Sleeping With The Devil

by Robert Baer

  In December 1993 Mahfouz paid about $225 million to settle U.S. claims against him and another $245 million to settle a similar set of problems in Europe. In both instances, he was not required to admit any wrongdoing. By then he had other issues to worry about. According to Bawazir’s suit, a senior member of the Saudi royal family had begun pressuring Mahfouz in the spring of 1993 to withdraw from the deal so that another member of the royal family could take his place - and the commission after the deal went through. Bawazir contends in his suit that he, not Mahfouz, crafted the strategy that held off the royal interloper; he, not Mahfouz, did virtually all the work; he, not Mahfouz, kept the whole deal alive.

  All of that is easy to believe. Khalid bin Mahfouz would have been busy enough with his own vast holdings, even without the BCCI albatross around his neck; and Saudi royals are famous for swooping in on commoners’ business when the pickings get rich. Whether Mahfouz stiffed Tahir Bawazir out of his fair share of the commission once the Saudia deal went through - that’s the basis of Bawazir’s suit - is unclear. The Superior Court of Washington refused to rule on the merits of Bawazir’s case, noting simply that Washington didn’t have jurisdiction to decide the matter. What the records do show is that by the time the matter made it to court, Boeing had sent Mahfouz over $15 million in commissions, his share of the earnest money the Saudis sealed the deal with. What seems almost certain is that much more was to follow. I’ve seen the figure $700 million bandied about, but rumor in both America and Saudi Arabia has it that royal Saudi fixers along with bin Mahfouz pocketed a cool $1 billion on the deal.

  Boeing, in any event, was happy with the services rendered. When Khalid bin Mahfouz flew to Seattle on May 24, 1994 - after he was able to enter the U.S. legally again - he landed at Boeing Field, where he was met by CEO Frank Shrontz and others and taken on a tour of the company’s 777 factory. The politicians were happy, too. Tom Foley, then a congressman from Spokane and speaker of the House, hailed the Saudia sale as “a great day for the country.” Clinton touted the domestic jobs the deal would support. Indeed, there was only one small problem with the whole rosy arrangement: The Saudis couldn’t afford it.

  ON NOVEMBER 13, 1995, eighteen days after the Boeing-Saudia pact was inked at the White House, a car-bomb explosion outside a U.S. training facility in Riyadh killed seven people, including five Americans, and injured forty-two. The explosion ripped the front from a building where nearly four hundred Americans had been training the Saudi National Guard to use weapons purchased from U.S. manufacturers. A group calling itself the Islamic Movement for Change took credit for the attack. Subsequently, the Saudis arrested dozens of suspects. On May 31, 1996, it executed four of them, although there remained some doubt about their guilt. Amnesty International accused Saudi Arabia of taking advantage of the bombing to get rid of political opponents. The FBI had wanted to talk to the four before they were executed, but the Saudis said no. Without a thorough, unbiased investigation, no one could be sure Osama bin Laden was not behind the attack.

  The chances are close to zero that the bombing had anything to do with the Boeing pact, but the timing of the two didn’t go unremarked. Bin Laden was motivated by such contracts. He accused the royal family of sacrificing Islam - the sanctity of Saudi Arabia, the home of Islam’s two holy cities - for money, bribes, dirty deals. If bin Laden wasn’t behind the bombing, he still applauded it.

  Saudi Arabia operates the world’s most advanced welfare state, a kind of anti-Marxist nonworkers’ paradise. Saudis get free health care and interest-free home and business loans. College education is free within the kingdom and heavily subsidized for those who study abroad. In one of the world’s driest spots, water is almost free. Electricity, domestic air travel, gasoline, and telephone service are all available at far below cost. For citizens of a basically third-world country, Saudis travel first class - so first class that many of the kingdom’s brightest, the best educated, and in theory most prepared for the work world are reluctant to do any work.

  About a quarter of Saudi Arabia’s population, and over a third of all those aged fifteen to sixty-four, are foreign nationals, allowed into the kingdom to do the dirty work in the oil fields, to be domestics, but also to program computers and manage the refineries. Seven in ten of all jobs in Saudi Arabia - and closer to 90 percent of all private-sector jobs - are filled by foreign laborers simply because the Saudis won’t do them, or are otherwise trained and inclined.

  Among males, the Saudis have an admirably high literacy rate, especially for a country that was inhabited mostly by nomadic tribesmen only three generations back. About 85 percent of Saudi men age fifteen and older can read and write, as opposed to fewer than 70 percent of Saudi women of the same age. But because so much of the Saudi education system has been entrusted to Wahhabi fundamentalists, its products are generally ill-prepared to compete in a technological age or a global economy. Reportedly two out of every three doctorates earned in Saudi Arabia are in Islamic studies. Domestic doctorates in computer science, engineering, and other secular skills are rarer than hens’ teeth.

  That’s problem one. Younger Saudis are being educated to take part in a world that will exist only if the Wahhabi jihadists and their Muslim Brother allies can succeed in turning back the clock a few centuries. In an increasingly open world, rank-and-file Saudis see events through an increasingly narrow lens. Western news is censored and often simply banned. The Saudis have pioneered the use of Internet filters and blocks. Most Saudis are limited to local newspapers and TV like al-Jazeera, through which Osama bin Laden has chosen to distribute his communiqués.

  Problem two is common to developing nations: demographics. There are way too many young Saudis with nothing better to fill their hours than sitting around the mosque or watching al-Jazeera. Saudi Arabia possibly has one of the highest birth rates in the world outside Africa - approximately 37.25 births for every thousand citizens in 2002, almost exactly twice the birth rate in archenemy Israel. Almost one in ten Israelis is sixty-five or older; 97 percent of all Saudis are sixty-four or younger, and half the population is under eighteen. Leave aside the implications for regional security in those numbers (and for the Israelis, they are vast, since the Saudi birth rate and age distribution are mirrored in Palestine and elsewhere); the presence of so many people of working age, and especially so many ready to enter the workforce, places enormous pressure on an economy that is no longer capable of absorbing those who want to work while providing sustenance for those who would rather contemplate original intent in the Qur’an. Middle classes stabilize society. Saudi Arabia’s is falling apart at the very moment it should be forming and solidifying. “Something unexpected happened,” a former Western diplomat who had served in Riyadh told Time magazine. “Instead of this wonderful utopia, where young men were attracted to academia to learn about Islam, you got thousands of religious graduates who couldn’t find jobs.”

  That gets us to problem three: The world’s most advanced welfare state is predicated on the oil prices of the mid- and late 1970s and early 1980s, when the system was instituted, not on the oil prices that have prevailed since the mid-1980s and beyond. In 1981, when the entire kingdom was in effect put on the dole, oil was selling at nearly $40 a barrel, and per capita income was $26,000. A decade later, just before Iraq invaded Kuwait, refiners were able to buy oil for about $15 a barrel. The Gulf War spiked prices back up to about $33 a barrel, but by 1994, when Bill Clinton was leaning on Riyadh to do business with Boeing, oil was selling for $12.50 a barrel. As of 2001, a barrel of oil fetched in the very low twenties, and per capita income had sunk to below $10,000 just as the Saudi baby boom was beginning to achieve its majority - a classically disastrous combination for social harmony.

  Because roughly 85 percent of Saudi Arabia’s total revenues are oil-based, every dollar decline in the price of a barrel of oil translates to about a $3 billion loss to the Saudi treasury. From there, the math is easy. In the early 1980s the kingdom boasted a cash reserve on the
order of $120 billion. By 1994 the reserve had shrunk to about $15 billion. (Cash reserves as of the start of 2003 are estimated to be about $21 billion.) A year earlier, Saudi Arabia had secured a $4.5 billion line of credit from J. P. Morgan to help cover its share of the cost for Operation Desert Storm. As Clinton was working overtime to get the kingdom to commit to the airline deal with Boeing, the Saudis were stretching out payments to Boeing McDonnell Douglas and others for military jets and equipment.

  For Bill Clinton, as for virtually every other American politician dependent on keeping the Saudi cookie jar filled to the brim, Riyadh’s necessary course of action seemed obvious: PMO, pump more oil. To ease the burden, the U.S. Export-Import Bank agreed to guarantee low-interest loans of over $6 billion. (The Ex-Im Bank sometimes seems to exist solely to provide bridge loans for oil nations so that American corporations can be paid in a timely fashion.) But robbing Peter to pay Paul wasn’t as easy as it looked because there was yet another demographic issue to contend with: the population explosion in the House of Sa’ud.

  The royal family kept growing by leaps and bounds - a prince will have multiple wives and sire forty to seventy children during a lifetime of healthy copulation - while the resources to support that growing population were shrinking. Young royals were pushing up from below, chafing against a leadership that was slipping into its high seventies and eighties. The incapacitated King Fahd turned seventy-nine in 2002; Crown Prince ‘Abdallah was seventy-eight. Many of the most active court intriguers were in their seventies. That, too, is a formula for social instability, though at a higher level of society.

  Absent the survival skills their great-grandfathers had grown up with in the desert, far more familiar with camel’s-hair coats than with camels, the younger generation of princes, princelets, princelings, and other royals occupied itself increasingly with dissipation and fringe criminal activities, muscling in on honest shopkeepers and hoping for a shot at the big time. Locked in an increasingly fin de siecle mentality - this game can’t last forever! - the older royals grabbed for everything they could get from a steadily shrinking pie. Everything we heard in Washington portrayed a royal family obsessed with gambling, alcohol, prostitution, parties, and the “commissions” and other considerations to afford their vices.

  Meanwhile, the numbers game sat out there like some huge Islamic buzzard staring hungrily into the window of the royal palace. Already, the House of Sa’ud stood at thirty thousand members. Simple math and average screwing suggested that number would double in another twenty or thirty years, maybe much more. What would the barrel price of oil have to be in the year 2025 to support even the most basic privileges Saudi royals had come to enjoy? Once there were sixty or a hundred thousand royals, would there be a free seat left on Saudia Airlines for a mere commoner who wanted to fly out of Riyadh or Jedda? Reformers among the royal family talk about cutting back the perks, but that’s a hard package to sell.

  SOME OTHER NATION faced with shrinking revenues, heavy obligations, and a platinum-plated resource such as the planet’s largest known oil reserve might go to the World Bank for a loan, to tide things over until the price of oil rose or the books could get balanced - no one is suggesting imminent bankruptcy in the Saudis’ case - but the World Bank demands at least a modicum of transparency in its dealings. Saudi Arabia would have to open its books to outside inspection, and that would risk revealing to its own populace how many billions of dollars in national revenues are being siphoned off by the House of Sa’ud.

  How, for example, to explain that $7.2 billion for the Boeing commercial jets and accessories? Accounting has become more creative all around the world, but someone would be bound to notice that at least 10 percent of the purchase price the Saudis had agreed to pay Boeing disappeared in commissions. Follow the money even partway, and it would soon be obvious in which direction the money flowed: from the royal treasury to Khalid bin Mahfouz and others, then back to the royals. Bin Mahfouz also was forced to put some into Sa’ud-sponsored charities, and who knew what happened to it from there.

  Officially, military expenditures consume 13 percent of Saudi Arabia’s gross domestic product. Throwing in off-budget military spending, the total is much, much higher. In Israel, a nation in a constant state of warfare, armed to the teeth and surrounded by enemies on every side, military expenditures claim only 9 percent of GDP. If the books were opened up, someone would begin to wonder why the Saudis were spending so much more of their GDP on weaponry than the Israelis, especially when the U.S. protects the Saudis from outside enemies. For decades the Saudi royals and their subjects have followed their own “don’t ask, don’t tell” policy, though such disciplines are a lot easier when there’s no end to the money.

  A second approach would be to bite the bullet, heed the old guns-and-butter lessons, and tighten the belt. But this path, too, is fraught with peril. Cut back on the butter, and you violate the social contract that has allowed the Al Sa’ud to govern despite the ruling family’s deviation from the theocratic principles of the Wahhabis. Thus the welfare state continues. Thus the mosque schools. Thus the kingdom is now dotted with state-of-the-art hospitals that would provide excellent free care if only the funds existed to staff and open them.

  If you cut back on the guns, you risk the wrath of your American protectors; the British, who are also major suppliers of arms and armaments (John Major, please call home); and the whole complicated web of private and public Western interests that you worked so long and hard to build up and maintain. You also piss off some of the most powerful members of your own ruling clan, who depend on the commissions from arms sales and ancillary activities - base building and the like - to support their harems, castles, jets, yachts, warehouses full of suits, and so on.

  That leaves only one other choice: Continue to exhaust the treasury and run up national debt by buying guns and providing butter, placate the jihadists in whatever ways you can (money; sanctuary; a network of mosque schools for breeding the next generation of terrorists, some of whom will undoubtedly want to cut your throat; training camps for Central Asian adventurers; and so on), and pray to Allah every chance you get that the moment of inevitable reckoning will not come soon. That appears to be the path the ruling family has chosen.

  In 1979, 127 Saudi troops and 117 Saudi insurgents died in a pitched two-week battle after Wahhabi fanatics seized the Grand Mosque at Mecca. The insurgents carried the same message that Wahhabi clergy are preaching in the mosques today: The House of Sa’ud is defiling Islam. (As one Saudi diplomat said memorably in the wake of 9/11, “What shocks me most is why they hit America and not us.”) King Khalid was on the throne when the Grand Mosque was seized. Not anxious to duplicate his experience, King Fahd gave $25 billion to expanding and modernizing the holy shrines at Mecca and Medina, and billions more to the new universities that are turning out the Islamic scholars who have no jobs waiting other than agitating people against the West and their immediate benefactor.

  The massive public-works projects at Mecca and Medina had an immediate financial beneficiary: the Bakr bin Laden family, which oversaw the construction and restoration and pocketed billions in payments and commissions, a portion - maybe a large one - of which undoubtedly found its way to cousin Osama, al Qaeda, and other violent fundamentalist groups. That’s the way things work in Saudi Arabia today: It’s an end game. The only question is when does the end come.

  The West and the United States especially have left the Al Sa’ud little choice. While most Saudi royals look the other way and hope the future never comes, Washington fiddles and pretends Riyadh won’t burn, watching passively as wealthy Saudis channel hundreds of millions of dollars to radical groups in hopes of buying protection. Washington pretends that all the loudspeakers in all the mosques throughout all the kingdom that are blaring out their messages of hate against the West haven’t been paid for with contributions from the royal family that America so readily declares to be its best friend and ally in the Middle East. America welcomes lea
ding royals like Prince Salman to our shores even as we know that he controls distributions from the International Islamic Relief Organization with an iron hand and strongly suspect that the IIRO played a leading role in funding the terrorists who tried to blow up the World Trade Center over eight years before al Qaeda, another IIRO beneficiary, succeeded.

  Leading American corporations like Boeing McDonnell Douglas hire and rehire indicted Saudis to represent their interests so they can land the deals that will pay the commissions back in Saudi Arabia that will further erode the budget and thus further divide the ruling class and the underclass. Former CIA directors serve on boards that have to hold their noses to cut deals with Saudi companies because that’s business, that’s the point of entry, that’s the way it’s done. Ex-presidents, former prime ministers, onetime senators and members of Congress and Cabinet members walk around with their hands out, rarely slowing down because most of them know that this charade can go on only so long. The trick is to get on that last plane loaded with gold before the SAM launchers are set up around Riyadh International. The status quo is too compelling, the rewards too great to do otherwise.

  Was John O’Neill, the former head of counterterrorism for the FBI who died in the 9/11 attack on the World Trade Center, quashed because he refused to kowtow to the Saudis, their oil, and its American Fifth Column? I honestly don’t know. I’ve read the stories: how the State Department barred O’Neill from entering Yemen, even though he was heading up the investigation into the terrorist attack on the U.S.S. Cole. O’Neill knew he was being stiffed by both State and the Saudis, and when he started to complain, it wasn’t long before the knives came out. FBI management started leaking his personnel file to the press. Realizing he was outgunned, he retired and took a job as chief of security for the World Trade Center. (The irony never stops in these matters.) When I met O’Neill, I knew right away he was someone who was ready to go off message and take on official Washington. If I’d known what I know now, I could have told him that by violating the consent of silence, he would only end up signing his own death warrant.