resources and can virtually determine the price of world oil, but because it is the strongest force for moderation in the Middle East, wielding considerable influence over the key Arab players in the Arab-Israeli dispute.

—The US is important to Saudi Arabia because its influence over Israel is the key to the solution of the Arab-Israeli problem, something of overriding importance to the Saudis because it is the only practical [Page 462]way to guarantee stability in the area and end Israeli occupation of Arab territory, including East Jerusalem. The US is, in addition, a primary source of the technology and experience Saudi Arabia needs for its economic development plans.

—Saudi Arabia is placing its highest priority on generating momentum toward a resumption of Middle East negotiations. For this reason, it has tried to block an OPEC price increase that might have alienated the US and disrupted diplomatic activity toward a settlement. Although the Saudis are using oil prices as a carrot to induce the new US administration to give equally high priority to Middle East negotiations, they are probably prepared to be flexible in setting time limits for measurable progress. But they would likely move to higher oil prices should the US enact legislation specifically targeted at their interests.

—The Saudis, in particular, are not disposed to compromise their public adherence to the Arab boycott of Israel, and suspect that the sponsors of antiboycott legislation are out to damage the US-Saudi relationship to Israel’s benefit. They will be viewing US activity on the boycott issue as the acid test of US willingness to preserve its relationship with Saudi Arabia.

—Although Saudi King Khalid is technically the final authority in the country, virtually all decisions have been made by Crown Prince Fahd, who is in line to succeed him. Fahd is a shrewd leader who has long advocated close ties with the US.

—The regime is stable, and as long as the family continues to rise above its internal divisions in times of crisis it faces no immediate threats. In the longer term, however, enormous wealth, rapid economic development, and the resulting social changes could erode the monarchy’s traditional underpinnings.


Since the October 1973 war, Saudi Arabia has emerged as a significant force in intra-Arab affairs and, by extension, in the Arab-Israeli dispute. In the past year, in particular, the Saudis have become more active in pursuing their basic foreign policy goals—a reflection of their growing confidence in the considerable economic leverage they possess over other regimes and of their increasing willingness to wield that leverage. The goals of Saudi foreign policy, however, have remained constant.

Saudi Arabia would like to see a negotiated solution to the Arab-Israeli problem that would both return Israeli-occupied lands—ideally including East Jerusalem—to the Arabs, and remove the Palestinians as a constant source of instability in Arab countries. Other goals follow from this, such as the Saudi desire to smooth over intra-Arab quarrels in order to achieve the unity necessary to make any progress toward [Page 463]peace. The Saudis would also like to prevent the growth of radically-oriented governments throughout the Arab world, and particularly among their immediate neighbors, who pose a greater threat of infection to Saudi Arabia itself.

Finally, Saudi Arabia wants to conduct its foreign relations in such a manner as to facilitate domestic development programs. This means, among other things, doing what it can to maintain a healthy international economic environment—including trying to stem the growth of inflation—and maintaining good relations with the western countries that supply Saudi Arabia with the technology it needs.

Settlement Efforts

The rise in Saudi influence combined with a move toward moderation and away from Soviet influence on the part of Egypt and Syria—a move for which the Saudis have been partly responsible—have been the major factors shaping intra-Arab affairs since 1973. Egypt’s economy—and hence its domestic stability—is heavily dependent on Saudi support; Sadat consequently will not cross the Saudis on any issue about which they feel strongly. Syria can afford to be somewhat more independent, but the Lebanese war2 has put major strains on its economy and Asad too, wants to keep Saudi financial subsidies coming. With Riyadh, Cairo, and Damascus forming a united front—however loose—Arab foreign policy is locked into moderate channels; none of the more radical regimes is strong enough to be taken into account. The Saudis are determined to keep it that way.

The current Arab effort to generate some momentum toward reconvening Arab-Israeli negotiations is Saudi Arabia’s highest priority. Riyadh was largely responsible for setting the stage for such an effort; realizing that deadlock was inevitable as long as Egypt and Syria remained at loggerheads and the civil war in Lebanon continued to poison intra-Arab relations, the Saudis made repeated efforts to engineer a face-to-face meeting between Presidents Sadat and Asad, as well as Lebanese President Sarkis and Palestine Liberation Organization chief Yasir Arafat. Their eventual success—at the Riyadh summit meeting last October—was a triumph of Saudi persistence and willingness to employ their economic leverage.

Since the Riyadh conference the Saudis have been active in trying to patch up two other Arab and regional quarrels that have no bearing on the Arab-Israeli issue, except in the sense that anything undercutting Arab unity could hamper settlement efforts. They moved to mediate between Morocco and Algeria in the Spanish Sahara dispute—an effort [Page 464]which has so far gone nowhere, although they have probably not yet given up—and they smoothed over a potentially nasty quarrel between Iran and South Yemen when the South Yemenis shot down an Iranian plane which, they claimed, had strayed into their air space. The incidents illustrate a significant facet of Saudi foreign policy: Saudi Arabia is a compulsive mediator, and it is not deterred by the fact that a problem appears intractible.

The OPEC Decision

Having cleared the deck for movement on the Arab-Israeli front, the Saudis are prepared to subordinate other vital concerns to the achievement of progress in that arena. Hence their willingness to take on the rest of OPEC in order to avoid an oil price hike that might have alienated the incoming US administration and sparked a wave of anti-Arab feeling in the US that could hamper US diplomatic initiatives.3

The Saudis had some economic reasons for bucking OPEC as well—they were worried about the apparent fragility of the West’s economic recovery and afraid that too great an increase could start another downturn—but these reasons probably would not have induced them to draw the line at a 5 percent rise, rather than settling for the 10 percent that might have formed a basis for a compromise. The Saudis were trying to deliver a clear signal to the US: nothing must stand in the way of movement toward an acceptable settlement, and the Saudis, for their part, were prepared to make considerable sacrifices to this end.

It is probably not true—as some of Petroleum Minister Yamani’s statements following the OPEC conference seemed to hint—that the Saudis are looking for a specific quid for their quo and are prepared to let the price of oil rise if they do not get it. They want to feel that the Carter administration is placing a high priority on Middle East settlement efforts; they want to see US diplomatic activity looking toward the resumption of negotiations; but they are fully aware of such complicating factors as the Israeli elections, and probably would not insist on substantial progress toward a settlement before next summer. Next July’s OPEC meeting is probably not a firm deadline. Nevertheless, a complete absence of interest on the part of the US before July might provoke the Saudis to reassess their stand.

Certain “negative” US actions might also induce the Saudis to retaliate by raising the price of oil. Chief among these would be the passage of legislation aimed at making it difficult to do business with Saudi Arabia because of Saudi adherence to the Arab boycott of Israel. [Page 465]Another would be congressional disapproval of arms sales to Saudi Arabia.

Political Implications of the OPEC Decision

[less than 1 line not declassified] diplomatic reporting make clear that the decision to break with OPEC and hold the line on oil was very much Crown Prince Fahd’s, with the full support of King Khalid. Both Yamani and Foreign Minister Saud oppose the move; so do most members of the Saudi cabinet and technocrats responsible for implementing petroleum and development policy. While Fahd and Khalid are strong enough to keep the rest in line, they would be highly embarrassed if the US reacted by passing legislation directly harmful to Saudi interests. Under such circumstances, Fahd could react angrily and reverse his decision.

All indications so far, however, are that Fahd is determined to stand by his decision, despite the storm of protest it has aroused and the strains it has placed on Saudi relations with fellow OPEC members. Fahd [less than 1 line not declassified] has placed his prestige very much on the line on the oil price issue. He has ordered increased Saudi oil production in order to hold down the price, and turned aside attempts by key ministers to get him to change his mind.4 Our judgment is that he will hold firm, at least until the Carter administration has been given a chance to show its hand with respect to Middle East policy, barring adverse congressional action. One other eventuality could upset Fahd’s decision: a veto by King Khalid, presumably in response to pleas by opponents of the price move who win the King to their side. But Khalid seems to be very much behind Fahd, and dissension within the royal family on the issue would probably have to reach a critical stage to induce him to reverse Fahd’s stand.

US-Saudi Ties

The Saudi belief that the US is the key to a solution of the Arab-Israeli problem is not the only reason for the Saudi desire to cultivate the friendship of the US. The two countries have a long history of close relations, dating from the first exploitation of the country’s oil by the Arabian-American Oil Company in the 1930s, shortly after the nation was unified by King Abd al-Aziz. Aramco came close to playing the role of a benevolent colonial authority in the new country; it gave advice on the structure of government departments and took a hand [Page 466]in foreign policy. Unlike most such relationships, the experience was seen as mutually rewarding by both parties, and the Saudis came away with considerable respect for US technical abilities.

In the 1950s and 1960s, Saudi conservatism, Muslim fundamentalism, and entrenched hatred of communism reinforced Saudi approval of American foreign policy, apart from US support for Israel. Those were the years when the Saudis were well out of the mainstream of an Arab world dominated by Nasir’s Egypt, and Saudi friendship with the US reinforced that isolation. The kingdom was, at that time, the strongest friend of the US in the Arab world, and the Saudis were—and are—fond of pointing this out.

The US-Saudi relationship was strained by the Arab-Israeli war of 1967, but it was only after the 1973 war—which brought the Arab oil embargo and the enormous surge in oil prices in its wake—that serious divisions occurred. Popular opinion in the US tended to lay blame for oil prices at the door of the “Arabs,” despite the fact that the most serious jump was due to Iranian pressure and that the Saudis, even before their break with OPEC, had acted to keep prices down. Suggestions in the US press that Washington was planning—or ought to plan—to invade Arab oil fields angered, and probably also alarmed, the Saudis.

But the change since 1973 has been more fundamental. The Saudi international role has grown since the world first became aware of the importance of oil to its economy, and since Saudi revenues began to soar. The Saudis now approach diplomatic relations with the US from a new perspective, not as clients but as partners. They feel that the interests of the two countries are complementary—the Saudis need US technology, the US needs Saudi oil. They have difficulty understanding how the US can let its attachment to Israel interfere with such a happy combination of interests. One of the reasons behind Saudi Arabia’s decision to keep the price of OPEC oil down was to demonstrate to the US that Saudi Arabia matters, that it is an ally worth keeping because it is in a position to either help or hurt.

The two-way street between the US and Saudi Arabia has involved a swap of Saudi oil and surplus funds for US technology and management assistance. The Saudis have been accounting for roughly 1.2 million barrels per day or 22 percent of US oil imports; as of mid-1976 $12 billion of Saudi Arabia’s foreign assets of $32 billion had been placed in the US. US exports to Saudi Arabia have grown from only $500 million in 1973 to $1.5 billion in 1975, accounting for about one quarter of Saudi imports. In 1976 alone, US firms secured contracts worth an estimated $27 billion, to be spread over five to ten years. Some 28,000 Americans are working in the kingdom on numerous projects and more than 50,000 will probably be there by 1978. The US involvement includes:

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—The construction of an entire $50-billion city, port, and industrial complex in Jubayl on the east coast, led by Bechtel Corporation, and of a $15 billion complex on the west coast at Yanbu in which Frank M. Parsons Inc. and Mobil are involved;

—About $12 billion in military construction projects under the aegis of the US Army Corps of Engineers; and

—Participation by Fluor International and Aramco in a $16-billion gas gathering system.

The Boycott Issue

The most immediate potential flashpoint in the mutually beneficial Saudi-US bilateral relationship is the boycott issue. The Saudis are not disposed to compromise on their public adherence to the Arab boycott of Israel, for all their looseness in administering it in the past. They are willing to “clarify” those secondary and tertiary applications of the boycott which are largely irrelevant and ineffective and which offend US sensitivities; they would like to make it legally possible for most US companies to do business in Saudi Arabia without being penalized by their own government.

The Saudis were well on their way to working out such a formula as long as they felt that Congress and the administration were primarily concerned with preventing injustice by one American against another. They are now beginning to suspect, however, that the sponsors of antiboycott legislation are out to damage the US-Saudi relationship to Israel’s benefit. As a result, their initially conciliatory attitudes have begun to fade. They will be reviewing US activity in the boycott sphere as the acid test of US willingness to preserve its relationship with Saudi Arabia; Fahd’s pro-US oil policy almost certainly hangs in the balance.

The Saudis cannot understand US insistence in making a public issue of the boycott matter. They feel that their attempts to modify the boycott under the table ought to be sufficient. They have been pushing other Arab states to ignore the boycott in the case of international telecommunications services; they have backed Egypt’s proposal to take firms willing to invest in Arab countries as well as Israel off the blacklist; they will go along with substituting a certificate of origin for a statement that the goods are not of Israeli origin; they will eliminate restrictions on a prime contractor’s choice of subcontractors. But they will not back off publicly.

Saudi commercial practices are rife with examples of willingness to turn a blind eye to the boycott. For example:

—Philips, the large Dutch electronics and communications company—despite being on the blacklist—was awarded a $3-billion telephone system contract in Saudi Arabia, [2 lines not declassified];

—Motorola, which operates a plant in Israel, deals in Saudi Arabia and throughout the Arab World;

[Page 468]

—A prominent Jewish-owned US transportation firm has exclusive rights to operate a Ro-Ro (roll on-roll off) shipping service to Saudi Arabia; and

—TWA, the sole US civil-air carrier to Israel, has the management contract to operate the Saudi Arabian airline

[5 paragraphs (59 lines) not declassified]

Longer Term Problems

The regime faces no threats of consequence, despite its rigid conservativism and total lack of representative institutions. Partly as a result of its ambitious development policy, however, and partly simply as a result of the sudden influx of vast wealth, the country is facing a period of sweeping economic change that cannot help but drag social change in its wake, unsettling the country’s traditional structures and perhaps, in time, endangering the monarchy.

The country suffers from a severe shortage of manpower. Of its population of perhaps 5 million, at least a million and probably more are foreigners, and the Saudis can expect a continuing influx of foreign workers—perhaps half a million in the next five years—if their development plans even approach the scale proposed. Some will be unsophisticated manual laborers from North Yemen and the Sudan; some will be skilled technicians from other Arab countries and the West. No matter how hard Saudi leaders try to insulate the population from the influence of “foreign” ideas, new ideas will come—perhaps demands for the formation of labor unions, which are now illegal, or attempts to introduce flexibility into the country’s rather oppressive, religion-dominated social life.

Social change is likely to usher in demands for a political role by wealthy businessmen and educated, middle-class technicians. The Saudis are determined not to follow the example of Kuwait, where the National Assembly—until its recent suspension—gave free expression to radical and antiregime ideas. Rather than toy with similar democratic experiments, the Saudis will try to grease social frictions with money, already a key factor in ensuring Saudi stability. Although far from evenly distributed—a factor aggravated by the conspicuous consumption of those at the top—Saudi wealth is virtually bottomless, and should go far to ensure cooperation with the regime.

But money will, in turn, gradually erode traditions spawned by an ascetic, desert culture. Respect for the ulema—religious leaders—will eventually diminish; tribal sheikhs will dwindle in importance; business ties will supplant tribal ties. All this could have an effect on the monarchy. The king of Saudi Arabia was originally—and in significant ways still is—a kind of super-sheikh. Any Saudi can petition him in person or appeal for his judgment in a dispute. But in the [Page 469]modern Saudi Arabia, no king is going to be able to maintain that kind of accessibility indefinitely. As the monarchy grows more remote from the people, it will be perceived as more absolute; and this is likely to spur popular agitation for a say in the decision-making process.

A breakdown in mores and customs sufficient to threaten the monarchy will take time. Any more immediate threat would have to come from the army and the air force, the only institutions with the power to mount a coup—and the threat from this quarter seems almost equally remote. [12 lines not declassified]

[1 paragraph (17 lines) not declassified]

  1. Source: Central Intelligence Agency, Office of Near East and South Asia Analysis (DI), Job 76T00412R, Intelligence Publication Files—Record Copy of Finished Intelligence Pubs, Box 1, Folder 12, NESA Intelligence Memo: Saudi Arabia: An Assessment, RP 77–10003, January 1977. Secret; [handling restriction not declassified]. Prepared in the Office of Regional and Political Analysis.
  2. Reference is to the first phase of the Lebanese civil war, which was brought to a halt at the October 1976 Riyadh summit. See footnote 4, Document 143.
  3. See footnote 8, Document 143.
  4. Current Saudi planning calls for production of 11.5 million barrels per day by mid-1977, rising to 12 million by the end of the year. The Saudis are aware that company drawdowns of excess oil stocks will keep prices soft for the first quarter of this year, by which time Riyadh hopes to increase capacity sufficiently to maintain the pressure on prices. [Footnote is in the original.]