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.

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?

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.

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.

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.

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.

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.

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.

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?

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.

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.