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[Emperor's Clothes]

The Arming of Saudi Arabia
Transcript of FRONTLINE Show #1112
Air Date: February 16, 1993
[Posted 8 November 2001]

ANNOUNCER: In December, on the way to Somalia, George Bush stopped to visit an old friend, King Fahd of Saudi Arabia, to say good-bye and to stress the importance of the U.S.-Saudi relationship. The significance of this relationship was underscored just a few weeks later when U.S. fighter jets flying out of Saudi bases led some of January's bombing raids inside Iraq. Next week the new administration will extend its hand to the king when President Clinton's secretary of state, Warren Christopher, travels to Saudi Arabia on Sunday.

Tonight on FRONTLINE, the hidden history of the U.S.-Saudi special relationship.

ZBIGNIEW BRZEZINSKI: We need their oil and they, at the same time, are almost completely dependent on us for their security.

ANNOUNCER: FRONTLINE investigates the 10-year plan that transformed the desert kingdom into a desert fortress.

SCOTT ARMSTRONG: A $200 billion program that's basically put together and nobody's paying attention to it. It's-- it's the ultimate government off the books.

ANNOUNCER: Tonight on FRONTLINE, ``The Arming of Saudi Arabia.''

NARRATOR: On August 2nd, 1990, Iraq invaded and occupied Kuwait. Saddam Hussein's soldiers now threatened the vast oil fields of Saudi Arabia. Four days after the invasion, United States Defense Secretary Dick Cheney arrived in Jidda, Saudi Arabia.

DICK CHENEY: The main purpose for my trip was to try to persuade the king to agree to receive U.S. troops in the kingdom. We simply had to have access to Saudi Arabia. Unless we could get access for our forces to Saudi Arabia, there was very little we could do about Saddam Hussein and Kuwait.

NARRATOR: Cheney was taken to the summer palace to meet King Fahd. There he would argue that the time had finally come to activate a plan long in the making. He had only to overcome some last-minute resistance.

Secy. CHENEY: At one point, the crown prince said that there still was a Kuwait. They needed to go slow and be cautious and prudent here, not rush into anything, to which the king allegedly responded that, ``Well, there might still be a Kuwait, but all of the Kuwaitis were living in our'' -- i.e., Saudi -- ``hotel rooms'' and unless they acted decisively, there was a danger to Saudi Arabia itself.

NARRATOR: The king did act decisively, agreeing on the spot to receive hundreds of thousands of U.S. soldiers on Saudi soil. The largest and fastest mobilization of military equipment and troops in history had begun.
America's ability to respond so quickly and massively to Saddam Hussein's threat impressed the world, but as Secretary Cheney and the king were well aware, the operation didn't happen overnight. It was the result of a special military and economic relationship with Saudi Arabia that is far deeper and more extensive than most Americans know.

Tonight we'll reveal how Saudi Arabia became one of the most heavily armed countries in the world, how years before Desert Storm billion-dollar state-of-the-art military bases were already in place, built to U.S. military specifications, ready and waiting for the arrival of American soldiers. We'll also show you how, at the same time, the Saudis were actively aiding their eventual enemy, Iraq, in a massive arms build-up. And we'll explore evidence that Saudi Arabia may have aided Iraq in its attempt to develop a nuclear bomb. This is the story of the U.S.-Saudi special relationship, a relationship so secret and sensitive that Saudi government officials refused to be interviewed or to allow our cameras into their country.

The story of the Saudi military build-up begins more than a decade ago, during the last days of the Shah of Iran.

President JIMMY CARTER: This is a great tribute to you, Your Majesty, and to your leadership and to the respect and the admiration and love which your people give to you.

NARRATOR: The Shah's overthrow took American policy-makers by surprise. When the Shah's enormous arsenal of U.S.-made weapons fell into the hands of Iran's Islamic fundamentalists, Washington was shaken.

WILLIAM QUANT [sp?]: There was real anxiety that this was the beginning of a wave that would sweep across the Gulf and that Saudi Arabia might be next, or at least would be in line.

NARRATOR: William Quant served on the National Security Council at the time.

Mr. QUANT: It was bad enough to have Iran in turmoil, and with the uncertainty there, but if it had spread further, it would have really been a disaster.

Secondly, there was a real concern about building some kind of a security structure in and around the peninsula to make sure that the Iranian revolutionary contagion didn't spread. And that was difficult because the Saudis were uneasy with the idea of American troops on their territory. They really weren't prepared for it. But they wanted us nearby.

NARRATOR: Zbigniew Brzezinski was National Security Adviser to President Carter. Brzezinski called for a massive military build-up in the Gulf region centered inside Saudi Arabia.

ZBIGNIEW BRZEZINSKI: We therefore developed the proposal for the rapid deployment force and for arrangements for the pre-positioning of some facilities, equipment and logistical facilities in the area. We didn't ask for bases, but we asked for access which, in effect, operationally, wasn't all that different.

NARRATOR: Saudi Arabia was a logical choice to replace Iran. Located just across the Persian Gulf, its small ruling elite wanted weapons to protect its oil resources. The oil-dependent United States was naturally eager to help.

Mr. BRZEZINSKI: We need their oil and therefore we have to make sure that they are friendly and therefore we are engaged in protecting their security. They, at the same time, are almost completely dependent on us for their security in a region in which they're very vulnerable and very rich. So there is a kind of a curious, though asymmetrical, interdependence here.

NARRATOR: The decision to sell expensive weaponry to Saudi Arabia coincided with an explosion in Saudi oil income following dramatic price hikes in the 1970s. By 1981 Saudi annual oil revenues reached $116 billion, part of history's largest transfer of wealth ever.

The Saudi monetary agency had the daunting task of investing $16 million in oil revenue every hour, nearly $400 million a day. Many of the petrodollars flowed to American construction and engineering firms such as Bechtel, which cashed in on Saudi Arabia's rapid modernization.

Mr. QUANT: The petrodollar explosion of the '70s, and then again in the early '80s, had a tremendous impact on the physical aspect of the country. All of the big infrastructural developments that one now associates with Saudi Arabia -- the fancy hotels, the enormous airports, the fantastic road system -- none of that existed 30 years ago. All of the infrastructure was radically rebuilt. It has physically transformed the landscape. Likewise, all the telecommunications, anything you can think of, has been done.

NARRATOR: But the most important purchases for the Saudis were military.

STEVEN EMERSON: Probably the most sophisticated equipment in the U.S. arsenal is now in the hands of the Saudi government, with very little controls imposed by the United States. And, in fact, Saudi Arabia ultimately became the largest beneficiary of U.S. weapons sales in the entire world.

NARRATOR: Steven Emerson chronicled the Saudi-American relations in his book, The American House of Saud.

Mr. EMERSON: Through 1985, Saudi Arabia had received more than $70 billion worth of military equipment and construction and items, far exceeding any other country by magnitudes of 500 600 or 700 percent.

NARRATOR: The key request came in 1979 when the Saudis asked for AWACS, the most advanced airborne radar system in the world. Few people knew at the time that these planes would be the linchpin to an enormous Saudi defense build-up.

TOM BROKAW, NBC News: AWACS, that ugly-duckling airplane with the funny name, is the number one topic in Washington this morning as Congress opens hearings on--

NARRATOR: Jimmy Carter had proposed selling the Saudis five AWACS planes, but lost a bid for re-election before he could act.

President RONALD REAGAN: I, Ronald Reagan, do solemnly swear--

NARRATOR: Ronald Reagan's staunch support for the AWACS sale was surprising.

Mr. QUANT: Reagan came into office with the reputation of being very pro-Israeli and really quite skeptical about all of the Arabs. The only things he had said before coming to office had tended to denigrate the importance of relations with any Arab country, and yet one of his first decisions was to go ahead with the sale of these five AWACS aircraft, with all the associated technology and infrastructure that went with them. A very big package-- $8.5 billion was involved, which, of course, was one of the reasons he probably said yes. It was good business.

PROTESTER: Has not this administration learned the lesson of Iran?

Mr. EMERSON: The 1981 AWACS debate was essentially a face-off between two very powerful constituencies-- one, the domestic American Jewish community, which was fearful that the AWACS would fall against-- in enemy hands against Israel, and the American corporate community, which was lobbying essentially at the demand and control and direction of the Saudi government.

American corporations, with over $500 billion in contracts with Saudi Arabia, were told in no uncertain terms that unless they lobbied their Congressmen and Senators, they would not received renewals of their contracts.

NARRATOR: The Pentagon's point man for the AWACS sale was Air Force General Richard Secord.

General RICHARD SECORD (U.S. Air Force, Ret.): The supporters of Israel literally were up in arms over this and they were fighting this every step of the way and so it became a classical political wrangle.

NARRATOR: The AWACS wrangle made good copy and The Washington Post assigned one of its best reporters to the story. Scott Armstrong was puzzled by the huge AWACS price tag.

SCOTT ARMSTRONG: So I went to the Pentagon and I said, ``What does an AWACS plane cost now? It used to cost $100 million.'' And they said, ``Oh, it's about $110 million now. It's gone up.'' And I said, ``Ah, that's it. Five times $110 million must be $5.5 billion.'' I said, ``Wait a minute. There's a decimal point missing here.'' And I started asking people and they had no explanation. They said, ``Well, there's some training and some spares and there's a little this, a little that.'' So I went up to Capitol Hill and I talked to John Glenn, the Senator who was in charge of opposing the sale, who was very pro-Israel. And I went through this with Glenn and I said, you know, ``Five times $110 is $550 million, not $5.5 billion.'' And Glenn went, ``You're right,'' and turned to his aide and said, ``What's going on here?'' And that was the beginning of kind of unlocking a door.

NARRATOR: Concerned about Armstrong's questions, General Secord arranged a Pentagon briefing. The briefing lasted two days.

Mr. ARMSTRONG: The table began to fill up with aides and as soon as the table filled up, a ring of chairs around them began to fill up, until finally we had probably close to 30 to 40 people in the room. I mean, it was very hard for me to tell. I would ask a question: ``What is the particular facility that the AWACS is going to use in the north of Saudi Arabia? What's going to be on that base?'' And all of a sudden, the answer would come from over my shoulder. And then I'd say, ``Well, how does that fit into the threat perception that the Saudis have of how they're being threatened in the region?'' and the answer would come from another direction. And I'd say, ``Well, what about the ports that are going to be built?'' and the answer would come from another direction. And I was doing all I could to just keep track of what service, whether it was Army, Navy, Air Force that these guys were answering from because it was clearly an important show. I mean, Oliver North was one of the people sitting in the back of the room, a then-obscure Pentagon aide who right after that went to the NSC to lobby for the AWACS.

NARRATOR: As he listened, Armstrong realized that the story was much bigger than the sale of five planes.

Mr. ARMSTRONG: And gradually this picture began to emerge that we were talking not just about five AWACS planes, but that this was the way to slip in the linchpin to an elaborate electronic communications system that would be the equivalent of the heart of what we have in NATO, for example. It was creating a new theater of war. It was something that the Americans would essentially be able to move into and control instantly. But the key to it was the Saudis were going to pay for it. The problem was to get through the heart of it and the heart of it was hidden in the AWACS package.

NARRATOR: Four days before the crucial Senate vote Armstrong prepared an article stating that the proposed AWACS sale was just the beginning of a secret $50 billion plan to build surrogate military bases in Saudi Arabia.

Richard Secord says he pressured Armstrong's editors to delay publication of his story.

Gen. SECORD: Because it was only days before this vote was coming and it was very close. Our public affairs people in the Pentagon, as I recall it, called the editorial management of The Washington Post and said, ``You know, this guy's preparing this cockamamie story.'' You know, ``You've got to give us a break on this. This is crazy,'' you know? And that's why the story was published after the vote, not before.

Mr. ARMSTRONG: There were some last-minute Pentagon briefings they wanted to give me over the weekend. That stalled it over the weekend. Then there were some objections raised by lobbyists for the Saudis with the Post editorial folks about the fact that this really wasn't a fair piece. And the next thing we knew, the story ran the day after the vote.

NARRATOR: At The Washington Post former executive editor Ben Bradlee told FRONTLINE he could not recall any Pentagon pressure to delay Armstrong's article.

On the afternoon of October 28th, 1981, the lobbying ended and the Senate AWACS roll call began. The outcome was still uncertain.

Gen. SECORD: On the preceding Friday, we showed at best a tie and so the Vice President then, George Bush, was prepared to break the tie if it came out that way. We lucked out and at the last minute, a few of the Senators switched their votes over and so we won it by four votes, which really, if you think about it, is only a two-man swing, 52 to 48.

NARRATOR: The AWACS sale was a big victory for Ronald Reagan, who had personally campaigned around the clock for the Saudi deal.
Pres. REAGAN: [to reporters] I'm trying to smile with dignity. I don't want to look jubilant.

NARRATOR: Scott Armstrong's article finally appeared on the front page of The Washington Post not one, but four days after the AWACS vote. In it Armstrong detailed a hidden plan the Congressional debate had never confronted, a grand defense strategy for the Middle East oil fields, an ambitious plan to build surrogate bases in Saudi Arabia equipped and waiting for American forces to use. An unwritten secret understanding lay behind what had been framed as the mere sale of five planes. ``The heart of the understanding is this,'' Armstrong wrote. ``If America will sell the Saudis an integrated package of top-of-the-line military technology, Saudi Arabia will build and pay for a massive network of command naval and air defense facilities large enough to sustain U.S. forces in intensive regional combat.''

Armstrong's conclusion that the AWACS sale was the cornerstone of a multi-billion-dollar secret defense build-up inside Saudi Arabia was flatly denied by Secretary of Defense Caspar Weinberger.
In the face of Saudi secrecy and Defense Department denials, Armstrong's article was soon forgotten, but much of his story has now been confirmed by senior officials of the United States government, including Lawrence Korb [sp?], who was assistant defense secretary under Weinberger.

LAWRENCE KORB: What the Saudis allowed the United States to do over in that part of the world was to set up a de facto infrastructure by purchasing airfields, by purchasing very modern ports, by purchasing a lot of American equipment, theoretically to support their forces, by buying a lot of American equipment that would use the same type of facilities that our forces needed. So, in effect, we had a replica of U.S. airfields and ports over in that part of the world paid for by the Saudis to be used by the United States when and if we had to go over there.

NARRATOR: Richard Murphy was U.S. ambassador to Saudi Arabia from 1981 to 1983.

RICHARD MURPHY: I remember U.S. Air Force officers being-- being outright jealous of the Saudis for the money that had been spent to protect the planes under these reinforced hangars in the principal air bases, stuff that we couldn't have afforded to do in North America, much less in Europe with NATO.

Mr. KORB: In many cases, it was almost better than NATO. With the Saudis, they basically were buying off the shelf from us and replicating an American military facility, so when we showed up, it was just like being at home. Everything fit. Everything worked.

Mr. MURPHY: [?] I call it the world's greatest-- or largest gasoline station, sitting there, able to pump out the jet fuel, refined in country. And since they were using principally American fighters and the AWACS planes, the fittings, all of the appurtenances of the airfields, fit in very nicely with the needs of the American Air Force.

NARRATOR: Dick Cheney, Caspar Weinberger's successor as defense secretary, now openly acknowledges the Saudi build-up.

Secy. CHENEY: During the '80s there was an increased level of cooperation between the United States and Saudi Arabia, the provision of additional equipment, the AWACS early warning airborne system, F-15 fighters. Plus there was a great deal of work done in terms of building facilities. The port facilities and the airfields that were so crucial to our ability to be able to deploy the force rapidly and then to conduct combat operations from Saudi Arabia were developed in the 1980s with a major investment on the part of the Saudis, but major involvement by the United States.

NARRATOR: One example of this increased cooperation: King Khalid Military City, built in secrecy near the Iraqi border in the heart of a stark, barren desert. The facility was the ultimate test of the Saudi ability to turn oil money into security. Called ``one of the most extraordinary military bases in the world'' by the publication Jane's Defense Weekly, the military city includes ballistic missile silos and nuclear-proofed underground command bunkers. Constructed with the involvement of the CIA, the National Security Agency and the Army Corps of Engineers, the total cost of creating King Khalid Military City remains secret, but Jane's Defense Weekly estimated that nearly $8 billion had been spent by 1984. A decade after his Washington Post investigation Scott Armstrong wrote another article about the Saudi arms build-up, this time for the investigative magazine Mother Jones. By 1992, Armstrong concluded, the cost of the military build-up had risen to $156 billion.

Mr. ARMSTRONG: The Saudis have been the principal backers and financers of the largest armaments system that the world has ever seen, in any region of the world, that includes over $95 billion worth of weapons that they bought themselves, includes another $65 billion worth of military infrastructure and ports that they've put in. We've managed to create an interlocking system that has one master control base, five sub-control bases, any one of which is capable of operating the whole thing, that are in hardened bunkers, that are hard-wired, that is to say, against nuclear blast or anything else. They created nine major ports that weren't there before, dozens of airfields all over the kingdom. They have now hundreds of modern American fighter planes and the capability of adding hundreds more. The Saudis alone have spent $156 billion that I can document line by line, item by item, on weapons system and infrastructure to support this.

NARRATOR: Many in Congress say they are still unaware of the massive U.S.-Saudi defense build-up. James Jeffords was the ranking Republican on the Senate near east subcommittee.

JAMES JEFFORDS: I'm not aware of that build-up. It was a surprise to recognize how rapidly we could mobilize, considering the number of troops and equipment that had to be moved over there.

NARRATOR: Senator Howard Metzenbaum:

Sen. HOWARD METZENBAUM (D-OH): That information was not made available to me and I doubt that it was made available to many members of the Congress, if any.

NARRATOR: Former Representative Mel Levine [sp?].

MEL LEVINE: Most members of Congress were not aware of it, were not aware of it at all, and this is not something that was advertised either to members of Congress or to the American public.

NARRATOR: But Lawrence Korb and others in the administration say those in Congress who plead ignorance are disingenuous.

Mr. KORB: Anybody who looked at what was happening there recognized what was going on. If you looked at the price that the Saudis were paying for things that they bought from us, compared to what other nations, you had to know that there was a logistics tail being built into that.

Gen. SECORD: You know, I helped brief a lot of these guys. I know that they knew full well everything that was going on with respect to military construction and military weapon procurement and deployment in Saudi Arabia and the other countries of that region.

NARRATOR: Still, Senator Metzenbaum maintains he had insufficient access to information.

Sen. METZENBAUM: The United States deals with Saudi Arabia in a somewhat different manner than it deals with many other countries. It's pretty much of a closed relationship between the administration-- a few people in the administration, not a lot of them, and Saudi Arabia.

Mr. ARMSTRONG: Over the last decade we've seen individual examples of policy made secretly, secret from Congress, secret from the American people, selling arms to Iran, selling arms to Iraq, both of which, by the way, I think are connected to this overall policy with the Saudis. But they are little slices of things that seem to be government off the books, people not quite authorized to do something. Why wasn't Congress notified? Little questions. Here's something that's huge. I mean, it's absolutely phenomenal, a $200 billion program that's basically put together and nobody's paying attention to it. It's-- it's simply not something that Congress can attend to. It's not something that the press is attending to. There are very few public interest organizations in town, who are usually the real watchdogs, that have appointed themselves to look after this. It's something that's so big, it doesn't slip through the cracks, it slips around the cracks. It enveils everything. It is the ultimate government-off-the-books.

NARRATOR: Government off the books was characteristic of the Saudi-U.S. relationship throughout the 1980s. When Soviet troops invaded Afghanistan the Saudis, always suspicious of Soviet designs on the Gulf, spent billions to help the U.S .finance its covert, off-the-books support of Afghanistan Mujahadeen rebels. The Saudis also helped finance a covert war in the Western Hemisphere.

Gen. SECORD: In the '80s, when the Congress was cutting off funds for the contras, I did talk to the Saudis about them possibly anteing up some millions to support the contras during this period because they are tremendously anti-communist in their own philosophies. It turned out that was unnecessary, since that was to be done at a higher level and, as we all now know, the Saudis did contribute $20 million or $30 million at the request of the president of the United States.

NARRATOR: But the most expensive covert joint venture for Saudi and U.S. officials was their attempt to contain the revolution in Iran.

Pres. REAGAN: We're also concerned about the tragic war between two of Saudi Arabia's neighbors, Iran and Iraq, a conflict that is raging only a few minutes by air from Saudi territory.

NARRATOR: Iraq's Saddam Hussein would become the willing instrument of this policy to contain Iran. Kenneth Timmerman is the author of The Death Lobby: How the West Armed Iraq.

KENNETH TIMMERMAN: In the summer of 1980, the Iraqis were very eager to get U.S. approval for their invasion of Iran and they dispatched senior government officials, including their then-foreign minister, to Saudi Arabia and to Amman, Jordan, to consult with American officials to make sure that we would not oppose the invasion of Iran.

INTERVIEWER: Did we oppose it?

Mr. TIMMERMAN: We certainly did not.

NARRATOR: And on August 5th, 1980, Hussein himself made a state visit to Saudi Arabia. According to some reports, he informed the Saudis of his intention to go to war. Six weeks later Iraqi forces launched attacks deep inside Iran.

IRANIAN RADIO: The Iraqi government, under the study of its masters, the American imperialism, has started an aggression on our territory.

NARRATOR: The next day Iran retaliated and full-scale war broke out.

HOWARD TEICHER: The Saudis were extremely concerned that Iran would win the war, that it would manage to assume control in Baghdad and establish an Islamic republic and that, through direct or indirect means, it would threaten the kingdom.

NARRATOR: Howard Teicher served on the National Security Council from 1982 to 1987.

Mr. TEICHER: I discussed this in meetings with King Fahd, Prince Saud and other Saudis. This was the most important subject on the Saudi agenda in the 1980s, how to, at a minimum, prevent the war from expanding beyond the Iran-Iraq border are and engaging the Saudis.

NARRATOR: Throughout the eight-year Iran-Iraq war, the Saudis, with the knowledge and approval of United States government officials, backed Iraq with money, weapons and intelligence.

Mr. TEICHER: They were providing financial assistance. They provided logistics support. They were providing intelligence information. They took the information that we provided them about our assessments of the Iranian military and provided it to Iraq. I believe that some of that information contributed to Saddam Hussein's decision to invade Iran in the first place.

NARRATOR: In 1983 U.S.-manned AWACS flying out of Saudi Arabia began direct intelligence sharing with Iraq.

Mr. MURPHY: We knew the capabilities of the Iranian air force and we knew the value of the real estate and the oil that the Saudis were safeguarding in the eastern province of the kingdom. And the AWACS provided that critical period of warning of approaching fighter-bombers, fighter jets coming out of Iran.

NARRATOR: The Saudis also provided tens of billions of dollars to Iraq in cash. How much Saudi money? Estimates vary.

Mr. MURPHY: The gossip in Riyadh was that the government might have been transferring a billion dollars a month.

NARRATOR: James Akins [sp?] was U.S. ambassador to Saudi Arabia from 1973 to 1975.

JAMES AKINS: Well, I think Kuwait and Saudi Arabia must have given something on the order of $60 billion, in a ratio of two to one, $40 billion from Saudi Arabia and $20 billion from Kuwait.

NARRATOR: Saudi Arabia also provided American-made weapons to Iraq, despite Congressional restrictions on such transfers. In February, 1986, hundreds of one-ton MK-84 bombs were sent to Iraq by Saudi Arabia. This illegal Saudi arms transfer was kept secret from the public until April, 1992, when the story was broken in the Los Angeles Times by reporter Murray Waas. The story said the shipment was part of a 10-year covert policy by the Reagan and Bush administrations to arm Iraq.
Working with FRONTLINE, Waas has now uncovered a much larger story. Waas has learned that in 1990, the U.S. government received intelligence information that the Saudis had aided Iraq's nuclear weapons program. The text of a still-classified CIA report dated June, 1990, and made available to Waas states that analysts had reliable information that Saudi Arabia had provided $5 billion to Iraq's nuclear weapons program.
According to the CIA report, beginning in 1985 some of the money flowed through the Gulf International Bank, which at the time was owned in part by the Saudi and Iraqi governments. It could not be determined whether subsequent reports further corroborated this intelligence information, but FRONTLINE has talked to sources in the CIA and at the Pentagon's National Security Agency who say that they first heard of a Saudi-Iraqi nuclear connection as early as 1986.

FRONTLINE has also learned of a still-classified 1989 intelligence assessment prepared by the Defense Intelligence Agency which details money flowing from the Saudi Arabian military through an unnamed bank in Bern, Switzerland, to Iraq's secret military procurement network. Although the assessment does not specify how this Saudi money was used, it does note that the purpose of the procurement network was to develop ballistic missiles and nuclear weapons.

Ambassador Akins believes that Saudi involvement in Iraq's nuclear program began after Israel destroyed a nuclear reactor near Baghdad in 1981.

Amb. AKINS: After the Israel attack on Baghdad -- and the Israelis, one must remember, flew across Saudi Arabia to get there, and the Saudis were extremely upset about this--

SAUDI OFFICIAL: It's another indication of Israeli aggression against the Arab world.

Amb. AKINS: --there was a decision at that point taken to build a nuclear weapon. ``The only way we're going to be able to stand up against Israel is to build a nuclear weapon. It will be built in Baghdad and the countries of the peninsula will pay for it.''

NARRATOR: The Gulf Arabs' desire to assist Iraq's nuclear program may be traced to fears about Israel's nuclear arsenal.

Amb. AKINS: There's no doubt that the Israelis have a nuclear weapon. They probably have well over 200 nuclear bombs and they have the means of delivering these bombs to every major Arab city. Certainly every Arab leader thinks that the only way of being able to-- to make sure-- to ensure that Israel does not use this bomb against the Arabs it to have a deterrent nuclear force of their own.

NARRATOR: On Capitol Hill, those who monitor nuclear proliferation say the Saudi-Iraqi nuclear connection is news to them. Senator John Glenn:

Sen. JOHN GLENN (D-OH): And if the Saudis were putting money in there in general support of the war-making capability of Iraq at that time, I understand that. If they specified, though, that there's $5 billion and it's going in there specifically for nuclear development for an Islamic bomb, that'd be something else again. But I-- I haven't heard any allegation like that before.

NARRATOR: Former secretary of state James Baker and former CIA head Robert Gates declined comment to FRONTLINE. When we asked former defense secretary Dick Cheney about the intelligence assessments we had reviewed, he would neither confirm nor deny their existence.

Secy. CHENEY: If there were such intelligence reports, it's not something I could talk about anyway. It's all classified. And I never speculate one way or the other about what is or isn't in various and sundry intelligence reports.
NARRATOR: It may be that Cheney never saw the intelligence assessments. FRONTLINE does not know to whom they were circulated.

Secy. CHENEY: The Saudis have, over the years, supported a lot of folks, but the notion that-- I find it hard to believe that they would have provided $5 billion to assist the Iraqis in development of a nuclear weapon.

NARRATOR: The Iran-Iraq war ended in a stalemate in 1988, leaving a million casualties. The off-the-books U.S.-Saudi policy toward Iran had ironic results. Iran was prevented from overrunning Baghdad, yet Saddam Hussein invaded Kuwait two years later, threatening the oil fields of his one-time patron, the Saudis.

Oil-- it's what makes the special Saudi-U.S. relationship so special. Without oil there is no alliance. America would have no interest in defending Saudi Arabia. Saudi Arabia is America's number one foreign supplier, responsible for one quarter of all oil imported by the United States. Access to Saudi oil is important to all Americans, and so is its price.
Throughout the '80s the Reagan-Bush administration insisted that oil prices should be determined by market forces, but most oil analysts say the U.S. and the Saudis entered into unwritten understandings about the appropriate price for oil, understandings that are still secret. The pricing of oil may be the most sensitive aspect of the U.S.-Saudi special relationship.

CHARLES EBBINGER [sp?]: I believe there are broad understandings on what are acceptable ranges of oil prices.

NARRATOR: Energy analyst Charles Ebbinger.

Mr. EBBINGER: No one has ever had a definitive view of how Saudi policy was made or what the link is between Saudi and U.S. government policy in the enunciation of oil policy. I happen to be of the view that, for the most part, the Saudis have priced their oil in a manner that they thought was commensurate with their interests, while certainly taking U.S. government views under advisement, but there is a contradictory view implying a much closer relationship.

EDWARD CRAPELS [sp?]: Well, there's no question that, because we're the largest consumer and they're the largest producer, we influence one another.

NARRATOR: Oil market analyst Edward Crapels.

Mr. CRAPELS: It would be foolish to say the U.S. government doesn't talk about oil prices. It always talks about oil prices. What else is it going to talk to Saudi Arabia about?

NARRATOR: For years the U.S. government has maintained that it never discusses oil prices with the Saudis. But in the early '80s, the Reagan administration was faced with high oil prices, which contributed to a deep recession in the United States and the Saudis were losing market share due to high OPEC prices.

Mr. MURPHY: We were interested in lower prices, no question. The Saudis basically were interested in lower prices, not because of the love of American eyes, but for their own long-term economic interests.

NARRATOR: In February, 1985, with the Saudi economy suffering, King Fahd paid a state visit to Washington. It was his first visit to America as king. Fahd's five-day stay included a White House reception and dinner.
Pres. REAGAN: There's an Arab saying, ``The sands are blowing,'' and I submit to you, King Fahd, that if the sands of time give us any hint of the future, it is that in the days ahead the friendship between the Saudi Arabian and American people will be a strong and vital force in the world and that the future--

NARRATOR: The king also had a number of meetings with President Reagan. Much of what transpired during those meetings remains secret.
Edwin Rothschild is the energy policy director of the public interest group Citizen Action. Rothschild used the Freedom of Information Act to gain access to some previously secret government files in an attempt to find out what happened during Fahd's visit to Washington.

EDWIN ROTHSCHILD: Here we've got material from the CIA-- huge black-outs of information they've excised. They don't want the public to see about what happened to the oil market. Same thing with the State Department.

NARRATOR: Rothschild obtained this secret State Department memo briefing Secretary of State George Shultz for a meeting he had with Saudi oil minister Zaki Yamani [sp?] during King Fahd's visit. The memo, prepared by Richard Murphy, urges the Saudis to let the free market dictate prices.

INTERVIEWER: They say that pressure was put on the Saudis to lower the oil prices as a way to stimulate the United States economy.

Mr. MURPHY: The only discussions I recall-- and I honestly don't recall anything that put it as crudely as you have just suggested, that ``We want you to lower the prices.'' Now, maybe it was the same argument: ``We want you to avoid politicizing prices. Let the market-- let the market rule.''
Mr. ROTHSCHILD: When someone uses the words, ``market,'' ``let the market rule,'' you have to look beneath that. That's a code word. In this case, the market was two governments: the United States and Saudi Arabia. U.S. policy makers in the Reagan-Bush administration were convinced that lower oil prices were necessary for U.S. economic growth and for their own continued political success. Our government officials painted a rosy picture for the Saudis about what would happen if the price of oil fell. They persuaded the Saudis that their market would increase, that the United States and Europe would consume more. The Reagan-Bush administration colluded with the Saudi Arabian government to drive world oil prices down.

NARRATOR: In late 1985 the price of oil began to drop precipitously, plummeting from $27 a barrel to $9 a barrel in just eight months. The fall in the price of oil successfully stimulated the overall U.S economy. The stock market boomed and conspicuous consumption became a hallmark of the go-go '80s and the Saudis began to gain back market share from their OPEC brothers. But not everyone agrees that the Saudis and the Americans had colluded, as Rothschild claims.

Mr. CRAPELS: It's an interesting thesis and I'm glad Ed has done the work that he's done because otherwise there's just too much conventional wisdom about how the oil market works and how it got to this big change. Having said that, I think he-- he stretches it too far. I think the idea that there was a conspiracy between the U.S. government and the Saudi government stretches it. There probably was an understanding that it would be nice if oil prices went down.

NARRATOR: But the effect of low oil prices on the oil-producing states of the Southwest was extremely negative. Independent oil producer Mike Halbaty [sp?]:

MIKE HALBATY: Maybe-- maybe Rothschild is right. Maybe there was a collusion. I don't know. But all I know, one thing happened. Oil went down to $9 a barrel. When it did, it devastated the independent petroleum segment in the United States.

Mr. ROTHSCHILD: A million barrels a day of production in the United States was lost. Nearly 500 000 jobs were lost. It also created severe problems in the U.S. banking industry and, over the long term, we became far more dependent on imported oil, which was costing us in our balance of payments. It also undermined investment in alternative fuels, energy conservation, energy efficiency and the effort to reduce our energy consumption.

Mr. HALBATY: Billions of dollars of S&L losses attributed to the fact that independents were not able to pay their debts to banks, and so forth. There was a tremendous amount of money lost, billions of dollars. Our economy really was shattered.

NARRATOR: By the spring of 1986 this domestic collapse moved the Reagan-Bush administration to conclude that the price of oil had gone too low. In April Vice President George Bush prepared to visit Saudi Arabia.
Vice President GEORGE BUSH: But there will be not-- we're not going there on a price-setting mission, when we ourselves favor market forces.

NARRATOR: Before he left, Bush held a press conference.

Vice Pres. BUSH: I'm glad you raised that because I think it is essential that we talk about stability and that we not just have a continued free fall, like a parachutist jumping out without a parachute. And that's what essentially has happened to the price of crude oil in recent months. Our answer is ``Market. Market. Let the market forces work.''

MELVIN CONANT [sp?]: It was a lie. The market was not going to rule. By no conceivable definition of market was that going to happen.

NARRATOR: Like most oil analysts, Melvin Conant says a free oil market does not exist.

Mr. CONANT: There has never been a free market for oil. It was either dominated by the Rockefeller Trust, which was not my definition of a free market, or it was dominated over many years by the majors, the American and British oil companies, and more recently, of course, the attempt by OPEC to dominate it. But to call oil a free market is thoroughly misleading.

NARRATOR: George Bush arrived in Riyadh on April 5th, 1986, and promptly issued a warning about the implications of low oil prices for the economy of the Southwest.

Vice Pres. BUSH: We're on a-- on the-- both sides of a two-edged sword, you might say, benefiting as the United States from lower energy prices, and yet severe economic dislocation to some parts of the country. It's a two-edged sword, in a sense.

NARRATOR: Bush then met with King Fahd. Soon after the meeting the Saudis scaled back production and the price of oil doubled within seven months. But Bush's remarks had created controversy and confusion. Did the administration want low oil prices, high oil prices or a free market? President Reagan did little to clarify the issue at his own press conference.
Pres. REAGAN: While we have said we believe that this whole thing with the oil prices should be settled on the basis of the free market, the market in oil is not completely free. There are some major producers of oil who are governments.

NARRATOR: Ed Rothschild continues his effort to pry information out of the United States government. He's brought suit in federal district court in Washington, challenging the government's decision not to release all the documents he has requested under the Freedom of Information Act.

Mr. ROTHSCHILD: And the U.S. State Department did give us some documents, but most of the important documents, about 300 of them, they simply said, ``We're not going to give you. We consider those documents to be confidential, classified, secret''--

NARRATOR: Last July the State Department filed a brief asking the court to withhold the documents because making them public ``would reveal the intricate substance, nature and extent of U.S.-Saudi cooperation on oil market issues.''

Meanwhile, U.S. reliance on Saudi oil is growing. In 1985 the U.S. imported 132,000 barrels of Saudi oil every day. By 1997 America's oil imports from Saudi Arabia are projected to rise to 2.4 million barrels a day. Such reliance on imported oil threatens our national security, says independent oil man George Mitchell [sp?].

GEORGE MITCHELL: So therefore if there's any one commodity that we should really work on, it should be oil and gas, to be more self-sufficient. We're now importing nearly half our oil, eight billion barrels a day or thereabouts. And that's for sure a blueprint for disaster.

NARRATOR: The supposedly inexpensive Saudi oil comes with hidden costs, Mitchell says.

Mr. MITCHELL: Remember this. They don't factor into the oil prices the cost of security. If I were going to give you a guess on what every barrel of imported oil costs this country, which costs us $20 a barrel to buy now, it's probably in the neighborhood of $120 a barrel, when you add-- when you factor in the strategic defense we go through to protect our oil resources. And as I said, the energy policy we've had is not very good. It's to go to war.


Mr. MITCHELL: Go to war.

NARRATOR: America's first oil war was a success, in large part due to the strength of the U.S.-Saudi relationship and the network of military bases bought with Saudi petrodollars. But this special relationship may be more fragile than it appeared during Desert Storm. During the war the presence of a half million American men and women inside Saudi Arabia exposed strains within Saudi society, tension between pro-Western moderates like King Fahd and fundamentalist Muslims who dislike the West. An Islamic fundamentalist backlash against the United States, similar to that which toppled the Shah of Iran in 1979, would be a nightmare for U.S. policy makers.

Mr. CRAPELS: If Saudi Arabia changed governments today, we couldn't afford it. The Saudi monarchy is the devil we know and we definitely want to keep the people we know in power in Saudi Arabia.

Mr. EBBINGER: I guarantee you there's a reason we have those bases in Saudi Arabia. We saw one use for them in the war with Kuwait and Iraq, but they're also there to ensure an active ability of the United States and allied forces to defend those oil fields, and that's not only from external aggression against the kingdom.

NARRATOR: There's a new administration in Washington. Bill Clinton's Saudi policy is yet unknown and no representative of the Saudi government would speak to FRONTLINE. But as long as the U.S. economy depends on Saudi oil, America's national security will depend on the defense of Saudi Arabia.

ANNOUNCER: In South Africa there's talk of an election.

BLACK WOMAN: Democracy is the government of the people, for the people, by the people!

ANNOUNCER: Now the white government is fighting to keep its share of power. ``Apartheid's Last Stand,'' next time on FRONTLINE.

Copyright (c) 1992 WGBH. Posted For Fair Use Only.


Written and Produced by RORY O'CONNOR
Reported by ERIC NADLER
Directed by RORY O'CONNOR
Associate Producer CLARENCE ZALIS
Additional Reporting W. SCOTT MALONE, MURRAY WAAS
Line Producer GLENN BEATTY
Production Assistant SAM SHINN
Principal Videography GARY KEITH GRIFFIN
Additional Videography SAM SOMWARU, LARRY LALA
Original Music CHRIS BURKE
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Sound Producers for Globalvision ERIC NADLER
Production Executive STEVEN C.F. ANDERSON

Additional Materials:
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Post Production Producer ROBIN PARMELEE
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A Globalvision, Inc., Production


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