Western energy firms alarmed by Saudi deals with China, Russia

Wednesday, August 11, 2004

ABU DHABI Western defense and energy majors plan to continue to operate in Saudi Arabia despite the Al Qaida insurgency campaign in the kingdom.

The United States has been the largest beneficiary of the Saudi effort to improve security. U.S. diplomats and industry sources said the FBI and CIA have established a joint counter-insurgency command and control center with Saudi security and intelligence personnel to monitor Al Qaida and respond to threats.

The enhanced Saudi cooperation was launched to stem the exodus of Americans from the kingdom over the last three months. Industry sources said the exodus resulted in the departure of small U.S. companies and consultants and threatened to deplete manpower levels at U.S. defense and energy majors.

As a result, Saudi Arabia has sought to ease its dependence on Western companies. In May, the Saudi Oil Ministry, in an unprecedented move, chose oil majors from China and Russia for a multi-billion dollar program to explore and develop natural gas reserves in the Eastern Province. Russia has also offered to provide Saudi Arabia with a range of military platforms, weapons and other services, Middle East Newsline reported.

The Saudi agreements with China and Russia were said to have alarmed Western majors. Industry sources said the record oil-based revenues flowing into the kingdom were expected to revive defense, energy and infrastructure projects in a move that could result in a windfall for Western investors.

Saudi and industry sources said Western defense and oil companies have reaffirmed their intention to remain in the kingdom and complete their projects. At the same time, the sources said, Western majors have sought to operate with fewer British and U.S. personnel and establish a support network in neighboring Bahrain.

"The challenge is serious, but a withdrawal is not on the table for those companies," Saudi economist Ihsan Bu Hulaiga said. "It might be an option for some Western individuals but not companies."

The determination to remain in Saudi Arabia has comprised British, French and U.S. companies and was the result of a series of meetings with Saudi security officials over the last two months, the sources said. They said Western majors have concluded that Riyad would increase efforts to protect their presence in the kingdom.

The sources said Saudi authorities have approved gun licenses for foreign security guards to protect leading defense and energy executives. They said foreign security personnel have been allowed to carry guns in missions to protect Western embassy employees and selected dependents.

"We want to thank the Foreign Affairs and Interior Ministries for providing security to French expatriates and other residents across the kingdom," French consul-general Jean Wiet said in Jedda.

Wiet, speaking at an appearance last month, did not elaborate. About 1,600 French nationals were reported to be in Saudi Arabia.

Since 1999, Westerners comprised half of the $12.5 billion invested in Saudi Arabia, the Saudi Arabian General Investment Authority reported. Industry sources said Saudi Arabia expects Western investment to increase over the next year.

"I believe such [Al Qaida] attacks have created an adverse psychological impact on investors who want to invest here for the first time but not to the extent that well established companies in the kingdom have decided to leave," Saeed Al Shaikh, chief economist at the Saudi National Commercial Bank, told the Abu Dhabi-based Gulf News. "There are fears among potential investors and this explains the fact that the foreign capital flow into Saudi Arabia has been below expectations."

The industry sources said the greatest challenge for Western majors would be to retain their Australian, British and U.S. employees in Saudi Arabia. BAe Systems, for example, has offered a $1,600 per month bonus for its 2,400 Western staffers to remain in their jobs.

"Saudi Arabia is in desperate need of investment, this includes foreign direct investment, and the bringing home of hundreds of billions of Saudi money invested outside the kingdom," Rachel Bronson, director of Middle East studies at the Council of Foreign Relations, said. "An exodus by the expats will be a clear signal that its not safe to invest in Saudi Arabia. The Crown Prince's reform agenda will go out the window, and Saudi Arabia's economic situation will further spiral."

Copyright 2004 East West Services, Inc.

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