CHAPTER TWO

Evolution of US-Saudi Relations:

The Cold War Years

As the birthplace of the Islamic religion in 622 AD and as the home of Islam's two

holiest shrines, the cities of Mecca and Medina, the Arabian Peninsula had always

occupied a position of special prestige within the Middle East. As a traditional

monarchy, deriving part of its legitimacy from adherence to fundamental Islamic

tenets, Saudi Arabia, during much of its brief history as an independent state, lived in

comparative isolation from the rest of the world. While various ideological currents

like nationalism, socialism and communism were sweeping most Arab states, the

Kingdom remained attached to its own strict interpretation of Islam. (Brown 1973: 11-

18) This was in direct contrast to the early decades of the nineteenth century when

some of the peripheral areas of the present-day Kingdom were under the control of

rival Arab leaders. Except for a few major cities and oasis, the harsh climate

historically prevented much settlement in the Arabian Peninsula. People of various

cultures had lived in the peninsula over a span of more than 5,000 years. (Report,

Royal Embassy of Saudi Arabia) The Dilmun culture along the Gulf coast was

contemporaneous with the Sumerians and ancient Egyptians and most of the empires

of the ancient world traded with the states of the peninsula. The Saudi Kingdom

began in central Arabia in about 1750 when a local ruler, Muhammad bin Saud,

joined forces with an Islamic reformer, Muhammad Abd AI-W ahhab, to create a new

political entity. Over the next 150 years, the fortunes of the Saud family rose and fell

several times as Saudi rulers competed with Egypt, the Ottoman Empire and other

Arabian families for control on the peninsula.

The modern Saudi state was founded by the late King Abdul Aziz AI Saud 1• In 1902,

he recaptured Riyadh, the AI Saud dynasty's ancestral capital, from the rival Al­

Rashid family. Continuing his conquests, King Abdul Aziz subdued Al-Hasa, the rest

ofNejd and the Hijaz between 1913 and 1926. (Philby 1937) Force, persuasion and

religion went hand in hand as the Saud family extended its sway over these Arab

leaders and tribes. In 1932, these regions were finally unified as the Kingdom of Saudi

Arabia. However, significantly, many of these border issues remained unresolved,

forcing Saudi Arabia to always get involved in Inter-Arab disputes. The Hashemites

in Iraq and Trans-Jordan were particularly bitter enemies and competitors for political

leadership in the Arabian Peninsula. (Quandt 1981: 53-54)

1 known as Ibn Saud

15

Oil as a Strategic Determinant

Since its establishment, the modern Saudi kingdom benefited from a stable political

system based on a smooth process of succession to the throne and an increasingly I

prosperous economy dominated by oil. This became the key to Saudi Arabia's

economy, its future and source of many of its dilemmas and concerns as well.

However, if geography had blessed it with oil, history had been relatively less kind.

For just as Saudi Arabia came into its own as an economic power to be reckoned with

in the Arab world, it's surrounding environment was in continuous turmoil. However,

physical isolation ensured that the country kept away from the dangers of foreign

intervention, allowing the Saud family to consolidate its power and to dominate its

weak neighbours where possible. (Howarth 1964: 34-38)

The decade, after King Abdal Aziz formally created the Kingdom of Saudi Arabia,

did not witness any political activities between Saudi Arabia and the United States as

American interests at that time still did not warrant official representation. The

'Provisional Agreement' signed in 1933 was the only formal act of diplomatic

relations between the two countries initially. Relations between the two countries

were initiated in the Franklin Roosevelt era when they 'established very robust

bilateral ties in 1942. There were two clear instances when relations between the two

countries strengthened. The first was the granting of an air base by King Abdul Aziz

to the United States during the Second World War. The second was the historic

meeting with American President, Franklin Roosevelt, after the Second World War to

conclude the strategic "Quincy agreement". In George Lengzowski's words: "What

followed could be described as a multiple increase of diplomatic, military, technical

and economic contacts between the United States and Saudi Arabia" (Rattner 1978)

Oil was the most important factor in the formalisation of relations between both

countries. American interest in oil in the Middle East occurred as early as World War

I. The United States was the world's leading producer at the time, with its own

reserves adequate for domestic needs. However, the war cut off its allies from their

foreign sources and the United States was forced to become the main supplier for the

Al1ied War effort. (Library of US Congress, 1981) This put such an immense strain on

its domestic reserves that the Secretary of Defense James Forrestal warned

16

prophetically that- "within the next twenty five years the United States is going to be

faced with very sharply declining oil reserves ... " (Quandt 1981 : 4 7)

The United States was desperate to stave offbecoming a net importer of oil especially

after the Great Depression from 1929 to 1933. (Cordesman 1987: 13-15) Hence the

Roosevelt administration decided to concentrate on the strategic importance of

husbanding American oil by using Middle East resources. As oil production grew

during the inter-war period and world demand fell as a result of the "Great

Depression", American oil Companies began to play a proactive role in Saudi Arabia.

Simultaneously, with the growing depression in the 1930s and increasing tensions

fuelled by Hitler's Nazis, the number of pilgrims to Mecca had begun to decline. As

Haj receipts were the primary source of income for Saudi Arabia, the already fragile

financial state became even more precarious. Hence King Abdal Aziz came under

pressure and gave oil concessions to the American oil companies. (Long 1985: 10-13)

The King gave an oil concession covering a large area in the eastern part of the

Country to the Standard Oil Company of California (CASCO), a private American

firm, in 1933. Relations between both countries were purely commercial with oil

gathering most of the attention up until 1940. Occasional diplomats and military

planners visited, less worried about the Kingdom itself, than about the enemy hands

into which it could fall. (Bureau ofNear Eastern Affairs 2009)

The Role of ARAMCO

Before long, the Arabian American Company* began producing substantial amounts

of oil, thereby greatly profiting Saudi income. American private oil companies were

largely responsible for the discovery, development and management of Saudi oil.

(Adams 1987) The good reputations of American private companies, a respect for

American technology as among the best in the world and the governmental non

interference over companies to obtain political toehold in the Kingdom in the manner

of the European imperial powers were influential factors that allowed these

companies to get a foothold in the Kingdom.

Interestingly, unlike other dimensions of US - Saudi relations, economic

development, initially, primarily involved the American private sector and not the US

17

Government. When involvement of the American government occurred it was usually

limited to attempts to ensure that American firms were not unfairly discriminated.

This was always justified on the basis that the political stability of the Kingdom

largely depended on economic stability which in tum depended on the orderly

development of its oil resources. (Doran, Buck 1998: 73-84) The inactive role of the

US government was not simply because of the relative economic insignificance of

Saudi Arabia in the early days, but was also an adherence to a policy of governmental

non-interference in private business. The American Government also played a limited

role, initially, largely due to the British presence in the region.

However, all this changed with the American Lend-Lease Agreement to the Kingdom

in 1943. This agreement followed after a request for financial assistance by

ARAMCO in 1941. By then, the Second World War had brought ARAMCO's

operation to a virtual standstill and convinced the United States that oil was of vital

strategic significance. The request materialized, after the Saudi King Abdal Aziz

faced with the prospects of a financial collapse, demanded an advance aid of $12 m to

exploit the oil resources. At the time, the agreement was seen as a necessary step for

bolstering the weak Saudi economy and as the means of securing the American

companies stakes in Saudi oil. The agreement led to an increase in economic plans

designed in consultation with American experts and American technology flourishing

throughout the Kingdom. (Al-Farsy 1990: 286-287) Another factor which largely

influenced the US government to increase its profile was the growing concern in

Washington that the British intended to use their economic assistance to the Kingdom

as a wedge to increase their political and oil interests. Saudi Arabia's business

philosophy based on 'laissez-faire' also enhanced the development of strong relations

with the United States. Moreover, the Hanbali School of Islamic Jurisprudence, to

which Saudi Arabia subscribed, although the most conservative school on social and

religious issues, was the most lenient and liberal on economic and commercial issues.

Following the World War II, mounting oil revenues ensured that the Kingdom would

not collapse financially. In the early 1950s, the principle of splitting pre-tax profits on

a fifty-fifty basis with the oil companies also greatly benefited Saudi Arabia. For

instance, Saudi Arabia received $56 million and $11 0 million respectively as pretax

oil profits in 1950 and 1951. (Long 1985)

18

However, the rudimentary fashion in which the Saudi Ministry of Finance operated,

seldom distinguishing between public and private finance, forced the United States to

initiate a set of reforms. The United States began offering technical assistance in 1948

when the Eddy-Mikesell Mission was sent to look at currency reform. John. E.

Greany arrived to help design an income tax under the 'Point Four Agreement' signed

in 1951. A financial mission under Arthur Young was also sent to reform the

budgetary and administrative system of the Ministry of Finance and to improve the

tariff system. All these missions were modestly successful in their pursuits. The

biggest success of this cooperation initiated between both countries was the creation

of the Saudi Arabian Monetary Agencr to operate as the Kingdom's Central Bank in

1952. (Ibid) Soon the national airline, the desalination projects, the hospitals, the

National Guard and the vast petrochemical complexes at Jubayl and Y anbu all

reflected American technology.

Despite substantial cooperation between the two countries in oil trade, the importance

with which the United States viewed its oil interests in Saudi Arabia significantly

diminished by the mid 1950s. Despite domestic oil shortage and the European

Recovery Program (Marshall Plan) becoming increasingly dependent on Middle

Eastern oil, the glut in the world oil market lessened American strategic concerns

considerably by the mid 1950s. Although American interest did not cease completely,

the broader political and strategic threat of communism and Soviet-supported radical

nationalism in the region took precedence over oil interests.

With the ascendance of King Saud to the throne in 1953, economic and political

relations began to suffer just as they were gaining impetus. (US Department of State

1989) By 1954, the Kingdom revoked the Point Four Agreement on the grounds that

financial assistance to the country was too small in comparison to the assistance given

to Israel. The outbreak of the Arab-Israeli War in 1956 and the advent of Nasser's

"Arab Nationalism" wrapped in emotional and sentimental strings further worsened

the situation. As a result, efforts to create an active role for the American

Government, in terms of open transactions in Saudi oil operations, were replaced once

2 SAMA

19

again by a policy of indirect government involvement. The United States largely

sought to maintain an overall environment in which the private companies could

expand their Saudi and other Middle Eastern Operations by the end of the 1950s. (US

House of Representative Issue Brief: 1997) However, economic relations began to

improve when King Faysal came to power. The American government's technical

assistance now began to mainly focus on the military and mineral exploration. The

United States Geological Survey and Aramco, under joint US - Saudi sponsorship,

published a geological map of the country for the first time in the mid 1960s. This

intricate relationship progressed over the years and by the mid 1960s major oil

companies dictated oil prices and production rates aimed primarily to prevent an

endemic oil glut that would lead to a collapse of the International oil Market.

Continuing American and foreign discoveries perpetuated the oil glut right through

the 1960s.

The Birth of OPEC

The late 1950s saw great changes in the supply-demand relationships in the

international oil market. Until then, the oil glut had kept prices down and cheap oil

had spurred demand rapidly. Western Europe, principally fueled by coal in the

nineteenth and early twentieth century had by now switched to oil. In the United

States, the mania for mobility had pushed per capita gasoline consumption to the

highest in the World and even third world consumption was on the rise. Although new

discoveries of oil wells were still being made, demand began rapidly out stripping

supply. Significantly, the United States became a net importer of oil, signaling an end

to the oil glut and the beginning of a Sellers Market by 1960. By then, the control of

production and prices by the oil companies had led to resentment among the

producing countries over their inability to determine or even regulate their oil

revenues. This development set the stage for the oil producing countries to seize

control of prices and production rates from the companies. It ultimately led to the

formation of the Organization ofPetroleum Exporting Countries4 by the oil rich Arab

Countries in September 1960. (Cipkiwski: 1992:73-75)

3 USGS 4 0PEC

20

The closure of the Suez Canal and the Trans-Arabian pipeline during the 1967 Arab­

Israeli War put a premium on Libyan crude. The Libyan ruler, Muammar Qadhafi

instituted "conservation measures" and cut back production forcing all the operating

private companies in Libya to capitulate to Libyan demands. The implication of the

Libyan success led to growing demands for higher prices and tax rates from all the oil

producing countries. The Sellers Market had truly developed and OPEC had by now

begun to flex its muscles. The oil companies were forced to deal collectively with

OPEC members, which was itself a departure from the 1960s when they, from a

position of strength, insisted on dealing with the producing countries on an individual

bilateral basis. (Sheehan 1976) The United States and the companies while negotiating

collectively were seeking to, in the words of then Ambassador to Iran, Douglas

MacArthur II - "play OPEC members against one another." In hindsight, the non-c

intervention of the US government proactively to counter OPEC's challenges to the

companies turned out to be a mistake. By now, OPEC had gained control over setting

of the prices and the ownership of the oil resources in the Middle East. Some

countries like Algeria, Iraq and Libya accomplished this through nationalization while

others like Saudi Arabia and some Gulf states preferred to follow the route of

'participation'- a strategy which, according to the Saudi Minister of Petroleum and

Mineral Resources, Ahmad Zaki Y amani, "kept companies in the game and

maintained an incentive for them to continue to restrict production rates in order to

maintain price stability". (Aburish 1996: 21-23) T.H _ ~ b 8 31

In the years immediately preceding the World Energy Crisis of 1973-74, there was a

growing realization in the United States about Saudi Arabia's expanding importance

in world trade and economic affairs. The combination of change, opportunities and

anxieties created by the massive accumulation of foreign exchange held by Saudi

Arabia and other OPEC member countries, following the energy crisis, resulted in a

high level of ambiguity creeping into economic relations between the United States

and Saudi Arabia. On the one hand, the United States welcomed investment of

petrodollars keeping its open door economic philosophy in mind. Saudi Arabia was

accommodated because it provided substantial advantages such as investment capital

and strengthened relations with the United States. Accordingly, the United States

facilitated Saudi and OPEC investment in two ways - one was by an understanding

reached in early 1974 to treat Saudi investment in the United States confidentially and

21

the second was by an arrangement between the US Treasury Department and Saudi

Arabian Monetary Agency, for the latter's purchases of American government

securities through the Federal Reserve Bank ofNew York. However, simultaneously

there was increasing concern over the inadequacy of the system to monitor growing

OPEC and other foreign investment in the United States. There were fears that the

world financial system would not be able to recycle huge amounts of petrodollars

amassed by Saudi Arabia and other oil producers resulting thereby in a massive

worldwide liquidity crisis. (Metz: 1992) Moreover the United States feared that Arab

petrodollars would be used to buy American firms, control segments of the economy

and possibly inhibit Jewish financial interests. Within the domestic arena, especially

in the US Congress, there was increasing concern that OPEC and its Arab members

would acquire a 'money weapon' to accompany their near monopoly control over the

supply of oil. Hence, Saudi Arabia came under particular scrutiny and various sub

committees on multinational corporations' corrupt practices and on technology

transfer to OPEC countries were constituted in the United States in the mid 1970s.

(Al-Farsy, 1982: 51-59) The points on confidentiality and the traditional US policy of

welcoming foreign investment on a non-discriminatory basis became involved in the

broader constitutional issue of separation of power between executive privil~ge and

the congressional investigatory responsibility. Significantly, it was the Kingdom's

need for western technology; a preference for American technology combined with

American strategic interests in Saudi oil and the growing purchasing power of the

Kingdom that contributed to insulate economic relations to a great degree from the

divisive Middle Eastern political issues of the day. (New York Times Special Report

1974)

The First Oil Crisis

In the fall and winter of 1973174, three incidents took place that focused international

attention firmly on Saudi Arabia's oil policies. The first incident revolved around

OPEC and the negotiations with the oil companies over prices. For the first time,

OPEC unilaterally decided to increase oil prices ignoring the pleas of the powerless

private companies. (Agmon 1993: 24) The second incident occurred during the 1973

Arab-Israeli War when Saudi King Faisal, ominously, stated that the 'Oil Weapon'

would be used if the United States did not pressurize Israel to relinquish captured

22

Arab lands. The United States paid little heed to this threat initially and when war

subsequently broke out, Saudi Arabia announced halting of oil shipments to the US

Significantly, for the first time, the United States and Saudi Arabia found themselves

on opposite sides of a major international crisis. The third incident was that, although

the crisis subsided by the spring of 1974, the price of oil quadrupled by 1974 to nearly

US$12 per barrel while Saudi income rose to $22.6 billion that year. To the United

States, this meant that Saudi Arabia could begin to spend untold amounts on domestic

programs, a development that would potentially have far reaching consequences.

(Emerson 1985: 50-51)

US Executive-Congressional Initiatives

US commercial policy towards Saudi Arabia and other Arab oil producing states

following the energy crisis was full of ambiguity. Generally lacking a coherent

national energy policy of its own, the United States was not always certain of what it

wanted from Saudi Arabia with respect to oil. The list of demands included high rates

of production, moderate and predictable prices, development of spare capacity to help

meet emergencies and additional production to augment the US Strategic Petroleum

Reserve. Washington was not always clear about which of these points were

important at any given point of time. Most often, security of supply took precedence

over price restraint. Crucially, little emphasis was placed on developing spare

capacity within. (Heard: 2003)

The realization that the United States was dependent on foreign oil to maintain its

energy - intensive standard of living came slowly and painfully to Americans. The

embargo, however, forced the United States, for the first time, to focus on developing

integrated government-to-government energy relations. The policies, hence, adopted

had to take into account domestic as well as foreign supply and demand factors.

Domestically, the American Government created the Federal Energy Office/

Administration5 and attempted to restrict private consumption more severely than

industrial consumption. Development of alternative forms of energy under a

government study called 'Project Independence' attempted to evaluate various energy

5 FEA

23

strategies. The foreign energy policy became both multilateral in terms of focusing on

major oil consumers and bilateral in focusing on the major oil exporter. (Kagan,

Kristol 2002: 1 03-119) To offset the balance-of-payments deficit of growing oil

imports as well as to recycle petrodollars, the United States began promoting exports

to the oil producing countries. Domestically, this also led to employment generation

and the creation of the Commerce Action Group on the North East6 in the US.

At the same time, the US Congress began passing new laws or strengthening existing

laws that impeded trade with the Middle East. The Anti-Boycott amendments were

passed to establish the American opposition to the Arab boycott of Israel, which

became a raging issue following the Arab oil embargo of 1973-1974. This stemmed

from general American resentment over gas shortages and higher prices and a

perceived linkage between American dependence on oil and the strength of US -

Israeli relations. The Sherman Antitrust act of 1890 prohibited every contract,

combination or conspiracy in the restraint of trade or commerce among several states.

The Tax Reform act of 1976 denied offenders of anti boycott legislation their right to

foreign tax credits and together with the Export Administration .act amendments of

1977 made up the bulk of the US anti boycott legislation. The passage of the Foreign

Corrupt Practices Act of 1977 prohibited bribery of foreign officials who exercised

discretionary authority over government contracting decisions with private firms.

Criticisms poured on the act as it added a significant burden rather than comfort on

the companies to determine what was and was not permissible. The Economic

Recovery Act of 1982 which increased exempted income and excluded from the

computation many of the allowances provided a welcome relief for powerful

disincentives of taxes on personal incomes earned abroad for American exports to

Saudi Arabia. In sum, the anti boycott legislation provided an avenue for making a

political statement in support of Israel. This became an irritant to American firms

doing business in Saudi Arabia and by itself constituted a burden on American

commercial interests in the region. These three laws in particular had the most adverse

effect on trade between both the countries in the 1970s. (Y ergin 1992: 281-289)

A section of the US Administration, post Iranian revolution of 1979, also objected to

6 CAGNE

24

the emphasis on keeping Saudi output high and maintaining price stability. They

argued that this ensured that the West remained heavily dependent on Saudi oil and

therefore vulnerable to a major disruption if Saudi Arabia went the way of Iran. They

believed it would be better to cut demand for Saudi oil to let prices increase to the

point where alternative sources of energy could be produced on a large scale and

where non-Middle East oil producers would have an incentive to increase production.

(Mackey 1998: 42-69) They argued that, lower rates of oil production would reduce

the strains of rapid development and thus would enhance stability even for Saudi

Arabia.

Unfortunately, these arguments did not gain a great deal of currency, even though it

presented a rational long term calculus of Saudi economic interests, as it involved

many uncertainties that made it difficult for American policy makers to embrace. The

relationship between rates of Saudi oil production and internal stability appeared

hypothetical to them. Hence, the policies were geared towards short term needs for

adequate, predictable assured supplies and price restraint. Interestingly, the Reagan

Administration in the 1980s took a different point of view arguing that Saudi self­

interest was enough to assure high rates of production and comparatively moderate

prices. Noting that the Kingdom had tended to spend most of its oil revenues, no

matter how large, the United States assumed that Saudi Arabia also had a clear

interest in maximizing their current incomes. Hence their reasoning was that Saudi

Arabia would maintain the high production levels and offer slight price discounts to

preserve its share of the market (Lettow 2005:122-125)

With the quantum increase in oil revenues after 1973, Saudi Arabia's development

spending increased and commercial opportunities in the Kingdom burgeoned.

American firms held 20-23% of the Saudi import market and hence reaped substantial

revenues that helped US balance of payments in a period of growing US oil imports.

Not surprisingly, US - Saudi trade expanded in parallel with these foreign exchange

earnings. American companies signed non-military contracts in Saudi Arabia worth $

6 billion in 1979 and the actual exports from the US to Saudi Arabia in 1980

amounted to$ 5.8 billion. (Quandt 1981: 54)

25

The Second Oil Crisis·

Saudi Arabia, meanwhile, continued to play an influential role in maintaining

moderate prices of oil by arriving at a 'compromise price freeze' with the OPEC

members. However the revolution in Iran, in 1979, led to a dropping of Iranian oil

production. The resultant climbing of oil prices led to "panic buying'' in the market. In

order to avoid another supply freeze, companies and countries alike began building up

inventories, which increased the prices further. Saudi Arabia, simultaneously, limited

production of oil (6.5 m b/d in 1979) with a warning that increased prices would bring

down the demand. Interestingly, the United States & the world at large felt that the

Kingdom had acted in greed and irritation at the Americans. The prices increased

even as world production had peaked by December 1979. The US Department of

Energy announced phased oil price decontrols which involved the gradual increased

of old oil price ceilings. However, the breaking out of the Iraq - Iran War in 1980 led

to mayhem. As Iranian and Iraqi production now shut down, Saudi Arabia increased

its capacity. Yet, it became obvious by August 1981 that unlike the Iranian Crisis, the

war had occurred on the downside of a market cycle thereby merely postponing an oil

glut. Saudi Arabia rapidly cut down production yet the demand kept declining. Oil

producers and companies that had stocked began offering "discounts" and destocked

their oil. At that time, the US Federal Reserve also hiked interest rates to combat

inflationary pressures and the oil price spike exacerbated their degree of rate hikes.

Rates increased from 10 percent to 14 percent between January 1979 and December

1979 and the Fed Funds rates had hit a high of 20 percent by March 1980. The

Quarterly GDP growth in the United States dropped 7.8 percent in the second quarter

of 1980 triggering the US dollar's demise.

In just a decade, since the producing countries had seized control of their oil resources

and OPEC with Saudi Arabia at the helm had seized control of price and production,

the world had witnessed two rapid price escalations and two oil gluts. (Doran 2004:

81-83) Despite every one's vociferous support for market stability it appeared to be as

far from realization in the 1980s as it was in the 1970s.

26

The Emergence of an Oil Power

Although Saudi Arabia, during the oil glut in the mid 1980s, found itself in the ironic

position of a negative cash flow problem in its current account, American exports of

industrial products exceeded $9 billion with another $500 million in agricultural

products. By the mid 1980s, Saudi Arabia was the largest supplier of oil to the US. Its

oil reserves were the largest in the world, and oil accounted for more than 90% of the

country's exports and nearly 75% of government revenues. Proven reserves were

estimated to be at 263 billion barrels, about one-quarter of World oil reserves.

(Almana 1980:119-121) Around the same time 650 US firms were present in the

Kingdom with some 60,000 American employees and dependents. This had also

generated about 350,000 jobs in the US. (Shaw and Long 1982) The United States and ~~.

its allies simply could not do without substantial quantities of oil from Saudi Arabia.

If Saudi Arabia's exports were to be discontinued then, the cost to the World

Economy could be compared to the Great Depressions of the 1930s. (Gelb 1981) This

was not necessarily a desirable position for both countries to be in. While some

Americans had benefited from the marginally lower price of Saudi oil, there was

nonetheless discomfort for many in the United States in relying so heavily on a

country that had on one occasion before tried to withhold oil for political reasons.

The United States and Saudi Arabia had begun to share a common concern about

regional security, the export and import of oil and its sustainable development by the

end of the Cold War. (Long 1985: 123-124) They also continued to have close

consultations on international issues such as the Middle East peace process and other

common interests in the Gulf. However, oil continued to be the dominant factor

despite both countries making earnest efforts to strengthen political, strategic and

security ties.

Saudi Arabia, with its high production capacity and extensively proven reserves, its

small population and low absorptive capacity for capital emerged as a key country for

the United States. The economic relations established between the two were on a rock

solid foundation by the late 1980s. (Long 1985: 90-95) David Long, the former US

Ambassador to Saudi Arabia, made a pertinent observation on Saudi Arabia in the late

1980s:

27