A Global Security Perspective - mafhoum.com · 1967: The ’67 Arab -Israeli War caused 2.0 MMBD...

The Center for Strategic and International StudiesArleigh A. Burke Chair in Strategy

1800 K Street, NW • Suite 400 • Washington, DC 20006Phone: +1-202-775-3270 • Fax: +1-202-457-8746

Web: www.csis.org/burke

Saudi Energy Security:A Global Security Perspective

Anthony H. CordesmanArleigh A. Burke Chair

Revised: November 10, 2006

Copyright Anthony H.Cordesman, all rights reserved. 2

The Global Energy ChallengeThe Global Energy Challenge


The 19th Century Myth of GlobalResource Competition

� The world does not run out of oil and gas, it simplybecomes progressively less affordable.

� No mechanism for global trade and globalism works betterthan open market prices for exports.

� Substitution effects work best if price driven, with limitedintervention by governments.

� Demand-driven high prices are fair prices.� The World adapts over time.


Reality is Global Interdependence

� Major industrialized states and emerging economiesdependent on global trade.

� US and Europe “import” oil through Asianmanufactures.

� Global stability dependent on global economicgrowth and stability.

� Environment, Supply, Conservation, Efficiencyevolve forward on global basis.

� Market forces most efficient and secure method ofpricing and distribution for all major powers.


Globalization of World Energy Demand

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200

250

300

350

400

450

Total

Renewables

Nuclear

Coal

Natural Gas

Oil

Total *234.3 *186.5 *45.5 *308.8 *412.8 *139.1

Renewables 17.4 15.2 2.9 25.7 36.7 7.6

Nuclear 22.3 4.2 0.4 24.1 10.6 3.1

Coal 45.6 54.8 29.5 63.1 132.4 89.4

Natural Gas 51.9 47.2 1.4 76.8 113.1 8.2

Oil 97 65.1 11.4 119.1 120 30.9

OECD2003

Non-OECD2003

China2003

.OECD2030

Non-OECD2030

China2030

Adapted from DOE/EIA, IEO 2006, Appendix D


But, Nothing Brings Stability

� Virtually every aspect of the future is too uncertain to control or plan. Crisis and price-driven change may be less painful and costly.

� All forms of commodity trades – oil, gas, product, coal, nuclear fuels, and energy-relatedtechnology – are inherently volatile to a high degree.

� Instability is global in a global economy and driven as much by global and localeconomic conditions, weather, and technological-industrial “complexity” as potentialcrises in terms of export flows.

� Katrina versus Nigeria versus Iran and Iraq versus Venezuela versus Russia andUkraine.

� Market behavior is irrational in short term and often much longer: “Risk Premium.”

� Technological, industrial, investment, and political instability increase with time.

� Emerging technologies and first of a kind industrial applications are notoriouslyimpossible to predict in terms of cost, effectiveness, availability, and market penetration.


Oil and Gas SecurityOil and Gas Security


Oil and Gas Capacity and Exports CreateSpecial Problems

( Production in Millions of Barrels Per Day - Source: EIA, International Energy Outlook, 2006, pp. 155-157)

�Major Western powers largely only invest and “secure” domesticenergy capacity; China, Russia, India seeking to secure foreignsources..

�Oil and product capacity in exporting countries largely left tonational oil companies with some multinationals investment and stateinvestment by China, Russia. India.

�Gas capacity dominated by domestic investment with somemultinational and state investment. Large LNG facilities andpipelines an exception.

�IEA and EIA studies see capacity maintenance and expansion asserious risk in many exporting states: Algeria, Iran, Iraq, Nigeria,Angola, Venezuela all examples.

�Coal is not seen as security issue. Supply seen as market-driven.Moved by rail and ship.

�Nuclear fuel is largely a non-issue at present. Russia is presentmajor exporter, with some European capability, particularly inFrance.


Oil-Gas Export Risks and Uncertainties

Geostrategic Risk• Security of facilities

• Stability of governments

• Oil and Gas as a weapons

• Supply disruptions

• Corruption of oil deals

Nature of Resources• Reserves estimates

• Recoverability

• Natural depletion

• New discoveries

• Technical 3-D modeling

Economic Forces• Health of global economy

• Inflow of investment

• Demand elasticity

• Production at a given price

• Labor strikes & disputes

Production Capacity• Sustainability

• Technological gains

• Field management systems

• Crude grade

• Refining capacity

Rational Expectation?

Res

ourc

eA

vaila

bilit

y

Ris

kP

rem

ium

Strategic Importance: Projections


Oil:Global Demand at Given Price levels( Production in Millions of Barrels Per Day - Source: EIA, International Energy Outlook, 2006, pp. 155-157

Average world oil prices in 2030 are $34, $57, and $96 per barrel)

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40

60

80

100

120

140

History

Low Price

Reference

High Price

History 69.5 82.3

Low Price 95.3 104.7 114 123.5 132.8

Reference 94.3 101.6 107.6 114.9 123.3

High Price 89.8 94 98 102.5 107.7

1990 2003 2010 2015 2020 2025 2030


Oil Supply & Demand Gap

Source: EIA, IEO 2005; and BP, Statistical Review of World Energy 2005; the forecast is based on the IEO2005 Reference case scenario

20

40

60

80

100

120

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2020

MM

BD

Supply Demand

Supply: Includes crude oil, shale oil, oil sands and NGLs (natural gas liquids - the liquid content ofnatural gas where this is recovered separately).

Demand: Inland demand plus international aviation and marine bunkers and refinery fuel and loss.


The Changing Nature of Oil Flows and Security:Demand For Persian Gulf Imports

In MMBD, Reference Case from EIA, IEO,Figures 33

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16

North America 2.4 3.2

Other OECD 9.1 9.6

Asia 6 14.8

Other Non-OECD 6 7.3

OECD:2003 OECD:2030Non-OECD:

2003Non-OECD:2030


High Prices Reduce Dependence on Middle East

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120

(China)

Other L. America

Other Africa

Caspian

Russia

North Sea

Mexico

Other OPEC

Persian Gulf

(China) 2.8 3.4 3.8 3.8 4.2 3.7 4.1 5.4

Other L. America 2.6 4.2 4.8 5.9 6.6 5 6.7 7.1

Other Africa 2.2 3.2 3.8 5.8 8.6 3.8 6.2 8.6

Caspian 0 1.9 3 5.2 7.5 3 5.1 6.4

Russia 11.4 8.5 9.6 10.9 11.6 9.5 10.8 10.2

North Sea 4 6.3 5.5 5.1 4.3 5.8 5 3.7

Mexico 3 3.8 4 4.5 5.1 3.9 4.3 4.2

Other OPEC 8.5 9.3 11.6 12.8 13.9 10.6 10.6 11.2

Persian Gulf 18.7 23.7 28.3 30.1 36.8 25 22.7 25.5

1990 20032010

Ref2020

Ref2030

Ref2010High

2020High

2030High


Market is Only Part of the Story:Impact of Oil Disruptions

The following outlines key oil supply disruption incidents:

� 1956: the Suez War caused 1.0 MMBD supply shortages for 4 months.� 1967: The ’67 Arab-Israeli War caused 2.0 MMBD supply shortages for 2 months.� 1974: The October War caused an oil embargo that cut the supply by 2.6 MMBD for 6

months. During that disruption, the world oil price tripled, from about $4 a barrel toabout $12 a barrel.

� 1979: the Iranian Revolution caused 3.5 MMBD supply shortages for 6 months.� 1980: the Iran-Iraq War caused 3.3 MMBD supply shortages for 3 months.� 1990: the Iraqi invasion of Kuwait caused the loss of 4.3 MMBD or 13% of the world

export market. This led to a doubling in the world oil price from July to October 1990,from about $16.50 to about $33 a barrel.

� 2002: strikes and unrest in Venezuela caused 2.1 MMBD supply shortages for 3 months.� 2003: unrest in Nigeria caused 0.3 MMBD supply shortages for 6 months� 2003-Present: Iraq War caused on average 1.0 MMBD supply shortages. Iraq’s oil

production is still lower than pre-war levels� 2006: unrest in Nigeria caused 0.4 MMBD supply shortages.


0

5

10

15

20

25

30

35

40

19701971

19721973

19741975

19761977

19781979

19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

Cur

rent

US

Dol

lars

Oil Embargo

Iranian Revolution

Iran-Iraq War: Starts

Iran-Iraq War: End

Gulf-War Starts

Gulf-War: Ends

Oil Crash Starts

Iraq-War: Starts

NigerianUnrest

The 911 Attacks

Desert Fox

al-Qaeda attacks in Saudi start

KatrinaVenzuelan Strikes and Unrest

Oil Crash Ends

Source: EIA, “Crude Prices by Selected Type 1970-2005,” available at: http://www.eia.doe.gov/emeu/aer/txt/ptb1107.html.Note: These prices are averages of several types: Saudi Light, Iranian Light, Libyan Es Sider, Nigerian Bonny Light, Indonesian Minas, Venezuelan Tia Juana lightMexico Maya, and UK Brent blend

History of Oil Shocks: 1970-2005Overtimes: more incidents, more frequent volatility, higher risk of asymmetric attacks, and more geopolitical uncertainties.


Current DOE/EIA Oil and Gas“Hotspots”

Thousands of BB/D

Country/Region in 2004 in 2010

Algeria (Gas and Oil) 1,900 2,000

Bolivia (24 Tcf) 40 45

Caspian Sea (Gas & Oil) 1,800 2,400-5,000

Caucasus Region (Gas & Oil) ( pipeline transit)

Columbia 351 450

Ecuador 535 850

Indonesia (Oil shifting to Gas) 900 1,500

Iran (Gas and Oil) 4,100 4,000

Iraq 2,025 3,700

Libya Gas and Oil) 1,600 2,000


Current DOE/EIA Oil and Gas“Hotspots” II

Thousands of BB/D

Country/Region in 2004 in 2010

Nigeria 2,500 2,600

Russia (Gas & Oil) 9,300 11,100

Saudi Arabia (gas & Oil) 10,400 13,200

Sudan 344 530

Venezuela 2,900 3,700

Total “at Risk” 38,895 45.475

Adapted from DOE/EIA, “World Energy Hotspots,”

http://www.eia.doe.gov/emeu/cabs/World_Energy_Hotspots/Overview.html


The Role of Saudi Arabia in MiddleThe Role of Saudi Arabia in MiddleEast Oil Production & SupplyEast Oil Production & Supply


World Dependence on MENA OilProduction: 2004-2030

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120

World Demand 82.1 92.5 104.9 115.4

North American Demand 24.9 26.9 29.1 30.6

MENA Production 29.0 33.0 41.8 50.5

Price Per Barrel $36.0 $35.0 $37.0 $39.0

MENA as % of World 35% 36% 40% 44%

MENA as % of N America 116% 123% 144% 165%

2004 2010 2020 2030

(In MMBD)

Source: IEA, World Energy Outlook 2005.


Conventional Oil Reserves

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400

Proven 264.20 137.50 115.00 101.50 97.80 15.20 5.60 2.50 ?

Undiscovered 87.09 53.11 45.10 3.84 7.70 3.62 3.45 0.00 0.90

% of World Proven 22.10% 11.10% 9.70% 8.30% 8.20% 1.30% 0.50% 0.10% 0.05%

% of World Undiscovered 11.90% 7.30% 6.20% 0.50% 1.10% 0.50% 0.50% 0.00% 0.10%

Saudi Iran IraqKuwai

tUAE Q atar O man

Neutral Zone

Bahrain

(In Billion Barrel of O il)

Source: BP 2006, USGS 2000, EIA 2005


Production Capacity

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45

Saudi 10.6 11 17.1 12.4

Iran 4.2 4 4.3 2.9

UAE 3.3 2.8 4.6 3.2

Kuwait 2.4 2.6 4.5 3.0

Iraq 2.3 1.8 5.5 3.6

Q atar 0.9 1.1 0.8 0.5

Total 23.7 23.3 42.1 30.8

% of World 28.80% 31.00% 29.80% 23.70%

2003 2005 2030: Ref 2030: High

(In MMBD)

Source: EIA 2006, BP 2006,IEO2005.


Importance of Saudi ProductionCapacity by Future Oil Price

Source: EIA, IEO2005, IEO 2006.

16.3017.10

12.4011.0010.9010.20

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14

16

18

Reference High Reference High

2001 2005 2025 2030

(In MMBD)

Source: IEO 2005 Source IEO 2006% of World Total: 13% 13% 14% 10% 14% 12%


Saudi Stability: Rounding Up the UsualSaudi Stability: Rounding Up the UsualSuspectsSuspects


“Disproving a Negative”

� Regime Collapse: Royal Family Self-Destructs.

� Terrorism.

� Internal Instability: Jobs, Saudization, Youth Explosion,“Princes”.

� Failure to Invest and Develop Fields.

� Waste of Oil Income, Failure to Diversify

� Running Out of Oil.

� War and Regional Instability


Political Reform

� Regime Collapse: Royal Family Self-Destructs.

� Terrorism.

� Internal Instability: Jobs, Saudization, Youth Explosion,“Princes”.

� Failure to Invest and Develop Fields.

� Waste of Oil Income, Failure to Diversify

� Running Out of Oil.

� War and Regional Instability


Saudi Political Reform•Formation of the Consultative Council (Majlis AlShura): Nowconsists of 150 members who serve four year terms.

• Establish of Consultative Councils in each of 13 provincescomposed of leading citizens who help provide input and reviewmanagement of the provinces by their respective localgovernments.

• Basic Law of Governance – The Basic Law is similar to aconstitution.

•October 13, 2003: introduce elections for half of the membersof each municipal council

•Elections for members of the municipal councils were held inthree phases in 2005


Saudi Human Rights Reform•July 17, 2001, Press Law to restructure the press industry and allow journaliststo establish a trade association.

• February 24, 2003, the Saudi Journalists Association established to protect therights of March 2005, the Shura Council approves formation of association forwriters to protect the rights of authors.

•August 3, 2003: King Abdulaziz Center for National Dialogue to bring togetherleading personalities from across Saudi Arabia and the political and socialspectrums. So far, five National Dialogues have taken place

• October 2003 human rights conference concludes with ‘Riyadh Declaration’which states that respect for human life and dignity is the foundation of humanrights… and that tolerance of faith is required by Islam, which also prohibitscoercing people to follow a certain religion.

• March 2004: National Human Rights Association (NHRA); first independenthuman rights organization.

•May 10, 2006, Saudi Arabia elected to the United Nations Human RightsCouncil..


Saudi Judicial Reform

Source: U.S . Census Bureau, International Data Base, April 2005 version

• Law of Procedure Before Shari’ah Courts, September 2001: Regulates rights ofdefendants and legal procedures. Grants defendants right to legal representation,outlines the processes by which pleas, evidence and experts are accepted by the court.

• Code of Law Practice, January 2002: specific requirements necessary to become anattorney, including education, registration, admission to the courts, licensing. Definesthe duties and rights of lawyers, including attorney-client privilege.

• Criminal Procedure Law, May 2002: 225 article bill, regulates rights of defendantsand suspects before the courts and police with regard to interrogation, investigation,and incarceration and grants defendant access to the Bureau of Investigation andProsecution. Also outlines regulations justice and law enforcement authorities mustfollow from arrest and interrogation, to trial and the execution of verdicts

•Ministry of Justice communiqué, April 2004: declares Shariah [Islamic Law]procedures should be filed in a manner that supports the individual’s rights andpenal procedures should reflect human dignity in accordance with Shariah; equalrights with regard to legal aid in all phases of penal lawsuits of a public nature.


Terrorism;Terrorism;Radical Internal ChallengesRadical Internal Challenges

� One serious terrorist attempt on Saudi energy facilities in recentyears and it failed versus hundreds of attacks on energy fdacilitiesof other countries.

� Al Qai’ida in Peninsula likely to remain active indefinitely, Iraq,Yemen remain semi-sanctuaries.

� Shi’ite issue is potential problem, particularly if Iran seeks toexploit.

� Outbursts of religious radicals always possible.� BUT, no sign of broad popular support and considerable signs are

alienated from extremism and terrorism.� Internal security services larger and much better trained and

equipped and with less abuse and repression.� Intelligence greatly improved, and substantial Western aid.� Examining barriers, fences, maritime surveillance aids.


“Terrorist” Attacks on Energy: TheGlobal Reality vs. Saudi Arabia

Total Attacks During 2004-2005

� Oil: 350 cases, 417 killed, 40 injured.

� Gas: 25 cases, 22 killed, 69 injured.

� Refinery: 56 cases, 21 killed, 40 injured.

� Pipeline: 283 cases, 112 killed, 19 injured.

� Power Plant & lines: 17 cases, 18 killed, 22 injured.

� Desalination & Water: 1 Desalination; 474 water

� Nigeria, Algeria, Saudi Arabia, Iraq (213 in 2006)

� Bin Laden, Al Qa'idaAdapted from US State Department, Worldwide Incident Tracking System. Note that sort by category can lead to double or triple counting of some incident.http://wits.nctc.gov/RunSearchQuick.do;jsessionid=FpMkyK4tbn599TXGY48mf5WGc2FpThgWyFysMQGy13Gy4G2N0GdV!-681466620


“Terrorist” Attacks on Energy: CaseExamples

� 04/12/2004 Iraq 8 employees of Russian energy company kidnapped by gunmen inBaghdad

� 05/26/2004 Iraq 3 contractors killed, and 4 others wounded by gunmen in Baghdad,Iraq

� 05/29/2004 Iraq Power disrupted by bombings near Babil, Iraq� 03/17/2005 Russia Russian energy executive targeted in firearm and IED attack in

Moscow, Russia� 08/23/2005 Iraq 1 energy pipeline damaged in IED attack in Ishaki, Salah ad Din,

Iraq� 09/15/2005 Algeria Power station damaged in IED attack by suspected GSPC in

Boumerdes, Boumerdes, Algeria� 11/02/2005 Israel 11 civilians wounded in rocket and mortar attack near Netiv

Ha'Asarah, HaDarom, Israel� 12/22/2005 Israel Community, energy infrastructure targeted in rocket attack near

Ashqelon, HaDarom, IsraelAdapted from US State Department, Worldwide Incident Tracking System,http://wits.nctc.gov/RunSearchQuick.do;jsessionid=FpMkyK4tbn599TXGY48mf5WGc2FpThgWyFysMQGy13Gy4G2N0GdV!-681466620


Saudi Progress in Counterterrorism� Captured an estimated 845 including people who had some knowledge of the terrorists

and what they were doing).� Al Qaeda commanders, logisticians, theologians, financiers and fighters came in to an

estimated 264 (including all the killed fighters).� All of 5 planned cells have been identified, infiltrated and decimated.� All but one of main Al Qaeda commanders of the Infrastructure in the Arabian

Peninsula have been killed. He is in Saudi custody.� Four of the main routes used by the terrorist to smuggle themselves, fighters, weapons

and drugs have been identified and close surveillance had resulted in many "coups" onthe Yemeni border.

� Al Qaeda infrastructure has not been able to re-organize and re-group in the Kingdom.No coherent command structure has been re-established.

� The largest of the major centers (safe houses) original used by the infrastructure forlogistical support have been identified and taken down. 3 in Riyadh, 2 in Qassim, 2Eastern Province, 1 in Najran and 3 in Western Province (Makkah, Madinah andJeddah).

� Several arrests have been made over the past several months of fighters coming backfrom Afghanistan and Pakistan. They had no plan to fight, had no clear sense ofcommand structure and were more concerned about not being caught by the securityservices.

Source: Nawaf Obaid, SNSAP


Improved Counterterrorism Forces� More than $2.5 Billion has gone directly into the Saudi counter-terrorism program.� The specialized services of the Interior Ministry have got these major budget increases for equipment

purchases, increase troops total and state of the art training installations and courses.� Special Emergency Forces (SEF): Estimated 35,000 troops� Special Security Forces (SSF): Estimated 10,000 troops.� A major reason for the large success of the Saudi counter-terrorism program has been centered

around the performance of the General Security Service (GSS) or better known by it's Arabic name,Al Mabahith Al Amma.

� GSS has been to coherently master all the new complex electronic state-of-the art systems that it haspurchased with it's vast human networks in the Kingdom and the region.

� Intelligence collection, analysis and implementation have been established into a new "Command &Control" structure that has permitted the GSS to act within minutes on major alerts anywhere in theKingdom and direct the (SEF) and (SSF) accordingly.

� The success rates have been impressive in the last two years ever since this new infrastructure wasestablished and mastered. But improvements are obviously still needed.

� New specialized units in Energy Security has been deployed to coordinate with the National Guardand the four services of the armed forces. They will act as the special "preemptive" forces in case thesituation warrants it.

� Interior Ministry has consolidated is centrality as the ultimate protector of the vast energy facilitiesand fields.

Source: Nawaf Obaid, SNSAP


Saudi Internal Security Forces

Adapted from DOE/EIA, IEO 2006, Appendix D

Figure 9: Saudi Ministry of Interior Manpower, 2005

Special EmergencyForces; 30,000; 12%

Petroleum Installat ionSecurity Forces; 10,000;

4%

Various Police Forces;95,000; 39%

General Prisons Service;15,000; 6%

Drug EnforcementAgency; 20,000; 8%

Mujahideen; 5,000; 2%

Border Guard; 30,000;12%

Civil DefenseAdministrat ion; 25,000;

10%Special Security Forces;

10,000; 4%

Passport & ImmigrationDepartment; 7,500; 3%

Source: Estimates are based on estimated published by Anthony H. Cordesman and Nawaf Obaid, National Security in Sa udi Arabia(Praeger/CSIS, 2005).Notes:

1) The numbers do not inclu de those of the General Security Service (Mabahith), since those numbers are classifie d.2) The border guard forces incl ude the coast guards.3) The vari ous police f orces, the s pecial emergency forces, a nd the petroleum installations security forces fall under what is called the

Public Security Administration under the command of the Minis try of Inter ior, and it totals 135,000 men.


Internal InstabilityInternal Instability

� Major near-term burst of oil wealth, largely well spent.� Balanced (surplus) budgets. Economic growth 5-6%� Diversification and job creation making progress, at least in near

term. Per capita income rising in real terms.� Corruption, nepotism, “royals, favoritism all real issues, but

similar issues affect most countries.� Outbursts of religious radicals always possible.� Real problems are more likely to emerge over time:• Demographics and cost.• Saudisation• Broad-based diversification.• Employment, educational reform and social change - Role of Women.• Pluralism and governance.


Saudi and Gulf Net Oil Export Revenuesin Constant $US 2005

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150

200

250

Saudi Arabia 17.2 213.6 36.9 153.3 159.1 144.9

Iran 15.3 26.8 11.2 46.6 49.2 44.9

Iraq 5.4 55.3 7.7 23.4 24.5 22.9

Kuwait 10.3 38.4 9.1 39 43.3 39.7

Qatar 1.7 11 3.9 9.1 22.9 22.2

1972 1980 1998 2005 2006 (e) 2007 (e)

Source: DOE/EIA, ŅOPEC Revenues,Ó2006

Real Saudi per capita oil revenues are about $5,000 nowvs. $22,600 in 1980; OPEC Average is 50%


Saudi Economic Position

� Real GNP growth gone from -0.8% in 1999 to 6.4% in 2003, 5.3% in2004, 6.53% in 2005, and 5.84% in 2006(e).

� Largest economy in the Middle East: 2005 GDP was $300 billion =24%of total GDP of the Middle East / North Africa (MENA) region(including Israel). (32% of the Arab world’s GDP.)

� 2006 estimate is GNP of approximately $372-$385 billion.� Oil export revenues are higher than any other estimates: $203 billion� GDP per capita has climbed fast in the last couple of years. Now it is

$15,600.� Income distribution improved, given the boom in real estate and the

stock market.� Public debt is down to 27% of GDP.� Only an average of $38/barrel for Saudi crude is needed to balance the

government budget. It is forecasted to be $62.� Acquiring huge trade surpluses, and hence huge foreign reserves.

(Joint GCC currency becomes serious?)

Adapted from data provided by EIA, CIA, Samba, and Nawaf Obaid


Saudi Economic Diversification

� Nonoil sector of the Saudi economy has grown from 35 percent to morethan 60 percent of total GDP over last 30 years,

� The largest stock market in the region: At its peak during February2006, Saudi Arabia’s market capitalization reached over $800 billion.

� Despite a massive correction, which shed more than $300 billion, stillrepresents approximately 45% of region’s market capitalization.

� Construction-Largest producer of construction materials in the MiddleEast, annual $12 billion to the Saudi economy.

� Mining-Largest supply of mineral resources in the region, In Jubail, asecond major industrial city is underway to exploit the Kingdom’smineral resources, including phosphates, bauxite, and aluminum.About 30 new plants are being built and over 40 more are planned.About 55,000 jobs.

� Pharmaceuticals – Saudi Arabia has a $1.17 billion pharmaceuticalmarket estimated to grow at 15 percent annually

Adapted from data provided by EIA, CIA, Samba, and Nawaf Obaid


Saudi Economic Stimulus Package(~$32 billion for 2005 & 2006)

� $10 billion for services and infrastructure:o $2.13 billion for the building of public housing projects.o $1.86 billion for construction of new desalination plants.o $1.33 billion for construction of new highways and roads.o $1.2 billion for street maintenance and drainage system.o $1.06 billion for construction of new schools.o $1 billion for the construction of university campus construction.o $800 million for construction of primary health care facilities.o $666 million for construction of new vocational training institutes.� $4 billion allocated for Saudi Export Program Initiative.� $3.46 billion to increase the capital of the Saudi Industrial Development Fund.� $1.2 billion to increase the capital of the Saudi Real Estate Fund.� $800 million to increase the capital of the Saudi Credit Bank.� $4 billion to increase the minimum social security payment.� $8 billion to increase salary of government employees (15% raise).

Source: Adapted from Nawaf Obaid, Saudi National Security Assessment Project


Saudi Megaprojects = $282.8B

� $68B (24.4%) for oil and gas, $45.3B(16.0% for petrochemicals.� $48.8B (17.3% for defense and security .

� $40.7B (14.4%) for infrastructure; $9.9B (3.5%) for electricity andwater;

� $40.4B (14.2%) for Yanbu and Jubail

� $11.9B (4.2%) for mining and minerals.� $8B (2.8% for health and education, $6.6B (2.3% for

transportation, $2.6B for housing.� Sources of funding are $81B (28.6%) from Aramco, $85.8B (30.3%)

from government, $27.3B from SABIC(9.7%), $40.8B (14.4% fromRoyal Commission, $48.0B (17.0% from SAGIA/Private.

Brad Bourland, “The Saudi Economy at Mid-Year 2006”, Samba Financial Group


Saudi Per Capita Income

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18

$US(1,000S)7.8 8.4 8.6 7.4 8 9.2 8.7 8.7 9.6 11 13.3 15.6

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E


• GDP from $142B in 1995 to $707B in 2000 to $1,393B in 2006e.

• Current Account Balance from -3.7% of GDP in 1995 to $+7.6% in 2000 & +30.6% in2006e.

• Budget Balance from -27.4 BSR in 1995 to +22.7BSR in 2000 to +250.5BSR in 2006e.

• Foreign Assets from 67.9 BSR in 1995 to 73,4 in 2000 to +269.0BSR in 2006e

Brad Bourland, “The Saudi Economy at Mid-Year 2006”, Samba Financial Group


The Demographic Threat to the Gulf

Adapted from Population Division of the Department of Economic andSocial Affairs of the United Nations Secretariat, World PopulationProspects

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350

Yemen 4.32 5.22 6.33 8.2 12.09 17.94 20.98 24.5 32.73 41.5 50.51 59.45

UAE 0.07 0.09 0.23 1.02 1.87 3.25 4.50 5.04 6.14 7.23 8.21 9.06

Qatar 0.03 0.05 0.11 0.23 0.47 0.61 0.81 0.89 1.04 1.16 1.26 1.33

Oman 0.46 0.57 0.75 1.19 1.84 2.44 2.57 2.86 3.48 4.05 4.55 4.96

Kuwait 0.15 0.28 0.74 1.38 2.14 2.23 2.69 3.05 3.70 4.30 4.84 5.28

Jordan 0.47 0.90 1.62 2.23 3.25 4.97 5.70 6.34 7.56 8.67 9.56 10.23

Iraq 5.34 7.33 10.11 14.09 18.52 25.08 28.81 32.53 40.52 48.80 56.69 63.69

Iran 16.91 21.70 28.81 39.33 56.67 66.37 69.52 74.28 85.04 92.25 98.02 101.94

Bahrain 0.12 0.16 0.22 0.35 0.49 0.67 0.73 0.79 0.91 1.02 1.10 1.16

Saudi Arabia 3.20 4.08 5.75 9.60 16.38 21.48 24.57 27.66 34.02 40.13 45.31 49.46

1950 1960 1970 1980 1990 2000 2005 2010 2020 2030 2040 2050


The Saudi “Youth Explosion”

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Female1,8561,6671,4291,1911,1071,1091,072 842 498 332 238 172 139 112 79 51 47

Male 1,9351,7311,4841,2601,4601,7031,7411,255 630 361 250 181 152 125 93 63 54

Total 3,7913,3982,9132,4502,5672,8122,8132,0971,128 693 488 353 291 238 172 114 101

0-4 5-9 10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-79 80+


CIA = Population 27 million. Foreigners 5.6 million Samba = Population 23.9 million.Foreigners 6.5 million

248,000 males and 234,000 females reach age 18 annually.

8-13% unemployment of Saudi males in 2004-2005; underemployment may double figure.Figure is 16.6% for males aged 20-29.

Labor force is 6.8 million. 63% in services, 12% agriculture, 25% industry


Saudi View of Saudization


•Total population increased from 12 million in 1980 to 22.7 million according toSeptember 15, 2004 census.

•Of these, 16.5 million are Saudi nationals. The Saudi labor force is defined asall Saudis, 15 years of age and older, who are either employed or seeking a job.In 2002, this amounted to 3.15 million (consisting of 2.68 million males and465,000 females) with an unemployment rate of 9.6 percent or about 300,000people.

•Saudi jobless claims have registered 180,443 job applicants.

•In 2002, 465,000 Saudi women in the labor force; 15 percent of total Womenown or part own more than 22,000 businesses

•Saudization measures, applied to foreign workers will slowly decreasedependency. In 2002, the non-Saudi labor force amounted to 3.09 million

•Saudi government is preparing to spend over half a billion dollars to trainyoung Saudis for future work experience. The money is expected to come fromthe human resource development fund recently set up by the government

•National Program for Training and Employment responsible for the creation ofjob opportunities, job training and Saudization. Centennial Fund.

.


Saudi Data on Education


• Eleven public universities,

• More than 100 colleges and more than 26,000 schools.

• Some five million students are enrolled in the education system,

• Student to teacher ratio of 12.5 to 1 one of the lowest in the world.

• 5.2 million students enrolled in Saudi schools, half are female

• 200,000 students at Saudi universities and colleges, women comprisemore than half of the student body.

• Government allocates about 25 percent of the annual state budget toeducation.

• Multiyear program to update textbooks and curricula, introduce newteaching methods and provide better training for teachers.

• Student councils being set up in public schools to begin educatingyoung Saudis about civic responsibilities and participatory governance.


Running Out of OilRunning Out of Oil

� No Aramco or Saudi failures in production, completion of projects,actual progress.

� IEA, EIA, USGS largely dismiss.� Discussions with majors indicate Saudi Arabia has top quality

managers, planners, technical support.� Soft landing far more likely than sudden crash.� Most “running out” arguments, if ever proved valid, apply

globally, and particularly to similar exporters� If conspiracy, far too clever for outsiders and hapless West!� Do need to be cautious, need more transparency. Too critical to

ignore.


Saudi Production Increase Plans

Field Grade 2004 New Level Date $B

Accomplished

Abu Safah & Qatif AL/EL 0.3 0.8 2005 $4.0B

Haradh AL 0.17 0.3 2006 $1.5

Through 2009

Khusaniyah AL/EL 0.1 0.5 6/2007 $4.0B 11.0 MMBD in 3/2006

Shaybah AEL 0.5 0.8 4/2008 $1.5B +2.3 MMBD in 2006-2009

Nuayyim AEL 0.0 0.1 2/2009 $0.35B -0.8 MMBD in 2006-2009

Khoreis AEL 0.15 1.1 3/2009 $6.0B =12.5 MMBD in 8/2009

Post 2009

Shaybah +0.2 2010 12.5 MMBD in 8/2009

Neutral Zone +0.15 2010 +1.35 MMBD in 2009-2013

Munifa I +0.3 2011 -0.8 MMBD in 2009-2103Munfia 2 +0.3 2013 = 13.05 MMBD in 2013

Munifa 3 +0.4 2013

Source: Nawaf Obaid, “Saudi Arabia’s Strategic Energy Initiative: Safeguarding Against Supply Disrputions, July 29, 2006. SNSAP


The DOE/EIA Summary View

� “Saudi Aramco's senior vice president of gas operations, Khalid al-Falih, statedthat Saudi Arabia would raise production capacity to more than 12 million bbl/d by2009, and then possibly to 15 million bbl/d "if the market situation justifies it."Falih added that by 2006, Saudi Arabia would have 90 drilling rigs in the Kingdom,more than double the number of rigs operating in 2004.

� “One challenge for the Saudis in achieving this objective is that their existing fieldssustain 5 percent-12 percent annual "decline rates," (according to Aramco SeniorVice President Abdullah Saif, as reported in Petroleum Intelligence Weekly and theInternational Oil Daily) meaning that the country needs around 500,000-1 millionbbl/d in new capacity each year just to compensate.

� “Aramco estimates that the average total depletion for Saudi oil fields is 28 percent,with the giant Ghawar field having produced 48 percent of its proved reserves.Aramco also claims that, if anything, Saudi oil reserves are underestimated, notoverestimated. Some outside analysts, notably Matthew Simmons of Houston-basedSimmons and Company International, have disputed Aramco's optimisticassessments of Saudi oil reserves and future production, pointing to -- among otherthings -- more rapid depletion rates and a higher "water cut" than the Saudisreport.

EIA, Country Analysis Brief, Saudi Arabia, August 2005


War and Regional InstabilityWar and Regional Instability

� Iran already poses significant asymmetric threat; power anddesalination as critical as on and offshore facilities.

� “Shi’ite crescent” are remote risk.� Yemeni instability.� Failures of GCC to mature and develop.

� Uncertain post-Iraq status of US and UK.� Impact of proliferation.� External threats from broader war on terrorism.� Impact of external conflicts on demand for Saudi oil production

and capacity.


Asymmetric Warfare: Iran as a Case Study

� Three “Kilo” submarines with long-range wire-guidedand homing torpedoes, bottom mines (?), anti-shipmissiles

� Smart mines, bottom mines, influence mines.� Ship, land, air anti-ship missiles.� Small, “stealth” missile patrol boats� 20,000 men in Naval Guards Branch.� Small craft armed with ATGMs, recoilless rifles, RPGs.� Any ship is a mine layer.� Floating mines.� “Single round” attacks by infiltrator, sea, or air.


Asymmetric Warfare: Iranian Weapons� HY-2/C-201 Silkworm or Seerseeker (Raad) have ranges of 90 to 100-kilometers and have proved

difficult to detect and kill in the past.roughly 100 systems in stock, and have 8-10 mobile missilelaunchers. These are reported to be deployed near the Strait of Hormuz, but may actually be in anumber of different locations.

� Iran also has three relatively effective Kilo-class submarines, which can use long-range wire guidedtorpedoes or release mines. (Reports Iran has advanced “bottom” mines with sensors that release andactivate them as they sense ships passing overhead are uncertain.)

� 10 Hudong missile patrol boats with C-801K (42-120 kilometers) and C-802 (42-120 kilometers)sea-skimming anti-ship missiles. The Iranian air force has airborne variants of these systems.

� C-14 high speed catamarans which each have C-701 anti-ship missiles, and additional North Koreanmissile boats. They operate some 50 additional patrol boats, including 40 Boghammer Marine boats.Many are so small they are difficult to detect with ship-borne radars. These can be armed withrecoilless rifles, RPGs and small arms to attack or harass ships in are near the Gulf and raid or attackoffshore facilities. They can conduct suicide attacks, or release floating mines covertly in shippinglanes or near key facilities. Iran can use any commercial ship to release free-floating mines for thesame purpose.

� Testing more advanced weapons for such forces. These included a sonar-evading underwater missile(torpedo?) that IRGC Rear Admiral Ali Fadavi claimed no enemy warship could detect, and “nowarship could escape because of its high velocity.” Iran also claimed to be testing a new missilecalled the Kowsar with a very large warhead and extremely high speed to attack “big ships andsubmarines” that it claimed could evade radar and anti-missile missiles.

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