US bid for stake in $35bn Saudi oil initiative may founder as relations fester

Saudi anger over US accusations and incitement against the kingdom could prompt Riyadh to reconsider its decision to award US companies a major stake in the $35 billion (€35.8 billion) Gas Investment Initiative.

Dr Walid Khadduri, chief editor of the authoritative Nicosia-based Middle East Economic Survey, told The Irish Times that the deal negotiated over the past two years broke down in deadlock in July on several issues.

First, "the companies are asking an internal rate of return which is considered too high by Saudi professionals," he said. "The companies demand 15-20 per cent while the Saudi professionals insist it should be a single digit up to 9 per cent." Dr Khadduri said the Saudis objected to the high rate of return demanded by the companies because this would raise costs to consumers.

There are also differences on several other issues: the extent of the companies' access to more exploration areas as well as to Saudi Aramco gas fields and reserves; the equity share of Saudi firms in the scheme; and the size of the investment commitment of the companies in both the core ventures and the infrastructure projects associated with the ventures. The companies which have tendered for the Initiative are ExxonMobil, British Petroleum, Shell, Philips, Occidental, Marathon, Shell, Conoco, Total and FinaElf.

In Dr Khadduri's view, the final decision will have to be taken by the political echelon rather than industry professionals. But, Dr Khadduri said: "The professional input cannot be ignored."

Saudi policy-makers face a dilemma. On one hand, it is difficult to exclude major US companies from the Gas Investment Initiative. On the other hand, the Saudis do not want to become economically dependent on US companies at a time of crisis.

Decision-taking has been complicated by heightened sensitivities on both sides due to the involvement of 15 Saudi citizens in the September 11th attacks on the US.

Tension with Washington has been exacerbated by Saudi Arabia's refusal to participate in or provide basing facilities for a US military offensive against Iraq. The Saudis have been alienated by the Bush administration's refusal to intervene in the Palestinian-Israeli conflict and take up Crown Prince Abdullah's peace plan.

Writing in the United Arab Emirates daily, al-Khaleej, Mr Muhammad Assayyad said the Saudi view was that "right-wing pro-Israeli circles [in Washington] seized on the \ post-September 11th mood [in the US] to up the ante against Saudi Arabia".

"In the resultant climate, there appears to be no limit to the lengths to which the political echelon in the US is prepared to go in its 'strategic targeting' of the Arab world," he concluded.

The deterioration of relations between Riyadh and Washington is likely to accelerate if relatives of the victims of the September 11th attacks press their $100 trillion (€102 trillion) civil suit against three Saudi princes, including the third in line to the throne, Defence Minister Prince Sultan ibn Abdel Aziz, and 14 institutions.

One Saudi firm is preparing 15 lawsuits against the US government and other parties for jailing Saudis without preferring charges against them, preventing Saudi students from continuing their studies in the US and damaging the reputations of Saudis by levelling unfounded accusations against them in the media.

Mr Katib Fahd al-Shammary, the lawyer filing the suits, said his clients would be asking for compensation for physical, monetary and psychological damage. Also, a committee of Saudi and Gulf attorneys appointed to defend Arabs detained at Guantanamo plans to file 80 lawsuits next month.