Omanis recently took part in massive demonstrations in the northern city of Sohar and were knocking on the doors of Abu Dhabi. Both Saudi Arabia and the UAE, the last dictatorial powers in the region cannot ignore democracy. The people of the Gulf are fed up with the Gulf ruling elites and have awakened from their 40 year old slumber. It’s true that they’re not as poor as the Egyptians or Tunisians, but they are become increasingly more aware that a country’s wealth belong to the state and the state alone.

Some wikileaks documents suggest that peak oil production levels in the Gulf have already been met and that current supplies will only be sufficient for a couple more decades. These backward political regimes have lead to poor planning and corruption. The future for the youth is not so great.

Bahrain has given us a glimpse of what lies ahead in the future. Its oil reserves have diminished and its unable to change its fiscal policy or  turn itself into a modern state. For decades bahrainis have contributed towards the state but were denied any meaningful political representation by the ruling family. They were left with few options and hence took matters into their own hands. The Al Khalifa regime responded by using live ammunition and immediately unleashed their Pakistani mercenaries on the demonstrators. The regime had showed its true colours.

The regimes of both Saudi Arabia and UAE gave the Al Khalifa family unlimited moral support in crushing the protests by all means necessary. Both regimes tried to bribe their populations with financial incentives in order to stop the protests from spreading. The Saudi King Abdullah announced a 36 billion dollar spending program, which was promptly rejected by the protestors who felt insulted.

Saudi protestors chose the 11th of March as their day of rage, and openly called for overthrowing Al Saud’s regime. Had live ammunition been used on the protestors it would have catalysed protests in the Emirates. Thousands of UAE nationals are ignored by the oil rich states of Abu Dhabi and Dubai and live in modest conditions in the poor Northern Emirates. The majority are angry at the huge economic gap in wealth between the different federations  and at being excluded from participating in major policy decisions. Some are curious why large coastal lands were sold to foreign investors.

Also, a large number of stateless people live in both the Emirates and Saudi Arabia. They were born and brought up in the country of their grandfathers, yet find it perplexing that the regime’s friends nationalises Indians and westerners.

The world’s No. 1 oil exporter faces the twin challenges of creating jobs for a young population at a time of unrest in the Arab world, and pursuing economic reforms with a royal succession looming.

The stability of Saudi Arabia is of global importance since the kingdom sits on more than a fifth of oil reserves, is home to the biggest Arab stock market, is a major owner of dollar assets and acts as a regional linchpin of U.S. security policy.

King Abdullah, who is around 87, unveiled $93 billion in social handouts in March, on top of another $37 billion announced less than a month earlier.

But this apparent effort to insulate the kingdom from Arab popular protests sweeping the region has not stopped activists, including liberals, Shi’ites and Islamists, calling in petitions for more political freedom. Saudi Arabia is an absolute monarchy with no elected parliament.

Riyadh has not seen the kind of mass uprisings that have shaken the Arab world this year, but Shi’ites in the kingdom’s oil-producing east have staged a number of protests.

Almost no Saudis in Riyadh answered a Facebook call for protests on March 11 in the face of a massive security presence.

Saudi Arabia has been ruled by the Al Saud family for 79 years, with influence from clerics following the austere Wahhabi school of Islam, and many oppose the very reforms the king has started.

However, slowing down reforms to modernise education might affect government plans to create jobs — unemployment last year reached 10 percent.

And with around 70 percent of Saudi Arabia’s almost 19 million people under the age of 30, the pressure to find them gainful employment is huge.

SUCCESSION

King Abdullah returned home in February after spending three months abroad for medical treatment, during which he underwent two surgeries after a blood clot complicated a slipped disc.

With the slightly younger Crown Prince Sultan also in poor health, the throne could eventually go to Interior Minister Prince Nayef, a conservative who could put the brakes on some reforms started by Abdullah, analysts say. Nayef, around 77 years old, was promoted to second deputy prime minister in 2009.

He has supported the religious police who roam the streets to make sure unrelated men and women do not mix in public and that shops close during prayer times.

To regulate succession, Abdullah has set up an “allegiance council” of sons and grandsons of the kingdom’s founder but it is not clear when, or how, it will work in practice.

So far only sons of the kingdom’s founder Abdul-Aziz Ibn Saud have ascended the throne, and the remaining 20 or so are mostly in their 70s and 80s. Leaders have been reluctant to hand senior jobs over to the next generation.

If a younger generation were unexpectedly to come into play, prominent potential candidates include Nayef’s son Mohammed, who as the anti-terror chief was the target of an al Qaeda suicide attack in 2009. Another leading face among the grandsons of Ibn Saud is Sultan’s son Khaled, the assistant defence minister.

WHAT TO WATCH:

- The health of senior royal family members and their involvement in day-to-day affairs of running the kingdom

- Any sign of abrupt cancellation of scheduled programmes such as foreign visits by senior leaders

- Any signs that the elder generation is passing on more responsibility to the grandsons of Ibn Saud, and to which ones

REFORMS

Officials who back Abdullah say they fear that young Saudis frustrated over their failure to find work could provide potential recruits to violent Islamists who want to overthrow the House of Saud.

Abdullah started some narrow reforms to overhaul education and the judiciary after taking office in 2005 but diplomats say his reform drive has run out of steam.

He has not altered the political system of an absolute monarchy that analysts say has fuelled dissent, with democracy activists, liberals and Islamists calling on the king in petitions to allow elections and more freedom.

Abdullah’s handouts focused on social largesse and a boost to security and religious police, but included no political change.

The kingdom in March also announced it would hold long-delayed municipal elections but said women will not be allowed to vote. With no elected assembly, Saudi Arabia has no political parties.

Saudi analysts say the king could reshuffle the cabinet, where some ministers have been on board for decades, or call fresh municipal elections, a plan that was shelved in 2009 due to the opposition of conservative princes.

WHAT TO WATCH:

- Any signs of protests or petitions by activists demanding political reforms

- Any signs of a cabinet reshuffle or plan to hold fresh municipal elections

- Any approval of a much-delayed mortgage law, which aims to ease pressure on the housing market

SHI’ITE MUSLIMS

Saudi Arabia, a Sunni-led regional diplomatic heavyweight, has sought to contain Iran’s influence since the 2003 U.S.-led invasion of Iraq produced a Shi’ite-led government in Baghdad.

With majority Shi’ites in neighbouring Bahrain having protested against the Sunni government there, analysts say there is a risk that unrest could spread to Saudi Arabia’s own Shi’ite minority, which lives in the oil-producing Eastern Province just across from Bahrain.

Shi’ites in the east have held a number of protests calling for prisoner releases and a withdrawal of Saudi forces sent to Bahrain to help put down the unrest.

Saudi Shi’ites have long complained about marginalisation and have started small protests to demand the release of prisoners they say have been detained without trial. Riyadh denies any charges of discrimination.

Riyadh also shares U.S. concerns that Iran wants to develop nuclear weapons in secret. The United States and Israel have not ruled out military action against Iran, which says it is developing nuclear energy only to generate electricity.

Saudi Arabia has publicly tried to stay out of the dispute over Tehran’s nuclear programme but a series of U.S. diplomatic cables released by whistle-blowing website WikiLeaks portrayed Riyadh as pressing for a U.S. attack.

King Abdullah was said to have “frequently exhorted the U.S. to attack Iran to put an end to its nuclear programme,” a cable printed in Britain’s Guardian newspaper said.

WHAT TO WATCH:

- Any signs of further protests and a deterioration in the eastern province

- Any possible military action against Iran and its impact on the Gulf region

- Any Saudi diplomatic moves to tighten sanctions on Iran and any signs of Saudi facilities offered for military action

AL QAEDA THREAT

Saudi Arabia, with the help of foreign experts, managed to quash an al Qaeda campaign from 2003 to 2006 that targeted expatriate housing compounds, embassies and oil facilities.

Riyadh destroyed the main cells within its borders. But many militants slipped into neighbouring Yemen where al Qaeda regrouped to form a Yemen-based regional wing that seeks, among other things, the fall of the U.S.-allied Saudi royal family.

The Yemen-based al Qaeda arm shot to the global spotlight after it claimed responsibility for a failed attempt to bomb a U.S.-bound passenger plane in December 2009.

Despite the U.S. killing of al Qaeda founder Osama bin Laden on May 1, the Yemeni wing of the militant Islamist group is expected to remain active, and exploit political instability in Yemen as well.

WHAT TO WATCH:

- Whether al Qaeda’s resurgent Yemen-based branch mounts more operations in Saudi territory, as it has within Yemen

- Riyadh wants to build a fence to seal the mountainous 1,500-km (930-mile) Yemen border, which could help stop militants from crossing.

When Saudi Shi’ites mark the birthday of the Prophet Mohammad, meeting at mosques and exchanging sweets is only part of what’s going on.

The Shi’ites also are testing the tolerance of Sunni clerics and taking advantage of reforms introduced by King Abdullah that allow them greater freedom to practise their branch of Islamic faith.

For the hundreds of Shi’ites who gathered on Sunday in the rundown eastern town of Awwamiya, near the Gulf coast, this year is special.

Just an hour’s drive and a bridge away is the island nation of Bahrain, usually a place where Saudis go for a bit of weekend fun but now the scene of a majority Shi’ite uprising that is challenging the minority Sunnis’ grip on power.

“You need to demand reforms and start popular movements if you want to achieve something. If you don’t do anything the government will not act,” said Mohammed, a young man who, like others, gave only his first name.

“You need to make use of the fact that the regime is in a weak position,” he said, referring to anti-government protests sweeping across the Arab world after popular uprisings toppled the rulers of Tunisia and Egypt.

Mohammed used the Arabic word ‘nizam’ for ‘regime’ — the same word shouted by thousands of Egyptian protesters in Cairo’s Tahrir Square to demand change.

Normally fear of landing in jail would curb such talk, but television images of protests and rapid Internet communication are making people think about what might be possible.

Analysts do not expect Egyptian or Tunisian-style unrest in Saudi Arabia, where the government sits on more than $400 billion in petrodollars that can be used to alleviate social pressures such as high youth unemployment.

But they say the elderly King Abdullah will face pressure from Shi’ites watching protests in Bahrain to give them a greater say and start some political reforms, such as calling municipal elections.

So far, Shi’ites are not represented in the cabinet, and often complain of attacks by hardline Sunni clerics who see them as heretics or even agents of Iran, Saudi Arabia’s main rival.

“We follow events in Bahrain closely due to the geographical proximity, the shared religion and because we also have demands for reform,” said Khoder Awwami, a young Shi’ite preacher.

Saudi Arabia was stung by the loss of a key ally in Egyptian President Hosni Mubarak and events in Bahrain, where it backs the ruling Sunni al-Khalifa family.

Moderate Shi’ite leaders say King Abdullah may announce higher benefits — also expected by analysts — after returning from medical treatment. But that may not be enough to appease young people demanding a voice in the conservative kingdom.

“Will economic reforms have a long-term effect to satisfy people? I think some also want real reforms,” said Tawfiq al-Saif, a leading Shi’ite intellectual in the kingdom.

Offering some hope was the release on Sunday of three Shi’ites held in jail for more than a year, days after residents say activists staged a small but rare protest calling for them to be freed.

“I think the regime saw the necessity to defuse the situation,” said a young man who gave his name as Hussain.

In a small mosque illuminated by green and yellow lights to mark the Prophet’s birthday, dozens lined up to meet the three former prisoners.

“I was in prison over a year. I’m so happy to be here,” said released blogger Muneer al-Jasas, smiling widely and shaking hands.

NIMR’S CALL

Abdullah has given Shi’ites more freedom since 2005 but the outlook for his reforms is uncertain as he is around 87 years old. The slightly younger Crown Prince Sultan spent much of the past two years out of the kingdom for sickness.

With both in their 80s, succession is looming.

Interior Minister Prince Nayef, who is close to the Wahhabi clerics who uphold the kingdom’s austere brand of Sunni Islam, would have the best chance to become king after being promoted in 2009 to second deputy prime minister, analysts say.

Tensions flared in the Eastern Province in 2009 after Shi’ite preacher Nimr al-Nimr from Awwamiya suggested in a sermon that Shi’ites could one day seek their own state — a call heard only rarely since the 1979 Iranian revolution, which triggered some unrest among Saudi Shi’ites.

Since then calm has returned after moderate Shi’ite leaders distanced themselves from Nimr’s call.

There are no official figures about the Shi’ite minority.

“The government says Shi’ites make up 5 percent of the total population but I looked at the latest census data village by village and think it’s rather eight to 12 percent,” said Ibrahim al-Mugaiteb, head of the independent First Human Rights Society.

While Shi’ites can practise their faith in Awwamiya and nearby towns, they would get in trouble if they tried to do so in the neighbouring communities of Dammam or Khobar, he said.

Dammam, a port city with a large Shi’ite population, has just one mosque serving them. Authorities do not permit new ones, the U.S. State Department said in its annual International Religious Freedom report in November.

Anti-government graffiti on walls in Awwamiya reflect simmering anger. Residents say workers repainted a wall but Shi’ite slogans quickly returned.

CRUMBLING PAINT

Shi’ite leaders who went into exile after the 1979 protests returned in the 1990s under a deal with the government. Moderate leaders say things are better than a decade ago, but they fear losing control of a younger population frustrated with a lack of reforms.

Jafar al-Shayab, a member of the municipal council in the nearby Shi’ite town of Qatif, said authorities needed to offer the Internet-savvy young people a voice or risk losing them.

“My daughter didn’t find a job for a year after university graduation in IT,” said Shayeb, adding that she had joined a Facebook group where other unemployed gather.

Despite being home to most of Saudi Arabia’s oil wealth, the Eastern Province is visibly less affluent than the Saudi capital of Riyadh, with paint crumbling from old houses and roads full of potholes.

In a sign that the government wants to reach out more to Shi’ites, regional governor Prince Mohammed bin Fahd, an ally of Prince Nayef, made a rare visit to Qatif last week.

Iran’s rising influence since the 2003 U.S. invasion of Iraq produced a Shi’ite government in Baghdad and also revived official fears that Shi’ites could become a fifth column against the Saudi state, analysts say.

Leaked U.S. diplomatic cables quoted King Abdullah as urging Washington to attack Iran to destroy its nuclear programme, and analysts say Nayef also appears to be a hawk on Iran.

Simon Henderson, a Washington-based analyst on Saudi affairs, said Riyadh faced the dilemma of hoping that protests in Bahrain would end peacefully while fearing a greater role in government by majority Shi’ites.

The U.S. naval base in Manama is vital for Riyadh, providing U.S. military protection of Saudi oil installations and the Gulf waterways on which its oil exports depend, without any Western troops present on the soil of the kingdom, Islam’s birthplace.

“It is hard to see what meaningful reform is in Bahrain unless it is a Shi’ite-controlled government. The Saudis won’t want this,” Henderson said.

By Ulf Laessing

Cable dated:2007-12-10T05:54:00C O N F I D E N T I A L SECTION 01 OF 03 RIYADH 002441SIPDISSIPDISDHAHRAN SENDS DEPT OF ENERGY PASS TO MWILLIAMSON, GPERSON, AHEGBURG, AND JHART CIA PASS TO TCOYNEE.O. 12958: DECL: 12/10/2017 TAGS: EPET ENRG ECON SA

¶1. (C) SUMMARY: On November 20, 2007, CG and Econoff met with Dr. Sadad al-Husseini, former Executive Vice President for Exploration and Production at Saudi Aramco. Al-Husseini, who maintains close ties to Aramco executives, believes that the Saudi oil company has oversold its ability to increase production and will be unable to reach the stated goal of 12.5 million b/d of sustainable capacity by 2009. While stating that he does not subscribe to the theory of “peak oil,” the former Aramco board member does believe that a global output plateau will be reached in the next 5 to 10 years and will last some 15 years, until world oil production begins to decline. Additionally, al-Husseini expressed the view that the recent surge in oil prices reflects the underlying reality that global demand has met supply, and is not due to artificial market distortions. END SUMMARY.

——————————————— ——-
SAUDI ARABIA WILL BE UNABLE TO MEET PRODUCTION GOALS ——————————————— ——-

¶2. (C) Dr. Sadad al-Husseini met with CG and EconOff on November 20 to discuss current trends in the international energy market, as well as his thoughts on the Saudi energy sector. Al-Husseini served as Executive Vice President for Exploration and Production from 1992 until his retirement in 2004. He also served as a member of the Aramco Board of Directors from 1996 to retirement. (COMMENT: Al-Husseini retired in the midst of an executive dispute, supposedly caused when he unsuccessfully attempted to engineer his ascension to the position of CEO. Although he continues to live at Aramco’s main camp and has close interpersonal relationships with key Aramco executives, many of al-Husseini’s views on Aramco are shaped by the perception that the company would be better off if he were running it. END COMMENT). It is al-Husseini’s belief that while Aramco can reach 12 million b/d within the next 10 years, it will be unable to meet the goal of 12.5 million b/d by 2009. The former EVP added that sustaining 12 million b/d output will only be possible for a limited period of time, and even then, only with a massive investment program.

¶3. (C) According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described and the timeline for their production not as unrestrained as Aramco executives and energy optimists would like to portray. In a December 1 presentation at an Aramco Drilling Symposium, Abdallah al-Saif, current Aramco Senior Vice President for Exploration and Production, reported that Aramco has 716 billion barrels (bbls) of total reserves, of which 51 percent are recoverable. He then offered the promising forecast - based on historical trends - that in 20 years, Aramco will have over 900 billion barrels of total reserves, and future technology will allow for 70 percent recovery.

¶4. (C) Al-Husseini disagrees with this analysis, as he believes that Aramco’s reserves are overstated by as much as 300 billion bbls of “speculative resources.” He instead focuses on original proven reserves, oil that has already been produced or which is available for exploitation based on current technology. All parties estimate this amount to be approximately 360 billion bbls. In al-Husseini’s view, once 50 percent depletion of original proven reserves has been reached and the 180 billion bbls threshold crossed, a slow but steady output decline will ensue and no amount of effort will be able to stop it. By al-Husseini’s calculations, approximately 116 billion barrels of oil have been produced by Saudi Arabia, meaning only 64 billion barrels remain before reaching this crucial point of inflection. At 12 million b/d production, this inflection point will arrive in 14 years. Thus, while Aramco will likely be able to surpass 12 million b/d in the next decade, soon after reaching that threshold the company will have to expend maximum effort to simply fend off impending output declines. Al-Husseini believes that what will result is a plateau in total output that will last approximately 15 years, followed by decreasing output.

¶5. (C) Al-Husseini elaborated that oil field depletion rates also play a significant role in determining the Aramco - and

RIYADH 00002441 002 OF 003 12.5 MBD IN 2009

global - production timeline. Increasing output is not simply a function of adding new capacity to already existing operations. Instead, due to depletion rates, new reserves must be brought online to both replace depleted production and satisfy growth in consumption. The International Energy Agency (IEA) has estimated global depletion rates at 4 percent, while a 2006 Aramco statement has estimated Saudi Arabia’s overall depletion rate at 2 percent. Al-Husseini estimates that moving forward, satisfying increases in global demand will require bringing online annually at least 6 million b/d of worldwide output, 2 million to satisfy increased demand and 4 million to compensate for declining production in existing fields.

¶6. (C) The second issue that will limit any proposed Aramco output expansion can be broadly defined as a lack of supporting resources. For example, in al-Husseini’s estimation, it is not the amount of oil available that will prevent Aramco from reaching 12.5 million b/d by 2009, but rather issues such as a lack of available skilled engineers, a shortage of experienced construction companies, insufficient refining capacity, underdeveloped industrial infrastructure, and a need for production management (if too much oil is extracted from a well without proper planning and technique, a well’s potential output will be significantly damaged). As previously reported by post (Reftel), the Eastern Province economy is facing severe industrial expansion limits, and despite Aramco’s willingness to invest up to 50 billion USD to achieve the 2009 goal, availability of labor, materials and housing may end up as determinative factors.

—————————————-
GLOBAL OIL PRICES: DEMAND HAS MET SUPPLY —————————————-

¶7. (C) Considering the rapidly growing global demand for energy - led by China, India and internal growth in oil-exporting countries - and in light of the above mentioned constraints on expanding current capacity, al-Husseini believes that the recent oil price increases are not market distortions but instead reflect the underlying reality that demand has met supply (global energy supply having remained relatively stagnant over the past years at approximately 85 million barrels/day). He estimates that the current floor price of oil, removing all geopolitical instability and financial speculation, is approximately 70 - 75 USD/barrel. Due to the longer-term constraints on expanding global output, al-Husseini judges that demand will continue to outpace supply and that for every million b/d shortfall that exists between demand and supply, the floor price of oil will increase 12 USD. Al-Husseini added that new oil discoveries are insufficient relative to the decline of the super-fields, such as Ghawar, that have long been the lynchpin of the global market.

¶8. (C) COMMENT: While al-Husseini believes that Saudi officials overstate capabilities in the interest of spurring foreign investment, he is also critical of international expectations. He stated that the IEA’s expectation that Saudi Arabia and the Middle East will lead the market in reaching global output levels of over 100 million barrels/day is unrealistic, and it is incumbent upon political leaders to begin understanding and preparing for this “inconvenient truth.” Al-Husseini was clear to add that he does not view himself as part of the “peak oil camp,” and does not agree with analysts such as Matthew Simmons. He considers himself optimistic about the future of energy, but pragmatic with regards to what resources are available and what level of production is possible. While he fundamentally contradicts the Aramco company line, al-Husseini is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered. END COMMENT.

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BIOGRAPHICAL DATA
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¶9. (U) Dr. Sadad Ibrahim al-Husseini was born in Syria but raised in Saudi Arabia, his father a Saudi government official. He received a BS in Geology from the American University of Beirut in 1968, as well as an MS and Ph.D. in geological sciences from Brown University in 1970 and 1972, respectively. Al-Husseini also attended a Professional Management Program at Harvard Business School in 1982.

RIYADH 00002441 003 OF 003 12.5 MBD IN 2009

Joining Aramco in 1972, al-Husseini quickly advanced, becoming Senior Vice President for Exploration and Production in 1986. He was given the title Executive Vice President in 1992. Al-Husseini served on Aramco’s Management Committee from 1986 until 2004, and sat on the Aramco Board of Directors from 1996 - 2004. He retired on March 1, 2004. XXXXXXXXXXXX
(APPROVED: KINCANNON) FRAKER

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Reference ID: 07RIYADH2441
Created: 2007-12-10 05:05