US embassy cable - 04MANAMA1866

C O N F I D E N T I A L MANAMA 001866 
 
SIPDIS 
 
E.O. 12958: DECL: 12/13/2014 
TAGS: ETRD, PREL, BA, GCC 
SUBJECT: LATEST ON SAUDI-BAHRAIN FTA ISSUE 
 
REF: A. MANAMA 1839 B. MANAMA 1829 
 
Classified By: Ambassador William T. Monroe.  Reason: 1.4 (B)(D) 
 
 1. (C) Minister of Finance Abdulla Seif, just back from the 
Forum for the Future meeting in Rabat, was short on details 
about discussions on the margins of the Forum about the FTA 
dispute with Saudi Arabia, but expressed confidence that a 
formula will be found to resolve the issue within the GCC. 
He noted that GCC Finance Ministers will meet in Manama on 
December 18 (followed by a Foreign Ministers meeting on the 
19th), and said he thought the situation would be much 
clearer after the Finance Ministers meeting. 
 
2. (C) Separately, Saudi Ambassador in Bahrain Dr. Abdulla El 
Khuwaiz told the Ambassador that he had been surprised when 
Prince Saud had raised the issue during his speech at the 
IISS conference in Bahrain on December 5.  Asked why he 
thought his government was raising it at this point, he said 
that the Saudi government looks at these FTAs with the GCC 
countries, especially when they are being extended beyond 
Bahrain, as an attempt by the USG to weaken Saudi Arabia.  He 
contrasted U.S. eagerness to negotiate FTAs with other GCC 
countries with its apparent efforts to block Saudi entrance 
into the WTO, even though in some ways Saudi's market is more 
open than other GCC countries (as an example, he said that 
Saudia Arabia's financial sector is more open than Kuwait's). 
 The Ambassador replied that he was not up-to-date on the 
specifics of Saudi Arabia's WTO accession effort, but was 
certain the discussions were driven purely by technical 
WTO-related considerations. 
 
3. (C) Asked about Bahraini perceptions that Saudi Arabia is 
putting an economic squeeze on Bahrain, most notably through 
the cut-off of sales of sand and the dropping of a 50,000 
barrel per day oil grant, Ambassador Khuwaiz made the 
following points: 
 
-- on the sand, he said it grew out of a dispute among Saudi 
companies that had licenses to sell sand to Bahrain from the 
Eastern Province.  Apparently, a loser in a recent contract 
got angry and retaliated by putting together a case that 
showed environmental degradation at the sand pits, with water 
filing up the pits and causing a health hazard.  This got the 
attention of Riyadh, which put a stop to the sand sales until 
the issue could be resolved.  On the table now is a proposal 
to form a Saudi-Bahrain joint venture to sell sand from the 
Eastern Province, but this is languishing on the desk of the 
Minister of Petroleum (also responsible for minerals such as 
sand). 
 
-- on the oil cutoff, he said this was dropped after Bahrain 
convinced the Saudis, against their wishes, to expand the 
existing oil field (the Saudis felt this would prematurely 
degrade the field).  Ending the 50,000 b/d oil gift, he said, 
was part of the deal, but now the Bahrainis want to reclaim 
it.  There is resistance to restoring it because people in 
Riyadh question why Saudi Arabia should continue to subsidize 
Bahrain when in fact Bahrain's per capita income is higher 
than Saudi Arabia's.  The Saudi government is now looking at 
some sort of compromise that would restore the 50,000 b/d 
temporarily in order to allow Bahrain to use it to repay the 
loan it took out to finance the expansion of the field. 
MONROE