SAUDI ARABIA: Princes Fight It Out, Indigo Intelligence Newsletter, October 6, 1994

The sharp increase in fundamentalist opposition to the government revealed by massive arrests among religious radicals last month, as well as the flagrant failure of Saudi backing for the South Yemenites and the poor state of health of King Fahd have all contributed over the past few week to sharpening the rivalry between powerful political brokers of the regime. Powerful Prince Salman bin Abdel Aziz, governor of Riyadh and one of the "seven Sudeiris" (as the seven sons that King Saud had with Hassa al Sudeiri are called and who with King Fahd constitute the actual core of government), is traditionally more favorable to an agreement with Wahhabit fundamentalists. For a long time Princ Salman has maintained ties with their leaders, particularly those in the regions of Burayda and Durraya where he travels often. During the war in Afghanistan, he organized transportation for moudjahidines from different Arab countries to Pakistan to help back the most fundamentalist Afghan movements.

 

Prince Salman is nonetheless rather isolated. His major opponent is the Minister of Interior, Prince Nayef who is also a Sudeiri. Last December it was he who directed the crackdown on fundamentalists and ordered hundreds of arrests. In dong so he had the active support of Prince Turki bin Faycal, head of the intelligence services. This policy of repression towards the Wahhabits (or Salafists) is backed by the chief of the National Guard, Crown Prince Abdallah (who is not a Sudeiri and whose mother is a member of the Shammar tribe).

It is well known that the U.S., which is very worried about political instability in Saudi Arabia, is hostile towards Prince Abdallah. But since the Americans can't avoid his being crowned successor to King Fahd, they are trying to reinforce the power of the "third generation" princes educated in the United States. These include Prince Muhammad, son of King Fahd and governor of the East region, and Prince Bandar bin Sultan, son of Prince Sultan (Defense Minister and a Sudeiri) and ambassador to the United States. Prince Muhammad, 42, King Fahd's favorite son, is violently opposed to fundamentalism. On the economic level, he controls the richest region of the kingdom which includes the major oil fields and refineries. On the political level, he has control of a region under strong Shiite influence.

 

Prince Bandar, on the other hand, controls the major channels of communication between the kingdom and its American ally. These two princes seem to have concluded a pact against their cousin, Prince Mutaeb, son of Prince Abdallah, and chief of staff of the National Guard. Open hostility exists between him and his cousins who hold the fact that he is not a member of the Sudeiris clan against him.

 

Arms and the middle men, Times Newspapers - Anthony Sampson, October 12, 1994

Was the British arms deal with the Saudis in 1984-85 ''properly negotiated'', as Lady Thatcher insisted on Monday? Certainly it was in the tradition of proper negotiation in Saudi Arabia, where commissions have been an essential part of the process.

Every big deal is seen as an opportunity to enrich members of the royal family and to spread favours to friends in the courts; and the total price of any project is increased to allow for commissions.

Adnan Khashoggi, the most famous Saudi arms dealer, has insisted that commissions are really part of a welfare system which distributes the wealth from the top; and most Saudis would accept the system as perfectly proper, provided it is not taken to extremes. It might be compared to pre-industrial, 18th-century Europe, where the best hope for a commoner to build up a fortune was to become an agent for the monarch or the army, and cream off a commission like Marlborough's paymaster, the Duke of Chandos, who built a palace at Edgware on the proceeds.

The traditional Saudi system escalated in the 1960s and 1970s, when huge arms and oil deals enabled many princes to become very rich, while junior players insisted on having their cut. Western companies had to accept this, and their governments tacitly condoned it, although by the late 1970s the Callaghan Government was worried about commissions running out of control.

For the Saudis there was always the danger implicit in such arrangements that the commissions determined the orders. Much of the weaponry in the vast arsenals built up in Saudi Arabia and Kuwait was scarcely relevant to their defence needs as was embarrassingly evident in the Gulf War, when they had to rely on Western armies. The Al-Yamamah arms deals in 1985 and 1987 raised the stakes much higher.

The sheer size of the first deal, worth around $20 billion, was unprecedented; the claimants were becoming greedier, since Saudi revenues were diminishing as the oil price fell; and the commissions were running out of control.

There were several Saudi rivals for the spoils. A key figure was Prince Bandar, the Ambassador to Washington and son of the minister of defence, Prince Sultan, who was present at the signing at Salzburg in July 1985.

There was also Prince Sultan's close friend and agent in London, Wafic Said, who was a friend of the Thatchers and Jonathan Aitken. There was also a more shadowy duo, the Ibrahim brothers, whose sister is King Fahd's favourite wife and mother to his adored son Prince Abdulaziz.

The Ibrahims, who lived in London and ran their own business from Bowater House, had become major players in several big deals. No one knew how much money they kept, and how much went to their nephew, the young prince.

But their record commissions, collected with ruthless insistence, sent a wave of resentment through other Saudis including minor princes who had missed out. The scale of payoffs was beginning to divide the royal family. The British Government explained that the Al-Yamamah deals were thoroughly proper. Mrs Thatcher had personally told King Fahd that there should be no commissions. In the second deal, the Government formally wrote to British Aerospace to say that there should be no commissions.

The Ibrahim brothers were shown the letter. But the Saudis, of course, could allocate their commissions as they wished; and the payments were all the easier to conceal because they were made partly in the form of oil. The fact that the oil was delivered outside the Saudis' official Opec quota so adding to the prevailing glut added to the disquiet about the deal.

With the huge sums at stake, it would be surprising if some money did not find its way to the British side. It was part of normal Arab etiquette to reward people who had been helpful in easing the deal, and with billions at stake, a few millions were like pocket money. To reward the son of the British Prime Minister even if he gave no help would be as usual as rewarding the King's son.

Arms deals, with their unique justification for secrecy, have always had rules of their own, and previous revelations from Washington have shown how easy it was to pay distinguished Westerners including Prince Bernhard of The Netherlands to act as go-betweens.

The British Ministry of Defence, we now know, was itself not immune from serious corruption; for only in May a procurement officer, Gordon Foxley, was convicted and jailed for having received bribes worth more than Pounds 2 million to provide arms orders for European companies.

That disturbing story should have produced a major investigation into the ministry's safeguards. In negotiating with Arabs, with their quite different attitude to payments, it is hard to ensure that deals are clean on the Western side even if corrupt on the other. The vast commissions of the 1980s were always likely to overflow into the West.

So what does it mean to be ''properly negotiated''? To the Saudis it mean taking due note of the claims of the royal family, and traditional generosity towards friends. But to Westerners, that will means two-way corruption unless the whole negotiation is subjected to far more rigorous scrutiny than we have yet seen evidence of.

Spare a billion, The Economist - Montana, Constanza, September 17, 1994

WHEN a billionaire is overdrawn, says a Saudi writer, you cannot call him bankrupt. "But he has a problem. The trouble in Saudi Arabia is that nobody is willing to admit a problem." Saudis may have to do so before long. King Fahd still protests the strength of the economy, but the truth is gradually dawning: years of overspending and borrowing have combined with a fall in oil prices to bring the kingdom's era of plenty to an end.

Outwardly Saudi Arabia appears as affluent as ever. The highways circling Riyadh are choked with Mercedes; the shopping malls are palatial, the car showrooms opulent. But whereas a year ago Saudis would have spent without thought, now they must sometimes think first. Hospital workers and teachers complain that they have not seen their salaries for months; government contractors await long overdue payments.

The kingdom creaks under the weight of rapid expansion and mismanaged wealth. Water and electricity supplies are no longer sufficient. Some residential areas of Riyadh had no water two days a week in the hottest part of summer, and a fine of SR100,000 ($26,700) has been introduced for anyone caught "tampering with the water systems". Power cuts are increasingly common.

The government has responded with a crackdown on waste. Ministers leap to their feet to turn down the air-conditioning in their offices; factories in Jeddah and Jubayl have been told to shut down production for three hours a day. Newspapers have joined the campaign, running articles on the need to conserve energy--no easy task in a country where electricity charges are so subsidised that families go on holiday leaving their air-conditioning and lights on.

Such measures merely delay the inevitable. Massive investment is needed, and soon, if the demands of Saudi Arabia's expanding population--growing at the rate of 3.5% a year--are to be met. Negotiations have started for a $1 billion power station, in which General Electric will have a 50% stake, and a $4 billion contract has just been signed with AT&T to overhaul the kingdom's telephone systems.

But the call is for saving, not for spending. Ministers talk a new language of "priorities" and "adjustments". The promised 20% slashing of the 1994 budget, from $52.5 billion to $42.6 billion, has brought new spending to a halt. Many old contracts have had to be retendered for, and government departments have to get approval from the finance ministry before they spend. Even so, the government's pledge to reduce the budget deficit from $7 billion last year to $1 billion this year is greeted with cynicism.

There is talk of privatising the country's heavily subsidised telephone and electricity systems and the national airline, Saudia. The government is also considering selling its majority share in SABIC, an industrial conglomerate. A delegation is supposed to be going to London this autumn to discuss Britain's experience with privatisation. But can the regime risk tearing the social safety-net that cradles political stability?

Liberal reformers (and there are some) had hoped that the country' s economic woes would nudge the government towards political reform, possibly in part exchange for cutting subsidies. So far the signs do not look promising. Western diplomats report that decisions are increasingly pushed to higher and higher levels. Little has emerged from the Consultative Council, or Majlis al-Shura, which after years of delay was at last inaugurated in 1993. With two-thirds of its 60 members holding advanced degrees from western universities, it was hoped that the council might inject a fresh approach and perhaps a hint of urgency into the kingdom's top-heavy decision- making process. No such luck, as yet.

Saudi reformers remind each other that political evolution in Saudi Arabia is laboriously slow. But the council is mocked in the jokes that circulate in Riyadh drawing-rooms, one of the few barometers of Saudi public opinion. In one of the least acerbic, a young officer comes across a madwoman near the Iraqi border riding a donkey and carrying $1m in cash. The decision about what should be done wends its way up the system to King Fahd. Send the money to the defence ministry (defence, which accounts for more than a third
of the budget, is little affected by the economy drive) and the woman to the health ministry, he orders. The donkey goes to the Majlis al-Shura.

A gentle, unfunny joke, but take care. A leading publisher who continued the animal analogy by circulating a paper among friends that described council members as sheep ended up, briefly, in jail.