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SAUDI ARABIA - Abdullah Ibn Abdel Aziz Al-Saud.

Born in August 1924, King Abdullah had been co-ruling Saudi Arabia since late 1995, when King Fahd had a stoke, and his as well as rival in this is none other than Prince Sultan. As Crown Prince Sultan has retained control over the regular Saudi armed services, with his full-brother Nayef controlling internal security forces and the Border Guard, King Abdullah retains control over the National Guard and other sectors through his sons and close allies - the latter being part of the royal family's conservative wing. Prince Sultan now heads the progressive wing; but in reality this has become more conservative than the wing Abdullah has been heading for so many years (see Gas Market Trends).

The Saudi kingdom remains in a transition supposed to be from the ageing sons of the late King Abdel Aziz (Ibn Saud) to the better educated grandsons. Now the transition seems likely to last either until a chosen grandson of Ibn Saud has become king, or until something else happens as the world has begun to change rapidly since Sept. 11, 2001 (9/11), when the US was attacked by 19 hijackers including 15 young Saudis.

Saudi women on Oct. 14 applauded a statement by King Abdullah that they will drive cars someday. Women then called for a dialogue to convince opponents of female driving to change their mis-conceptions. In an interview with ABC News broadcast on Oct. 14, King Abdullah told veteran reporter Barbara Walters that the issue required patience, and he would not impose it against the will of the people. He noted that women drive on the kingdom's deserts and in rural areas. "I believe strongly in the rights of women", he said during his first TV interview since acceding to the Saudi throne on Aug. 1, adding: "I believe the day will come when women drive. In time, I believe it will be possible. And I believe patience is a virtue". Walters, known for her interviews with celebrities and world leaders, was blunt in her questioning: "You cannot just make a decree that women drive? You're the king". The king replied: "I value and take care of my people as I would my eyes". Walters queried: "Is that an answer?". He said: "Yes, I respect my people, and I value their well-being. It is impossible that I would do anything that is not acceptable to my people".

Princess Adelah, daughter of the king, recently made a similar comment about women driving and that the issue has been brought up in the Shura Council (the un-elected consultative council). Dr. Suhaila Hammad, a prominent woman and senior member of the National Society for Human Rights (NSHR) was on Oct. 15 quoted by Arab News as saying: "The king himself, when he was crown prince, said that within a few years many developments will happen for women, and they will receive many of their rights... There is nothing in Islam that states women should not drive...[In] the olden days, women used to ride camels and horses - the transportation means of the time... What we need is for our [Wahhabi] religious scholars to issue a decision about it, and people will follow". She does not favour conducting a survey because most people, including women who do not know much about their rights, lack awareness and are influenced by the opinions of a few. The NSHR has recently received a petition by 120 women asking for their right to drive, but there was a petition by 500 women forwarded to the king asking him not to grant women that right because they think it contradicts Islam. Fmale teacher Amani Badaghesh says women should be employed in the Traffic Police and Public Security to change societal attitudes about women driving.

In the interview, Abdullah vowed to eliminate al-Qaeda and its "work of the devil". He called al-Qaeda "madness and evil", promising to fight "30 years if we have to until we eliminate this scourge". He said religious extremism was everywhere. But he said he was surprised at linking extremism with Saudi Arabia. He emphasised that Islam was a religion of peace and that the kingdom was fighting terrorism. He said those who accuse Saudi Arabia of funding terrorism should present at least some type of evidence.

The king talked about Saudi efforts to lower oil prices. Although Saudi Arabia benefits from high oil income, he said the high prices harmed poor countries. Arab News quoted Dr. Ihsan Bu-Hulaiga, an economist and Shura Council member, as explaining: "What the king said is consistent with the kingdom's...long-term strategy for oil prices to be affordable...[and] to discourage alternative energy sources from becoming more affordable".

The king talked about Saudi efforts at bringing peace to Iraq and to foster world co-operation against terrorism. He said Riyadh had its differences with US policy especially with regards to the Palestinian issue and the wars in Iraq and Afghanistan. He said none of the Middle Eastern states, including Saudi Arabia and Iran, should have nuclear weapons and hoped Iran would not be an obstacle to peace in Iraq. He said he had dispensed with the traditional royal protocol of having his subjects kiss his hand, adding: "I have tremendous distaste for such matters because I believe that one only bows before God, not another human being". ABC News staff on Walters' "20/20" programme said the new king "appears determined to present American viewers with a new vision of Saudi Arabia, starting with the fact that he has chosen to do his first-ever television interview with a woman".

Asked what the kingdom could do to calm oil prices, Abdullah said: "We are trying and we continue to try. We have increased oil production to over 10m b/d". He expressed little concern Saudi oil wells might run dry, citing predictions that oil supplies will last more than 70 years. He also said: "we are always loyal to our friends, including the US".

The IEA on Oct. 20 said it could again cover any new oil shortages, including those caused by hurricane damage in the Gulf of Mexico. The IEA's 26 states agreed on Sept. 2 to release 2m b/d to the market for 30 days. Six Gulf Coast refineries - 7.6% of total US refining - remain closed after Hurricanes Katrina and Rita. Other plants were just re-starting by Oct. 21. There was fear then that Hurricane Wilma, the most powerful storm ever recorded in the Atlantic, could hit oil installations in the Gulf of Mexico.

Finance ministers and central bankers from the G20 group of rich and developing nations on Oct. 16 sounded the alarm over high oil prices, expressing concern about a rising tide of protectionism, stressed the need for concrete results at world trade talks in Hong Kong in December. Ending two days of talks at a sprawling resort near Beijing, the G20 said: "We are concerned that long-lasting high and volatile oil prices could increase inflationary pressures, slow down growth and cause instability in the global economy".

The world's largest oil consumer, the US, and the world's biggest oil exporter, Saudi Arabia, were among the signatories to the statement, which vowed to promote energy saving and alternative sources of fuel as well as to cut oil subsidies. Saudi officials said they hoped a meeting of energy ministers in Riyadh in November would bring about the greater transparency in world oil markets which Western policy-makers say is lacking. Caio Koch-Weser, Germany's deputy finance minister, said substantial investment was needed in oil E&P and refining, while for consumers energy efficiency and conservation was now at the forefront. Referring to America's failure to curb energy consumption in keeping with the spirit of the Kyoto Protocol on reducing greenhouse gas emissions, Koch-Weser said: "What Kyoto may not have done in the US, prices at the pump will".

US Federal Reserve Chairman Alan Greenspan on Oct. 18 told business leaders in Tokyo the world would have to learn to live with high oil prices and their negative impact on economic growth "for some time to come". He said: "Although the global economic expansion appears to have been on a reasonably firm path through the summer months, the recent surge in energy prices will undoubtedly be a drag from now on. In the United States, Japan and elsewhere, the effect on growth would have been greater had oil not declined in importance as an input to world economic activity since the 1970s".

In a speech devoted to energy, he said the impact of high oil prices on economic growth and inflation was likely to be less severe than during the 1970s oil price spikes. Taking into account inflation, the average price of crude oil was still below the peak of February 1981, when it hit the equivalent of $75/b in today's prices. Oil is only two-thirds as important as an input in world GDP as it was three decades ago. He said there would be increases in oil efficiency in the rapidly growing economies of East Asia along the lines of those seen in Japan, the US and Europe. But as China's economy grows, its rising oil use would offset energy efficiency savings elsewhere in the world, he said, noting China uses roughly twice as much oil per dollar of output as the US.

He said even before this year's hurricanes, world oil markets had been subject to a degree of strain not experienced for a generation. Rising demand and production constraints had wiped out significant slack in supply which had contained oil prices between 1985 and 2000. "In such tight markets, the shutdown of oil platforms and refineries last month by Hurricanes Katrina and Rita was an accident waiting to happen", he said. Oil prices shot up again on Oct. 17-18 as Tropical Storm Wilma formed in the Caribbean, raising concern over hurricane-battered production on the US Gulf Coast. (Greenspan, to step down when his term expires in January 2006, went to Japan after attending the G-20 meeting). WTI hit $70.85/b on Aug. 31, up more than 60% from end-2004.

OPEC on Oct. 17 again slashed its forecast for 2005 oil demand growth, but saw little evidence the much-heralded "demand destruction" led by high US gasoline prices would persist. It revised down its 2005 world oil demand growth estimate by 17% to 1.18m b/d, to 83.26m b/d. Highlighting the impact on near-term demand from surging crude oil prices, it made cuts of around 40% to its second-half demand growth forecast, cutting growth in the peak-demand fourth quarter to just 740,000 b/d, against its previous expectation of 1.23m b/d. It cut its call on OPEC, an estimate of the world's need for its members' crude oil, in the fourth quarter by 260,000 b/d to a little over 30m b/d. In September, OPEC produced 30.34m b/d, up on the month by 136,000 b/d. It revised down its non-OPEC oil supply - including OPEC NGLs and non-conventional oils - for the final quarter of 2005, cutting expected growth by 27% to 650,000 b/d, or 54.8m b/d.

OPEC cut the expected need for its crude oil in 2006 by 460,000 b/d due to a cautious economic growth outlook, accompanied by demand growth trimmed by 2.5% to 1.47m b/d, or 84.7m b/d. Despite the downward revisions, it said it was sceptical about the likely longevity of substantially weaker demand. Data out of the US showing gasoline demand falling more than 2.5% in recent weeks raised fears of "demand destruction" over the next few months. But OPEC said "there is insufficient evidence to support the perception that this rate of decline will continue". The world economy is strong and winter heating oil and industrial demand will not be affected by higher prices. The IEA eased back its growth forecast to 1.26m b/d but still eyes 1.75m b/d of growth in 2006, to 85.2m b/d.

The head of the IMF, Rodrigo Rato, reaffirmed the Washington-based lender's forecast that global growth in 2006 would match this year's 4.3% expansion but warned that oil was a threat. Jean-Claude Trichet, governor of the European Central Bank, said the ECB had not seen any spillover from higher oil bills into demands for wage rises. In the absence of such second-round effects, which he called "our worst enemy", he said the ECB's interest rates were still appropriate. The bank has held its main short-term rate for the euro zone at 2% for two years. But Trichet, too, said the risks were rising: "It is extremely important not to have second-round effects and that is why we consider that strong vigilance is of the essence". In another illustration of policy makers' pre-occupation with oil prices, Australia will put energy security for fast-growing powers like China and India at the heart of the G20's agenda when it chairs the group next year.

Rato was in Jeddah on Oct. 18 and had a meeting with King Abdullah, who urged the rich states to play their part by lifting or reducing fuel taxes to lessen the burden on consumers. Present at the meeting was Finance Minister Dr. Ibrahim Al-Assaf, who later said the king had emphasised that Saudi Arabia would continue its efforts to stabilise the oil market and that Rato had commended Saudi oil policies.

The Governor of the Saudi Arabian Monetary Agency (SAMA), Hamad al-Sayari, on Oct. 9 said the kingdom's GDP in 2004 grew 5.3%, "coupled with a...surplus of 107 billion [Saudi] riyals (US$28.5 bn) in the state budget". The balance of payments was "in the black for the sixth consecutive year, posting a record surplus of 194.7 bn riyals (US$52 bn) in 2004", he said while presenting SAMA's annual report to King Abdullah in Jeddah. Sayari said money supply reached high levels in 2004 and so far in 2005, helped by increased bank lending to the private sector, "which shows the dynamic role played by the private sector in expanding economic activity". The cost of living index in 2004 rose by just 0.3%. He said 2004 was the third consecutive year of growth for the Saudi economy, which is expected to continue its strong performance as a result of "restructuring and organisation", in addition to increased oil income and "growing investor confidence".

Sayari praised King Abdullah, who also heads the Supreme Economic Council (SEC), for "channelling anticipated surpluses to reduce the public debt [of US$176 bn], boost development, widen the private sector's contribution [to the economy]...and confine increases in spending to long-term investments in vital productive sectors". This, in addition to controlled public spending despite higher oil income, would help cushion the impact of any unexpected changes in world oil markets. King Abdullah in turn vowed to press ahead with reforms to promote continued economic growth, improve citizens' standard of living and remove obstacles to investment.

Writing in The Washington Post of Oct. 6, columnist Jim Hoagland said: "There is no way to avoid either the oil need or the consequences of the destructive Wahhabi Islamic ideology that spins from Saudi Arabia to fuel terrorism throughout the greater Middle East. And [the new Saudi Ambassador to Washington Prince] Turki [al-Faisal] - as austere, enigmatic and complex as [ex-ambassador Prince] Bandar [ibn Sultan] was flamboyant, gregarious and boisterously manipulative - will have to navigate his way through a spreading...energy crisis, which...recalls the tensions triggered by the...Saudi-led Arab oil embargo against the US. Today's energy squeeze differs...from the scares of 1973 and 1979 and will be harder to resolve - even if it poses the same fundamental choice for the US: Is it better to co-operate with or confront the oil producers, led by Saudi Arabia?

"Three decades ago the US chose confrontation. It led a campaign to unite industrial nations in stockpiling crude oil reserves and pressed developing countries to shame...OPEC... into recycling huge waves of petrodollars flowing to its members. The confrontational strategy is...proudly described in Henry Kissinger's diplomatic memoir, 'Years of Renewal'. That strategy helped produce a 30-year fix that only now is breaking down. The proliferation of billionaires on Wall Street and of gas-guzzling sport-utility vehicles and other energy-wasting luxuries in American cities testifies that gasoline and energy in general remained all too affordable during the long period of relative calm in world oil and financial markets that the strategy of confrontation helped produce. The earlier energy crises were tests of political will in which confrontation was a useful tool.

"This time the shortages...stem from multiple sources. They include the laws of...supply and demand being bent out of shape by the industrialization of China and India and...disasters on the [US] Gulf Coast. But paramount are the failure to build...refineries in the ...[US] and the failure to practice conservation and develop alternative energy sources. Out of necessity and temperament, the Bush administration is exploring new cooperation with oil producers... The White House is discussing with at least one wealthy oil-exporting nation new...[JV] refineries that might be built on abandoned military bases on US soil or possibly abroad... [This] is a variation of the "oil for industry" plan outlined in 1972 by [then Saudi oil] minister...Ahmed Zaki Yamani. It...echoes Yamani's later efforts to strike a ...North-South compact of consumers and producers to stabilize prices and investments. At the time...[the US] rejected both. Now a cooperative broad vision...could provide an opportunity to welcome Turki... But the prince must...be reminded that oil alone cannot be the answer. The relationship will remain troubled and imperiled as long as Saudi Arabia fails to eliminate the sources of...terrorism that springs from within its archaic social conditions and its access to vast [cash] that, ultimately, only his family controls".

Hessah al-Oun is among more than a dozen female candidates running for seats on the board of the Jeddah Chamber of Commerce in November. This is a significant step and part King Abdullah's desire to move forward with reforms he started as crown prince. Since Aug. 1 he has issued edicts making the popular monarch even more well-liked. He pardoned three democracy activists who in 2004 were sentenced to jail terms of up to nine years. He raised state employee salaries by 15% for the first time in over 20 years, and earmarked more than $20 bn for housing loans, education, and welfare. He banned the kissing of his hand and the hands of other royals - a common practice for citizens as a sign of respect and loyalty. But in his edict, he said that should be reserved only for one's parents. He got a reputation as a reformer shortly after taking over the country's day-to-day affairs in late 1995. He became the first leader to highlight the existence of poverty in the kingdom when he visited a poor neighbourhood in Riyadh several years ago, taking public a problem which had long been taboo. He was the first Saudi royal to meet in front of TV cameras with leaders of the persecuted Shi'ite and Sufi minorities. This was during the first part of a series of intra-Saudi dialogues he set up several years ago, despite the fact that Wahhabism in Saudi Arabia reviles those Muslim sects as quasi-heretic.

Abdullah has got a deluge of petitions since Aug. 1. A leading Wahhabi religious figure, Salman al-Odah, wrote asking for more accountability and participation in the decision-making process. A woman posted a letter to him entitled "I want to drive" on a popular website. Delegates from the Shi'ite minority in the east and the marginalised Isma'ilis met with the king and asked for more representation in government and the Shura Council. (The Shura was formed in 1993. It now has 150 members appointed by the king every four years. It debates government, social, and economic policy, and advises the king, but has no legislative authority). Abdullah has also met with female activists.

Despite the flurry of requests, however, Abdullah has not decreed any major political reforms since Aug. 1. Saudi Arabia had partial municipal elections earlier this year but those councils have yet to meet. Riyadh has not announced the appointed members who will make up half the councils. Saudi analyst Tawfiq al-Saif says: "There is a fear that the municipal elections are part of isolated and arbitrary reforms instead of a...programme with clear goals and a time frame". Saif and other liberals say the king must seize the moment to institutionalise reforms, taking advantage of public support and a flush treasury. High oil prices have raised Saudi income to over $150 bn this year, up from $106 bn in 2004. The Saudi stock market has grown six-fold, from a capitalisation of $82 bn in 2002 to over $517 bn this year, says Samba, a leading Saudi bank. Saif said: "A very good economic situation makes this a unique opportunity to move reforms forward. More political participation by the people, institutionalised [civic] societies, parliamentary elections, are the best way for...long-term stability...and the ruling family".

During a recent informal gathering of some 40 liberals at the home of former jailed reformist Mohammad Sa'eed Tayeb, many echoed Saif's views. The priority should be to separate the religious, royal, and state powers, they said. Saudis should be allowed to set up civic institutions such as independent labour unions and rights groups. "Laws must be set out to clearly separate the powers of the royal family, the government and the official religious establishment. And none of them should be above the law", said writer Ahmad Adnan, adding: "Our laws should also clearly protect every citizen's human rights".

According to a highly placed APS source, however, King Abdullah is well aware of the basic needs, "but sees far beyond what motivates liberals to demand bold reforms". Moving quickly and going too far will not only be difficult in a country where the royal regime is being challenged by the Wahhabi religious establishment but also very dangerous as it could cause a split in the ruling family. Princes Sultan and Nayef and their full-brothers are opposed to rapid and far reaching reforms at this stage as the Wahhabi establishment, which insists it is the source of legitimacy for the royal regime. But King Abdullah is slowly driving home his argument that it is the state, rather than the other way round, which is the source of legitimacy to all the segments of Saudi society including the religious establishment. He does not hesitate to repeat saying the Neo-Wahhabis of al-Qaeda are "evil", which he has vowed to eliminate.

The male offspring of Saudi Arabia's founder, Ibn Saud, are now believed to number around 7,000. All members of the royal family are said to receive monthly stipends and, it is widely rumoured, are not required to pay their utility bills or their tickets on the national airline. Though Saudis now are much more free to criticise state employees, criticising al-Sauds or talking about their expenditures is still considered a red line.

Yet liberals continue to push for extensive reforms and transparency. Fu'ad Abu-Mansour, a former member of the Shura Council, was recently quoted as saying: "As members of the country's leading advisory council, we were not privy to the national budget. There should be more transparency and the national budget should be publicly announced and discussed by the Shura council". Lawyer Bassem al-Alem has said: "For serious political reforms to take place in Saudi Arabia, [the royal family] needs to be willing to give up some of their rights and privileges, and I don't believe they're willing to do that".

The US intends to boost the National Guard. The Pentagon on Oct. 3 notified Congress of possible sales to Saudi Arabia valued at more than $2 bn, if all options are exercised. The proposed sales include a list of armoured personnel carriers, command vehicles, water cannons, a variety of trucks, ambulances, ammunition and assault rifles for the National Guard (NG). The Defence Security Co-operation Agency (DSCA), which notified Congress of the possible sale, valued the deal for the NG at nearly $918m.

Another proposed sale, valued around $401m, was for a system which distributes information through data links to fighter aircraft. The system "will increase pilot operational effectiveness by providing an at-a-glance portrayal of targets, threats and friendly forces on an easy-to-understand relative position display", the DSCA said, adding: "When combined with AWACS radar planes and ground command and control, the system "will provide allied forces greater situational awareness in any coalition operation". The third proposed sale, worth up to $760m, was for continued technical and logistical support for a wide spectrum of Saudi military aircraft, aircraft engines and missiles.

With King Abdullah and US President George W. Bush having developed a close friendship, Washington early this month postponed punishing Saudi Arabia for restricting religious freedom - the first time Washington has waived punishing a blacklisted country under a 1998 law targeting violators of religious rights. The decision reflects the delicate balance Washington maintains with allies such as Saudi Arabia as it promotes expanding freedoms at the risk of irking governments needed to support US oil and anti-terrorism policies. (In a rare rebuke a year ago, Washington designated Saudi Arabia as one of only eight countries worldwide which could be sanctioned. The blacklisting in an annual report said religious freedom did not exist in Saudi Arabia. With this year's report due out in November, the Bush administration needed to decide on sanctioning Saudi Arabia and chose to give the kingdom a further six months to negotiate how it might improve its record.

Reuters on Oct. 1 quoted State Department spokesman Kurtis Cooper as saying: "We have not seen strong progress in the area of legal protection for religious freedom. [But] we welcome Saudi recognition of the need to make improvements..."

Prominent Saudis dismiss as politically motivated US criticism of the kingdom's excessively strict Wahhabism. In contrast to its decision on Saudi Arabia, the US decided to sanction Eritrea by banning military exports to the Horn of Africa country. Vietnam, the third country added to the blacklist last year, has avoided sanctions after agreeing to improve its record. Others the US considers serious violators of religious rights are North Korea, Myanmar, Sudan, Iran and China. The US Commission on International Religious Freedom, established by Congress, has recommended this year that three allies should be added to the blacklist: Pakistan, Uzbekistan and Turkmenistan.

With oil prices riding high, the Saudi machinery of future GDP growth is moving into gear. But creeping unemployment and the increasing polarisation of Saudi society will put Abdullah's considerable skills as a hand-on king to the test. One of the first acts as king was the pardoning of men convicted of undermining the authority of the state. (Saudi monarchs have traditionally issued pardons to mark holy festivals or grand occasions of state). As it cemented his reputation as a forward-looking man of integrity, it also helped to ease relations with Washington, which protested strongly at the imprisonment of poet Ali al-Demaini and academics Abdullah al-Hamed and Matruk al-Faleh - arrested in 2004 after calling for a constitutional monarchy.

Per capita GDP stood at about $18,000 in 1980, but sank to as little as $7,000 in the wake of the 2000 slump. Nominal GDP has since risen to about $12,000 per capita but, as the National Commercial Bank chief economist Said al-Shaikh points out, "this is still closer to $8,000 in real terms".

King Abdullah has signalled that reform and social justice are to remain the dominant themes of Saudi politics for quite sometime. But he has a proven track record in this respect. Abdel Rahman al-Zamil, a leading industrialist and member of the Shura Council, was recently quoted as saying: "What we are seeing is simply the continuation of many years of change. King Abdullah was in charge while King Fahd was sick and many reforms have taken place over the last 10-15 years, many of them in social reform".

Considerable emphasis has been placed on diversifying the economy and encouraging the private sector to take a more pro-active role, particularly in the provision of jobs and in education and training. While Keynsian economics has rarely been known to solve problems of endemic poverty, the rise of local capital markets is enabling wealth to be redistributed to the poorer parts of Saudi society. With full accession to the World Trade Organisation (WTO) expected by end-2005 or in 2006, the benefits of trade liberalisation will soon be visible in the bazaars of Jeddah and Riyadh.

The doors to foreign investment are opening ever wider. In early September, the Foreign Ministry instructed its missions abroad to prioritise trade visas and streamline the general visa application process - one of the biggest problems for foreign nationals trying to do business in the kingdom.

The relentless campaign waged by the security forces in the last two years, led by Prince Mohammed ibn Nayef - the son of the interior minister - has paid off. Clashes with al-Qaeda militants remain frequent: five gunmen were killed during a siege of a house in Dammam in early September. In August Qaeda leader Saleh Al-Oufi was killed during a police raid in Medina. Later the authorities said they succeeded in taking down the local Qaeda network. UK Ambassador Sherard Cowper-Cowles on Sept. 15 told business delegates at a London conference: "This has been a model counter-terrorism campaign, but it should also be understood that it is not just being waged by military means... 80% of it is the battle for hearts and minds".

Greater supervision of local mosques and more scrutiny of curricula are helping Riyadh to keep a rein on extremist teachings. But Saudi society is deeply conservative. In the municipal elections, a large number of Islamist candidates made it onto the boards of local councils. The regions have grown increasingly polarised over the last generation, with differences between urban centres and the rural areas of the south and north.

Ambassador Cowper-Cowles said: "The reality is that Saudi Arabia is stable, and will remain stable probably for decades to come. The Al-Sauds are the reason Saudi Arabia exists, and the reason it remains a unitary kingdom". Al-Zamil, the industrialist, says: "It is important not to compare Saudi Arabia with other Gulf states. They are small, with small populations. Saudi Arabia is a continent with 22 million people".

Hours after the Royal Court on Aug. 1 announced the death of 83-year-old King Fahd, Abdullah was proclaimed king and Sultan became crown prince, in accordance with Article 5 of the Basic Law, a quasi constitution, issued in 1992. Abdullah's elevation followed a procedure set out by the founder of modern Saudi Arabia, Abdel Aziz ibn Saud, who on Sept. 23, 1932 installed himself as absolute monarch and ruled that any successor would have to be selected from among his sons. Although the King Fahd in 1992 opened up the succession to ibn Saud's grandsons, the transition to Abdullah appeared to be automatic. Ihsan Ali Bu-Hulaiga, a member of the Shura Council, says the royal family has developed "a framework, processes and customs which are well established and respected".

The government was quick. Within hours, statements were released and press conferences held to reassure the world that foreign and oil policies will not change. But the issue of succession will rise again as King Abdullah is 81 and Crown Prince Sultan is slightly younger. Almost all of ibn Saud's surviving sons are in their 70s and questions are being asked about the person next to Crown Prince Sultan. Jamal Khashoggi, media adviser to Prince Turki al-Faisal, was recently quoted as saying: "This is the biggest challenge facing us". At least two of Sultan's full-brothers are in the line of succession - Interior Minister Prince Nayef and the Emir of Riyadh Prince Salman. Many of the hundreds of ibn Saud's grandsons occupy top government positions and many have distinguished themselves as statesmen and diplomats, making them future contenders for the top job.

Khashoggi says: "A king is the absolute power by religion and by custom and everybody must obey and listen to him. He leads by consensus but he has plenty of power". King Abdullah's ability to build consensus across family and tribal lines will be more important than ever before. But with his long experience as a decision-maker, he is in a strong position to exercise his powers.

As crown prince, Abdullah met with President Bush at the latter's ranch in Crawford, Texas, on April 25. The talks focused on soaring oil prices as well as political reforms in Saudi Arabia, the Israeli-Palestinian conflict, and the war on terror. But it was the price of oil which topped the agenda, with Abdullah reiterating a pledge that Saudi oil production capacity will rise to 15m b/d by 2012. Adel al-Jubeir, Abdullah's foreign affairs adviser, told reporters at Crawford that Saudi leaders had little to offer Bush beyond that, saying the high prices were the result of a lack of adequate refining capacity in the US and elsewhere. He said: "Saudi Arabia is producing all the oil that our customers are requesting". Bush was told that Saudi Aramco was spending over $50 bn on upstream and downstream expansions, including major refineries to be built for processing heavy/sour crudes into clean fuels.

Majed al-Muneef, adviser to the minister of petroleum and mineral resources, in April told a seminar organised by the Saudi Chamber of Commerce in Riyadh that reports about oil deals with the US were baseless. "Oil prices are fixed by companies mediating between producers and consumers", he explained.

The US has been made aware repeatedly since 9/11 that ending the House of Saud's partnership with the Wahhabi religious establishment is impossible if Saudi Arabia is to remain one country. Having to deal with mayhem in Iraq, the US cannot afford a chaotic situation in the world's biggest energy reservoir (see background in Vol. 61, OMT 17).

Petroleum strategists are advised to perceive the link between the fate of Saudi Arabia and that of the US role in brokering peace between the Arabs and Israel. Even the most loyal Washington allies of Israeli Premier Ariel Sharon concede that the lack of progress in the Israeli-Palestinian conflict presents serious difficulties for the Saudi royal regime.

The SEC is a key decision making body. It studies the annual budgets, the five-year plans, reform requirements such as privatisations and partial market deregulations, projects to diversify the economy, and monetary and fiscal policies. But its powers are limited to getting its decisions to be approved and issued by the Council of Ministers. The SEC issues regular reports to the Council of Ministers on the state of the economy.

The SEC's main focus is on job creation. The Saudi population has been growing by 3.8% per annum in the past 12 years. The population will double in less than 25 years, compared to 16.95m in 1992. There are almost 27,300 schools in Saudi Arabia and the total of students of various ages exceeds 4.2m. The number of jobless graduates, many of them with degrees in Wahhabi Islamic studies, is rising dangerously. An IHT report on Nov. 5, 2001 said the unemployment rate among the Saudis was 30%, noting: "The problem today is that the House of Saud is suffering from a steady degradation of support rather than wide-spread opposition to its rule..." The situation has not changed much since then.

Abdullah leads the conservative wing in the royal family and his mother's father was a chief of the Shammar - the most numerous confederation of Arab tribes in the Middle East stretching to the north of Saudi Arabia to the south of Turkey - through Syria, Iraq and Jordan. Abdullah also has good connections with the Aal Al Shaikh clan which descends from the founder of Wahhabism. But Abdullah counts more on his reputation as a reformer than on his conservative and Shammari backgrounds.

King Abdullah controls the National Guard. His Shammar base is active, mainly in Hail. He has a strong tribal base in Qassim (a hotbed of radical Neo-Wahhabi ulemas), the Eastern Province and other parts of the kingdom. His National Guards in the Eastern Province have an imposing role. Abdullah's second son, Mit'ab, born in 1952 and promoted to the rank of general in December 2000, assists him in the command of the National Guards and the family's racehorses. Another son, Khalid, commands the National Guards in the Eastern Province. In 1999 a young son of his Syrian-born wife, Abdel Aziz, is a rising star.

Princess Hissa al-Sha'lan, one of Abdullah's wives, is active. In October 2000 she gave a donation to support the al-Aqsa Intifada in a move which led to a fund of over SR5m sent to the Palestinians. On April 30, 2001, she patronised the inaugural ceremony of the first international conference on nursing research organised by the nurses of Riyadh's King Faisal Specialist Hospital.

Reform advocates in the royal family include Prince Talal ibn Abdel Aziz, who in the early 1960s was one of the "free princes" that rebelled against then King Saud. Abdullah listens to Talal, whose billionaire son al-Waleed is a grandson of Riad Al-Solh - the first prime minister of Lebanon after independence. On Sept. 13, 2003, Reuters quoted Talal as saying it was time for Riyadh to curtail its religious order and institute reforms to survive political problems including terrorism. He said: "We need political reform first of all. Parliament has to have the right to take government to account... So far the intellectuals agree on the unity of the kingdom, that we should have an Islamic Shari'a law but an enlightened version, and that we retain the royal family but with reform. The mentality of the state needs to change in one way or another". He said Riyadh must rein in the Committee for Promotion of Virtue and Prevention of Vice and its police, known as the mutawwa'een (enforcers). The committee is an independent body officially to be supervised by the king but in reality controlled by the Wahhabi religious establishment. Prince Talal said: "The mutawwa'een should be answerable to the [non-religious] police. If they see violations it is not they who should take any action, they should just tell the police". Women's rights should also be part of any reforms, he said, noting: "I see women looking like black tents walking down the street - it doesn't suit the new century. And women should drive cars". He said he would make the landmark move of appointing a woman as head of a Saudi university.

Prince Sultan Ibn Abdel Aziz: The Crown Prince and First Deputy Premier since Aug. 1, Sultan has retained control over the kingdom's regular armed forces. He holds many other positions. His son-in-law, Prince Turki bin Nasser, is at the centre of a "slush fund" investigation by the UK Serious Fraud Office.

Analyst David Isenberg of the Washington-based British American Security Information Council (BASIC) on Oct. 6 wrote: "[Secret Saudi-UK talks on a major arms deal] have been stalling since Riyadh asked for three tricky favors. This is the latest twist in a long-running scandal which has no end in sight" - referring to Turki's case. He listed the favours as follows: Britain expel two anti-royal dissidents, Sa'd al-Faqih and Mohammad al-Mas'ari; British Airways resume flights to Riyadh, cancelled on terrorism fears; a corruption investigation implicating Prince Turki and advanced defence and aerospace manufacturer BAE Systems be dropped. Prince Turki, a key Defence Ministry figure, oversaw the 1985 Saudi-BAE al-Yamamah arms contract.

This is not the first time Riyadh has tried to use its considerable leverage to protect members of the royal family. In November 2004 it issued a warning to the UK government that it will never deal with the British arms industry again if any of its members were dragged into official inquiries into alleged improper accounting in connection with a multi-billion pound defence contract. Saudi Arabia had long been a crucially important client for the British. The Guardian newspaper has reported that almost a third of the UK government's arms sales machine is dedicated to selling to Saudi Arabia. No fewer than 161 of the Ministry of Defence's 600 officials work for the "Saudi Armed Forces Project". A report released on Aug. 29 by the US Congressional Research Service found that the UK ranked third among all suppliers to developing nations in the value of arms transfer agreements from 2001 to 2004 ($4.1 bn) and fourth from 1997 to 2004 ($7.2 bn).

On Sept. 14 the Guardian said the Serious Fraud Office had made two more arrests, based on allegations of money-laundering, in long-running charges that BAE Systems ran a [pounds sterling]60m ($105m) Saudi "slush fund". The firm denied any wrongdoing. Past allegations connected with that probe were that the wife of Prince Turki ibn Nasser, was to receive a [pounds sterling]170,000 Rolls-Royce, as a birthday present, flown out to her in a cargo plane chartered by BAE. It was alleged that a [pounds sterling]2m pound, three-month holiday for the prince and his family had been arranged. Another was that Prince Turki's daughter had been given a wedding video whose production cost BAE almost [pounds sterling]200,000.

Arrests over the BAE case were to bring closer a decision by Attorney General Lord Goldsmith on whether to prosecute Britain's biggest arms company, which gets more than [pounds sterling]1 bn/year from Riyadh for running much of the Saudi air force. BAE Systems is the product of a 1999 merger of British Aerospace (BAe) and GEC Marconi. The arrests were said to represent a new turn in the corruption investigation, originally initiated due to disclosures in the Guardian of a lavish lifestyle enjoyed at BAE's expense by the Saudi prince in charge of the long-running arms contract. Payments were signed off by top BAE executives.

Large contracts such as al-Yamamah, under which Riyadh bought more than $40 bn in weapons from Britain, are said to have generated annual commissions in excess of $2 bn paid to only five people. The newest allegations reported on Sept. 27 by the Guardian were that Prime Minister Tony Blair and Defence Secretary John Reid had been holding secret talks with Saudi Arabia in pursuit of an arms deal worth up to [pounds sterling]40 bn. Blair went to Riyadh on July 2. Three weeks later, Reid made a two-day visit, when he sought to persuade Prince Sultan to reequip his air force with the Typhoon, the European fighter plane of which BAE has the lion's share of manufacturing. It was said Reid also had private talks with Interior Minister Prince Nayef.

Mike Turner, the chief executive of BAE, was quoted in Flight International magazine on June 21, just before Blair's Riyadh trip, as saying: "The objective is to get the Typhoon into Saudi Arabia. We've had [pounds sterling]43 bn from al-Yamamah over the last 20 years and there could be another [pounds sterling]40 bn". Turner told the Sunday Telegraph in June that the Saudis had already made representations to the UK government over the corruption allegations. "They don't, rightly, like the fact that members of their royal family are being named in our press".
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Publication:APS Review Oil Market Trends
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