Europe firms set to invest in Saudi Arabia

Paris That imaginary headline summarises two concurrent developments that are part of a subtle shift in the Arabian Gulf. The subject rated barely a mention this month, even in the financial press, which is unfortunate because we are seeing early hints of a new "status quo'' for the region.

First, the details: The Saudis announced recently that their national oil company, Saudi Aramco, will form a joint venture with two European giants, Shell and Total, to look for gas in the desolate Empty Quarter in the southeast of the kingdom.

The companies will have a guaranteed Saudi market for any gas they find, and they'll be allowed a sweet 20 per cent return on their investment before a punitive tax kicks in. The consortium had included an American partner, ConocoPhillips, but it withdrew late in the negotiations.

What makes this deal interesting is that it is the first time since the 1970s that Saudi Arabia has allowed foreign companies to make direct equity investments in the kingdom's energy sector. This move is part of a broader process of Saudi "perestroika'' that has been gathering momentum under Crown Prince Abdullah.

The new Saudi stance isn't anti-American. Indeed, American oil giants are likely to be players in the next round of consortia that will bid to explore other tracts for gas. Rather, it's a move away from the old Saudi strategy that combined almost exclusive dependence on American arms and energy expertise with simultaneous efforts to distance the kingdom publicly from its U.S. protectors.

Because of this inherent hypocrisy, the old Saudi-American relationship was one of the classic bad marriages of international relations. The two countries couldn't live with each other, but they couldn't live without each other, either.

The operating premise was that threats to the kingdom were external.

Saudi security required keeping a large U.S. military garrison and equipping the Saudi military with fabulously expensive weapons bought mostly from - guess who? - the U.S.

Both countries privately seethed at the old status quo. Despite American efforts to be sensitive, Saudis felt they were being occupied by an arrogant superpower that didn't respect their Islamic traditions.

And as last week's congressional report on 9/11 showed, Americans felt they were being manipulated by an oil-rich theocracy that had at least indirectly financed Osama bin Laden and otherwise obstructed U.S. interests.

In the aftermath of 9/11, the old status quo finally began to buckle at the seams. In their report last week, congressional investigators found frightening Saudi links to the suicide bombers.

Inside the kingdom, meanwhile, 9/11 forced the Saudis to realise that the status quo would eventually destroy them.

The Iraq War, by toppling Saddam Hussain, gave both America and Saudi Arabia a chance to junk this neurotic relationship and create something new.

American troops have already begun leaving, now that the threat from Saddam is gone. Pentagon commanders say that nearly all U.S. troops and air personnel will be gone by year-end, leaving behind only two small training missions.

The new status quo should be calmer for another reason: There should be so much new oil coming on the market that the world won't need to be so hysterical about threats to Saudi stability. The authoritative industry newsletter Middle East Economic Survey just disclosed an ambitious Iraqi plan to boost production to 2.8 million barrels per day by April 2004. Interestingly, this expansion is to be managed by the Iraqi oil ministry and existing state-owned companies, up to Iraq's pre-1991 production level of 3.5 million barrels per day.

Foreign investors and joint ventures will be used only for later efforts to push daily production toward Iraq's estimated production capability of 6 million barrels, according to Mees. All this assumes that the current plague of looting and sabotage can be controlled.

A different world seems to be taking shape in the Gulf - one more open to foreign investment and less dependent on U.S. military power. Iraq remains a wild card for regional stability. But it's good to see America and Saudi Arabia changing their crazy marriage into something more sane.

© Washington Post Writers Group