Why Saudi Arabia is an Ally
Have you ever wondered why the US is such a close ally of Saudi Arabia that American presidents bow to the king and hold the Saudi Crown Prince’s hand. This isn’t just because the Saudi are the low-cast swing producer of oil, with the potential to influence oil prices.
It’s also because the Saudis have historically had the power to enable the US to remain the global reserve currency and finance the US debt, even when the state of US finances would suggest it is undeserving of such a position.
Breton Woods: Setting up a “Rigged” System
In 1944 at Breton Woods. The British advised the US to setup a neutral financial system (using a unit of account known as the “Bancor“) to be used for international trade. Each of the major economies would have a share of the Bancor in proportion to the size of its economy.
The American’s rejected the British proposal, instead favoring a global reserve currency in which the US maintained a dominant and exclusive share.
The British Warning
The British advised the US that this would benefit the US in the short term but would later cause distortions in the market as American exports would become more expensive.
The British warning proved to be accurate. Although the entrance of China into the WTO has also been a significant factor, the structure of the dollar as the sole reserve currency has led to the exporting of supply chains — one of Trump’s chief complaints. The Council of Foreign Relations has cited one of its own articles arguing that the US should voluntarily relinquish the global reserve currency, but that is unlikely to happen as long as the policy benefits elites.
Breaking our own “Rigged” System
After a series of budget deficits forced the US to abandon the gold standard, the US risked losing its dominant status.
In 1971, after large deficits caused by the military industrial complex, wars in Korea and Vietnam, and LBJ’s “Great Society” spending , Nixon was forced to abandon the Gold Standard.
Nixon said this was a temporary measure to thwart speculators, but in reality, American’s allies had lost faith in the US’s fiscal discipline.
After rigging the financial system so that America benefited from exclusivity as the reserve currency, America’s allies thought the US was failing to live up to its commitments in its own rigged game.
France calls America’s Bluff
France decided to call the US bluff by converting the paper dollars to gold at the official rate of $35 per ounce. They loaded up a naval vessel with the paper dollars that the US had paid them and sent it to New Jersey. They they requested that the US convert their dollars to gold at the advertised rate. Since the market was pricing gold at a significantly higher price than the US’s official rate, the French were signaling in a very visible way that the US was effectively bankrupt, based on the gold standard they themselves designed. Because the British and Germans also intended to follow the French, on Aug 15, 1971 Nixon announced that he was going to thwart speculators by “temporarily” suspending the dollar’s backing with gold.
The Saudi Alliance: Avoiding Fiscal Discipline
The US then faced a challenge of maintaining its power without having to restore fiscal discipline. They did this by devising the petrodollar system in which
- Saudi Arabia agreed to price oil exclusively in USD and convince their friends in OPEC to follow suit. This generated demand for US dollars because every country that wanted oil had to obtain dollars to purchase it. It also generated demand for US Treasury bills to hold as foreign reserves.
- They agreed to take to profits from those dollars and secretly purchase US Treasury bonds, thereby financing US debt.
- They also agreed to purchase US military equipment, thereby funding the military industrial complex and, at the time, purchasing surplus weapons manufactured for the Vietnam War.
Mark Carney has proposed reviving the concept of the Bancor. Carney is formerly Governor of the Bank of Canada and later Governor of the Bank of England.
Columbia University professor Jeffery Sachs calls for multiple reserve currencies.
The Council of Foreign Relations says that proposals for alternative global reserve currencies are unlikely as long as the US has a veto at the IMF.
Saudi Arabia is threatening to sell its oil in currencies other than the dollar if Washington passes a bill exposing OPEC members to U.S. antitrust lawsuits, three sources familiar with Saudi energy policy said.
They said the option had been discussed internally by senior Saudi energy officials in recent months. Two of the sources said the plan had been discussed with OPEC members and one source briefed on Saudi oil policy said Riyadh had also communicated the threat to senior U.S. energy officials.
The chances of the U.S. bill known as NOPEC coming into force are slim and Saudi Arabia would be unlikely to follow through, but the fact Riyadh is considering such a drastic step is a sign of the kingdom’s annoyance about potential U.S. legal challenges to OPEC.
In the unlikely event Riyadh were to ditch the dollar, it would undermine the its status as the world’s main reserve currency, reduce Washington’s clout in global trade and weaken its ability to enforce sanctions on nation states.
“The Saudis know they have the dollar as the nuclear option,” one of the sources familiar with the matter said.
“The Saudis say: let the Americans pass NOPEC and it would be the U.S. economy that would fall apart,” another source said.
Saudi Arabia’s energy ministry did not respond to a request for comment.
A U.S. state department official said: “as a general matter, we don’t comment on pending legislation.”
The U.S. Energy Department did not respond to a request for comment. Energy Secretary Rick Perry has said that NOPEC could lead to unintended consequences.
NOPEC, or the No Oil Producing and Exporting Cartels Act, was first introduced in 2000 and aims to remove sovereign immunity from U.S. antitrust law, paving the way for OPEC states to be sued for curbing output in a bid to raise oil prices.
While the bill has never made it into law despite numerous attempts, the legislation has gained momentum since U.S. President Donald Trump came to office. Trump said he backed NOPEC in a book published in 2011 before he was elected, though he not has not voiced support for NOPEC as president.
Trump has instead stressed the importance of U.S-Saudi relations, including sales of U.S. military equipment, even after the killing of journalist Jamal Khashoggi last year.
A move by Saudi Arabia to ditch the dollar would resonate well with big non-OPEC oil producers such as Russia as well as major consumers China and the European Union, which have been calling for moves to diversify global trade away from the dollar to dilute U.S. influence over the world economy.
Russia, which is subject to U.S. sanctions, has tried to sell oil in euros and China’s yuan but the proportion of its sales in those currencies is not significant.
Venezuela and Iran, which are also under U.S. sanctions, sell most of their oil in other currencies but they have done little to challenge the dollar’s hegemony in the oil market.
However, if a long-standing U.S. ally such as Saudi Arabia joined the club of non-dollar oil sellers it would be a far more significant move likely to gain traction within the industry.
Saudi Arabia controls a 10th of global oil production, roughly on par with its main rivals – the United States and Russia. Its oil firm Saudi Aramco holds the crown of the world’s biggest oil exporter with sales of $356 billion last year.
Depending on prices, oil is estimated to represent 2 percent to 3 percent of global gross domestic product. At the current price of $70 per barrel, the annual value of global oil output is $2.5 trillion.
Not all of those oil volumes are traded in the U.S. currency but at least 60 percent is traded via tankers and international pipelines with the majority of those deals done in dollars.
Trading in derivatives such as oil futures and options is mainly dollar denominated. The top two global energy exchanges, ICE and CME, traded a billion lots of oil derivatives in 2018 with a nominal value of about $5 trillion.
Just the prospect of NOPEC has already had implications for the Organization of Petroleum Exporting Countries. Qatar, one of the core Gulf OPEC members, quit the group in December because of the risk NOPEC could harm its U.S. expansion plans.
Two sources said that despite raising the dollar threat, Saudi Arabia did not believe it would need to follow through.
“I don’t think the NOPEC bill will pass but the Saudis have ‘what if’ scenarios,” one of the sources said.
In the event of such a drastic Saudi move, the impact would take some time to play out given the industry’s decades-old practices built around the U.S. dollar – from lending to exchange clearing.
Other potential threats raised in Saudi discussions about retaliation against NOPEC included liquidating the kingdom’s holdings in the United States, the sources said.
The kingdom has nearly $1 trillion invested in the United States and holds some $160 billion in U.S. Treasuries.
If it did carry out its threat, Riyadh would also have to ditch the Saudi riyal’s peg to the dollar, which has been exchanged at a fixed rate since 1986, the sources said.
The United States, the world’s largest oil consumer, relied heavily on Saudi and OPEC supplies for decades – while supporting Riyadh militarily against its arch-foe Iran.
But soaring shale oil production at home has made Washington less dependant on OPEC, allowing it to be more forceful in the way it deals with Saudi Arabia and other Middle Eastern nations.
Over the past year, Trump has regularly called on OPEC to pump more oil to lower global oil prices, and linked his demands to political support for Riyadh – something previous U.S. administrations have refrained from doing, at least publicly.
Reporting by Dmitry Zhdannikov and Alex Lawler in London and Rania El Gamal in Dubai; additional reporting by Timothy Gardner in Washington; editing by David Clarke
This 2016 Bloomberg article omits references to the significance of oil in supporting the dollar and US debt, but it does contain interesting detail about the secrecy of Saudi Arabia’s politically sensitive purchase of US Treasuries.
It also reports that the Saudis threat to sell their Treasuries if Congress allowed a bill to pass enabling Americans to sue Saudi Arabia over 911.
How a legendary bond trader from Salomon Brothers brokered a do-or-die deal that reshaped U.S.-Saudi relations for generations.
Failure was not an option.
It was July 1974. A steady predawn drizzle had given way to overcast skies when William Simon, newly appointed U.S. Treasury secretary, and his deputy, Gerry Parsky, stepped onto an 8 a.m. flight from Andrews Air Force Base. On board, the mood was tense. That year, the oil crisis had hit home. An embargo by OPEC’s Arab nations—payback for U.S. military aid to the Israelis during the Yom Kippur War—quadrupled oil prices. Inflation soared, the stock market crashed, and the U.S. economy was in a tailspin.
Officially, Simon’s two-week trip was billed as a tour of economic diplomacy across Europe and the Middle East, full of the customary meet-and-greets and evening banquets. But the real mission, kept in strict confidence within President Richard Nixon’s inner circle, would take place during a four-day layover in the coastal city of Jeddah, Saudi Arabia.
The goal: neutralize crude oil as an economic weapon and find a way to persuade a hostile kingdom to finance America’s widening deficit with its newfound petrodollar wealth. And according to Parsky, Nixon made clear there was simply no coming back empty-handed. Failure would not only jeopardize America’s financial health but could also give the Soviet Union an opening to make further inroads into the Arab world.
It “wasn’t a question of whether it could be done or it couldn’t be done,” said Parsky, 73, one of the few officials with Simon during the Saudi talks.
At first blush, Simon, who had just done a stint as Nixon’s energy czar, seemed ill-suited for such delicate diplomacy. Before being tapped by Nixon, the chain-smoking New Jersey native ran the vaunted Treasuries desk at Salomon Brothers. To career bureaucrats, the brash Wall Street bond trader—who once compared himself to Genghis Khan—had a temper and an outsize ego that was painfully out of step in Washington. Just a week before setting foot in Saudi Arabia, Simon publicly lambasted the Shah of Iran, a close regional ally at the time, calling him a “nut.”
But Simon, better than anyone else, understood the appeal of U.S. government debt and how to sell the Saudis on the idea that America was the safest place to park their petrodollars. With that knowledge, the administration hatched an unprecedented do-or-die plan that would come to influence just about every aspect of U.S.-Saudi relations over the next four decades (Simon died in 2000 at the age of 72).
The basic framework was strikingly simple. The U.S. would buy oil from Saudi Arabia and provide the kingdom military aid and equipment. In return, the Saudis would plow billions of their petrodollar revenue back into Treasuries and finance America’s spending.
It took several discreet follow-up meetings to iron out all the details, Parsky said. But at the end of months of negotiations, there remained one small, yet crucial, catch: King Faisal bin Abdulaziz Al Saud demanded the country’s Treasury purchases stay “strictly secret,” according to a diplomatic cable obtained by Bloomberg from the National Archives database.
With a handful of Treasury and Federal Reserve officials, the secret was kept for more than four decades—until now. In response to a Freedom-of-Information-Act request submitted by Bloomberg News, the Treasury broke out Saudi Arabia’s holdings for the first time this month after “concluding that it was consistent with transparency and the law to disclose the data,” according to spokeswoman Whitney Smith. The $117 billion trove makes the kingdom one of America’s largest foreign creditors.
Yet in many ways, the information has raised more questions than it has answered. A former Treasury official, who specialized in central bank reserves and asked not to be identified, says the official figure vastly understates Saudi Arabia’s investments in U.S. government debt, which may be double or more.
The current tally represents just 20 percent of its $587 billion of foreign reserves, well below the two-thirds that central banks typically keep in dollar assets. Some analysts speculate the kingdom may be masking its U.S. debt holdings by accumulating Treasuries through offshore financial centers, which show up in the data of other countries.
Exactly how much of America’s debt Saudi Arabia actually owns is something that matters more now than ever before.
While oil’s collapse has deepened concern that Saudi Arabia will need to liquidate its Treasuries to raise cash, a more troubling worry has also emerged: the specter of the kingdom using its outsize position in the world’s most important debt market as a political weapon, much as it did with oil in the 1970s.
In April, Saudi Arabia warned it would start selling as much as $750 billion in Treasuries and other assets if Congress passes a bill allowing the kingdom to be held liable in U.S. courts for the Sept. 11 terrorist attacks, according to the New York Times. The threat comes amid a renewed push by presidential candidates and legislators from both the Democratic and Republican parties to declassify a 28-page section of a 2004 U.S. government report that is believed to detail possible Saudi connections to the attacks. The bill, which passed the Senate on May 17, is now in the House of Representatives.
Saudi Arabia’s Finance Ministry declined to comment on the potential selling of Treasuries in response. The Saudi Arabian Monetary Agency didn’t immediately answer requests for details on the total size of its U.S. government debt holdings.
“Let’s not assume they’re bluffing” about threatening to retaliate, said Marc Chandler, the global head of currency strategy at Brown Brothers Harriman. “The Saudis are under a lot of pressure. I’d say that we don’t do ourselves justice if we underestimate our liabilities” to big holders.
Saudi Arabia, which has long provided free health care, gasoline subsidies, and routine pay raises to its citizens with its petroleum wealth, already faces a brutal fiscal crisis.
In the past year alone, the monetary authority has burned through $111 billion of reserves to plug its biggest budget deficit in a quarter-century, pay for costly wars to defeat the Islamic State, and wage proxy campaigns against Iran. Though oil has stabilized at about $50 a barrel (from less than $30 earlier this year), it’s still far below the heady years of $100-a-barrel crude.
Saudi Arabia’s situation has become so acute the kingdom is now selling a piece of its crown jewel—state oil company Saudi Aramco.
What’s more, the commitment to the decades-old policy of “interdependence” between the U.S. and Saudi Arabia, which arose from Simon’s debt deal and ultimately bound together two nations that share few common values, is showing signs of fraying. America has taken tentative steps toward a rapprochement with Iran, highlighted by President Barack Obama’s landmark nuclear deal last year. The U.S. shale boom has also made America far less reliant on Saudi oil.
“Buying bonds and all that was a strategy to recycle petrodollars back into the U.S.,” said David Ottaway, a Middle East fellow at the Woodrow Wilson International Center in Washington. But politically, “it’s always been an ambiguous, constrained relationship.”
Yet back in 1974, forging that relationship (and the secrecy that it required) was a no-brainer, according to Parsky, who is now chairman of Aurora Capital Group, a private equity firm in Los Angeles. Many of America’s allies, including the U.K. and Japan, were also deeply dependent on Saudi oil and quietly vying to get the kingdom to reinvest money back into their own economies.
“Everyone—in the U.S., France, Britain, Japan—was trying to get their fingers in the Saudis’ pockets,” said Gordon S. Brown, an economic officer with the State Department at the U.S. embassy in Riyadh from 1976 to 1978.
For the Saudis, politics played a big role in their insistence that all Treasury investments remain anonymous.
Tensions still flared 10 months after the Yom Kippur War, and throughout the Arab world, there was plenty of animosity toward the U.S. for its support of Israel. According to diplomatic cables, King Faisal’s biggest fear was the perception Saudi oil money would, “directly or indirectly,” end up in the hands of its biggest enemy in the form of additional U.S. assistance.
Treasury officials solved the dilemma by letting the Saudis in through the back door. In the first of many special arrangements, the U.S. allowed Saudi Arabia to bypass the normal competitive bidding process for buying Treasuries by creating “add-ons.” Those sales, which were excluded from the official auction totals, hid all traces of Saudi Arabia’s presence in the U.S. government debt market.
“When I arrived at the embassy, I was told by people there that this is Treasury’s business,” Brown said. “It was all handled very privately.”
By 1977, Saudi Arabia had accumulated about 20 percent of all Treasuries held abroad, according to The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets by Columbia University’s David Spiro.
Another exception was carved out for Saudi Arabia when the Treasury started releasing monthly country-by-country breakdowns of U.S. debt ownership. Instead of disclosing Saudi Arabia’s holdings, the Treasury grouped them with 14 other nations, such as Kuwait, the United Arab Emirates and Nigeria, under the generic heading “oil exporters”—a practice that continued for 41 years.
The system came with its share of headaches. After the Treasury’s add-on facility was opened to other central banks, erratic and unpublicized foreign demand threatened to push the U.S. over its debt limit on several occasions.
An internal memo, dated October 1976, detailed how the U.S. inadvertently raised far more than the $800 million it intended to borrow at auction. At the time, two unidentified central banks used add-ons to buy an additional $400 million of Treasuries each. In the end, one bank was awarded its portion a day late to keep the U.S. from exceeding the limit.
Most of these maneuvers and hiccups were swept under the rug, and top Treasury officials went to great lengths to preserve the status quo and protect their Middle East allies as scrutiny of America’s biggest creditors increased.
Over the years, the Treasury repeatedly turned to the International Investment and Trade in Services Survey Act of 1976—which shields individuals in countries where Treasuries are narrowly held—as its first line of defense.
The strategy continued even after the Government Accountability Office, in a 1979 investigation, found “no statistical or legal basis” for the blackout. The GAO didn’t have power to force the Treasury to turn over the data, but it concluded the U.S. “made special commitments of financial confidentiality to Saudi Arabia” and possibly other OPEC nations.
Simon, who had by then returned to Wall Street, acknowledged in congressional testimony that “regional reporting was the only way in which Saudi Arabia would agree” to invest using the add-on system.
“It was clear the Treasury people weren’t going to cooperate at all,” said Stephen McSpadden, a former counsel to the congressional subcommittee that pressed for the GAO inquiries. “I’d been at the subcommittee for 17 years, and I’d never seen anything like that.”
Today, Parsky says the secret arrangement with the Saudis should have been dismantled years ago and was surprised the Treasury kept it in place for so long. But even so, he has no regrets.
Doing the deal “was a positive for America.”
—With assistance from Sangwon Yoon.
In Jan 1975, Commentary Magazine argued that the US should threaten to invade the Persian Gulf if they did not:
- agree to price oil exclusively in dollars, thereby generating demand for dollars
- save oil profits in US Treasury bills, thereby financing the US debt
- buy American weapons, including surplus Vietnam war equipment, and future US weapons, thereby financing the military industrial complex
There remains the argument that military intervention in the Persian Gulf would on moral grounds alone not be countenanced by domestic public opinion. Nor is it only the public that would presumably find in the act a manifestation of complete moral bankruptcy. One has the distinct impression that the foreign-policy elite shares this view and that in the certitude with which the public’s supposed reaction is diagnosed there is something close to a wish-fulfilling prophecy. It is a curious reaction coming from those who once found no great difficulty, moral or otherwise, in supporting the intervention in Vietnam or who, in finally abandoning their support for intervention, did so not on moral grounds, but because they concluded Vietnam could not have a successful outcome or that, whatever the outcome, the costs had become disproportionate to the interests at stake. Perhaps their present reaction to the prospect of armed intervention in the Persian Gulf is not so curious, though, given this record. It is not surprising that, having lacked a sense of balance, moral and otherwise, in that most painful experience, they should lack a sense of balance today, and that we should find the law of compensation—or rather of overcompensation—at work.
At issue here is not whether there is some clear moral or legal basis for justifying armed intervention in the Persian Gulf, but whether public opinion would be morally outraged by the action. Though it is not uncommon to find them confused, these are two quite different questions. There is no need for positive moral approval, let alone moral fervor, by the public so long as it consents to the need for the action. There may even be considerable gain in the absence of that element which has so often attended policy in the past. The difficulty, of course, is that the public has been long habituated to support the use of force only in cases which have been made to appear as necessary for the containment of Communism, in turn equated with the nation’s security. Could the public be induced, in the shadow of Vietnam, to support a military intervention that bore no apparent or tangible relation to the containment of Communism, itself a factor of diminishing importance in determining the public’s disposition? No one can say. Put in the abstract, the question itself may be rather meaningless. It would take on meaning only after a concerted effort had been made to persuade the public that the alternatives to intervention were laden with dangers to the nation’s well-being. Even then it remains an open question whether an administration could obtain public support, or tolerance, for intervention in the absence of events at home that, once plainly visible, would require little further effort in persuasion. In this instance, the choice might well be between a public that would oppose intervention so long as the interests at stake were not clear, and could not readily be made clear, and a public that would support intervention only when these interests had unfortunately become only too clear.
The point is worth emphasis that we simply do not know what might bring the public to support intervention in the Persian Gulf. If the public viewed such intervention as another Vietnam, they would most assuredly oppose it. But if intervention were to promise success at relatively modest cost, opinion might well move in the direction of support, and particularly if unemployment were to rise to 8 or 9 per cent. Moreover, in this instance, by contrast to Vietnam, the existence of an all-volunteer military force would preclude the painful issues once raised by the draft. Nor is it at all clear that the Left would take the same position toward intervention in the present case as it did toward Vietnam. For the effects of the current oil price on many poor countries do not endear the major oil producers to much of the Left. The relative ease with which Vietnam could be depicted as an attempt to preserve American domination over the developing states, a domination alleged to serve only American interests, would be difficult to repeat today, and this despite the inadequately perceived effects of the oil crisis.
To overcome the gridlock, the US sought to apply pressure on Saudi Arabia by openly discussing the military option of occupying Saudi Arabia. On 1 January 1975, Commentary magazine published
one of the most famous articles in the history of American foreign policy.
The article was written by Robert W. Tucker, head of the American Foreign Policy Institute
and a member of the inner circle of the White House. The title was “Oil: The Issue of American Intervention” and it made explicit references to the military scenario the US was working on. The article served its purpose and convinced
the Saudis to sign the deal. Despite a range of highs and lows, all administrations
ever since President Carter have shown commitment to the ma ntra of a “strong dollar.” For 35
years, from 1975 to 2010, the Petrodollar deal has remained intact, despite oil price
increases and dollar volatility. The dollar has solidified its role as the leading reserve
currency and the leading payments currency. By 2009, a new economic crisis eroded the
stability of the Petrodollar deal. In September of the same year, world leaders gathered for
the G20 Leaders’ Summit and President Obama proposed a plan to boost world growth based
on a simple idea: Each major economic block or region would commit to move away from a
sector it has over-relied and toward an area that offered growth potential.
For China and Japan, this would mean moving from capital investment to consumption. Europe
would move from exports to investment and the US itself would take on the task of increasing
exports. The main obstacle in attaining a growth in
export was that without being able to double the size of labour force or the productivity
of labour (the main drivers of industrial production growth), the only viable option
would be to cheapen the currency. By July 2011, just 18 months after the meeting,
the dollar index stood at 80.48, which represented a decline of 8% and a new all-time low. A currency war had started which continues to survive until today.
Relations between Saudi Arabia and the US have deteriorated sharply over the course
of the Obama administration. There are a number of causes:
* The Iran-US nuclear negotiations and the US acknowledgment of Iran as the leading regional
power. * The release of a top-secret 28-page section
of the 9/11 Commission Report that clearly reveals links between members of the Saudi
royal family and the 9/11 hijackers. The Saudis have threatened to sell their US Treasury
securities in response but they have so far failed to keep their word.
* The US is now a net exporter of energy, and supposedly, has the largest oil reserves
in the world
In response to the weakening of the US dollar, several OPEC nations are allowing oil transactions
to be carried out in other currencies:
* In January 2016, India and Iran agreed to settle their oil sales in Indian rupees.
* In 2014, Qatar agreed with China to be the first hub for clearing transactions in the
Chinese yuan. * In December 2015, the United Arab Emirates
(UAE) and China created a new currency swap agreement for the yuan.
All the above strongly indicate that the Gulf States are taking measures to reduce their
dependence and exposure to the US dollar. All of the conditions that gave rise to the
Petrodollar agreement now stand in the exact opposite position of where they were in 1975.
Neither the US nor Saudi Arabia have much leverage over the other.
A new oil pricing mechanism is possible, and once identified and announced, it will signify
the end of the US dollar as the leading currency. The oil price will pave the way and will certainly
soon be followed by other goods and commodities. Will this be the start
of a new era?
“He sells troops. “We have a very good relationship with Saudi Arabia—I said, listen, you’re a very rich country. You want more troops? I’m going to send them to you, but you’ve got to pay us. They’re paying us. They’ve already deposited $1B in the bank.””
What the map shows is that, due to a peculiar correlation of religious history and anaerobic decomposition of plankton, almost all the Persian Gulf’s fossil fuels are located underneath Shiites. This is true even in Sunni Saudi Arabia, where the major oil fields are in the Eastern Province, which has a majority Shiite population.
As a result, one of the Saudi royal family’s deepest fears is that one day Saudi Shiites will secede, with their oil, and ally with Shiite Iran.
.. Similar calculations were behind George H.W. Bush’s decision to stand by while Saddam Hussein used chemical weapons in 1991 to put down an insurrection by Iraqi Shiites at the end of the Gulf War. As New York Timescolumnist Thomas Friedman explained at the time, Saddam had “held Iraq together, much to the satisfaction of the American allies Turkey and Saudi Arabia.”