The United States and Saudi Arabia: American interests and challenges to the Kingdom in 2002. (Symposium: the United States and Saudi Arabia).

McMillan, Joseph ; Cordesman, Anthony H. ; Fandy, Mamoun 等

CHAS. W. FREEMAN, JR., president, Middle East Policy Council

We are here today to talk about Saudi Arabia and its relationship with the United States. This is, in many ways, an odd and ironic topic to be discussing because U.S. interests with Saudi Arabia have been well understood and acted upon for over 50 years. They consist of an American interest in untrammeled access to energy supplies from the country with the world's largest reserves, and an American interest in seeing the Islamic holy places remain under moderate and open management rather than under the management of extremists such as those who have become prominent over the past four months due to their conduct of mass murder in New York and Washington. These interests include access to and through Saudi territory because one cannot travel between Asia and Europe by air or sea without either crossing Saudi Arabia or coming close to its shores. And finally, historically there has been a close partnership in foreign policy between the United States and Saudi Arabia. We have conducted many ventures together, most notably and pertinently the joint effort to expel the Soviet Union from Afghanistan by supporting the Mujaheddin. No good deed goes unpunished, as someone once said, and perhaps we are now seeing that principle enacted.

Our interests with Saudi Arabia have not changed in any respect, but certainly the mass murder of September 11 has changed the context and has raised many questions in the minds of Americans and others about Saudi Arabia and our relationship with it. Some of those questions are fair and some are tendentious; the majority probably fall somewhere between those two extremes. Overall, the questions seem to boil down to these: Is the kingdom still stable enough to be a reliable partner of the United States in the future? Does Saudi Arabia share U.S. objectives with regard to the maintenance of law and order and the absence of terrorist acts such as those that we suffered so recently? What if the administration were to decide that, in order to protect the United States from further atrocities, it was necessary to intervene elsewhere -- for example, in Somalia or in Iraq? Finally, if one takes the president's question seriously -- Are you with us or against us? -- where does Saudi Arabia really stand?

JOSEPH McMILLAN, distinguished research fellow, Institute for National Strategic Studies, National Defense University

Chas. Freeman is probably as well positioned as anyone to remember the time before King Fahd's debilitating stroke when an American official would go to Saudi Arabia for a meeting and be regaled by a speech that ran from 45 minutes to 2 hours on the history of the U.S.-Saudi relationship, covering everything from the development of oil to the meeting between King Abdul Aziz and President Roosevelt on the U.S.S. Quincy in 1945 to the building of infrastructure and the equipping of Saudi Airlines and the training of the armed forces. When you came away from those meetings, you had the distinct impression that these two countries had a very close and enduring strategic partnership.

Yet throughout the history of this relationship, there has always been a sense that managing it was harder than it ought to be. The stresses came from a variety of things: denied arms sales when the Saudis wanted to buy U.S. equipment and the United States would say no. The Arab-Israeli dispute, a clash that was handled rather politely by Roosevelt and Abdul Aziz and somewhat less politely in public in the years since then; all the way down to the petty issues that regularly make the front pages of the newspapers, like the lawsuit a female Air Force officer now has pending [just settled], concerning the wearing of the abaya when off-duty.

Other examples sometimes don't get as much publicity. Every November you can count on some Saudi customs inspector or postal inspector deciding that images of Santa Claus are a violation of Saudi law and stopping the delivery. The diplomatic brouhaha can last about six weeks until someone at the top of the Saudi government rules that U.S. troops and citizens can indeed receive their shipments, and we go back to normal for the next ten months or so. This level of strain has always existed, but it seems now to be at its highest level. In fact, there are some rather responsible people calling for the House of Saud to be replaced as the government of Saudi Arabia.

Why is this always so hard? First, there's Saudi history and the nature of the government, the 200-plus-year alliance between religion and state. In some ways Saudi Arabia is the antithesis of the United States. We are a country that values change, sometimes almost for its own sake. Saudi Arabia is a country that values stability almost to the point of stasis. We value pluralism; they value conformity. We value open debate and exchange of ideas; they value the harmony and unity of the national community. We are very much a secular country, but there is obviously a very strong theocratic tendency within the way that Saudi Arabia is governed. What we have is a relationship based not on shared values but on shared interests: oil, in previous days the fight against Communism, and the search for stability in the Gulf. We don't necessarily share the same values, yet we both place a very heavy emphasis on our respective values. This creates strains -- sometimes below the surface and sometimes flaring into the open.

There are a number of other reasons for the strain: different communication styles, different levels of comfort with publicity on the relationship. In October, we heard announcements that we were going to be sending a senior Air Force general to run the war against terrorism, and we immediately had the Saudis denying that that was the case. We tried to recover by explaining that we were happy with the level of Saudi support, but that didn't turn out to be a very good thing to say either. In situations like that, it's almost impossible to find anything good and useful to say about what the Saudis are doing in response to U.S. needs and requests. Yet our system requires us to be able to say something, and so we end up adding strains, in spite of the best intentions.

The different communication styles also come into play when we negotiate with each other. Because the Saudis have a tendency not to want to deliver bad news and be inhospitable to guests, both sides tend to avoid dealing with hard issues. When there are disagreements, they go unresolved because resolving them would require contention and argument. A trivial example: The Saudis had been asking us for a second slot every year for an officer to attend the National Defense University (they have one a year; they wanted two). It's a small program, and we weren't going to devote two to any country, but for about a year and a half no one would tell the Saudis that it was out of the question. We kept putting them off because Americans didn't want to be impolite to the Saudis by delivering bad news. Finally, we broke through and told them, and everybody got over it rather quickly. But it's clear that when the big issues come, it's hard to address those as well.

One thing that has made relations harder is the development of domestic public opinion in Saudi Arabia. Ten years ago, during the Gulf War, people used to say, "There's no such thing as a `street' in Saudi Arabia." But there certainly is such a thing as public opinion in Saudi Arabia, and it very much affects the ability of the Saudi government to deal with us. Second, we've had a transition in Saudi politics from King Fahd, very clearly in charge, to Crown Prince Abdullah, running a regency. When I say this makes it harder, it's not a reflection on Abdullah. It's a reflection on the nature of a regency, an acting government as opposed to a permanent king who is actually in place with full power to make decisions.

The third big factor is the lack of a shared strategic vision. Once upon a time we knew what we were cooperating for, but Communism is not a threat any more. In fact, Iran, in the Saudi view, is not an imminent threat, so why is the United States there? Are we there to defend the kingdom against Iraq? That's why most American military think they are there. The Saudis deny that there is any reason for the United States to be there to defend the kingdom against Iraq. They see us there implementing U.N. resolutions, and they see their role as supporting that effort. Therefore we end up with radically different notions of exactly who is doing what for whom. We think we're doing things for them; they think they're doing things for us. So what we're trying to achieve together is not at all clear.

Finally, there's been an erosion of grass-roots contact between the two. It has never been very extensive or deep, but it was there and it was important. But in the years since the Khobar Towers bombing, U.S. military people are no longer integrated with the Saudi forces in the headquarters in Riyadh. U.S. combat forces are no longer scattered around the kingdom interacting daily with Saudi forces. Everything has been heavily concentrated for reasons of force protection.

The education system in Saudi Arabia is now up and running, such as it is. Saudis don't come to the United States for higher education or even secondary education to the degree that they used to, and they certainly don't get exposed to Western ideas within the religiously dominated Saudi education system. And the nationalization of Aramco has reduced the number of Americans working in the kingdom. The fall-off in defense contracting also reduces the number of Americans working in the kingdom.

The Saudis do have a quarter of the world's oil. We can rationalize about where we get our oil; we can rationalize about alternative supplies. But the fact is, the Saudis are the swing supplier if there is a cutoff. They are the dominant force in OPEC pricing decisions, and that alone makes them important. But since September 11 we have also learned that they are important because of the unwitting role that Saudi Arabia and the Saudi national ideology have had in shaping the terrorist phenomenon -- the fact that so many of the suicide bombers were, in fact, Saudi citizens. Finally, there is the leading role that the Saudis play within the Islamic world and especially among the other Gulf states.

It 's easy to exaggerate the importance of the custodianship of the holy mosques. The British exaggerated what that meant during World War I and ended up investing in the Hashemites when they should have been investing in the Saudis for the long run. Nevertheless, it is important. Saudi Arabia also plays a lead role with the other Gulf states. A lot of people in the military will say we don't need Saudi Arabia, that we have this country, this country and this country. But they haven't heard the question you hear when an American secretary of defense goes to the Gulf to muster support for some kind of action against Iraq or somewhere else: "What do the Saudis say?" "What are the Saudis going to do?" It matters to all of the other countries what the Saudis are going to do, and therefore it matters to us.

AMB. FREEMAN: Traditionally in the Arab East there were three contending centers of power: Baghdad, Cairo and Damascus. The last half of the twentieth century saw a fourth emerge: Riyadh. Nobody does anything in the Arab diplomatic context without consulting with Riyadh. It does have influence, therefore, that is vastly different from what it was in World War I, when the British made their fateful errors of investment.

Second, under current circumstances, very few, if any, Saudis (or indeed Arabs in general) are willing to brave the risk of humiliation that is entailed in crossing the U.S. borders or trying to travel on aircraft in the United States. Business travel has essentially stopped, and many training programs for the U.S. government have become inoperable because people will not travel here.

Similarly, for far less rational reasons, American business people are increasingly reluctant to travel to the Gulf. They imagine security problems that I don't think exist, but in politics perception is reality, and the reality is that the human relationships which Joe described as having attenuated may be in the process of evaporating if something is not done.

ANTHONY H. CORDESMAN, Arleigh A. Burke chair in strategy, Center for Strategic and International Studies

When you talk about the U.S.-Saudi relationship, particularly in view of the feeling that there is some kind of crisis, it's important to know that we've had these crises before and that they tend to be two-sided and involve mistakes on both sides. It is a long relationship and it has normally been a very quiet one. I doubt that even people who've been senior diplomats in Saudi Arabia realize that at one point Iran was a dispersal base for SAC B-47 nuclear bombers in the Strategic Air Command. That kind of relationship has often benefited us, and, in general, it has worked best when it was most quiet. There also have been some enduring sources of tension, which have just been explained. Let me simply iterate that Arab nationalism produced a U.S.-Saudi crisis at the time of Nasser. We've had many of these problems before.

The Israeli issue, for both sides, has been a constant source of tension. The idea of dealing with an ultra-conservative society and religion is almost alien to Americans -- I'll get to the importance of that in a moment -- and the tendency, not so much in government but outside it, to mirror-image Saudi Arabia as if it should become the United States has been a constant problem for both us and the Saudis.

The problems in our relations become most serious when our relations are not quiet. Saudi Arabia has never benefited from suddenly being discovered by a new generation of American leaders and strategic analysts. Every time it becomes a source of public issues, we tend to round up the usual suspects, and what do we find? We don't like to be dependent on oil. We don't like to discover we can't do anything about it.

Whenever a crisis occurs, we come up with a sudden solution to the crisis that we want to impose on the Saudis very, very quickly, without delay and interference, and that almost invariably goes against Saudi character, politically and diplomatically. Every time we rediscover Saudi Arabia, we raise the issue of stability, and every time we raise the issue of stability, we have to find a crisis in the succession of the royal family, whether one exists or not. This leads some of us to be blase about the succession issue, but it leads new discoverers to find a succession problem every time.

As Americans, we also really do not understand what makes the kingdom change and move forward. Every time a new group of Americans comes to address this issue, there is the perception that somehow the royal family, the technocrats and the Saudi elite are sitting on a progressive population which, if left to its own devices, would rush forward into the twenty-first century if not the twenty-second. The fact is that since the time of Ibn Saud, it is the royal family and Saudi technocrats who have dragged this society forward about as quickly as it can go. It is important to note that there are two royal families in this country, one of them the descendants of the Wahhabi family -- and that the idea of consensus in Saudi Arabia generally means conservatism and religion, not progressive businessmen down in the Hejaz or academics, many of whom spend most of their time here.

In the 40-odd years I have been involved, we have also had a perpetual clash with the Saudis over internal security issues when we don't have people from CIA and from State with long experience in the kingdom. Every time we send in a new group of people -- sometimes intelligence people from the outside, but more recently, FBI -- we have problems. They often don't have any particular background in the kingdom; they don't have any language skills; they want to suddenly introduce U.S. formal intelligence reporting, forensics, rule-of-law and legal procedures to a kingdom whose internal-security methods are highly informal and family-oriented, which make things happen very quietly, and which tend to emphasize co-option but also, obviously, imprisonment. This clash leads very often to having the United States promptly accuse the Saudis of not cooperating and of not understanding and not giving the right priority. I would just say that if you had an act of American terrorism in Saudi Arabia, the chances of the United States openly changing its system to cooperate with the Saudi investigative team appearing in Washington could be described as nonexistent. This difference in approaches and cultures affects what we call the war on terrorism, and it is a serious one.

The Saudis have made plenty of mistakes of their own in this strategic relationship, and it's important to note what they are. They often used cash transfers, very loose benefits, to countries that were Islamic or that could help them enhance their regional security, without asking exactly where the money was going or what was being done with it. The Saudis have enforced such a degree of secrecy in dealing with internal problems, when they really needed to be debated and worked out socially, that it became almost impossible to honestly address them from within the kingdom.

In an era when public relations and the Saudi media really have to be taken seriously, very often me attitude has been one of denial. There has also been a systematic Saudi mismanagement of the Islamist issue virtually from the time of the siege of the Grand Mosque in Mecca [1979] up to today. Most important, there has been a tendency to confuse numbers in the educational system with quality and to turn it over to Islamists, who have very little practical impact or ability to teach, but are able to propagandize.

Where are we today? What has produced the crisis in our relations if one really exists? First, we have a mutual history in Central Asia and in Afghanistan of letting the problem slide. We encouraged the Saudis to be there; we encouraged a lot of things we now detest. Our government cannot look back on ten years in Afghanistan and say that we did not know what was happening with Pakistan's Inter-Services Intelligence (ISI), that we did not know where the money was going, and that we did not contribute to this problem by indifference to how the Saudis contributed to it by sending money without looking at what the recipients were doing. We were unwilling -- as was Great Britain -- to deal with Saudia Arabia, Egypt or any Arab country that had internal-security complaints about its own extremists. We dealt with these problems largely as human-rights issues; we did not distinguish properly between human-rights issues and real terrorist threats.

It is convenient to forget that a great many Americans, inside and outside government, encouraged the kinds of madrassas and the Saudi funding of Islamic extremism as part of the great game -- the effort to contain Russia. Selective memory does not excuse the fact that we were partially to blame there, as well.

It is a fact, too, that we have never, together, really addressed the issue of where Iraq's future lies and what needs to be done there; that we dodged around the Arab-Israeli issue hoping that peace talks would resolve it; and that we frankly have never come to grips on Iran.

So where do we head now? You can't really even begin to address a lot of the tangible issues quickly, but when you look at the history of U.S.-Saudi military relations built up since the Gulf War, a host of detailed problems that have nothing to do with the political debate we have now need to be addressed. To get serious about terrorism and extremism, both sides have to admit they made very, very serious mistakes up until September 11. And we are at least as much to blame in many ways for our own failures and neglect as the Saudis are, but we are both seriously to blame.

We both need to deal with the issue of the funding and support of Islamic extremism. We cannot agree on how to deal with Israel, the Palestinians and the second intifada, but we need to find some way to have a debate that moves forward rather than pushes us both into the past. We have got to come to grips with the issue of Iraq. We have got to have at least an open understanding in dealing with Iran that we will tolerate the Saudi approach while they will tolerate ours.

Finally, we need to begin to look at issues like proliferation and asymmetric warfare, because regardless of the military events in Afghanistan, we are just as dependent on Saudi bases and Saudi military facilities today as we were on September 10 of last year. As we face the risks of proliferation and asymmetric warfare in the Gulf, our partnership will both become more important and more complex and more difficult to deal with. That means, as was pointed out earlier, we have to have a dialogue based on reality. What we seem to have today on the part of government is a facade, and in the media, insults -- at least on the American side. This is not the way to move forward.

AMB. FREEMAN: I particularly like your reminder that the U.S.-Saudi relationship was not created on September 11 and that there is a long history here, much of it positive, but much of it also problematic. That's a useful reminder of how strange the current circumstances are in which the two most prominent groups or individuals calling for the overthrow of the Saudi monarchy are Osama bin Laden and Al Qaeda, on the one hand, and the editorial board of the Wall Street Journal on the other.

MAMOUN FANDY, professor of politics, Near East-South Asia Center for Strategic Studies, National Defense Univeristy

Saudi states have collapsed twice in the past. The first time was in 1811 -- that first Saudi state lasted 66 years, from 1745 to 1811. Its collapse came as a result of an external invasion, when Ibrahim and Tosun, the sons of Mohammed Ali Pasha, came charging in from Egypt to take over. The collapse of the second Saudi state was in 1902. That resulted from infighting within the various wings of the ruling family, the Al Saud. During that time, various groups from the Rashidis of the north to the sharifs of Hejaz had control of parts of Saudi Arabia. Then Abdul Aziz came from Kuwait in 1902 and built the state that we know today, which became the Kingdom of Saudi Arabia after a long campaign that lasted from 1902 to 1932. So Saudi Arabia is no stranger to problems, collapse and internal divisions.

One example of the external threats that have affected Saudi Arabia came in 1979: the ideological threat of the Iranian revolution. Somehow there was a clear correlation between that external threat from Iran and events taking place in Saudi Arabia at the time. We saw the takeover of the Grand Mosque by a man named Juhaiman Al Utaiba and certain uprisings in the Eastern Province by the Shia members of the Saudi community. The real test came in 1990-91. That was the moment of reckoning for Saudi Arabia, when Saddam Hussein was standing on their border ready to take over. Saudi Arabia passed that test with minimal costs, with the exception of the Khobar bombing on June 25, 1996.

In 1999 I published a book looking at the internal dynamics of Saudi Arabia, interviewing opposition members, including Khalid al-Fawwaz, who was the number-two member of the Bin Laden organization that was based in London at the time. I concluded that Saudi Arabia was stable for probably a long time to come. The question now is, if Saudi Arabia was stable, how did September 11 change the situation? September 11 made it clear for the Saudis: Are you with us or with Bin Laden? There were many Saudis who flirted with fundamentalism. If there was a 40-percent base of support for the royal family, 50 percent of the society was floating. At the moment of reckoning, when the Saudis were asked whether they put their money on Bin Laden or on King Fahd, people circled the wagons and put their money on the regime.

What are the trends in Saudi Arabia as well as the region since September 11? One of the things that one notices is that Al Qaeda and Bin Laden -- and probably radical Islam -- have lost. There is also a great deal of nervousness. Saudi and Arab money that used to be invested abroad is coming home because it is suspected of being involved in certain organizations. This money is changing from dollars to euros and going, if not back to Saudi Arabia directly, to Bermuda. Private citizens feel that they need the protection of the state from an external threat: the wrath of the United States. Thus, what we see in Saudi Arabia as well as throughout the Arab world is a new slogan: Goodbye globalization, and goodbye privatization.

There is uncertainty in Saudi Arabia and in the Arab world, not only about the regimes, but also about the second phase of this war. If there is any queasiness, it is about that war. The scenarios that are filling the Arab media, whether in Saudi Arabia or elsewhere, are of two kinds. When the war on terrorism is extended to other countries in the Middle East, the implication is that regimes are likely to become unstable; regimes are not likely to cooperate with the United States; the targets will define the cost of cooperation. If the United States targets charities linked to powerful people, this is likely to expose the political order. There is a great deal of market volatility and instability of oil prices.

If the war on terrorism does not extend beyond Afghanistan, the consequences will be regime stability, cooperation and oil-price stability. On the issue of oil, I've concluded that jihad and oil don't mix. Throughout my observations of Islamic movements from Algeria to Saudi Arabia, none of them have attacked an oil installation. I don't know if there is an ethical component to it, but this requires a little research.

As to the implications for Saudi Arabia, as in most Arab states, the regime performs wonderfully internally whenever there is an external threat. So the more criticism of Saudi Arabia from the United States, the more consolidation and circling of the wagons. If Saudi Arabia does not get criticism from the United States, it will probably pay for it at some point.

Money is coming into Saudi Arabia in need of protection. This protection will come only from the royal family and the state. Saudi Arabia doesn't need this money now. Therefore, it will probably not yield to any kind of pressure from the business community that used to threaten it before. It is not `86 again. Whoever provides protection in these times of uncertainty is a winner.

We have focused a great deal on Saudi Arabia as a source of danger. I think it is very important to reflect on Saudi Arabia now as a source of opportunity. Saudi Arabia is the seat of Islam. It has the ability to transform how Muslims think throughout the world. One of these indicators came during the GCC speech by Crown Prince Abdullah [see p. 29]. This was the first courageous statement that I've heard in a long time, in which the crown prince asked Muslims to reflect on their internal situation, quoting from the Quran that God will not change people unless they change their own conditions internally, and asked them to stop blaming their problems on the West and on Israel. This is a great opportunity, a wave that the United States should ride. Thus far, we have failed miserably to do so.

AMB. FREEMAN: I'd like to call attention to one thing you mentioned: historically the United States has been the benchmark for political-risk assessment globally. That is to say, we are the zero calibration. People measure political risk in other countries in relation to the United States. Since September 11 and the institution of rather arbitrary and capricious financial controls in the United States directed primarily against Arab and Muslim money, there is an industry going up of political-risk assessment of the United States. It is now seen as politically risky to put money in American institutions.

The consequences of this are not small. There is perhaps $800 billion in private Gulf-Arab money outside the Gulf, the vast majority of it in the United States, $600 billion or so from Saudi Arabia alone. And this money, as Mamoun mentioned, is now going into euros and going everywhere but the United States, much of it actually going into China, which is the only globally important economy that is currently growing. The implications of this for the long term are not bright, and the possibility of a financial panic and the sudden withdrawal of large amounts of money is something to be considered.

FAREED MOHAMEDI, chief economist, The Petroleum Finance Company Ltd.

Before I tackle some of the economic issues related to the political issues raised -- oil and politics, as we know, mix very well -- I'd like to go through some of the fundamentals that have dominated the world oil market since the 1970s, when the Saudi presence in the oil markets came to prominence, and the rise of OPEC. One can argue that the Saudi regime came to see oil at about this time as the key pillar of its survival. It became a strategic commodity. It was in Saudi Arabia's interest to keep oil as the key source of energy in the world and at the same time to keep Saudi Arabia as the key source of oil in the world and to maintain its prominence. The problem with this for the Saudis was that they also had a domestic political system to maintain -- a rentier state, essentially -- that required high revenues. They also had to buy foreign protection. Their relationship with the United States was fairly costly in terms of arms. And they had to use some of their billions to buy protection in the region and in Afghanistan and other places -- the support of the Nicaraguan Contras, for example.

There is a fundamental contradiction between this long-term strategic need to keep prices low to help the economies of the West and the developing world and to keep out competition from other producers, and the short-term pressure to meet its financial needs, which requires keeping prices high. The Saudis, in general, have tried to find a balance between these two, and they've really struggled in the last 25 years.

On the strategic level, they have provided a measure of price moderation, especially in OPEC, particularly in the `80s and the `90s. They've also given a sense of security to the market by maintaining a huge excess capacity. That has been very costly to them. Maintaining two million barrels a day of excess capacity is quite expensive. They've also at times offered to place strategic reserves in the United States and other places which, if there were a disruption in the region, the United States and other countries could draw on.

In recognition of this, the United States has largely, in the last 20-25 years, come to rely on the Saudis to "manage" the market, and not only in extreme times, like that of the Gulf War, when Iraqi and Kuwaiti production went off-line, or during the Iranian revolution in 1980, but conversely in 1986, when George Bush, Sr., went to Riyadh to ask for higher oil prices because Texas was hurting. In return, the United States has given security protection, which has been paid for in arms, and which the Saudis have come to rely on quite heavily, as we saw in 1990. For the most part, this relationship worked well and was reflected, in a sense, in fairly low oil prices throughout these last two decades. The Saudis were able to maintain their preeminence in the markets, and the United States and the world economy got cheap oil.

The problem for the world oil markets and the United States is that the system started to break down around the early 1990s for two reasons. One, the Saudis grossly mismanaged their domestic finances. They ran budget deficits equal to 15.9 percent of GDP for 10 years, 1985-95. Part of that was excessive arms spending. The second part of the breakdown was due to U.S. Middle East policy. That was reflected in a rise in political instability in the kingdom.

The Saudi reaction to this instability, especially after the ascendance of Crown Prince Abdullah in 1995, was one of, let's go back to the basics of economics. Let's balance our budget, and after that let's start thinking about long-term growth. The consequences for the United States involved major cuts in arms spending. Also, the Saudis started to re-emphasize their economic relations with the West much more in terms of finding ways to generate growth at home. We finally see that being realized -- major U.S. and European companies are being allowed to come into the kingdom in order to develop the domestic gas resources. The second part of this reaction to political instability was to start living in the neighborhood, to start creating ties with Iran.

Both of these objectives required high oil prices, and we didn't realize that in the United States until recently. The Saudis needed high oil prices for economic stability and then political stability. The Iranians needed them for their economy and demanded them from the Saudis in exchange for being less threatening to them. Therefore, we started to see this incredible cooperation going on in OPEC for the last five years with the Saudis, the Iranians and the Venezuelans, who have managed the system quite well.

By 2000, after the bust in the economy and with the elections coming up, Washington started to scream. What Washington failed to understand was that high oil prices were essential for setting the Saudi domestic problems right. That played out through the whole 2000-01 period. After 9/11, the mood in Washington got much worse. Suddenly the chattering classes were arguing that the House of Saud was about to fall; worse still, this falling House of Saud would be an unreliable source for oil. Now we're starting to hear that we have to go look for new sources of oil. Russia is suddenly becoming a country that will save us from this crumbling House of Saud and its unreliable oil.

Frankly, we at the Petroleum Finance Company are sort of surprised by all of this. We have been arguing for the last 10 years that there were a lot of problems in Saudi Arabia. In fact, my boss, Vahan Zanoyan, wrote a piece in Foreign Affairs in 1995 talking about the end of the economic and political holiday in the Gulf. He also said in the last sentence that it was the end of the holiday for the United States.

There are a lot of problems in Saudi Arabia -- deep, long-term structural problems -- but nothing that we've heard in the last few months in the public debate leads us to believe that there is anything new. Therefore, we don't see great oil-market instability coming out of Saudi Arabia's political problems. The bottom line is this: While the kingdom has serious problems, we believe that the Saudis are still likely to be the dominant oil player and manager of global oil prices over the medium to long term, especially if American consumers want to consume oil at the rate they've become accustomed to, and U.S. politicians continue to pander to their tastes.

AMB. FREEMAN: I find the notion that the United States could somehow benefit from trading reliance on the Saudis for reliance on the Russians rather extraordinary, but that is an idea that is circulating.

I'm grateful to you, Fareed, for calling attention to the longstanding difficulties caused by Saudi Arabia's internal fiscal problems, which seem to me to be quite key. They also remind us that Saudi Arabia, in the future, is likely to lack the discretionary spending power that it had in the past, and therefore the nature of our partnership, if any, must be different than it was when the Saudis had cash to spare.

All four of the panelists in one way or another lamented the lack of honesty in the dialogue, or the absence of dialogue between Washington and Riyadh, between the American elite and the Saudi elite; lamented the propensity of Americans now to resort to diatribe rather than dialogue; and also lamented the tendency of Saudis to seek to distance themselves from the United States rather than reaffirm the purposes of the alliance and the bargain of the Great Bitter Lake in 1945, by which Americans gained preferential access to Saudi energy in return for American security support against external enemies of the regime. And everyone, it seemed to me, called for us to look at this period as one of opportunity, to use Mamoun Fandy's words, in which we might resume a dialogue on a new basis of honesty and attempt to use that dialogue, not as in the past as we have so often done, to shelve problems, but actually to solve them.

Q & A

Q: I have two questions, one on domestic, one on foreign policy. One is on the problems in Saudi society: the lack of jobs for young people, the economic pressures. Last month in Jeddah there were serious disturbances. Young people rampaged on the Eid. I wondered if Dr. Fandy might talk about how serious he thinks that threat is? The other question is, if the United States were to attack Iraq, what would be the implications? Would the Saudis sign on? How would it have to be shaped so that we could get Saudi support?

DR. FANDY: One of the big problems, not just for Saudi Arabia but throughout the Arab world, is the changing demographics, the youth bulge and issues of opportunities for employment. If we look at people who were involved in September 11, most of them come from the Asir region and Southern Saudi Arabia. These are areas that are not developed. So one can say there is a relationship between poverty and suicidal tendencies. But there is also a great deal of correlation between wealth and suicidal tendencies.

The leaders of Al Qaeda, whether Bin Laden or Ayman al-Zawahiri, are very rich. Al-Zawahiri lived in the exclusive neighborhood of Maadi in Cairo. What we've seen throughout the Arab world, whether in the Muslim Brotherhood or any other organization, is that the rich were the ones wreaking havoc, and they managed to employ some of the idealistic poor. I think our problem is with the rich rather than with the poor.

I don't take the Jeddah incident very seriously as a significant disturbance that might create fissures within the society or the regime. The Eid, throughout the Muslim world, is always a time of both joy and wreaking havoc. I would wait to see whether this kind of incident recurs, what kind of magnitude it has, and who is involved.

AMB. FREEMAN: Saudi Arabia has undergone perhaps the most astonishing transformation of any society on the planet in the shortest period of time. Fifty years ago it resembled Mauritania in its lack of development and poverty. It now possesses a twenty-first-century physical infrastructure and mental attitudes on the part of the populace that have moved forward centuries in 50 years, although perhaps not entirely into the twenty-first century. Along with this transformation, people have gone through remarkable changes in circumstances. The oldest Saudis lived in a hard-scrabble society where survival was tough, and only hard work and good luck enabled you to survive. The next generation grew up in luxury. Their children are now discovering the need, once again, to work.

The second point I'd make is that it is fascinating to see how the September 11 atrocities have been used rhetorically by different interest groups to advance their own cause. Everybody has picked up his pet rock and thrown it at the Saudis or whomever. Those who advocate economic development assistance say the problem is poverty. Those who were disturbed about Islam say the problem is Islam. Those who are anti-Arab say the problem is the Arabs. Those who want to discredit Saudi Arabia find added cause for doing so. Those who say that the problem is general moral collapse in our society argue that as well. Everyone has made good political use of this, but analytically very little of what has been said holds up. It is a useful reminder that the perpetrators, or the planners at any rate, of the New York and Washington massacres were wealthy men, rather like Rockefellers who went to rob banks. One might question what they really represent in broader terms.

MR. MOHAMEDI: Unemployment and other problems reflect a fundamental crisis of a development model in Saudi Arabia. As Chas. said, Saudi Arabia's economy has been transformed phenomenally during the last 30-40 years. So while, to a certain extent, the government wants to maintain political stability, which translates into its staying in power, the structural transformation of the economy has led to socio-political instability. In general, however, Riyadh has been able to achieve stability through the rentier state, by buying people off. The problem is that there's not enough money. Now they have to find another way to stay in power and still grow. In the `90s they found the Asian way: authoritarianism with market capitalism. And that model became quite fashionable not only in Saudi Arabia but throughout the Middle East. The problem was what happened in 1998 and what happened to Asia and to Suharto. So we go back to a political blockage to economic growth. While they're muddling through and trying to find a solution, I think you're going to continue to see high rates of unemployment and other economic problems.

DR. CORDESMAN: The Saudi Arabian monetary fund and five-year plan are about the only Arab institutions that publish meaningful, detailed census figures on Saudi and foreign labor by age group. One thing that is very clear from Saudi statistics is that the youth bulge has just started. It is going to get much, much worse for at least a decade. Historically the kingdom has had a net drop in per capita income as well as no success at all, statistically, in Saudization that corresponds to its five-year plan. We (CSIS) have these figures up on the Web at csis.org in a project called "Saudi Arabia Enters the Twenty-first Century," and I would take a very hard look at these numbers. In most Arab states this problem will get worse for at least the period between 2000 and 2010.

On Iraq, the Saudis don't know what they're being asked to react to or the context in which the United States will ask them to act, if at all. There is a history of deep concern in Saudi Arabia that the United States has often made very dramatic statements about Saddam Hussein with a lot of moral language that have been followed by very limited actions without much impact. There is zero Saudi faith in the Iraqi opposition outside Iraq, whether it is the military, the Iraqi National Congress or the Iranian-sponsored opposition, which attracts more attention from within Kuwait. Any option that relies primarily on the Iraqi opposition to create new facts on the ground or a new regime is going to be rejected out of hand. I have not met any Saudis who share faith in the Iraqi-opposition option. I haven't met anyone outside the Beltway who does. And I would note that Saudi public opinion does matter, that we did nothing under the Clinton administration to counter the extensive Iraqi propaganda blaming us for the suffering of the Iraqi people, and that the backlash from the second intifada is very severe.

I've talked to Saudis, some of them fairly senior, about Iraq, and I think they would take the following position: If we have a decent pause between Afghanistan and doing anything else, it will help a lot. If there is some sort of redline that is crossed or a provocation they can point to, it will work. The U.S. idea that it can assert 9/11 as an excuse for doing things indefinitely was over last month. We're not going to be able to do that. Whatever we do, we have to have enough force to be absolutely decisive and to do it quickly and convince them beforehand that it will be done quickly. That is going to present problems for them because they understand, as do the U.S. military, that fairly large numbers of U.S. forces would be involved and some of them would have to be based in Saudi Arabia.

The Saudis will make it clear that if they do agree under these conditions there will not be a major Saudi offensive component. I don't think anyone in the U.S. military has any illusions about that. There has been a serious erosion of Saudi military capabilities over the last five years, in any case. And they're going to want the United States to assure them that when this is over the integrity of Iraq will be preserved, which to them means Sunni control of a kind that will insure there isn't a lasting problem with Shiites or with Iran, in some form of Kurdish separatism. In the process, if we could find any way to ease the situation with the second intifada and get some kind of political coverage from nations like Jordan and Egypt, it would make it immensely better. I think they realize this may be difficult to impossible.

Whatever happens, it's not going to be black or white, yes or no, or any Saudi consensus until the U.S. government brings specific proposals up to the level of Crown Prince Abdullah and the royal family, and they talk about specific options presented to them by the president of the United States. Anybody who says there's a Saudi position on these issues today simply doesn't know what they're talking about, because that isn't the way the Saudis behave or react.

MR. MCMILLAN: The discussions I've had with Saudi officials for the last several years suggest that they don't really see Iraq as a threat that they need to do anything about for the time being. They have a blind spot on this. The reason Iraq is not a threat is because we're in the kingdom and in the rest of the Gulf, making sure there's not an Iraqi threat. The logic of our continuing to do so is at odds with the Saudi discomfort with an open-ended U.S. presence. Nevertheless, they don't see Iraq as something that demands immediate action. There's a fairly high bar that we would have to get over in bringing them along with any kind of action against Iraq.

There's a myth circulating about how easy it is to get the Saudis lined up to take decisive action that goes back to the 1990 experience. It's based on a serious misreading of what happened in 1990. The short form of it is that the United States showed leadership, showed everybody that we were determined, that we were going to move ahead with them or without them, and the Saudis and everybody else simply fell into line and followed along. I recall clearly the negotiations that took place in August of 1990 and the dance that we did with the Saudis between then and February 1991. At no point do I recall any case where we simply said, we're doing this with you or without you and the Saudis said, oh well, then we're with you.

Besides, I have yet to hear anybody with what I would say is a plan to do this that would satisfy the question of: Are you serious? The conversation I can envisage is somebody sitting down with Crown Prince Abdullah or Prince Sultan and saying, we have a plan to change the Iraqi regime. They say, oh, "What is it?" And we outline a scheme that relies on the opposition. The Saudi answer is, well, then you're not serious.

AMB. FREEMAN: I would underscore Joe's recollection of events during the war, when I was ambassador in Saudi Arabia. The Saudis at every point were not just consulted but contributed importantly to decisions that were made. There would have been no defense of Saudi Arabia or liberation of Kuwait had, on August 6, King Fahd not taken the initiative to invite American forces into the kingdom. It was his decision, based on his understanding of the situation, and he deserves the credit, or the blame for that decision, and not to be diminished by assertions that somehow he was bamboozled or manipulated by the United States. That was not the case. In my experience, if you want to persuade the Saudi leadership to support an American policy, the key is presenting a policy that has some realistic prospect of success and that serves their interests, rather than leaving them holding the bag. Those criteria have so far not been met with regard to Iraq.

And Tony is correct. There is no Saudi decision or policy because there is no proposition before them on this matter. But, I would say, in general, people in Saudi Arabia hope that the end of the Afghan campaign will be followed by a readjustment of the U.S. deployment in the kingdom to lower its profile, reduce it and perhaps redistribute the U.S. deployments in the Gulf with a more rational division of labor.

DR. FANDY: If Arab reaction to the Bin Laden tape is an indicator, there is a great deal of distrust between the United States and the Arab world right now. The elite in the Arab world would tell you that they really need to see a difference between the United States and Bin Laden. Hopping from Afghanistan to Iraq means that both of them are forces of destruction. You have to make one a force of destruction and one a force of good. If the United States takes the time to rebuild Afghanistan and consolidate the government -- do something at least that will convince the Iraqis that change is possible and provide hope -- then they will be willing to play along.

The question of sequence is very important. I think many in the Arab world would be willing to play ball on Saddam Hussein's removal if we got the sequence right: the Palestinian state first and Iraq next -- not land for peace, but the Palestinian state for Saddam's head. This is something that would be acceptable. I think there is a good case against Saddam Hussein that has merits of its own. Linking it to September 11 doesn't fly in the Arab world, and making that linkage is disastrous unless there is a smoking gun.

Q: No one seems to have any solution to the population problem. If you actually start to promote the idea of having fewer children, you'll be whipped out of power pretty quickly. And a lot of what we've been talking about is irrelevant when you think about a population where there's just no water, where there aren't enough resources to go around and everyone's impoverished and unhappy about it. What might be done about this?

MR. MOHAMEDI: Population may not be the exact problem. It's unemployment. The population problem can be taken care of by indirect means, like raising the literacy of girls. And as incomes fall, families cut back on the number of children. But about unemployment two things can be done. Start getting serious about economic reform. Start growing the economy again. Unfortunately, there's a political blockage to that. The second thing is a much-improved educational system that teaches and produces bodies that are skilled, that can provide skills to the economy.

Foreign labor is a "freebie" for the private business sector, which wants cheap, skilled and docile labor. They think they will not get that from the Saudi population. I think this requires a new, strategic deal between the government and the private sector. You can do it by targeting, by saying all accountants, for example, inside Saudi Arabia should now be Saudi, not from South Asia or other places.

I think there is now for the first time a serious look at how to grow this economy. The gas initiative was part of that. Some of the reforms, in terms of privatization and other steps taken, were part of that. I think that this economy, with all its private capital floating around in the world, can go places.

DR. FANDY: If Saudis honestly have a population problem, it is lack of population in a country that's as vast as Western Europe. This is why there are many non-Saudis manning that economy. The best thing for the Saudis to do is to start with a cultural shift whereby ordinary Saudis agree to do ordinary jobs, like all of us throughout the world. What I'm asking for is a cultural shift whereby any work is valuable, whether you are a maid in a home or an officer at the upper echelon of government. The symbolic order of what is worthy in the culture ought to change. I think value should come from work and what you contribute, not whether you are a government bureaucrat from a particular tribe.

The other issue is that of the responsibility of governments for unemployment. Again, there has to be a paradigm shift. Governments are not employment agencies. Governments are there to maintain law and order, to defend the land. I'm not arguing the case for the IMF and the World Bank, but an indigenous debate on these issues ought to take place. Thus far, that debate is muted and not taken very seriously.

DR. CORDESMAN: First, there isn't a population-growth problem that you can "solve" during at least the next 14 years. They're already born. So, short of the North African solution, and the solution in much of the developing world -- immigration -- the problem cannot be solved by any population-control measures. You are affecting the generation after next when you talk about female fertility and birth rates. If you look at the Saudi pyramid of population growth by age group -- and all of this is available through the Census Bureau as well as Saudi statistics -- you are talking about a broadly based pyramid where growth is rolling forward and that has only begun to have an impact on the kingdom.

I do not believe that you can easily do much more than limit the damage. If you look through the Saudi five-year plan this time, you will notice something very different from all the previous Saudi five-year plans. There are no output measures. There are no real goals relating to making things better. The reason is that, even if the plan achieves all of its goals, there will still be a significant decline in real per capita income. Even if efforts are 100-percent successful, the most they will do is slow the rate of decline to the point where one or two five-year plans later it can get better. This is a matter of population momentum. It's like an iceberg. You don't stop the iceberg with the Titanic. You don't stop it with slogans. You don't stop it without modeling the size of the iceberg and dealing with the realities involved. One thing I should note is that the word "Arab" is antiintellectual in this context. The minute you apply that word to 21 different countries whose demographics and national culture are so different, you are implying that they all have the same problems.

What really affects population growth rates historically isn't U.N. efforts, it isn't population-control programs, it is hyper-urbanization, which forces families to have fewer children. They simply don't have any choice. Where that pressure has failed in the Arab world, and indeed in Iran in spite of its false claims, is that it doesn't really limit growth in marginal urban areas, floating populations that aren't properly counted. Saudi Arabia is relatively free of this tendency to underreport, but a lot of Arab countries -- Algeria, Morocco -- have far worse problems than they publicly report. They don't even attempt a realistic census.

Q: What is the susceptibility to foreign ideas and foreign influences of a demographically younger population? This is the Al-Jazeera question. The second question is, what role will the succession of non-septuagenarian, non-Sudayri leadership have on the U.S.-Saudi relationship in the future?

DR. FANDY: I think there is a redefinition of communities that's taking place under globalization, and these communities are susceptible and open also to new ideas. Everybody is traveling, everybody is moving. I did most of my research in Saudi Arabia 1992-94, and I conducted many of the interviews in English. It's amazing the facility of Saudis with English. Some of them opted for English rather than Arabic whenever they were speaking about serious subjects. Arabic was really the language of social engagement. There is a great deal of openness. The number of Saudis who have studied in the United States is amazing. What cements the relationship between Saudi Arabia and the United States is not necessarily Sudayri branch or non-Sudayri branch. If you look at the cabinet ministers of Saudi Arabia and see how many of them studied in the United States, it would be 90 percent, with the exception of the religious endowments. The minister of oil, Ali Naimi, is a Lehigh graduate. Many are graduates of major American universities. That kind of openness is really what keeps the conversation going between the two countries. They are able to see eye to eye on issues. I'm sure after September 11, many people don't want Muslim students to study in the United States. I think that would be disastrous.

AMB. FREEMAN: I think the disaster would be apparent if you consider the prospect of a generation educated in Saudi Arabia, in Arabic, unfamiliar with or hostile to American society and American values, versus the present situation, where there is great friendship and affection and knowledge by the elite for the United States. We need to be sure not to allow this friendship to become fossilized, a nonrenewable resource that is dug up, used up and burned up and not replaced.

Q: Why has Prince Nayif been so steadfast in his denial that any Saudi citizens were involved in September 11, at least among the hijackers?

MR. MCMILLAN: It's part of a pattern for senior Saudi officials to deny publicly what seems to be irrefutable reality. Prince Sultan periodically denies that U.S. military forces are operating out of Saudi bases. If you read what he says very carefully, he's word-splitting and not lying. I think with Nayif, what he's saying is, it hasn't been proven.

AMB. FREEMAN: He is saying he has not been presented with any evidence, which is the same thing that the police departments in Peoria and New York and elsewhere tend to say about the FBI, to pick up on an earlier point. That agency doesn't seem to be particularly good at sharing prosecutorial information with collaborating law-enforcement agencies. Still, I think from a public-relations point of view, as you suggest, it's not very persuasive.

DR. CORDESMAN: I think the Saudis are concerned that some of those names and passports probably aren't real. There has been far more Saudi denial of the role of Saudis in September 11 than has been deserved. On the other hand, there were two days of press reports that a Saudi prince had been captured in Afghanistan who happened to be having liver treatment in the United States and who was over 60 years old. So there are two sides to this issue. But one of the real problems here is that after al-Khobar, the Saudis found that there were at least 2,000 Saudis, young men, who were almost immediately placed on a suspect list, people who were seen as potential products of training camps, ideologically identified and so on. Back at the time of Al Khobar, one senior Saudi official said there were some 10,000 people that they started opening files on. So when you start looking at what is happening internally in Saudi Arabia, it does directly contradict the idea that this is an odd handful of people who really don't matter.

DR. FANDY: Prince Ahmed, the deputy of Prince Nayif, also says things that are very serious, and that yes, these are Saudis. I would not take the Wall Street Journal seriously on Saudi Arabia. We all know the record on Saudi Arabia. It is not just the minister of interior, but also his deputy, who is very influential. If you're looking for information, you have to listen to all voices, not just one.

Q: To what degree are U.S. interests in the kingdom influenced by the Saudi influence on other Arab states? And is this a new thing?

DR. CORDESMAN: We have steadily lowered the number of people and our military profile there in recent years. The rationale hasn't changed. First, containing Iraq is critical. Second, the idea that you can pre-position without having people present simply doesn't work. We have major problems in both Qatar and Kuwait over pre-positioning storable Army equipment. We are down, I think, to about the minimal number of U.S. military advisors that would allow us to rapidly deploy into the Gulf. Given the character of Iraq and Iran, I'm not sure you can change it all that much.

The Saudi military forces may not be the most effective in the world, but in regional terms they're an important factor and an important deterrent. One of the aspects of making them work is to give them training and sustainability. With the exception of a few elite Egyptian units and perhaps some Syrian special-forces units, there isn't an Arab unit in any Arab country that sets a particularly high standard of military effectiveness for third-world countries. Until about 1995, the Saudi air force did. Now, if they're going to recover, they're going to have to have that presence. And if there's going to be any regional deterrence, it's going to have to be at that point.

One great difficulty the Saudis face, too, is that even though their new arms orders are down to about one-twentieth of what they were during the Gulf War, their pipeline is so heavy that they still had some $7 billion worth of deliveries in 2000 alone. If these deliveries are going to have any chance at all of being used effectively, you're going to have to have strong cadres there. The sheer presence of the United States as a cadre acts as a deterrent.

I also have to say, there's nowhere else to go in the Gulf We have saturated Kuwait; we have saturated Qatar; you're not going to get what you need out of the UAE; we already have a strong presence in Bahrain, and Oman is a hell of a long way away from where we need to be. These are just basic strategic realities.

AMB. FREEMAN: To the extent your question was the broader one of why the United States should engage Saudi Arabia, in addition to the military factors that have been cited, I would make the following points. Saudi Arabia is, as you suggest, an influential voice, not only within the Arab world but within the Islamic world, which contains some 1.2 billion people and is not inconsequential for U.S. interests. It has historically been a partner of the United States in many, many contexts. And if, for example, and I am not holding my breath, we were able to move Israelis and Palestinians to peace and some form of coexistence, the Saudi Arabian government and people would have a major role in buttressing and stabilizing that.

The second obvious point, which has not been mentioned, is that Saudi Arabia is by far the largest market for U.S. products in the entire region; some 50 percent of the total Middle East market is Saudi Arabia. That is why there are 30,000 Americans resident in the kingdom most of the time. Finally, Saudi Arabia, as has been mentioned, is a swing producer for oil, and the single-largest holder of oil reserves in the world. These factors, without even addressing the importance of Islam and strategic lines of communication, would suggest that it would be wise for the United States to take this country seriously and to cultivate the most cooperative relationship we can with it.

Q: I would like to question an argument that Dr. Fandy made that oil and jihad don't mix. King Faisal believed that God has granted wealth to Saudi Arabia so that the Islamic message and values could be propagated in the world. Bin Laden carries on this belief. Jihad was not understood by King Faisal as war and killing, however, but as an effort to convert the corrupt West. And, second, how important is the issue of water?

DR. FANDY: There is a difference between the jihad of Tora Bora and the jihad of King Faisal. It's an intellectual stretch to link Bin Laden to King Faisal's views on the propagation of the faith as a value system -- jihad as internal struggle versus the externalization of jihad to go and kill people. I've not read anything in the speeches of King Faisal, the archival material or otherwise that made the case that this is what we're going to do. My conclusion is based on fact. I've studied the Islamic movement for the last 18 years. I have not seen the destruction of an oil installation. The destruction of oil installations came from a secular government -- the Baathi government of Iraq, which went into Kuwait and set oil on fire. Islamic movements have not done that. Is there something ethical about preserving the resources of the community for the propagation of the faith or building a state? When jihadis do destroy oil installations, then my statement will be proven wrong.

DR. CORDESMAN: Water depends on the country. We have on the Web a project called "Saudi Arabia Enters the Twenty-first Century," and on it you can see the Saudi water plan. Saudi Arabia doesn't have that much agriculture. It has no option for increasing it. What agricultural production does have tends to be non-economical in many areas. If the issue is urban water needs in a country like Saudi Arabia, the cost of desalination is not a problem. Indeed, when Saudi Arabia ran into water problems last year, it was because it didn't modernize the water-distribution system and the sewer system. The water issue is serious in Jordan, but in the case of Saudi Arabia, it's not a problem.

MR. MOHAMEDI: I don't think that there's a real long-term impediment to development because of water alone. They can conserve and stop using it for silly reasons like growing $5-a-bushel wheat and create a more efficient use of that resource. I don't think that Saudi Arabia is going to be a huge industrial or agricultural country. Oil will always be a very important sector, funneled through the government in terms of spending on the society. It generates $50 billion a year in revenue. The service sector can utilize the resources more efficiently. I don't think this is an excuse not to think coherently about a decent development strategy for the future.

Q: And after oil?

MR. MOHAMEDI: After oil? Two-hundred-fifty billion barrels of reserves?

AMB. FREEMAN: That's several hundred years worth of oil.

MR. MCMILLAN: While there are a lot of good economic reasons to stop doing things like subsidizing wheat, there are also a lot of good political reasons why the Saudis can be expected to keep doing it. I'd be less inclined to dismiss the water problem, but it's not as big a problem for the Saudis as it is for some of the other countries.

AMB. FREEMAN: There are two issues here. One is ground water and aquifers, which are being depleted for agriculture. The other is desalinated water, which supplies urban areas and which has created the only significant river in Saudi Arabia, the Riyadh River, running about 80 kilometers out of Riyadh to a bird sanctuary. It is the effluent from the city, urban desalinated water flowing into the desert.

I wanted to make one comment on Islamic identity. The Saudis historically, in large measure to distinguish themselves from Arab nationalists and to combat Nasserism, have chosen to assert an Islamic rather than an Arab identity. The great irony for them in the phenomenon of Al Qaeda and Osama bin Laden is that if, as President Bush said, Islam has been hijacked by these people, the place that it was hijacked from was Saudi Arabia. Saudi Arabia, which is the principal target of Al Qaeda -- we are a means to that end -- is also the most troubled in many ways by the phenomenon that Osama bin Laden represents.

Q: Dr. Cordesman mentioned the erosion of Saudi military capabilities since `95. Could you talk a little more about what you're seeing and what's driving it? And, Mr. Mohamedi, you characterized the U.S.-Saudi relationship over oil as if they were doing us a favor by keeping prices low. My understanding was that there was also, in part, a Saudi self-interest to keep prices below what Iran wants because of the amount of oil that they have. Are their interests changing as they have more problems and have to fund more domestic programs?

MR. MOHAMEDI: Their view actually started to change in the mid-1990s. They were starting to feel that they needed higher oil prices to make the budgets balance, to work with the Iranians because the Iranians also needed high oil prices. I don't know why this would necessarily lead to a fissure between the United States and Saudi Arabia when, in real terms, the price is not that high. The price that the Saudis need is around $25-$26 a barrel for West Texas Intermediate (WTI). This price range has less of an impact on some of the developing countries in Asia, for example. You didn't see the problems in Asia with higher oil prices that you saw in 1980. Over here, when gasoline prices rise to the $1.60 range, politicians and the population get upset. It's got to do with higher crude prices, but it's also got to do with regional issues and oil- and gas-market issues in the United States.

It's important to maintain a certain level of economic stability in that region -- the Middle East -- while insisting that the money be used properly. I'm a great advocate of economic reform, not only in Saudi Arabia but throughout the oil-producing world. But there is also a responsibility on the part of U.S. politicians to start instituting conservation, to start dealing with energy in a much more realistic, long-term, structural way. That would prevent some of the hysterical moves we saw in 2000.

AMB. FREEMAN: It seems to me that one of the major things that the Saudis have historically done, in part out of friendship with the United States and out of their association with us, is to insist that oil continue to be priced in dollars. Therefore, the United States Treasury can print money and buy oil, which is an advantage that no other country has. With the emergence of other currencies and with strain in the relationship, I wonder whether there will not again be, as there have been in the past, people in Saudi Arabia who raise the question of why they should be so kind to the United States. The answer may be that historically they've done a lot better by pricing in dollars than they would have done with any other strategy.

MR. MOHAMEDI: I don't think it's important what currency it's priced in. I think that's how the market developed historically. I don't think it was a conscious political move to price oil in dollars. The Iraqis want to price oil in euros now. Some hard-line parliamentarians in Iran want to move to the euro. I don't think it matters. The oil traders' computers will switch back into dollars or euros or whatever.

AMB. FREEMAN: I think the issue is the U.S. balance-of-payments deficit. The pressure on the dollar from having to exchange dollars for euros could be rather significant, but it wouldn't disrupt the oil trade at all.

MR. MOHAMEDI: I don't see that as either a concern or an issue in the markets.

DR. CORDESMAN: As to the military question, we just put up on the Web a very long analysis of the Saudi military. Let me sum it up. First, Saudi Arabia spent $50 billion on new arms agreements between 1990 and 1995 as a result of the Gulf War. That created a vast momentum of deliveries of new weapons throughout the 1990s that were extremely sophisticated. They didn't have the manpower skills to deal with them, and by the time many of the arms were delivered, after 1995, they had serious problems in funding education, manpower training in general, foreign-contract services and sustainability. Rather than new arms making things better, they made them worse.

Many of these arms can also only be really effective as they were introduced into Saudi forces, if the Saudis have the required skills in joint warfare and combined arms-skills very few developing countries have ever acquired. That invariably created problems in operating and using this equipment. There were similar problems in creating interoperability with the United States.

The problems were further compounded by leadership in the Saudi air force, which led to major problems in readiness and training, and by a British and French deal called al-Yamama. This deal was bad enough when it started but was layered and layered to the point where it got worse and worse and served less and less purpose in terms of military effectiveness. Equipment was bought that would have been inoperable by any Western navy. It was horribly overbuilt and over-equipped for the size of the ship.

Saudi equipment-absorption problems were further compounded by the national guard, which has some 75,000 to 100,000 actives in a force with very little strategic purpose in serious war fighting, which is equipped only with light mechanized weapons, and whose manning is equal to or exceeds the regular army's.

Finally, Saudi Arabia should in theory have been able to lead its neighbors to operate militarily within the Gulf Cooperation Council. Until very recently, however, it was impossible to get meaningful military cooperation. There were absurd military purchases in countries like the UAE and Qatar that served no military purpose, and common training and joint exercises were symbolic. The GCC is maybe talking about taking Peninsula Shield and making it four times larger than it is today. Aside from the Saudi brigade in that force, however, Peninsula Shield is a pointless farce.

MR. McMILLAN: When the financial crunch came, oil went from the $40-$45-a-barrel range down to the low teens. For a country whose entire revenue base essentially is oil sales, the defense budget was completely gutted along with every other budget. The Saudis had made a decision some years ago, which made perfect sense given their circumstances. Faced with a manpower shortage to operate their armed forces, they decided to do what we would today call out-sourcing of their support arrangements and have maintenance, supply and so forth all done by contractors. But when the money dried up, suddenly there was nothing to pay the contractors with. People started going from month to month not knowing if Lockheed Martin, Boeing, Northrup Grummon and others were going to be working or not. Bills didn't get paid, contracts got terminated, and there was no base in the Saudi armed forces to do the kind of support and maintenance that was ordinarily performed by the contractors. As a result, spare parts dried up, maintenance dried up, the accident rate in the air force skyrocketed. Flying hours went way down. The same problems are mirrored in the other forces as well.

AMB. FREEMAN: In my observation, Saudi Arabia is one of the most remarkably unmilitarized societies that I have encountered. As a country with a small population relative to its neighbors who pose threats -- whether they are the historical threat from Egypt or the more recent threats from Iran or Iraq or historic animosities with Yemen -- it is remarkable how the Saudis have responded, basically, by trading high technology for a commitment to building a large armed force. This trade-off, which historically has worked, backed by the United States, is now in some difficulty because of financial and other constraints.

Q: My question deals with the issue of women, one of the clubs that critics of Saudi Arabia use on U.S. relations with the kingdom. I'd like to ask each of the panel members to make a few comments about what U.S. policy makers, congressional staffers and the media should be thinking about. What factors should they consider when they pick up the club to beat the Saudis about the women's issue? What is changing, and how should we think about that problem?

DR. CORDESMAN: Right now in both secondary school and university, there are far more women graduates and students than men. So education is not the issue. If anything, the great problem is going to be, what do you do in a conservative Islamic society where women have far higher educational standards than men? It's a little ironic to look at the output of Saudi schools in this area. But it's not clear that job opportunities exist for young men, much less young women. We don't know the unemployment rate for young women; it's got to be much higher. But with 30-percent unemployment for Saudi young men, this isn't a man-versus-women issue; it's much broader. The idea that this is an education problem in the case of Saudi Arabia is absolutely absurd. None of the figures justify that kind of calculation.

AMB. FREEMAN: We're in a way going back to the original discussion of demographic growth in Saudi Arabia and the reasons for that. Normally two things happen in societies that lower birth rates: women become educated, and by joining the workforce, they drop out of childbearing. In Saudi Arabia the first has happened. Women are well-educated and sophisticated. But the second, finding a place in the workforce, has not. Therefore, the birthrate remains as it is.

DR. FANDY: The issue of women in Saudi Arabia is part of the evolution of a historical trend. It is not as in Afghanistan, where there was the reversal of a historical trend of progress of women. They have their own way, but nonetheless, the society is moving at its own pace. We need to know a lot more about Saudi women before we use this as a club. Thus far, the research on women's issues is very limited. It is based on just looking at the veil rather than what's underneath it. Underneath the veil are dynamics in terms of banking, education and other things. Transposing the issues from Afghanistan into Saudi Arabia is disastrous, and politicizing issues will not take us anywhere.

AMB. FREEMAN: There is a problem with moralizing foreign policy- foreign policy aimed at producing change in other societies in general. It doesn't work unless it is assisting forces and groups in those foreign societies that are seeking change to accomplish their objectives. The question really is, what do Saudi women want? If we knew what Saudi women wanted in an incremental way, then perhaps, to answer the question, we could be helpful by supporting those in the kingdom who are trying to promote change of a nature that is congenial to our values. But we don't know that. Is it that they want to give up their chauffeurs and drive around? That might be good for American automobile manufacturers. Saudi Arabia is the only society outside the United States where the American automobile still dominates. And some of us who have been thinking for years about this issue would look forward to participating in building the separate road system that would be required if women could drive. But, short of discovering what it is that women want and helping them in a sensitive way to achieve it, I suggest that we exercise caution, not jump to conclusions, and not do our usual foreign policy by spastic intervention.

Q: If there's been such a sharp deterioration of Saudi military capability over the last five years, does that make the Saudis a bit more dependent on us for protection? Nobody's mentioned the fact that the Iraqi regime continues to issue threats against the Saudis and the Kuwaitis. Do the Saudis not take these threats seriously?

The second question is for the whole panel. Maybe a long-term solution for some of the Saudi internal problems is a change in the educational system: more of a balance between the teaching of Islam and Islamic principles on the one hand and the teaching of skills that can make the 30-percent youth unemployment go down a bit and replace foreign workers with Saudi workers?

DR. CORDESMAN: I don't think they are more dependent upon us. They are still as dependent upon us as in 1991 because Iraq has had no arms deliveries since 1990, although it remains a major power, and Iran has not built up significant power-projection capabilities. The key future issue for both the United States and Saudi Arabia is how to deal with a growing threat from biological weapons and the prospect of nuclear weapons -- is a different story, but it's not part of this issue. I wish I could say that it was going to be arrested by changes in the Saudi defense budget, but frankly, when oil revenues went up, the budget got worse rather than better, and it was misspent.

On education, take a look at the population statistics and ask yourself where all these teachers are coming from. To change the educational system, you're going to need vast numbers of teachers, and part of the problem, particularly on the Islamic side, is too many foreign teachers who can't teach in their own country because they are too Islamist -- and for that matter, not good enough. The other problem is that, in general, there has to be job pull. Even in Europe, the history of vocational training, the state guessing at how to educate people in job skills to somehow create employment, is a very uncertain prospect. If you don't grow up in an economy where you know jobs exist and there's a work ethic, simply changing the education, as we've found in the United States with the Great Society vocational programs, produces wonderful slogans with very few, if any, examples of operational success.

MR. McMILLAN: One of the things we need to take into account in judging whether the Saudi military is credible or not is the question of timelines. I keep asking myself, how long will the populations of both countries continue to tolerate an arrangement where we have something on the order of 20,000-25,000 U.S. people deployed in the Gulf at any one time, doing a mission that the last couple of administrations have not explained very effectively to the American public? On the Saudi side, how long will the Saudi public, which is becoming increasingly aware that there's this open-ended foreign presence in the kingdom, keep on tolerating it? When you have a head of state whose official title is "custodian of the two holy mosques," he is politically vulnerable when he has to explain how it is that he can't defend the holy places without the help of the infidels. Both sides need to watch the public support for the current arrangement. And the Saudis need to take the necessary steps to put their military on a more credible footing.

On the other hand, if you measure the Arab militaries in the Gulf against the Iraqi standard, to have the effectiveness of the Iraqi military, Saudi Arabia probably has to become Iraq -- a militarized society. I don't think it's in anybody's interest, ours or the Saudi people's, for that to happen.

On education, we may have been a bit cavalier in dismissing some of the problems facing the country when we talk about how many people go to universities and how well-educated women are, and so forth. We're talking about a very thin slice of the Saudi population when we focus on people going to universities. The statistics I've seen suggest that adult literacy in the kingdom as a whole is somewhere between 65 percent and 70 percent. Women's literacy is probably 50 percent. In the Saudi context, if literacy is judged by the ability to memorize the Quran and not by the standard of functional literacy, then those numbers in reality are even lower. This applies to both men and women, but it is especially striking on the women's side, and that goes to the future of the population problem. More broadly I would express a caution about our knowledge of what goes on inside Saudi Arabia. It's still a remarkably closed country. Westerners don't get to places like the Nejdi heartland north of Riyadh very often; they don't talk to people in these towns; they don't get down to Asir. A lot of the contacts are based on talking to people in Jeddah and Riyadh. That's not the whole of the kingdom.

AMB. FREEMAN: General William Tecumseh Sherman famously remarked, "The purpose of war is to produce a better peace." By that standard, the Gulf War was not a success, because prior to the Gulf War, there was no requirement for a permanent American garrison in the Gulf, and none of the problems that flow from the presence of that garrison troubled our relationships. Following the war, the security situation has been such that there is a requirement for an American presence, and there are serious problems which are unresolved.

The second point is that it has never been realistic to expect that the Saudi Arabian military would have a credible capacity on its own to defend the kingdom against the vastly larger forces of its much more populous and militarized neighbors, whether they are Iraq or Iran or a much more militarized society in Israel. So it has always been an element of Saudi defense strategy to rely on a foreign partner, and that is very unlikely to change. Although they may dilute sole-source dependence on the United States, they will need to have continued backing from others outside the region.

MR. MOHAMEDI: On unemployment and education, I think it would be a great idea to start building up vocational schools. That's a relatively low-cost way of getting skills to many workers, and to start targeting a certain stratum in the society where foreign workers can be replaced by Saudis. It doesn't replace the free market for jobs and a multi-faceted, skilled work force with a full array of jobs on the demand side, but it's a good beginning and is a start toward dealing with the unemployment program.

DR. FANDY: I start with the premise that regimes are interested in survival. Whenever the madrassas or certain educational institutions become a problem for the regime, I'm sure they will take notice. I'm not interested in giving prescriptions to the Saudis for what they should do. But the speech of Prince Abdullah [at the close of the recent GCC meeting] is very important. He speaks to the Muslim reckoning with the problem within. What we can do is push already-started internal initiatives instead of proposing our own. There is a soul searching going on inside and outside Saudi Arabia in the Muslim world about what is to be done about the trends.

Thus far the Saudis look at what the United States wants in the same way that Ambassador Freeman said we look at what the Saudi women want. It's something that's terribly unknown. Americans have approached their relationship with Saudi Arabia indirectly, talking about oil, Israel, women and other things. We have never told the Saudis what we want and what is expected. This head-on debate needs to be started. We have to put out our wish list and see what the Saudis can and cannot deliver.

AMB. FREEMAN: It is widely charged in the United States that Saudi Arabian education teaches hateful and evil things. I do not think that is the case, but it would be a wise move on the part of the Saudis to allow international examination of their educational system to dispose of what I think is a baseless charge once and for all. More important, the questioner suggested that, while the Saudi educational system may not teach bad things, it teaches things that are useless in the context of dealing with the problems that we have been discussing. That is a serious charge, and one that the Saudi leadership has taken very much to heart. How educational institutions like the religious universities, which are devoted primarily to instruction in the Quran, can be made both Islamic and relevant to a modern economy speaks to the issue that Crown Prince Abdullah has raised of the need for soul searching and some sort of Islamic renewal in which Saudi Arabia must play a key role.

In this regard, there are educational reformers in Saudi Arabia who argue that Islam historically was the religion of science, as was the case with the Dar al-Kitaab and other institutions in the heyday of Islamic civilization, and that it needs to renew its connection with science, with technology and with work. I am rather hopeful that with the appropriate assistance and encouragement, Saudis will find an answer to the question of how to make their educational system more relevant, more useful, more supportive of the kind of decent society I think they want and that we should want them to have.

As a final observation, I would commend the panel for calling for dialogue rather than diatribe, honesty rather than equivocation or concealed agendas, and an effort to solve problems rather than to shelve them. Change comes and can be assisted most effectively when it is sought from within. And when those within a society like the kingdom of Saudi Arabia seek change, they deserve support. Fortunately, many of the issues that have been aired here today are clearly on the agenda of the Crown Prince. He does seek economic reform, the cleansing effects of WTO membership, and innovative ways of achieving greater peace and security in the region for his kingdom. He has presided over the settlement of all of the border issues that had troubled Saudi Arabia in previous years, and, as Mamoun noted, is apparently committed to the idea of some reflection about Saudi Arabian values and Saudi Arabia's vision for itself, its region and the world. That ought to be encouraging and ought to be seen by the United States as an opportunity.

The following is an edited transcript of the twenty-seventh in a series of Capitol Hill conferences convened by the Middle East Policy Council. The meeting was hem on January 9, 2002, in the Rayburn House Office Building with Chas. W. Freeman, Jr., moderating.