Editor's Note:

We recently provided remarks that Deputy Chief of Mission, or DCM, Mr. Gary Grappo, second in command at the US Embassy in Riyadh, presented at the Chicago stop of the 2005 Saudi Trade Mission. He told the American business people assembled there about the booming Saudi economy and the state of the Saudi-US relationship. Later that day, May 16, 2005, he took time to talk with SUSRIS about his optimistic assessment of the Saudi business environment and the range of issues dominating discussions of the Saudi-US relationship.��

In the first installment of Mr. Grappo's interview with SUSRIS, he discusses the trade mission and the business environment as well as economic and political issues, world energy security, the military to military relationship, the joint war on global terrorism and more.

Mr. Gary Grappo
Deputy Chief of Mission, US Embassy Riyadh

SUSRIS: Thank you for taking time from your busy schedule today to talk with us about US-Saudi relations. You're here in Chicago to speak to American business people who are meeting the Saudi trade delegates. What should people know about the meetings and about the business relationship?

Gary Grappo: Certainly in recent memory this is the largest Saudi trade delegation to come to the United States. I think it was by serendipity the timing of the visit was just a few weeks after President Bush and Crown Prince Abdullah met in Texas. The trade delegation has capitalized on the positive atmosphere created by the Crawford meeting. The timing is good particularly in view of not only that meeting but also what's happening in the Saudi economy.

I said this morning in my remarks that the Saudi economy is booming and it truly is. Obviously it is fueled by what's happening in the energy sector these days. However, the Saudi's have a very ambitious program for reinvesting that money in the range of sectors that we heard about earlier today.

SUSRIS: How do you see the strength of the business-to-business relationship?

Gary Grappo: Like the broader relationship, it has gone through a rough patch since 9-11. There's a lot of apprehension and anxiety on both sides in view of what happened and the subsequent responses.
However, if you look at the things governments as well as businesses have done to re-invigorate the relationship I think you'll see it will return to a more predictable situation, something the two sides are comfortable with.

You should remember that the Saudis feel extremely comfortable doing business with Americans and in the United States. Many of them studied in the United States. They visit here often, either for personal reasons or business reasons. Its just a place where they feel comfortable doing business.

I believe the intention of this trade delegation was to come to the States, to the five cities that they are visiting, and communicate to the American business community that there is still a great need, a great desire on the part of the Saudis to do business with us but also to educate us about the opportunities.
It truly is a booming economy right now. There are extraordinary opportunities -- probably akin to what it was in the early- to mid-seventies, and the Saudis want us to be there.

Americans should also know that we're not the only ones who can capitalize on the boom. The Europeans are far more aggressive today in the Saudi market then they were back in the seventies. There are other players as well. The Chinese and the Indians are extremely active in Saudi Arabia right now -- very aggressively looking for new business.

We don't quite have the open field we had back in the 1970s. But we do have an advantage in that the Saudis are very much accustomed to doing business with us, feel comfortable with us, like American products and services and want to continue that.

SUSRIS: What's the boom attributed to?

Gary Grappo: Oil. It's no secret the Saudi economy rides on the price of oil. There is a strong effort to diversify the economy and they're doing a reasonably good job at it. But, for the foreseeable future it's going to be oil that is driving the Saudi economy.

That's not to say that there aren't tremendous opportunities in many other sectors: healthcare, construction, transportation, petrochemicals -- the downstream opportunities, manufacturing, and information technology, for example. All of these areas are experiencing rapid growth. They obviously pale in comparison to the oil sector. Nevertheless for US businesses there are great opportunities and the Saudis want to see those areas developed.

SUSRIS: How have economic reforms -- regulatory reform, the General Investment Authority, pursuit of WTO accession, privatization, diversification, and so forth -- shaped the current environment?

Gary Grappo: Those have all been very positive in terms of the direction of the economy. But the good news in all of that for Americans wanting to do business in Saudi Arabia is that it is a better place to do business.It's more secure, more predictable. US businesses across the spectrum of sectors ought to feel very encouraged by what is happening whether it's privatization or it's the passage of new laws.
All of these are very positive signs and should make doing business in the kingdom even better than it has been in the past.

SUSRIS: WTO accession. This year?

Gary Grappo: I think they've been able to tackle some of the major issues. What is different now is that there has been a real commitment over the last twelve to eighteen months on the part of the Saudi government to make it happen.

We've always wanted to get it done, but to be quite honest the Saudi interest in it has ebbed and flowed. We had a very intense round of negotiations recently with the Saudis in Washington. There was considerable headway and so the statement that we've made about trying to get it finished before the end of the year is probably going to be a good one. We certainly hope that's the case. It's the intention of both sides.

SUSRIS: Let's talk about the demand for oil. The Crawford summit was called a milestone in the relationship by some observers. However, it seemed the media was almost hysterical that the measure of a successful meeting was having price relief at the gas pump. How should Americans look at the relationship between the United States and Saudi Arabia in terms of the Saudi ability to control gasoline prices?

Gary Grappo: If you look at the current production and export levels you'll see the Saudis are very close to capacity -- about nine and a half million barrels a day on average. They can bump that up gradually over the course of the next couple of years without making a significant investment. But for the most part what is currently remaining of the 1-1.3 million barrels of capacity they have is very heavy fuels. Many of our refineries and other facilities can't really take those grades. However, there are buyers for them, so they are, in fact, pretty close to capacity already.

The Saudis have announced a major investment program to increase oil production capacity within the next two to five years, up to about twelve million barrels a day and in the long term to fifteen million barrels a day.

To be quite honest, I'm not sure that Saudi Arabia today has the control over the oil markets that it may have had say five, ten, fifteen years ago. They certainly have the ability to raise the price of oil, by turning off their spigots. They are the largest producer in the world by far and if they were to cut off production -- which I can't imagine they would want to do since they would be harming themselves -- they could certainly raise the price of oil.

However, they're not in a position to lower the price of oil, not now. As I said, at nine and half million barrels a day they're pretty much close to capacity. Which means that there's no way they can lower the price of oil by pumping more at the present time.

SUSRIS: So Saudi Arabia is not the cause or cure for America's energy cost troubles?

Gary Grappo: When it comes to the price of oil, not anymore. There may have been grounds for that 10 or 20 years ago but today they are pumping at capacity. I think if they had more to pump they would. Why wouldn't you when you can make $50 a barrel? They are just not in a position anymore to reduce the price of oil.

SUSRIS: Should Americans be worried about the security of oil supplies in Saudi Arabia. Are American diplomats in the kingdom concerned?

Gary Grappo: Certainly we are very interested in it. We have discussions fairly regularly with the Saudis and Saudi Aramco about security they provide oil facilities. This is their primary source of income and will be for the foreseeable future and they're not going to risk that by shortchanging security at their facilities, whether it is at the wells, the pipelines, processing facilities or the terminals.
The Saudis invested significant amounts of money and resources into protecting those facilities and I think they will continue to do that. It's obviously the most important resource, most important asset that they have and they understand the need to protect it. So we talk about ways they can do that.

SUSRIS: When Saddam Hussein's regime fell in Iraq there was no longer a need for Operation Southern Watch, the enforcement of the No-Fly Zone in Iraq, and so the forces operating from the Kingdom were redeployed elsewhere. What is the status of the Saudi-US military to military relationship?

Gary Grappo: Early in 2003 we withdrew all US combat forces from Saudi Arabia, which in the buildup to the war in Iraq had reached over 15,000. All of those troops are gone now.
What we have left are two modest size military training missions. One for the army, the navy and the air force under the Ministry of Defense and Aviation and one for the Saudi Arabian National Guard.

Those are continuing programs -- they have been around over 40 years. It is another example of the very close relationship we have had when it comes to regional security and cooperation between our armed forces. There was some reference to it in President Bush's comments in Crawford last month -- about its importance.

That's going to continue. The Saudis very much want to maintain that relationship with both the Ministry of Defense and the Saudi Arabian National Guard.

SUSRIS: The US government has kept quiet on the issue of Saudi support during the opening phase of Operation Iraqi Freedom. However, there have been some reports that suggest everything the US asked for to support the effort was provided.

Gary Grappo: Yes, they were. The Saudis were one of the most forthcoming countries in the region. As I mentioned earlier we had upwards of 15,000 troops, mostly US Air Force units at the Prince Sultan Air Base and a few other facilities. We were given landing rights, over flight clearances, fuels were provided to our armed forces, and the list goes on and on and on.

The Saudis have always been stalwart supporters of America and our efforts to maintain security in the region. That, by the way, continues.

The other thing that is important, especially for American taxpayers to understand, is that we have a special relationship when it comes to the training cooperation I mentioned before. Our training missions to the Ministry of Defense and Aviation and the National Guard are all paid for by Saudi Arabia, including the salaries of our military personnel. Very little is paid for by American taxpayer dollars.

SUSRIS: Last year there was an effort in Congress to reduce the token amount of aid that allowed Saudi military officers to come to the US for military education and training. The provision that existed opened the door for better cooperation between militaries, not necessarily because the Saudis needed us to pay for something. It was a small amount of money involved. Yet, some in Congress wanted to use the issue as a way to punish the Saudis.

Gary Grappo: The principle condition on that issue, the new condition that was applied, had to do with combating terrorism and it was pretty easy to certify Saudi Arabia given what they have done since May of 2003.

We give the absolute minimum to Saudi Arabia for this military training -- $25,000. But that allows the Saudis to access all the other military training opportunities in the United States at a reduced tuition. This is an opportunity to encourage more Saudis to participate in US based training.
What we want to do is promote the relationship between the US armed forces and the Saudi armed forces. It's a long-standing relationship and it has paid great dividends to both sides. The United States has benefited in terms of our familiarity, our special relationship, our friendship with the senior leadership in the Armed Forces.

Virtually every senior officer in the National Guard and the Armed Forces has been trained in some fashion in the United States, whether it's pilot training, senior infantry officer training, war colleges and so forth. That has created a special relationship between our two countries and it's in our interest and in their interest to see that continue.

SUSRIS: What is your assessment of the bilateral relationship in the war on terror?

Gary Grappo: May 2003 was a watershed for Saudi Arabia. There had been modest cooperation prior to that in terms of sharing information and so forth. May 2003 dramatically changed it. Since that time the cooperation has truly been extraordinary. I don't think a day goes by when US officials and Saudi security officials don't sit down and talk about the war on terrorism and what we can do to prosecute the war. I will have to say you cannot compare today to before May 2003. It just wasn't quite there.

On the terrorism financing side we have made some extraordinary strides since May 2003 that we were not able to accomplish before then. So it was a watershed. It was almost their 9-11.
If you recall, on May 12 terrorists attacked three residential, principally Western, compounds killing Saudis, Americans and other foreigners. Since that time there has been a very strong relationship between the two sides. We have been able to make great progress because of that cooperation.

SUSRIS: All but 3 of the 26 terrorists on the Saudi's most wanted list have been captured or killed. What's the assessment of the current domestic security situation?

Gary Grappo: Al-Qaeda forces in the kingdom have definitely been put on their back foot by the Saudi security forces. I should mention that the Saudi security forces have gotten much more proficient and competent in going after them in terms of information collection, being able to identify these guys, track them down, carry out raids, investigate incidents, all of these things.

So the capabilities of the Saudi security forces are much improved over what they were before May 2003. The Saudi efforts since then have resulted in almost decapitating the Al-Qaeda terrorist organization or network in Saudi Arabia. Almost every leader they put forward has been taken out by the Saudis. In addition they have lost a lot of their technical capabilities -- the expert bomb makers, tacticians, recruiters and so forth. The Saudis have also been able to take out a lot of the propagandists and ideologues who are out spreading this venomous talk about hatred and intolerance.

So they have really put these terrorists on their back foot. However, and you only need reference some of the recent speeches by the Crown Prince, they are not out of the woods yet. They know that. They know that this could be a generational effort in terms of finding these individuals and rooting them out.

Moreover, its also extremely important that they root out the ideology that these individuals, that these terrorists profess. In Saudi Arabia they call it "Takfirism" which is from the Arabic root of "Kafir" or non-believer.

These Takfirists have basically taken it upon themselves to choose who's a good Muslim and who's not, who is a Muslim and who is not, and in their ideology they will use this to justify killing those who don't agree with them, who don't adhere to their very distorted version of Islam.

This is very similar to what the Bolsheviks did in the early part of the 20th century. In that case using it as kind of a political argument to justify mass murder. The Saudis have recognized it. They have started a public education campaign to isolate this insidious movement, to ensure that it does not take root in Saudi Arabia. That's going to take some time. It's going to take education. It's going to take a campaign ensuring that the Saudi public, in general, understands how destructive this kind of attitude, or ideology is to the country.

There are still terrorists in the Kingdom. They are incredibly vicious. They can be very, very dangerous. They are not afraid to die, in fact they want to die, and when you have someone with that kind of attitude, it presents a very real danger to society. The Saudis know it will take a while before they can root out every single one of those individuals. However, if you look at where they are today in terms of the terrorists that have been captured or killed they have made tremendous progress.

SUSRIS: The security situation has led to the departure of US government dependents, issuance of travel warnings and so forth. Is that likely to change?

Gary Grappo: The travel warning is under review as we speak. It was about one year ago right after the attack in Yanbu on the west coast of Saudi Arabia on May 1st that we issued a travel warning urging Americans to leave Saudi Arabia.

We're reviewing that in light of the significant progress that has been made in the last year. With respect to official Americans, currently our embassy and two consulates in Jeddah and Dhahran are what we term "unaccompanied posts." There are only essential personnel -- government employees, no families.

I hope this can change but it will take a while. We won't return our families to the kingdom until we feel it is safe for them to return. We will just have to wait and see how things develop.

NEXT: Education, political and social reform; and more on the nature of the Saudi-US relationship.

Gary A. Grappo is Deputy Chief of Mission (DCM) at the U.S. Embassy in Riyadh.