SAUDI ARABIA: COPING WITH NEW REALITIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T00155R001100120001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 23
• Document Creation Date: December 23, 2016
• Document Release Date: December 13, 2013
• Sequence Number: 1
• Publication Date: June 1, 1986
• Content Type: NIE

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Director of
Central
?*? Intelligence
Minter...P.1. ?
,??????????0/0
MASTER FILE COPY
00 KOT GIVE OUT
0?, MARK ON
Saudi Arabia: Coping
With New Realities
National Intelligence Estimate
--Serrtr-
25X1
---Serdr?vt
NIE 36.6-86
June 1986
Copy 555
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THIS ESTIMATE IS ISSUED BY THE DIRECTOR OF CENTRAL
INTELLIGENCE.
THE NATIONAL FOREIGN INTELLIGENCE BOARD CONCURS.
The following intelligence organizations participated in the preparation of the
Estimate:
The Central Intelligence Agency, the Defense Intelligence Agency, the National Security
Agency, and the intelligence organizations of the Departments of State and
the Treasury.
Also Participating:
The Assistant Chief of Staff for Intelligence, Department of the Army
The Director of Naval Intelligence, Department of the Navy
The Assistant Chief of Staff, Intelligence, Department of the Air Force
The Director of Intelligence, Headquarters, Marine Corps
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NIE 36.6-86
SAUDI ARABIA: COPING
WITH NEW REALITIES
Information available as of 25 June 1986 was used in the
preparation of this Estimate, which was approved by the
National Foreign Intelligence Board on that date.
ET
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CONTENTS
Page
SCOPE NOTE
1
KEY JUDGMENTS
3
DISCUSSION
7
Coping With Economic Decline
7
The New Oil Strategy
7
Domestic Economic Pressures
8
Regime Strengths
9
Long-Term Domestic Stresses
10
The Royal Image
10
Religious Extremists
10
Role of the Shia
10
Expatriates
11
The Young
11
Foreign Policy Retrenchment
11
Declining Checkbook Diplomacy
11
Accommodating the Radicals
11
Ties to Washington
12
The Security Relationship
14
The Arab-Israeli Issue
14
Weakening Commercial Links
14
Riyadh's Lower Profile
15
Limited Opportunities for Moscow
15
Abdallah as King
15
Alternative Scenarios
16
An Iranian Victory Over Iraq
16
Another Arab-Israeli War
16
A Major Change in Regime
17
III
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SCOPE NOTE
After decades of close ties to the United States, Riyadh, for various
reasons, is growing more critical of that relationship. At the same time,
the declining oil market is eroding Riyadh's economic prosperity and
financial power, key elements of Saudi domestic stability, and foreign
policy leverage. This Estimate?the first on Saudi Arabia since 1979?
examines the effects of these two major developments on Saudi Arabia
and assesses their impact on US interests over the next two years. It eval-
uates how the government is likely to manage the economic downturn
in the Kingdom, the uncertain oil market, and the increased tensions in
the Middle East. The Estimate not only presents the most likely course
of events over the next two years or so, but also explores possible
alternative scenarios.
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*SOFIA
Bulgaria
Black Sea
Italy TIRANE
Soviet
Union
Soviet Union
*ANKARA
Turkey
Caspian
Sea
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Cypr
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Persian
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*RIYADH
DH
United ArabEmirates
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Pakistan
MUSCAT
KHARTOUM
* Yemen People's Dem.
Arab Rep. Rep. of Yemen
SANAA IS. hem.
Djiboyti
EMIBOUT
lopia
Boundary representation is
not necessarily authoritative.
Somalia
2
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Arabian
Sea
0 250 500 Kilometers
o 250 500 Miles
Unclassified
708009 (A04723) 6-86
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KEY JUDGMENTS
Pressures on Saudi Arabia are eroding its strategic security, dimin-
ishing its diplomatic leverage, and increasing its domestic problems.
The Royal Family will, nonetheless, be able to maintain its hold on
power over the next two years. The most significant trend that we de-
tect is that Saudi relations with the United States will probably
weaken?unless the Kingdom should face an urgent need for US
military support against, for example, an Iranian military attack.
The Saudis will face a number of difficult domestic problems that
will test their political skills:
? Coping with the economic decline will be Riyadh's most
pressing problem. Oil revenues have dropped from $110 billion
in 1981 to $24 billion last year, and there is little prospect for a
dramatic turnaround over the period of this Estimate. Econom-
ic concerns will permeate Saudi domestic and foreign policy
decisions as Riyadh tries to satisfy key domestic groups and
maintain an effective checkbook diplomacy.
? King Fahd's political style is increasingly remote. The Royal
Family, particularly Fahd, suffers from an image of excessive
profligacy?an image magnified by the economic hard times. It
is unlikely that he will substantially change on this score, or will
markedly improve his autocratic decisionmaking style. Senior
Royal Family members will act to diminish Fahd's authority
and force a more consensual style if his policies are seen to be
failing. Fahd's identification with close US-Saudi ties will
constitute a source of vulnerability for Fahd.
? Religious extremists, both Sunni and Shia, will pose the most
serious domestic security threat, particularly during the annual
pilgrimage to Mecca and the Shia holy month of Muharram.
(The hajj begins in early August this year and Muharram in
early September.) The large expatriate community will be a
security concern, but expatriates are unlikely to engage in major
antiregime activity.
At the same time external pressures on the Kingdom are growing:
Saudi oil policy has placed it on a course of increasing
confrontation with Iran and Libya, which may intensify pres-
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sure on Saudi Arabia to protect their vital oil revenues. Iran's
reaction to the growing threat it faces from Saudi oil policy has
increased the risk of an Iranian-Saudi clash and the chance of a
wider war in the Gulf.
? The moribund peace process leaves little hope for resolution of
the Arab-Israeli problem and complicates Saudi defense and
foreign policy planning.
? Despite diminished oil revenues, Saudi Arabia will still fund
radical elements such as Syria, the PLO, and Iraq.
? Increased Iranian success in the Gulf war threatens the King-
dom in the form of encouraging religious extremism, terrorism,
subversion, disturbances among the Eastern Province Shia, and
disruptions of the annual pilgrimage to Mecca.
? A widely perceived US preoccupation with counterterrorism at
the expense of the peace process increases criticism of US-Saudi
ties.
We judge that none of these problems will lead to political
upheaval over the next few years. Despite its difficulties, the Kingdom
will be able to draw on significant assets to protect its interests. It will
still have great wealth and the ability to manage economic problems, a
population largely loyal to the Royal Family, an increasingly effective
security apparatus, and a leadership that has steered the Kingdom
through major, rapid changes with few destabilizing dislocations. The
uncharacteristically aggressive oil policy adopted in mid-1985 to in-
crease revenues, recapture a larger share of the market, and enforce
OPEC discipline will remain strongly popular at home, despite the
expense of antagonizing a militant coalition of oil producers?Iran,
Libya, and Algeria and perhaps Iraq over the longer term.
The Saudis are likely to contain the economic disruption of the
decline in oil revenues, while trying to lay the groundwork for future
economic improvements. The government is encouraging economic
diversification away from reliance on crude oil revenues, taking steps to
develop domestic financial markets and is accelerating the privatization
of government-owned enterprises.
The present erosion in US-Suudi relations will probably quicken,
even though the two countries will retain many ties and overlapping in-
terests. A chief force behind continuing closeness is the Saudis' belief
that only the United States would be likely to respond quickly and
effectively to a direct military attack on Saudi Arabia.
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We foresee the following trends in US-Saudi relations:
? The core of what in the 1970s was considered a special
relationship?the US interest in Saudi oil and Saudi access to US
security assistance?will continue to erode. Prospects are dim
over the period of this Estimate for a much tighter oil market or
a turnaround in US security assistance to Riyadh, both of which
would be necessary for revitalization of the historical security-
for-oil relationship.
? The Saudis perceive the United States as increasingly unable
and unlikely to meet the Kingdom's weaponry needs. Western
Europe will be the winner from the decline of US-Saudi
relations in the security field. West Europeans will assume from
the United States a more prominent position in providing the
most advanced and lucrative weaponry to the Saudis.
? US-Saudi commercial ties will continue to weaken as a result of
the economic downturn in the Kingdom.
? US assistance will continue to be an important element in Saudi
defense planning, but Riyadh still will agree to military cooper-
ation only if it meets narrowly defined Saudi interests. US
requests for enhanced military access are likely to be rebuffed.
A-Saudi first- economic policy will shrink the sphere of Saudi
economic interests, making Riyadh even less responsive to US
requests for Saudi aid to third countries and organizations.
Moreover, because of political pressures in the region, Riyadh
will more than ever want to dispel the perception that it is the
paymaster for US foreign policy objectives.
These looser US-Saudi ties will only marginally improve prospects
for Soviet influence in the Kingdom. Saudi-Soviet economic and
cultural ties are likely to expand somewhat over the next two years but
renewed diplomatic ties to Moscow are unlikely.
Although we anticipate no major changes in Saudi Arabia over the
next two years, there are certain alternative scenarios to the above that,
though less likely, would pose significant risks to US interests should
they occur:
? An Iranian victory?or even significant successes?over Iraq
would greatly increase domestic uncertainty and military pres-
sure on Saudi Arabia and risk greater US involvement in the
Persian Gulf region.
? Another Arab-Israeli armed conflict would further strain the
Saudi-US relationship, with the Saudis seeking to distance
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themselves from Washington and the security relationship
undermined by strong US support for Israel.
? A major change in regime, although highly unlikely, would have
major negative consequences. A Saudi Arabia moving sharply
either to the radical right or left would be likely to engage in
destabilizing action in the region, adopt radical Islamic causes,
and use oil policy as a political weapon, all of which would have
profoundly negative consequences for the interests of the
United States and moderate regional states.
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DISCUSSION
1. Pressures on Saudi Arabia are weakening its
strategic security and its diplomatic leverage and
increasing its domestic problems. It continues to
respond through a process of political and economic
retrenchment. Riyadh is less confident that it can
count on close ties to Washington to strengthen its
regional security, although it sees no meaningful alter-
native to ultimate dependence on the United States.
Domestically, the Saudis are trying to stretch drastically
reduced government revenues while preserving pro-
grams and subsidies the Saudi population has come to
expect. External problems, such as the unresolved
Arab-Israeli dispute, the ongoing Iran-Iraq war, and
tensions between radicals and moderates in the region,
all strain Saudi Arabia's ability to stay out of conflict
and maintain its traditional checkbook diplomacy.
Coping With Economic Decline
2. In mid-1985, the Saudis became alarmed by the
uncertain oil market and their own drastically reduced
oil revenues:
? Weak demand for OPEC oil caused Saudi output
to plummet temporarily to a 20-year low of 2.2
million b/d last August, far below the 3.8 million
b/d target upon which last year's budget was
based.
? Annual revenues fell from a peak of $110 billion
in 1981 to about $24 billion in 1985.
? Last year, Riyadh faced budget and current
account deficits of nearly $20 billion each.
? Unwilling to make cuts that matched the revenue
decline and hoping the market would turn
around, Riyadh was drawing down its liquid
financial reserves at a rate that would exhaust
them in less than four years.
3. The New Oil Strategy. The Saudis apparently
believed that their economic situation had become
untenable, because in mid-1985 they embarked on an
aggressive oil marketing campaign?including netback
deals?that was certain to anger a coalition of militant
oil producers?Iran, Libya, and Algeria and probably
Iraq over the longer term. By embarking on this new
Saudi Budget
Billion US $
120
?
_
100
?
_
?
80
_
60
_
_
_
_
40
_
_
_
20
1980/81 81/82 82/83 83/84 84/85 85/86a
a Estimated.
Note: The Saudi fiscal year is based on the Islamic year,
which is 10 to 11 days shorter than the Gregorian year.
Fiscal year 1985/86 was 22 March 1985 to 11 March 1986.
Expenditures
Total revenues
Oil revenues
309585 6-86
strategy, Riyadh abandoned its role as OPEC swing
producer. The Saudi strategy is designed to accomplish
several goals:
? Increase near-term oil revenues to dampen deep
spending cuts and foreign reserve drawdowns.
? Capture a greater market share and force pro-
ducer cooperation on price and production.
? Ensure a growing long-term market for oil by
stimulating consumption and discouraging alter-
native energy development.
4. The Saudis have more than doubled production.
Aramco output averaged 4.3 million b/d in May 1986,
up from 2.2 million in August 1985?and ex-
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Evolving Saudi Oil Policy
Million b/d
10
?OPEC production ceiling-
18 million b/d
Saudi output-7.4 million b/d
OPEC ceiling drops to
17.5 million b/d
Saudi output-6.6 million b/d
First OPEC price cut
down $5 per barrel
Ceiling reduced-
17.5 million b/d
Saudi output-4.7 million b/d
OPEC sets 1983 ceiling-
18.5 million b/d
Saudi output-5.3 million b/d
Saudis increase flexibility of
netback deals to protect
increased market share
OPEC announces will defend
"fair share" of market. Saudi
output-5 million b/d
Saudi output up to 4 million b/d
OPEC meeting ends in disarray
Saudis abandon swing producer
role-sign netback deals
Nine OPEC ministers meet
in Taif, King Fahd statement
admonishes OPEC for over-
production. Saudi output-
2.7 million b/d
OPEC lowers price $1 to
$28 per barrel
Saudi output 3.5 million b/d
OPEC ceiling reduced to
16 million b/d
Saudis officially agree to
be a swing producer
Output-4.2 million b/d
8
Saudi crude oil production.
2
I I I I I IIDIIIIII11
1982 MA
1983 M
a Including Saudi share of Neutral Zone production.
t
1984
I I .1 I 1 1 1 1111 11311
0 1985 M SO 1986
I I J
309584 6-86
ports have nearly tripled. If the Saudis sustain this
level of output and prices this year average $15 per
barrel, Riyadh will earn about $20 billion. Although
the Saudis will still face a substantial budget deficit,
the trend of rapidly declining revenues has been
halted.
5. The Saudis will adjust their policies over time in
response to market forces. Riyadh is unlikely to alter
its oil policies to appease Tehran, but could accommo-
date some of Iran's demands if the Iranians appeared
willing to compromise.'
6. Domestic Economic Pressures. The uncertain
oil market and accompanying economic downturn will
' For a detailed examination of the current world oil market, see
SNIE 3-85 (Secret April 1986, Implications of the Oil
Price Decline. (u)
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not pose serious threats to the political stability of the
regime over the next two years. Riyadh's more aggres-
sive stance has helped shield it from domestic criticism
resulting from economic hardships, and the new policy
has been popular with most Saudis, who have long
believed the Kingdom bore the brunt of the burden in
OPEC.
7. Still, if oil prices remain depressed, Riyadh will
likely retain prominent status in the international
financial community but will have to become more
flexible about its economic goals. It is resigned to
drawing down liquid international reserves to cover
some revenue shortfalls, but this financial asset cush-
ion?currently approximately $55 billion?is insuffi-
cient to cover large deficits should oil revenues remain
depressed for several years. Riyadh has also pared
expenditures, but further cuts will be difficult without
more wrenching adjustments to the Saudi standard of
living.
8. Some segments of the population are bearing a
disproportionate share of the austerity measures
enacted so far. Although the vast array of cradle-to-
grave subsidies will be only minimally cut over the
near term, younger Saudis are finding fewer good
educational opportunities and fewer chances for high-
paying entry-level employment. Civil servants are
being significantly affected by cuts in their benefits.
9. Many businessmen and bankers are also feeling
squeezed, and they are unhappy with government
arrearages to private firms, government efforts to shift
part of the economic burden to the private sector, and
budget delays. Expanding government investigations
of some Saudi businessmen, sometimes with the direct
intervention of the King, will heighten unease in the
business community. The business community will
continue to seek a greater voice in economic policy,
and the government may respond by seeking business-
men's advice and cooperation more often and devel-
oping new domestic financial markets.
10. Other elements of the population have been
more insulated. Military and security personnel have
been largely exempted from benefit cuts and will not
be significantly affected, even if the situation gets
much tighter. Funding for arms purchases probably
will remain at or near current levels. The religious
establishment, which depends heavily on government
funding, is not likely to suffer many cutbacks, because
the King will want to avoid a potential public confron-
tation with the ulema and criticism from religious
conservatives. In addition, the conservative elements
of society are content to see a slowdown in the
modernization of the country.
11. Popular concern with Riyadh's handling of the
economic downturn lingers, however, and is com-
pounded by the perception that the Royal Family has
insulated itself from sacrifices. The Al Sa`ud, particu-
larly King Fahd and his brothers and sons, are doing
little to curtail their spendthrift habits, and many
Saudis believe the Royal Family still spends as profli-
gately as it did during the oil revenue heydays of the
1970s. Royal Family stipends?up to $274,000 a
month?and other generous allowances consume more
than $1 billion annually, and Royal Family members
continue to enrich themselves through preferential
treatment on government contracts. Several hundred
princes, moreover, collectively owe billions of dollars
of unpaid and probably uncollectible debts to Saudi
and Western banks. The King appears insensitive to
criticism of his lifestyle, and we have no indication
that the Royal Family has used any of its enormous
personal fortune to mitigate the Kingdom's economic
woes.
12. If the new oil strategy does not invigorate the
slumping Saudi economy, the King will come under
increasing criticism from the Royal Family and gov-
ernment, but it is not likely to threaten his position
over the next two years. If budget problems worsen,
however, an increasing number of influential princes
and nonroyal technocrats would blame Fahd personally.
13. The economic downturn is not likely to spur
serious domestic unrest over the next couple of years,
however, even if public grumbling grows substantially.
There does not appear to be any opposition elements
organized or motivated enough to exploit the economic
downturn to weaken the regime. Any antiregime
activity that does occur is likely to be sporadic and
small scale. The few scattered incidents in 1985 did
not indicate significant opposition to the regime.
Regime Strengths
14. Saudi Arabia can draw on significant assets in
managing its domestic and foreign policy difficulties.
Despite the economic downturn, it will still possess
vast wealth and a population largely loyal to the ruling
family. Its leadership has steered the Kingdom
through major, rapid change with few destabilizing
dislocations, and the Royal Family has demonstrated
strong cohesion and ability to present a united front.
15. King Fahd is likely to maintain tight control
over the government and probably will not face
significant challenges to his decisionmaking domi-
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nance over the term of this Estimate. He enjoys the
support of his six full brothers, most of whom hold
senior positions in the government, including Minister
and Vice Minister of Defense, as well as Minister and
Vice Minister of Interior. He also has the support of
many of his 21 half brothers, the surviving sons of
'Abd al-'Aziz, who have a strong vested interest in
maintaining the dominance of the Royal Family. We
do not anticipate serious tension between the King and
his nearest potential rival, Crown Prince Abdallah.
Both men probably will keep their rivalry subordinate
to larger Royal Family interests.
16. Fahd will be able to capitalize on a strong
tradition of loyalty from nonroyal government offi-
cials who have benefited from their service to the
Royal Family. Many of them have served for decades,
providing stability in key areas such as oil policy,
economic development, and financial management,
and they lack independent power bases from which to
challenge the ruling family. Fahd has also circum-
scribed the ability of the religious leadership to oper-
ate independently while maintaining a strong sense of
religious legitimacy of the regime and has reduced
tribal leaders to largely perfunctory roles.
17. Fahd's cautious style will also facilitate the
Kingdom's stability and security. Although not a force-
ful statesman, he has shown himself adept at avoiding
direct involvement in potentially dangerous regional
clashes, while assuaging enemies and supporting
friends. He also has moved carefully in dealing with
domestic critics, following the Saudi tradition of pun-
ishing only rarely and moving where possible to co-opt
and rehabilitate opponents to avoid creating potentially
powerful antiregime voices.
18. A key element in Saudi stability is the process of
succession, which is likely to remain secure well
beyond the term of this Estimate. We detect little
opposition to the accession of Crown Prince Abdallah
upon the death of Fahd, unless his health worsens
significantly, and of the subsequent accession of Prince
Sultan.
Long-Term Domestic Stresses
19. The Royal Image. The King is criticized for his
autocratic decisionmaking style, his extravagance, and
his aloofness. Although he will maintain the appear-
ance of consensual decisionmaking on risky or contro-
versial issues, he is likely to tighten the reins even more
over the period of this Estimate. This trend will
increase dissatisfaction among some other Royal Family
members and senior technocrats who will believe
themselves increasingly superfluous. It is unlikely that
Fahd will ever reverse his image of being impious and
extravagant, but he may take steps to curtail his
spending in response to perceived public resentment.
20. Fahd's arrogation of power through the place-
ment of insiders in key positions will continue, but at a
gradual pace checked by pressure from other mem-
bers of the Royal Family, especially Abdallah. These
moves will not only increase Fahd's power but will
also lay the groundwork for the continued dominance
of the King's full brothers, particularly Sultan, long
after Fahd is gone.
21. The King is likely to come under greater pres-
sure to open up the political process over the next two
years, as the economic downturn sharpens political
awareness. He is not likely to move in that direction
over the term of this Estimate, however. In fact, he has
slowly curtailed the power of those institutions that
until now have provided at least some broader partici-
pation?for example, the Council of Ministers has
become largely ceremonial. Despite earlier tentative
commitments, he is not likely to establish a Consulta-
tive Assembly, fearing that it would open a Pandora's
box of criticisms and challenges to the regime.
22. King Fahd, rather than opening up the political
process, is likely to continue tight control in the form
of press censorship, imprisonment of regime critics,
suppression of nongovernmental organizations, and
restrictions on travel and education abroad. Over the
short term, this will further cement royal control, but
over the long term it could work to create greater
opposition to Fahd.
23. Religious Extremists. Religious extremists pose
the most significant domestic security threat to the
Kingdom. There has been an upswing in religious
fervor in the Kingdom over the last several years, both
Sunni and Shia, that is likely to feed religious opposi-
tion to the regime. So far, however, the regime's
accommodation of the sensitivities of the Sunnis has
been effective in averting significant opposition from
this quarter.
24. The Role of the Shia. The emergence of an
active Shia opposition movement is unlikely within the
next two years?particularly since the appointment of
the King's popular son as governor of the Eastern
Province?and would not fundamentally threaten the
regime. Such opposition, however, would lead to harsh
government repression of the Kingdom's most disad-
vantaged minority and probably increased terrorism.
Shia disturbances would be most damaging during a
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period of wider unrest throughout the Kingdom. Iran
will continue to provide support to dissidents from the
Eastern Province, where the majority of Shia live. It
will facilitate travel of Saudi Shia to Syria and Iran
and support their indoctrination and training. Iran
may try to use Gulf Shia as surrogates for terrorism or
sabotage should Tehran employ a terrorism option
against Riyadh. Current Iranian anger over Saudi oil
policy and support for Iraq increases the chances that
Iran will use terror tactics against Riyadh.2
25. Expatriates. We see little prospect of major
antiregime activity among the more than 3 million
expatriates in the Kingdom. They are a mixed and
fragmented group with approximately 800,000 Yeme-
nis from the Yemen Arab Republic (North Yemen)
500,000 Pakistanis, and 400,000 Egyptians comprising
the largest groups. Most are eager to preserve the
economic advantages of employment in the Kingdom,
and the regime tightly controls them with visa and
work permit requirements, as well as aggressive depor-
tation policies and economic inducements. The regime
will treat isolated cases of worker unrest harshly, with
the probable support of the Saudi populace.
26. The Young. The current economic downturn
has severely affected young Saudis. The younger
generation has long been apolitical, but 70 percent of
the population is now under 25 and is finding employ-
ment and business opportunities sharply reduced.
Younger Saudis have come of political age during a
period of Islamic revival, moreover, and are likely to
view their own declining economic opportunities as
evidence of misguided and corrupt policies by the
regime. The impetus for antiregime activity is likely to
be strongest on the university campuses. Although
radical fundamentalist groups are still small on most
campuses, they are growing in size and influence,
appear to be wielding increasing control over curricu-
lum and staffing decisions, and are undermining mod-
erate elements in the university system
Foreign Policy Retrenchment
27. The Saudis' economic concerns will dominate
their foreign policy to a degree unprecedented in their
recent history and probably prompt Riyadh to shrink
its sphere of interests. The Saudis are likely to main-
tain their newly adopted -Saudi first" position toward
other oil producers and are unlikely to return to the
For a more detailed examination of subversive and terrorist
threats in Saudi Arabia, see NIE 39-86, (Secret January
1986, The Terrorist Threat to the Gulf Cooperation Council States:
The Next Eighteen Months.
role of swing producer in OPEC. They will define
their own interests more narrowly in economic terms,
and they will be less forthcoming to many of those
states who have long depended on Saudi largess.
Riyadh will seek even more to avoid high-visibility
and high-risk diplomacy, especially if it is likely to
involve a drain on its finances or highlight the US-
Saudi connection.
28. Events in the Persian Gulf area and on the
peninsula will remain the Saudis' main concern. The
threat of hostility from Iran will lead Riyadh to
continue efforts at strengthening the Gulf Cooperation
Council, to garner what leverage it can from strength
in numbers. If a more hostile regime consolidates its
power in the People's Democratic Republic of Yemen
(South Yemen), Saudi Arabia will focus greater atten-
tion and resources on the southern peninsula.
29. Declining Checkbook Diplomacy. Riyadh
has cut back foreign aid for the last several years and it
is not likely to rebound. Aid disbursements, which
totaled about $5 billion in 1985, may be cut, unless
regional events?such as a flareup of the Iran-Iraq
war?necessitate extraordinary payments. Saudis are
likely to delay payments that they deem nonessential
and to focus less heavily on project and oil aid.
30. Well over half of Riyadh's foreign aid has gone
to several key recipients?Iraq, Syria, the PLO,
Jordan, Pakistan, North Yemen, and the Afghan resis-
tance. Riyadh will maintain cash assistance to Iraq,
Syria, and the PLO at high levels. Oil aid to Iraq
probably will decline with the increase in Iraqi oil
exports, but cash assistance?largely for military pur-
chases?will continue, unless there is a significant
decline in hostilities. Riyadh will maintain its current
high level of aid to Syria to support the major Arab
military power in the Arab-Israeli conflict, to buy
protection from Syrian-sponsored terrorism, and to try
to reduce the radical/moderate split in the Arab
world. Others like Jordan, Pakistan, North Yemen, and
the Afghan resistance, will continue to receive signifi-
cant amounts of aid, as long as Riyadh sees them as
important to its own security. Countries of less imme-
diate concern to or more distant from Saudi Arabia
will find it more difficult to extract Saudi assistance.
Saudi aid to non-Arab Muslim states and multilateral
organizations will be reduced or more tightly con-
trolled.
31. Accommodating the Radicals. In situations
where radical states come under pressure from the
United States or become involved in confrontations
with Israel, Riyadh will feel compelled to support
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Saudi Arabia: Assistance to Iraq, Syria, and PLO
(and Total Foreign Aid)
Billion US $
10
6
Total
Saudi aid
Other
PLO
?I-- Syria
1980
81
82
83
84
85
Iraq
309586 6-86
publicly the radical position. The Saudis will continue
to look for ways to strengthen broader Arab unity,
even at the risk of appearing to accommodate the
radicals.
Ties to Washington
32. Saudi Arabia will continue to pursue many
regional and international policies well beyond the
term of this Estimate that serve both Saudi and US
interests. Saudi Arabia will:
? Continue to support moderate Arab states and
promote the development of a moderate Arab
consensus.
? Try to thwart the spread of leftist and militant
Muslim influence in the region.
? Remain staunchly anti-Communist and continue
to fear encirclement and eventual attack by the
Soviet Union.
? Continue?perhaps at reduced levels?foreign
aid disbursements to moderate regimes and inter-
national organizations, complementing US goals
and alleviating financial pressure on Washington.
? Side with Iraq in the Iran-Iraq war and support
the Gulf Cooperation Council states in trying to
counter Iranian terrorism and subversion.
Want a stable oil market and a sound world
economy to best preserve its own significant
financial assets.
Try to reduce regional tensions and prevent
hostilities that might involve Riyadh and ulti-
mately Washington.
? Promote the unity of the Gulf Cooperation
Council and its economic and trade relationship
with the United States.
33. Fahd has significant political capital invested in
the close Saudi-US relationship and will try to preserve
not only fundamental US security guarantees but also
the appearance of mutual Saudi-US interests to fore-
stall potential damage to his credibility. The perceived
weakening of US commitment to the Kingdom and
indifference to Saudi equities in the region is a
significant blow to Fahd's authority with both the
Royal Family and the public.
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Saudi Arabia's New British-Made Tornado Aircraft
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34. Despite the range of overlapping interests,
Riyadh's historically strong ties to Washington have
weakened over the past five years and are likely to
loosen further over the period of this Estimate:
? The core of what in the 1970s was considered a
?`special relationship--the US interest in Saudi
oil and the Saudi access to US security assist-
ance?will continue to erode. Prospects are dim
over the period of this Estimate for a much
tighter oil market or a turnaround in US security
assistance to Riyadh, both of which would be
necessary for revitalization of the historical secu-
rity-for-oil relationship.
The Saudis perceive the United States as increas-
ingly unable to meet the Kingdom's security
needs in providing sophisticated weapons, after
last year's turndown of F-15s and Congressional
opposition to the latest missile sale and the
delivery of AWACS.3 Western Europe will be the
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winner from the decline of US-Saudi relations in
the security field. West Europeans will assume
from the United States the prominent position in
providing the most advanced and lucrative
weaponry to the Saudis.
? Commercial ties will continue to weaken as a
result of the economic downturn in the Kingdom.
The West European and East Asian share of the
Saudi market is growing?in part due to dissatis-
faction with US policies. US access and influence
in the country is decreasing, and the Saudis are
concerned with the possibility of US trade barri-
ers against Saudi petrochemicals.
? Riyadh and Washington probably will continue
to disagree over the peace process.
? US assistance will continue to be an important
element in Saudi defense planning, but Riyadh
will still agree to military cooperation only if it
meets narrowly defined Saudi interests. US re-
quests for enhanced military access are likely to
be rebuffed.
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? A "Saudi first" economic policy will shrink the
sphere of Saudi economic interests, making
Riyadh even less responsive to US requests for
Saudi aid to third countries and organizations.
Moreover, because of political pressures in the
region, Riyadh will more than ever want to
dispel the perception that it is the paymaster for
US foreign policy objectives.
35. The Security Relationship. The senior leader-
ship in the Kingdom?particularly King Fahd?will
continue seeking US assurances on a variety of issues
because they judge that only the United States is likely
to respond quickly and effectively to a direct military
attack on Saudi Arabia. Despite domestic and Arab
criticism of the United States, moreover, Riyadh
believes that the perception of strong US backing is an
effective deterrent against external threats.
36. The result of US failure to sell advanced weap-
ons to Riyadh will be increased Saudi efforts over time
to diversify arms supplies and a concomitant weaken-
ing of US influence over?and access to?the Saudi
military. The Saudis will hope to minimize erosion of
their regional political influence, suspecting that both
allies and adversaries will judge Riyadh is now less
important to Washington.
37. The Arab-Israeli Issue. Saudi skepticism over
the US commitment to a comprehensive peace settle-
ment also is likely to deepen over the period of this
Estimate. Riyadh continues to believe in the necessity
of pursuing a comprehensive settlement and fears
Washington will focus its efforts only on a bilateral
Israeli/Jordanian dialogue.
38. Riyadh also believes the United States has aban-
doned its role as an impartial mediator of the Arab-
Israeli dispute in favor of closer ties and greater
support for Israel. The Saudis were dismayed by
Washington's initial support for the Israeli raid on the
PLO headquarters in Tunis. This response to the
attack on the territory of a moderate Arab state with
close ties to Washington raised the specter of US
acquiescence in such attacks on Saudi Arabia. Riyadh
also suspects that the United States will continue to
focus its efforts on the terrorism question and the
developing quarrel with Libya, to the detriment of
issues more important to Saudi Arabia.
39. Weakening Commercial Links. Close Saudi-
US business and commercial links?which, in the past,
partly offset many bilateral diplomatic tensions?have
loosened significantly over the last two years and are
likely to erode further over the term of this Estimate.
President Reagan Welcomes King Fahd
During State Visit, February 1985
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The economic downturn in the Kingdom has put
financial pressure on US companies operating there,
and American businessmen are pessimistic about busi-
ness prospects. Most companies have scaled back their
operations, many report difficulties with unpaid debts
and late payments, and some have decided to drop out
of the Saudi market.
40. The American expatriate community, which
has provided the United States unique access to the
Kingdom, has declined sharply?from about 60,000 in
1983 to less than 38,000 in 1986, a drop of about 37
percent?and is likely to shrink further as the economy
wrings out. The Saudis will look for cheaper labor in
Western Europe and elsewhere and bring more Saudis
into the work force. As a result US influence derived
from a large US presence will erode significantly.
41. Riyadh's Lower Profile. Loosening 'ties to
Washington will make the Saudis reluctant to involve
themselves in regional issues important to Washington:
? They will avoid pressing Syria, Libya, or the
PLO on the issue of terrorism, to avoid becoming
a target themselves.
? Although Saudi Arabia wants a stable and mod-
erate Egypt, it is unlikely to champion Egyptian
reintegration into the Arab League, barring an
Arab consensus.
42. Most important, Riyadh will stay on the periphery
of the peace process, and US expectations for a Saudi
role are likely to go unrealized. The Saudis will press
Washington to engage the Palestinians and wring
concessions from Israel but will be reluctant to become
visibly involved themselves. They will only support an
initiative that has general Arab backing, Syrian
approval, and mainstream PLO support.
43. Limited Opportunities for Moscow. Looser
Saudi-US ties do not translate into significant opportu-
nities for Moscow over the period of this Estimate.
Prospects for renewal of Soviet-Saudi relations are
poor. Soviet occupation of Afghanistan and involve-
ment in South Yemen continue to be major obstacles to
Soviet-Saudi relations. Even if relations were reestab-
lished, however, Saudi Arabia would remain funda-
mentally opposed to the Soviet Union.
44. The Saudis are likely to gradually expand eco-
nomic and cultural contacts with the USSR over the
next two years. Economic pressures are leading
Riyadh to explore business prospects with Communist
countries, particularly China. Less conservative ele-
ments of the Saudi population have come to see the
lopsided nature of Riyadh's relations with the two
superpowers as an anachronism, and they probably
believe that they can improve relations with Moscow
without forfeiting the ability to call on Washington in
a crisis. Even so, Riyadh is unlikely to turn to Moscow
to take up any of the slack left by US inability to
provide major weapon systems.
45. Abdallah as King. Abdallah's accession proba-
bly will be a marginal setback for US interests but the
change may be more in tone than substance. While
certainly not anti-United States, Abdallah does not
have the same personal?commitment as Fahd to a
strong US connection, but he, too, probably sees the
United States as the only country that could respond in
a crunch to Saudi security needs.
46. Abdallah is more mercurial, more prone to
lecturing US officials on the evils of US policy, and?
Crown Prince Abdallah Greets
National Guardsman
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unlike Fahd?has his power base in the tribal and
conservative religious elements of society. Based on
Abdallah's predilections, some policy shifts might
include:
? More open sympathy for Palestinian and Syrian
policies toward Israel.
? Permission for a harsher anti-US tone in official
statements and the press on the Arab-Israeli
conflict.
? A diminution of the power and influence of the
largely pro-US Al Fahd bloc.
Alternative Scenarios
47. Although we anticipate no major changes in
Saudi Arabia over the term of this Estimate, there are
a number of scenarios that, should they occur, would
severely affect US interests in the Kingdom. We
examine three:
? An Iranian victory over Iraq in the Iran-Iraq
war.
? Another Arab-Israeli war.
? A major change in the Saudi regime.
48. An Iranian Victory Over Iraq. If Iran wins its
long war with Iraq, Riyadh would see its own interests
seriously threatened, particularly if the result were a
new government in Iraq heavily influenced by Iran:
? Eastern Province Shia would press the Kingdom's
Sunni leadership more openly for greater reli-
gious and political autonomy.
? Sunni/Shia clashes probably would result, fed by
historical enmity and harsh government repres-
sion.
Open disagreement probably would develop be-
tween more traditional, establishment-oriented
ulema and younger, more activist religious fig-
ures, potentially leading to clashes and demon-
strations.
? The security risk to US personnel and installa-
tions would increase.
? The leadership would tilt toward even greater
conservatism to preserve its claim to religious
legitimacy.
49. Riyadh would try to contain the spread of
Iranian influence by trying to balance political accom-
modation toward Tehran with expanded security
cooperation with the United States and regional allies.
If the Iranians threatened the Saudis more directly,
they would turn openly to the United States:
? The King would encourage more overt signs of
US support for the Kingdom, but probably would
not agree to pre-positioning of US military equip-
ment and increased US access to Saudi military
installations.
? Riyadh would also try to expand ties to West
European countries and seek additional sophisti-
cated weaponry from the United States and
Western Europe.
? The Saudis might increase joint military exer-
cises?including troop maneuvers?among the
Gulf Cooperation Council states.
? They may seek wider military cooperation with
Jordan, as well as additional mercenary troops
from allies such as Pakistan and Bangladesh.
? They might move closer to Egypt as a possible
counterweight.
? They would fund anti-Iranian
elements inside Iraq.
and antiregime
50. Another Arab-Israeli War. Although Saudi
Arabia would try to avoid direct major involvement in
renewed hostility between Israel and her Arab neigh-
bors, such a conflict would pose domestic and regional
difficulties for Riyadh. A likely Israeli victory would
remind the Saudi populace of the regime's inability to
defend Arab and Islamic interests:
? Jerusalem would remain under Israeli control.
? Riyadh will not have facilitated Palestinian self-
determination, despite significant cash aid to
Arafat and the PLO.
? The traditional security relationship with Wash-
ington would appear at its weakest, given US
support for the Israelis.
? The lack of a Saudi military option to Israeli
military threats would be highlighted, bringing
into question the value of Riyadh's massive
defense expenditures over the past decade.
51. Bitterness at Saudi weakness would be felt most
strongly among the military, although the regime
probably would be unwilling to commit more than a
token force. Riyadh would feel compelled to partici-
pate in a major Arab-Israeli war, but would have
limited options:
? The regime would move closer to Arab hard-
liners and quickly distance itself from Wash-
ington.
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? Riyadh would dig into its pockets to help rebuild
Syrian and Jordanian military capacity.
? Riyadh might threaten to use oil to pressure the
United States and West European countries to
impose a settlement that would protect Arab
interests.
If Egypt remained out of the conflict, Riyadh
would level sharp criticism against Cairo and
continue to oppose Egyptian reintegration into
the Arab world.
52. The Saudis' few potential options reflect the
inability of their wealth to mitigate the country's
vulnerability. The Saudi Royal Family would continue
privately to seek US commitment to its security,
despite public criticism of Washington, because
Riyadh would judge that the United States remains the
best insurance against a major external threat.
53. A Major Change in the Regime. Any signifi-
cant change would have negative consequences for the
United States. A move by senior military officers?
probably with some Royal Family participation?to
seize power might follow a major military setback or
humiliation at the hands of Israel or Iran, especially if
the military believed the King had mishandled it.
Domestically, the military would crack down more
harshly on dissent, and there might be a lengthy
period of instability as rival military elements sought
to consolidate their own power. For Washington:
? While such a regime may seek a military rela-
tionship with the United States, it would be more
hardline on Arab-Israeli issues, more hostile to
Israel, and more critical of US policies.
? The chances of democratic reforms would be
even more remote.
54. Least likely but most dangerous for Washington
would be the coming to power of a regime driven by
extremist Islamic ideology. Such a regime would be
the least accommodating to US interests. The leader-
ship probably would purge pro-Western elements in
the existing government and would emphasize anti-
Western ideology as a test of political legitimacy. The
security situation for Western and particularly US
expatriates would worsen significantly.
55. The United States would have few options to
deal with such a government. It would be aggressively
anti-Israel and supportive of radical Islamic causes. It
might offer haven and training to paramilitary and
terrorist elements. Controlling a fourth of the world's
oil reserves, it probably would use oil policy as a
political weapon. It would seek cooperation with other
countries in the region that are strongly anti-US and
would harass the United States in international forums.
It would exploit possession of the Islamic holy places to
further its political legitimacy and regional goals. It
would also be more ,aggressive toward its peninsula
neighbors on territorial issues and would work to
overthrow the currently moderate Gulf monarchies.
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