US companies fear that $30 billion in gas deals slated to be finalized this March with Saudi Arabia may be delayed due to diplomatic tensions between the White House and the kingdom.
ExxonMobil Corp., the kingdom's largest single foreign investor, won most of the contracts last May. Conoco Inc., Phillips Petroleum Co., Occidental Petroleum Corp., and Marathon Oil Co. also received interests in various ventures the Saudis are planning.
ExxonMobil is leading two of the three available "core ventures." The first project, which the Saudis are calling the most attractive investment opportunity, will include drilling in eastern Saudi Arabia at South Ghawar and using the gas to fuel two planned petrochemical plants, two power stations, and four desalination plants. Initial investment is estimated at $12-16 billion.
The other ventures are on the West Coast (Red Sea) and at Shaybah field in the southeast Empty Quarter near the UAE border. Those projects will require investments of $5-10 billion each, the Saudis say.
Sept. 11 aftermath
Before the Sept. 11 terrorist attacks on the US, industry and Saudi government officials said they expected the final contracts to be signed by December 2001. After Sept. 11, the Saudis and US officials said they expected the formal paperwork to take another month or so given travel constraints and other logistical hardships companies faced in the wake of the attacks (OGJ Online, Oct. 25, 2001).
But industry officials said that, despite assurances from US and Saudi officials, concerns remain that more delays could occur for political, not legal, reasons. They said the kingdom may push back the projects to signal it is unhappy with ongoing reports in the US media that policy-makers are dissatisfied with the way the Saudis are fighting terrorism within and outside its borders.
The White House has denied it was frustrated with the pace of Saudi investigations regarding Sept. 11, but several news stories have reported otherwise. Meanwhile on Capitol Hill, several lawmakers have been openly critical of the kingdom.
"Since Sept. 11, there have been many hostile words between the US and Saudi Arabia," said Anthony Cordesman, a former policy advisor for the departments of Defense, State, and Energy.
"The US media has not only rounded up all of the 'usual suspects' by printing endless articles about Saudi instability and problems in the royal family, it has raised questions about Saudi support and financing of terrorism as if it were a deliberate Saudi policy," he said, speaking at a Middle East Policy Council event Jan. 9 on Capitol Hill.
"The facts that Osama Bin Laden and 15 of the hijackers were of Saudi origin and that Saudi Arabia supported the Taliban government in Afghanistan have produced a climate of mistrust and misunderstanding and placed a chill on business activity," said John Calabrese of the Middle East Institute, a nonprofit group that helped prepare policy briefings for congressional staff earlier this month.
Cordesman and other Middle East analysts told congressional staff it was reasonable for US policymakers to be concerned that the Saudi government appeared slow in offering support in the early weeks after the attacks.
But the kingdom now is providing greatly improved intelligence and is slowly making progress in cutting off the financing of extremist elements, even at the risk of increasing hostility from Islamic extremists in its own country, Cordesman said.
And without more cooperation and understanding from the US, there could be serious political and economic consequences, other Middle East analysts warned.
Meanwhile, there is a great deal of nervousness from the Persian Gulf region, particularly from Saudi Arabia, that keeping assets in the US could prove to hold too much political risk, said Mamoun Fandy, a professor with the National Defense University.
He cautioned that Persian Gulf investors recently contemplated shifting up to $800 billion from private accounts in Western countries to China and other more "friendly" regions.
None of the analysts anticipate another oil embargo such as the US witnessed in the 1970s. That's because it remains in Saudi Arabia's best interest to continue supplying oil to Western markets, Fandy said. The Saudis need a steady market to maintain their own political stability. And that includes related business ventures that help leverage foreign expertise for domestic markets.
"Oil and jihad don't mix," Fandy said.
But analysts said it is unclear whether the strained relationship between the two countries has healed enough this winter to permit the gas deals to go forward as scheduled this March.
