CRS Report for Congress
The Persian Gulf:
Issues for U.S. Policy, 1999
March 17, 1999
Kenneth Katzman
Specialist in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division

Congressional Research Service ˜ The Library of Congress

This CRS report is an annual analysis of current issues for U.S. policy toward the volatile
Persian Gulf region. The paper discusses the threats to U.S. interests from Iran and Iraq,
attempts by the Gulf states to cope with internal and external threats to their stability, and
U.S. responses to the threats posed by Iran and Iraq. The paper will be revised annually, and
updated as necessary to reflect regional or economic developments. See also CRS Issue Brief
92117, Iraqi Compliance With Ceasefire Agreements, and 93033, Iran: Current
Developments and U.S. Policy.

The Persian Gulf: Issues for U.S. Policy, 1999
The Persian Gulf region contains both challenges and opportunities for the
United States in 1999. Since October 1997, the United States and its partners on the
United Nations Security Council have faced repeated crises with Iraq over its failure
to cooperate with U.N.-mandated disarmament efforts. As 1998 ended, U.N.
weapons inspectors from the U.N. Special Commission on Iraq (UNSCOM) reported
that they were unable to perform their disarmament mission. They left Iraq just
prior to a 70 hour U.S./British bombing campaign against Iraqi sites that could be
used to reconstitute weapons of mass destruction (WMD). The United States termed
the bombing campaign (Operation Desert Fox) successful in setting back Iraq's missile
program and its ability to threaten its neighbors, but this action left the U.N. Security
Council divided over how to encourage Iraq to allow UNSCOM back into the
country. Although hampered in its mission, UNSCOM was viewed by most experts
as the most effective means of determining whether or not Iraq is reconstituting
banned WMD programs.
The prospects for Iran and the United States to end twenty years of hostility
have improved since the unexpected election in May 1997 of a relative moderate,
Mohammad Khatemi, as President. However, Khatemi faces opposition internally
from those who subscribe to the radical principles of the Islamic revolution. In part
because of that internal opposition, a rapid and significant improvement in U.S.-Iran
relations has proven elusive. Khatemi has refused a longstanding U.S. offer to begin
a political dialogue, but he has approved increased people-to-people contacts as a
means of rebuilding trust between the two countries. Iran's government did not take
up a June 1998 offer by Secretary of State Madeleine Albright to engage in mutual
confidence-building measures with Iran that could provide a "roadmap" to normal
relations. The Clinton Administration apparently is waiting for the infighting in
Tehran to subside before renewing its overtures, although it did, in December 1998,
remove Iran from the list of major drug producing countries. This move was
interpreted by some in Congress as a concession to Iran.
U.S. efforts to contain the potential threats from Iran and Iraq continue to
depend on close alliances with the Persian Gulf monarchy states and on continuing
political stability there. Facing internal sympathy for the plight of the Iraqi people,
some of the Gulf states have begun to grow more cautious in their support of U.S.
efforts to compel Iraq to comply with all applicable U.N. resolutions. Saudi Arabia
refused to allow U.S. combat aircraft to fly from Saudi bases to strike Iraq in
Operation Desert Fox. The Gulf states, faced with low oil prices since 1997, also
are worried about potential political unrest that might result from cutting back the
generous social benefits they offer their citizens. To compensate for falling prices,
Saudi Arabia, Kuwait, and Qatar are opening their energy sectors to increased foreign
investment. All the Gulf states are curbing their appetite for new arms purchases.
Although not under significant pressure to do so, some of the Gulf states continued
gradual moves to open their political system, in part to spread the burden of difficult
political and economic choices.

Threats and U.S. Interests in the Gulf................................1
Iraq: U.S. Efforts to Contain and End the Threat .......................3
Eroding Regional Containment..............................4
Congressional Views.....................................6
Iran: U.S. Outreach Amid Continued Concerns.........................7
Continued Administration and Congressional Concerns..........10
The Persian Gulf Monarchies:
Coping With Internal and External Threats........................12
Domestic Political and Economic Stability........................13
Effects of Declining Oil Prices.............................15
Responding to the Price Decline............................17
Defense and U.S. Relations...................................20
Defense Agreements....................................20
U.S. Arms Sales........................................22
Joint Security/Theater Missile Defense.......................24
U.S. Forces in the Gulf...................................25
Gulf Cooperation With U.S. Middle East Policy................25
Conclusions and Prospects........................................27
Appendix 1. Gulf State Populations, Religious Composition..............28
Appendix 2. UNSCOM Accomplishments and Unresolved Issues..........29
Appendix 3. No Fly Zones in Iraq..................................31
Appendix 4. Map of the Persian Gulf Region and Environs...............32
List of Tables
Table 1. GCC Oil Export Revenue, 1997 vs 1998......................16
Table 2. GCC Country Oil Production, Exports, and U.S. Imports, 1998....17
Table 3. Comparative Military Strengths of the Gulf States...............22

The Persian Gulf: Issues for U.S. Policy, 1999
The Persian Gulf region, rich in oil and gas resources but with a history of armed
conflict and political instability, remains crucial to United States interests. This
report, which will be revised annually, discusses current issues and problems that
confront the United States in its attempts to maintain stability in the Gulf. For further
reading, see CRS Issue Brief 92117, Iraqi Compliance With Ceasefire Agreements;
Issue Brief 94049, Iraq-U.S. Confrontations; Issue Brief 93033, Iran: Current
Developments and U.S. Policy; and Issue Brief 93113, Saudi Arabia: Post-War
Issues and U.S. Relations.
Threats and U.S. Interests in the Gulf
Iran, Iraq, and the six Gulf monarchy states that belong to the Gulf Cooperation
Council (GCC, Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates, and
Oman) contain about two thirds of the world's proven reserves of oil. Saudi Arabia
and Iraq are first and second, respectively, in proven reserves of oil and Iraq, which
is largely unexplored, might ultimately contain more oil than does Saudi Arabia. Iran
and Qatar, respectively, have the second and third largest reserves of natural gas in
the world; gas is an increasingly important source of energy for Asian and European
countries. Difficulties in the discovery and transportation of oil and gas from the
Central Asian/Caspian countries ensure that the Gulf will be a major source of energy
well into the 21 century. st
The region is home to both Iran and Iraq, countries that have threatened U.S.
interests directly and indirectly. Iran and Iraq fought each other during 1980-1988,
but both have also fought the United States. Iran and the United States fought minor
naval skirmishes during 1987-88, the height of the Iran-Iraq war — a war in which
the United States tacitly backed Iraq. During one such skirmish (Operation Praying
Mantis, April 18, 1988) the United States fought a day long naval battle with Iran that
destroyed almost half the Iranian fleet. The United States fought Iraq in the 1991
Gulf war to liberate Kuwait, which Iraq had invaded and occupied in August 1990.
That war cost the United States armed forces 148 killed in action and 138 non-battle
deaths, along with 458 wounded in action. The 1991 Gulf war cut Iraq's conventional
military capabilities approximately in half, but Iraq is still superior to Iran and the Gulf
states in ground forces. Iraq fielded the sixth largest air force prior to the Gulf war,
but now has only about 170 operational combat aircraft — mostly older Russian-
made MiG-23's and MiG 25's and French-made Mirages, according to the
International Institute of Strategic Studies.
Both Iran and Iraq have developed weapons of mass destruction (WMD)
programs. Iraq's missile, chemical, nuclear, and biological programs, begun during
the Iran-Iraq war, were among the most sophisticated in the Third World at the time
of Iraq's invasion of Kuwait. During the 1991 Gulf war, Iraq fired 39 Scud missiles

at Israel, a U.S. ally, and about 50 missiles on targets in Saudi Arabia. One Iraqi
missile, fired on coalition forces on February 25, 1991 (during Desert Storm) hit a
U.S. barracks near Dhahran, Saudi Arabia, killing 28 military personnel and wounding

97. During the Iran-Iraq war, Iraq fired enhanced Scud missiles at Iranian cities, and1

it used chemical weapons against Iranian troops and Kurdish guerrillas and civilians.
Iran's WMD programs, which are not under international restrictions like those on
Iraq, have made significant strides during the 1990's with substantial help from Russia,
China, North Korea, and other countries. In July 1998, Iran tested its Shahab
(Meteor) 3 ballistic missile (800-900 mile range), which could enable Iran to threaten
Israel, Turkey, and parts of Central and South Asia.
Both Iran and Iraq are on the U.S. list of state sponsors of terrorism, although
Iran has been considered a more substantial terrorist threat than Iraq. The Islamic
regime in Iran, which came to power in February 1979, held American diplomats
hostage during November 1979-January 1981, and the pro-Iranian Lebanese Shia
Muslim organization Hizballah held Americans hostage in Lebanon during the 1980s.
Since then, Iran has supported groups (Hizballah and the Palestinian groups Hamas
and Palestinian Islamic Jihad) opposed to Israel and the U.S.-sponsored Arab-Israeli
peace process.
Iran also has supported radical Shia Muslim fundamentalist movements in the
Gulf, which have posed threats to political stability in Saudi Arabia and Bahrain over
the past four years. Press reports suggest Saudi investigators hold Iran at least
indirectly responsible for the June 1996 bombing of the Khobar Towers housing
complex for U.S. military officers, in which 19 U.S. airmen were killed.
The Gulf states face internal threats not attributable to Iran or Iraq. All six Gulf
states — Saudi Arabia, Kuwait, Bahrain, the United Arab Emirates, Oman, and Qatar
— are hereditary monarchies with few, if any, formal institutions for popular
participation in national decisionmaking. Some of them, including Saudi Arabia and
the United Arab Emirates, are undergoing leadership transitions, and Bahrain's
leadership passed to a new generation in March 1999 when the long serving Amir
died suddenly. Since the early 1970s, the Gulf states have channeled their oil wealth
into infrastructure development and generous social benefits, such as free higher
education and subsidized housing. The decline in oil prices since early 1998 has left
the Gulf states with the difficult choices of cutting benefits and risking unrest, or
trimming other programs, such as defense acquisitions that are vital to their security.
To help deflect the burden of choosing among unpalatable alternatives, some of the
Gulf states have begun to gradually open up the political process, although not to the
point where Gulf state citizens can peacefully change their leadership.

The missiles were supplied by Russia but Iraq enhanced their range to be able to reach1
Tehran, which is about 350 miles from the Iraq border. The normal range of the Scud is
about 200 miles. In order to accommodate the greater range, however, Iraq had to reduce the
warhead payload by half, from 2,200 pounds to 1,100 pounds.

Iraq: U.S. Efforts to Contain and End the Threat
Iraq is openly challenging U.S. and U.N. efforts to obtain full Iraqi compliance
with postwar U.N. resolutions. The United States and Iraq began a state of almost
constant confrontation in October 1997 when Iraq, out of frustration at its failure to
achieve any easing of seven years of comprehensive U.N. sanctions, began openly
defying the efforts of U.N. weapons inspectors (UNSCOM) to clear up remaining
questions about Iraq's prohibited WMD programs. In response to Iraq's refusal to
fully cooperate with UNSCOM, in February 1998 and again in November 1998, the
United States built up forces in the Gulf and went to the brink of military action
against Iraq. In both of those cases, airstrikes were averted -- in the first case
through mediation efforts by U.N. Secretary-General Kofi Annan, and, in the latter
case, through Iraq's acceptance of a U.S. ultimatum.
Iraq's continued obstructions of UNSCOM finally provoked U.S. airstrikes,
despite opposition by France, Russia, and China to the use of force. After a month
of testing Iraq's November 14, 1998 pledge of full cooperation, UNSCOM Executive
Chairman Richard Butler told the U.N. Security Council that Iraq continued to
obstruct to its work. On December 16, Butler withdrew all UNSCOM staff from
Iraq and, that evening, the United States and Britain began a 70-hour bombing
campaign (Operation Desert Fox, December 16-19) against military installations and
industrial facilities that can be used to restart WMD programs. The United States
and Britain claimed that 85% of the approximately 100 sites targeted suffered
damage, some of them were destroyed completely. On January 8, 1999, the leader
of the operation, commander of U.S. Central Command (CENTCOM) Gen. Anthony
Zinni, said Desert Fox had set back Iraq's missile programs by two years.
Some believe that Operation Desert Fox might ultimately prove
counterproductive to U.S. efforts to maintain containment of Iraq. Iraq refuses to
allow UNSCOM back into Iraq to resume its work, leaving open the possibility that
Iraq might begin rebuilding its WMD programs. (See appendix on UNSCOM's
record and disarmament issues still outstanding.) The United States says it will strike
Iraq if Iraq rebuilds prohibited weapons programs, but most outside experts believe
that UNSCOM's ability to detect Iraqi WMD violations is greater than that of the
United States, which lacks on-the-ground personnel in Iraq and must rely on remote
intelligence collection methods.
Immediately after the Operation, France and Russia advanced proposals to
restructure UNSCOM's mission and/or composition to encourage Iraq to accept some
level of U.N. weapons control. The United States opposes the French and Russian
efforts, preferring instead to insist on returning to UNSCOM its original mission in
Iraq. No Security Council permanent member is satisfied with a total absence of
international monitoring of Iraqi WMD capabilities, and the Council will likely
continue to debate the issue until it achieves a consensus on how to restart a WMD
control program. The Council took one step toward that goal in late January 1999
by authorizing the convening of a disarmament panel, composed mostly of UNSCOM
and International Atomic Energy Agency (nuclear issues) experts, to review all
aspects of Iraqi disarmament and report back to the Council by April 15, 1999. The
panel might make visits to Iraq if Iraq agrees to cooperate with its work. Two other

panels, one on the humanitarian situation in Iraq and one on Kuwaiti missing persons
and property, also were formed.
The United States also is attempting to stave off French and other calls for the
lifting of sanctions on Iraq. France asserts that lifting sanctions will provide Iraq with
enough incentive to agree to allow a WMD monitoring program to resume. The
United States opposes that position on the grounds that lifting sanctions will enable
Iraq to generate and control enough revenue to reconstitute its armed forces and its
WMD programs, even if the international ban on arms exports to Iraq remains in
place. As a response to the French proposal, the United States has proposed that the
U.N. "oil-for-food" program (U.N. monitored sales of $5.26 billion in Iraqi oil every
six months in exchange for humanitarian purchases) be expanded. Doing so would
ensure that Iraq's oil revenues continue to be controlled by a U.N. escrow account,
and cannot therefore be used for illicit weapons or other purposes.
As part of a broad pattern of post-Desert Fox defiance, Iraq declared in late
December 1998 that it would challenge U.S. and British enforcement of "no-fly
zones" in northern and southern Iraq. Iraq has never accepted the legitimacy of the
no fly zones, because they were not specifically authorized by any U.N. resolutions,
but it has only challenged enforcement during periods of crisis with the United
Nations or United States. The United States asserts that no fly zone enforcement is
a legitimate operation to monitor Iraq's compliance with Resolution 688 (April 5,
1991), which demands that Iraq cease repressing its population (the Kurds in the
north and Shia Muslims in the south). In over 100 incidents since Desert Fox, the
United States has struck Iraqi air defense sites and related equipment in the northern
and southern no fly zones (see map appendix for depiction of the no fly zones) in
response to Iraqi attempts to target U.S. and British aircraft patrolling the zones, or
in response to Iraqi air incursions into the zones. In early March 1999, the United
States claimed to have destroyed about 20% of Iraq's air defense network since
Desert Fox.
Eroding Regional Containment. Even though Iraq is defying Security
Council resolutions, some of Iraq's neighbors believe that it has been disarmed to the
point at which it no longer poses a major threat. The neighboring states have
expressed concern about the plight of the Iraqi people under more than eight years of
comprehensive international sanctions (import and export embargo, with selected
exceptions, as well as a ban on flights to or from Iraq). Even Saudi Arabia, which
was directly threatened by Iraq's invasion of Kuwait in 1990, is now asking that
restrictions on the oil for food program be eased. Among other motivations, some
of Iraq's neighbors seek an easing of sanctions to provide them with additional trade
outlets while others want to rehabilitate Iraq as a counterweight to Iran and/or Israel.
Whatever the motivations, the following improvements in Iraq's relations with
regional states have caused some to question whether U.S. efforts to contain Iraq will
succeed over the long term.
!In February 1998, at the height of one crisis with Iraq over UNSCOM
inspection privileges, the Foreign Minister of Qatar visited Baghdad in an
attempt to mediate an end to the crisis. This represented the first visit by a
Gulf state Foreign Minister to Iraq since the Gulf war.

!In April 1998, Iraq and Iran completed their largest prisoner exchange since
the end of the Iran-Iraq war in August 1988 (5,600 Iraqi prisoners were
exchanged for 380 Iranian prisoners). This exchange helped clear a major
hurdle to further improvement in their relations. During 1998, Iran, or
factions within Iran, also continued to help Iraq smuggle at least $10 million
per month worth of petroleum products out of the Gulf. In August 1998,
Iranian visitors began visiting Shiite Muslim holy sites in southern Iraq for the
first time since the February 1979 Iranian revolution. Iran publicly opposed
Desert Fox.
!In July 1998, longtime adversaries Syria and Iraq agreed to reopen the Iraqi oil
pipeline that crosses Syria and lets out at Syria's Mediterranean port of Banias.
Iraq said in February 1999 that Iraq's portion of the line is nearly repaired. The
pipeline has been closed since 1982, when Syria forged an alliance with Iran
against Iraq during the Iran-Iraq war. (Syria also participated in the coalition
that expelled Iraq from Kuwait in 1991.) In 1997, the two reopened their
common border and Syria began exporting goods to Iraq under the U.N.-
sponsored "oil-for-food" program. The reopening of the pipeline might
require an amendment to U.N. Security Council Resolution 986 (April 1995)
and the May 1996 U.N.-Iraq memorandum of understanding that govern the
oil-for-food program; these documents mandate that more than half of Iraqi oil
exports run through an Iraq-Turkey pipeline and that all oil export routes be
monitored by U.N. contract personnel. Whether these understandings will be
amended to permit exports through Syria remains to be seen.
!In September 1998, Turkey upgraded its relations with Iraq to the Ambassador
level, and Turkey did not allow its Incirlik air base (from which U.S. and
British aircraft patrol the northern no-fly zone over Iraq) to be used for
Operation Desert Fox airstrikes. Iraq received a further boost from Turkey in
mid-February 1999, when the government of Prime Minister Bulent Ecevit
received Iraq's Deputy Prime Minister Tariq Aziz. Iraq is pushing to persuade
Turkey to end its hosting of U.S./British enforcement of the northern no fly
zone from Incirlik. Aziz did not accomplish that objective, but, a few days
before Aziz's visit, Turkey's Defense Minister did call for new rules of
engagement for northern no fly zone enforcement. The Defense ministry
position suggested that Turkey is uneasy with the U.S./British strikes on Iraq's
air defense batteries in the northern no fly zone since Desert Fox.
!Also in September 1998, Iraq and Saudi Arabia signed their first trade deal
since the Gulf war, under which Saudi Arabia would supply goods to Iraq
under the"oil-for-food" program. Saudi Arabia publicly refused to allow
Desert Fox strikes from its bases, although it joined other Gulf and Arab states
in blaming Iraq for the non-cooperation that brought on Desert Fox. Only
Kuwait and Oman allowed U.S./British strikes from their territory during the
!In October 1998, Lebanon restored diplomatic relations with Iraq after a four
year break. That break occurred when Lebanon alleged that Iraqi intelligence
had assassinated Iraqi dissidents in Beirut.

!In November 1998, the United Arab Emirates (UAE) inaugurated a new ferry
service to take passengers and goods to Iraq, giving Iraq an additional outlet
for its people. (Civilian flights into or out of Iraq are banned by post-Kuwait
invasion U.N. Security Council Resolution 670.)
Congressional Views.Congress has generally supported the Administration
throughout the various confrontations with Iraq, although it has often urged even
stronger action against Iraq than the Administration appeared ready to take. In
particular, Congress has insisted that an element be added to U.S. containment policy
-- the overthrow of Saddam Husayn. During the October - November 1997 phase
of the crisis, the Senate did not act on a resolution (S.Con.Res. 71) supporting
military action because many Senators believed that military action would not end the
threat from Saddam Husayn. Many Senators wanted the Administration to adopt
policies that would lead to the overthrow of Saddam Husayn. On July 31 and August
3, 1998, respectively, the Senate and House passed a resolution (S.J.Res. 54) that said
Iraq is in "material breach" (violation) of the post-Gulf war ceasefire and the President
should act accordingly. The President signed the bill (P.L. 105-235) on August 14,
1998, although the Administration did not, at that point, take military action against
Iraq. It did not push to persuade the Security Council to declare Iraq in material
breach because of anticipated opposition from France, China, and Russia.2
Congressional sentiment for a strategy of overthrow of Saddam Husayn
culminated in the Iraq Liberation Act, which passed the House on October 5 (360-38)
and the Senate on October 7 (unanimous consent). The Act gives the President the
discretion to provide up to $97 million in defense articles and services to Iraqi
opposition organizations designated by the Administration. The President signed the
bill into law (P.L. 105-338) on October 31, 1998, the same day Iraq cut off all
cooperation with UNSCOM, including long term monitoring operations. (For further
information on U.S. support for the opposition, see CRS Report 98-179 F. Iraq's
Opposition Movements.)
On November 14, 1998, President Clinton appeared to take up Congressional
recommendations by saying publicly that U.S. policy would work to achieve a change
in regime and that he would implement the Iraq Liberation Act. This marked the first
time since the Gulf war that the declared policy of the United States has been to seek
Saddam Husayn's overthrow, although the United States has worked with opposition
groups since 1991. However, Administration officials maintain that they do not want
this objective, which is neither sanctioned nor suggested by any U.N. Security Council
Resolutions, to interfere with U.S. attempts to maintain a consensus in the Council
to contain Iraq. Some other Security Council members maintain that any attempts
to interfere in Iraq's internal affairs are unjustified and contrary to international law.

On seven occasions during 1991-93, the Security Council declared Iraq in material breach2
of the cease-fire, in principle opening Iraq to allied military action. Military action was not
used on all of those occasions, however. The last Council finding of material breach was on
June 17, 1993, but Council members have since been reluctant to agree on such a finding
because of recent Russian, Chinese, and French opposition to military action against Iraq.

Both the Administration and Congress have highlighted Iraq's human rights
record as an additional justification for removing Saddam Husayn from power. Of
all the states bordering the Persian Gulf, Iraq is widely regarded as having the worst
human rights record; it is termed "extremely poor" in the State Department's human
rights report for 1998, released in March 1999. Senior State Department officials
have said since 1994 that Iraq might qualify for prosecution in the International Court
of Justice under the 1948 Genocide Convention, because of its abuses against Iraq's
Kurds during a mass Kurdish relocation in February 1988 (Anfal campaign), as well
as continuing efforts to deprive Shiite Muslims in the southern marshes (Marsh Arabs)
of their way of life. In April 1997, the Administration announced its support for
INDICT, an effort by Iraqi oppositionists and human rights activists to document
Iraqi war crimes. In November 1997, the House passed H.Con.Res. 137, calling for
the President to push for a war crimes tribunal for Saddam and his associates. The
Senate passed a similar resolution, S.Con.Res. 78, in March 1998. Under a State
Dept. plan submitted pursuant to P.L. 105-174, an FY1998 supplemental
appropriation, $2.17 million is to be spent to analyze, translate, and publicize the
several million documents of Iraqi war crimes (now on 176 CD-ROM diskettes)
provided by the Kurds or held by the government of Kuwait.
On the other hand, many experts believe that a war crimes tribunal will be
difficult if Saddam is not in custody. Some U.N. Security Council members believe
that pushing for such a tribunal would provide a disincentive for Iraq to resume
cooperation with a U.N. WMD monitoring effort. Some might argue that Iraq's
repression of its people also complicates efforts by the Iraqi opposition to organize
resistance to Saddam Husayn's government.
Iran: U.S. Outreach Amid Continued Concerns
The year 1998 began amid expectations that the United States and Iran might be
able to end twenty years of mutual hostility, but those expectations proved difficult
to realize. Foreign policy experts had been arguing for some time that improved
relations with Iran could help the United States contain Saddam Husayn's Iraq, reduce
the threat to the United States and to the Arab-Israeli peace process posed by Islamic
terrorist groups, quell Iran's opposition to a large U.S. military presence in the Persian
Gulf region, and possibly, dissuade Iran of the need to acquire weapons of mass
destruction. U.S. business interests, meanwhile, argued that improved U.S.-Iranian
relations could help open up new energy routes for Caspian/Central Asian energy
resources, might benefit U.S. exporters, and could end trade disputes with U.S. allies
precipitated by U.S. secondary sanctions legislation. Others maintain that the United3
States could not and should not isolate a country of over 65 million people, with a
location and resources as strategic as those of Iran.
Others, including many Members of Congress, believe that Iran has not
addressed U.S. concerns about its international behavior. Easing U.S. sanctions,
according to this view, would provide Iran the opportunity to earn increased hard

For analysis of U.S. sanctions on Iran, see CRS Report 97-231 F. Iran: U.S. Policy and3

currency that could be channeled into terrorism, conventional weapons, or WMD
technology. Some who subscribe to this view believe that Khatemi, despite his
professed moderation on some issues, is as committed as were his predecessors to
making Iran a great power in the Gulf and expelling U.S. influence from the region.
In May 1997, the Administration took the opportunity presented by the upset
presidential election victory of Mohammad Khatemi, a relatively moderate cleric, to
shift policy on Iran. U.S. hopes for improved relations had intensified when Khatemi
agreed to a special Cable News Network interview on January 7, 1998, portrayed by
Iran and CNN as an "address to the American people." However, constrained by
revolutionary purists who still hold many of the reins of power in Iran, Khatemi
offered only people-to-people contacts with the United States, and rejected the U.S.
offer of formal government-to-government ties.
The United States accepted Khatemi's call for informal contacts but the
Administration apparently later concluded that this route would not lead to an early
breakthrough in relations. On June 17, 1998, in a speech to the Asia Society,
Secretary of State Albright proposed that the two countries undertake mutual
confidence-building measures that could form a "road map" to eventually normalizing
relations. On September 28, 1998, Iranian Foreign Minister Kamal Kharrazi formally
responded to the Albright proposal, also in a speech to the Asia Society. Kharrazi
continued to rule out direct dialogue and restated Iran's litany of grievances against
the United States, including economic sanctions, the holding of Iranian assets, and a
history of attempting to manipulate Iranian politics. However, he indicated that the
United States and Iran could find areas of cooperation, including counternarcotics,
counterterrorism, controlling regional WMD, and promoting a political settlement in
The Administration also attempted to signal a willingness to improve relations
with Iran in several sanctions-related actions during 1998. On May 18, 1998, the
Administration waived sanctions under the Iran-Libya Sanctions Act (P.L. 104-172)
— on national interest grounds — against three firms (Total SA of France, Gazprom
of Russia, and Petronas of Malaysia) that had agreed in September 1997 to develop
Iran's South Pars gas field. The Administration maintained that the waiver was not
a concession to Iran, but rather an exchange for European and Russian pledges of
cooperation to combat Iranian terrorism and to prevent Iran from acquiring WMD
technology. Members on Congress opposed to the move said the waiver would open
Iran to further energy investments which would have the net effect of improving Iran's
financial resources and reducing its isolation. On the other hand, some U.S. energy
firms opposed the simultaneous Administration statements that similar waivers would
not likely be granted for energy pipeline or other projects that transit Iran as
inconsistent with the waiver decision itself.
On December 7, 1998, President Clinton removed Iran from the list of major
drug producing countries on the grounds that U.S. assessments indicated that the area
under cultivation in Iran had decreased to the point at which it no longer met the
threshold for inclusion. Some in Congress criticized the Administration action as an
attempt to improve relations with Iran rather than a judgement based on objective
criteria, although the decision did not have the effect of easing sanctions on Iran
because of duplicate sanctions still in place.

Although not necessarily intended as a positive signal toward Iran, on June 23,
1998, the President vetoed H.R. 2709, the Iran Missile Proliferation Sanctions Act
(IMPSA), a bill to mandate sanctions on entities aiding Iran's missile program. The
President vetoed the bill the grounds that it would be counterproductive to U.S. efforts
to enlist Russian government cooperation in ending this unofficial assistance. In an
effort to forestall congressional action to override the veto, on July 28, (one week after
Iran's test of its Shahab-3 missile), the Administration amended a previous Executive
order (12938, November 14, 1994) to enable it to ban trade with, aid to, and
procurement from foreign entities helping WMD programs in Iran or elsewhere.
Pursuant to that amendment, the Administration sanctioned seven Russian entities
allegedly assisting Iran's Shahab program. On January 12, 1999, the President
sanctioned three additional Russian entities believed to be contributing to Iran's missileth
and nuclear programs. Some observers believe the 106 Congress might revive
IMPSA if there are further reports of Russian assistance to Iran's missile programs or
dramatic Iranian missile breakthroughs, such as a successful test of the 1,250 mile
range Shahab-4. Iran's missile progress, and especially North Korea's August 1998
test of its Taepo-Dong missile, has led to an Administration decision, announced in
January 1999, to move to develop a national missile defense system.
The Administration faces a number of specific decisions that might signal the
future direction of Iran policy. The Treasury Department's Office of Foreign Assets
Control (OFAC), which implements and monitors U.S. sanctions, is still reviewing an
April 1998 application by Mobil Oil Corp. to conduct swaps of Iranian oil in Central
Asia. (In a swap arrangement, oil is imported to Iran for domestic use in northern
Iran, while an equivalent amount of oil is exported by Iran through its southern
terminals on the Gulf.) No action has been taken on the application. Observers say
that, even though a May 1995 Executive order banning trade with Iran allows for
applications for oil swaps in Central Asia, the Mobil application will likely not be
approved in the near future. A similar application by a smaller Texas-based firm has
already been rejected. The Administration also is deciding whether or not to waive4
ILSA sanctions for a $1 billion deal between Iran and France's Elf Aquitaine and Italy's
ENI to develop Iran's Doroud oil field. The project is likely to receive a national
interest waiver because of the implicit U.S. promise in May 1998 to waive ILSA
sanctions on all EU firms. Khatemi encouraged further deals during his March 1999
visit to Italy, the first visit by an Iranian head of government since the Islamic
OFAC is also evaluating an application by a U.S. trading company to ship $500
million in agricultural products (grain and sugar) to Iran on a cash basis. The
application has received support from a bipartisan group of over 30 Senators and
House Members, but press reports suggest that the Administration might not act on
the application for quite some time. No pressing humanitarian need in Iran would
justify approving the application, but some policymakers believe approving the sale
would signal U.S. goodwill toward Khatemi. A long delay in acting on the application
could essentially kill the deal, even without formal Administration action.

Lippman, Thomas and David Ottaway. Iran Requests $500 Million in Food Items.4
Washington Post, January 19, 1999.

Continued Administration and Congressional Concerns. Many in both
Congress and the Administration, even those highly supportive of a government-to-
government dialogue with Iran, appear to believe that signs of progress are mixed on
key issues of concern to the international community -- weapons of mass destruction,
opposition to the Arab-Israeli peace process, and support for international terrorism.
Many observers believe the political infighting in Iran has escalated and that, although
Khatemi might prove key to an improvement in relations, the United States should not
link its attempted opening to Iran to Mr. Khatemi's political health. In Congress, some
Members are urging the Administration not to ease any U.S. sanctions on Iran until
there are concrete signs of moderation in its behavior. A February 11, 1999 letter to
President Clinton, issued jointly by House International Relations Committee Chairman
Benjamin Gilman and the Committee's ranking minority Member Sam Gejdenson,
make that recommendation.
A number of divergent and seemingly contradictory trends in Iran's policies
complicate U.S. efforts to improve relations with Iran, although the Administration
appears to believe that direct engagement with Iran could lead to progress on these
!Khatemi and Foreign Minister Kharrazi have publicly stated Iran's opposition
to the use of international terrorism as an instrument of policy, and Iran
condemned the August 7, 1998 bombing of U.S. embassies in Kenya and
Tanzania, in which Iran does not appear to have been involved. However,
despite private assurances to the Palestinian leaders and European governments
that Iran would not work to derail the Arab-Israeli peace process, Iran
continues to support terrorist groups that use violence to oppose the Arab-
Israeli peace process. Khatemi has asserted in several statements that these5
groups, such as Hamas, Hizbollah, and Palestinian Islamic Jihad are not terrorist
groups, but are legitimately fighting against Israeli occupation of Palestinian and
Lebanese territory. Iranian leaders, including Khatemi (October 27, 1998 and
December 1, 1998) denounced the October 23, 1998 Israeli-Palestinian Wye
River accord.
!President Khatemi has attempted, with some success, to change Iran's image in
the Gulf from that of an aggressor to a pragmatic neighbor. Saudi Arabia has
been particularly receptive to overtures from Khatemi, who is expected to visit
the Kingdom later this year. Bahrain, which in 1996 openly accused Iran of
attempting to overthrow the ruling Al Khalifa regime, in December 1998
restored full relations with Iran by appointing an Ambassador to Tehran. At the
same time, Khatemi's government has reaffirmed Iran's claim to three Gulf
islands in dispute between Iran and the United Arab Emirates. Iran also has
continued its program of naval exercises in the Gulf, which appear intended to
intimidate the Gulf states.
!Khatemi, despite his outreach to Iran's neighbors, has not sought to curb Iran's
WMD programs. All factions in Iran appear to agree on the need to continue

U.S. Department of State. Report to Congress on Iran-Related Multilateral Sanctions5
Regime Efforts. December 14, 1998.

developing these programs, although there are factional differences over the
degree to which Iran should cooperate — or appear to cooperate — with
international anti-proliferation regimes.
!Iran allows the International Atomic Energy Agency (IAEA) to conduct regular
inspections of declared facilities, but it has not yet accepted an enhanced system
of safeguards that would provide greater ability to detect undeclared facilities.
Iran's neighbors, as well as the United States, remain suspicious of Iran's
insistence on proceeding with Russia's completion of the nuclear power reactor
at Bushehr, on Iran's southern coast, and its exploration of additional nuclear
deals with Russian institutes. (For further information on Russia-Iran6
cooperation on weapons of mass destruction, see CRS Report 98-299 F,
Russian Missile Technology and Nuclear Reactor Transfers to Iran.)
!Iran is a party to the 1972 Biological and Toxin Weapons Convention, and it
was an original signator to the 1993 Chemical Weapons Convention. Iran's
Majlis (parliament), ratified the CWC in June 1997, one month after Khatemi
was elected, and it has made required declarations under the CWC. In
February 1999, Iran allowed the Organization for the Prohibition of Chemical
Weapons (OPCW), the CWC monitoring body, to visit Iran's declared chemical
facilities. Despite Iran's cooperation with the CWC thus far, Iranian officials
linked to Khatemi reportedly have been recruiting Russian scientists to work in
Iran on its biological program. 7
!During 1998, Iran's ballistic missile program made significant strides, with
Russian help. On July 22, 1998, Iran tested the Shahab (Meteor-3) medium
missile, which is based on North Korean Nodong missile technology and has a
reported range of 800-900 miles. U.S. officials say it is unclear whether or not
the test was successful. On February 7, 1999, Iran announced publicly that it
would soon conduct an engine test of the even longer range Shahab-4 (1,250
mile range), which Iran said was intended to launch a satellite. Iran has long
planned to buy and launch its Zohreh (Venus) telecommunications satellite, but
a Jane's Defence Weekly analyst believes that the Shahab-4 does not appear
suitable for a satellite launch. Iran's unexpectedly rapid missile progress8
already has bolstered the conclusion of the July 15, 1998 congressionally-
mandated "Rumsfeld Commission" report that concluded that Iran "now has the
technical capability and resources to demonstrate an ICBM-range ballistic
missile.....within five years of a decision to proceed— whether that decision has
already been made or is yet to be made." The Director of Central Intelligence9
George Tenet warned that Iran's missile program is making progress, but he did

Russia to Continue Iran Cooperation, Minister Says. Reuters, January 22, 1999. 6
Miller, Judith and Broad, William. Iranians, Bioweapons in Mind, Lure Needy Ex-Soviet7
Scientists. New York Times, December 8, 1998.
Ljunggren, David. Iran Missile for Military, Not Civilian Use - Jane's. Reuters, February8

16, 1999.

Executive Summary of the Report of the Commission to Assess the Ballistic Missile Threat9
to the United States ("Rumsfeld Commission"). July 15, 1998. P.13.

not completely endorse the Rumsfeld judgment on Iran in testimony before the
Senate Arms Services Committee on February 2, 1999. He said it would take
Iran "many years" to develop an ICBM-range missile, unless it was able to
purchase key components or entire systems abroad.
!President Khatemi has attempted to liberalize social and political life since
taking office in late 1997, and the U.N. human rights rapporteur for Iran,
Maurice Copithorne, as well as the State Department's human rights report for
1998, credits Khatemi with some progress on these issues. For the first time
since the revolution, women have been appointed to judgeships in the judicial
system. On February 26, 1999, Iran held elections to 200,000 local positions
(mayors, town councils) countrywide, the first attempt to implement democracy
on the local level, as provided for in the 1979 constitution. The United States
called the elections a "positive development." However, for the first time since
1992, a follower of the Baha'i faith was executed in prison in July 1998. The
sect is considered heretical by the ruling clerical regime, and, virtually every
year, one or both chambers of Congress has enacted a resolution condemning
Iran's treatment of the Baha'is. In January 1999, the Ministry of Intelligence
was forced to admit that renegade agents killed five dissidents and writers in
late 1998; the admission enabled Khatemi to force out the Minister in February
1999. In September 1998, Iran formally pledged not to implement Ayatollah
Khomeini's 1989 death sentence against British author Salman Rushdie, but a
quasi-independent foundation has reiterated its commitment to paying a $2.5
million reward to any Muslim who kills Rushdie.
The Persian Gulf Monarchies:
Coping With Internal and External Threats10
U.S. attempts to contain the threats from Iran and Iraq depend heavily on
cooperation from the Persian Gulf monarchies of the Gulf Cooperation Council11
(GCC). The United States therefore has a strategic stake in the political stability of
the GCC states. Through defense cooperation, the United States has helped the GCC
countries face their external threats, but the United States has little ability to influence
their economic or internal political decisions, or to insulate them from the effects of
low oil prices. Despite the threats they face, the GCC states have proved more
durable politically than some scholars have predicted, surviving attempts to subvert
them by Iraq (1970s) and Iran (1980s and 1990s), the eight year Iran-Iraq war, the
Iraqi invasion and occupation of Kuwait (1990-91), and post-Gulf war unrest and
uncertain leadership transitions in a few of the GCC states.

This section contains contributions from Alfred B. Prados, Specialist in Middle Eastern10
Affairs, Foreign Affairs, Defense, and Trade Division and Lawrence Kumins, Specialist in
Energy Policy, Resources, Science, and Industry Division.
For further information on the Gulf states, see CRS Issue Brief 93113, Saudi Arabia: Post-11
War Issues and U.S. Relations; and CRS Reports 95-1013 F, Bahrain; 95-1071 F, Oman;

98-436 F, United Arab Emirates: U.S. Relations and Prospective F-16 Sale; and 98-600 F,

Kuwait: Current Issues and U.S. Policy.

Domestic Political and Economic Stability
The key domestic threats to GCC political stability, in most cases, come from
ethnic, ideological, and sectarian differences in these states. (See appendix on Gulf
state population and religious composition.) Since November 1994, Bahrain's Sunni
Muslim ruling family has faced several cycles of unrest (demonstrations, occasional
rioting) from elements of the Shia Muslim community, which constitutes a numerical
majority but feels excluded from national decisionmaking. The ruling Al Khalifa
family has resisted opposition demands to restore an elected National Assembly to
replace the appointed Consultative Council established after the Gulf war. Although
Bahrain has been somewhat calmer since early 1998, the sudden death of Amir Isa bin
Salman Al Khalifa on March 6, 1999 could provoke renewed unrest if his son and
successor, Hamad bin Isa Al Khalifa, does not begin to address opposition grievances.
Other than Bahrain, Saudi Arabia has been the only GCC state to face significant
political unrest since the Gulf war. In Saudi Arabia, there were outbreaks of rioting
and demonstrations in the two years after the Gulf war over the regime's perceived
deviations from Islamic purity. Several opposition Islamic clerics were arrested. Still
at large in Afghanistan is an exiled Saudi opposition figure, Usama bin Ladin.
Although not a religious authority, bin Ladin is viewed by some Saudis as a
revolutionary Islamic figure who is fighting to expel U.S. troops and civilians from
Saudi territory. His network is believed responsible for the November 1995 bombing
of a U.S. military training headquarters in Riyadh, in which five Americans were killed.
Bin Ladin applauded that attack as well as the more lethal bombing of the Khobar
Towers military housing complex near Dhahran, Saudi Arabia in June 1996, in which
19 U.S. airmen were killed. Saudi authorities have suggested to journalists that they
believe Shia Muslims linked to Iran were primarily responsible for that attack. There
have been no reports over the past few years of any pro-bin Ladin demonstrations
inside Saudi Arabia.
Some observers maintain that many Saudis privately agree with bin Ladin's
political message that foreign troops and civilians are despoiling sacred Muslim land.
Saudi government concerns about such sentiment might explain why Saudi Arabia has
refused, over the past year, to allow U.S. combat aircraft to strike Iraq from Saudi
Arabia. Bin Ladin's asserts that the Saudi regime is a vassal state of the United States12
and that it allows Saudi territory to be used for U.S. aggression against oppressed
Muslims (in Iraq).
The challenge from bin Ladin comes amid a leadership transition in Saudi Arabia.
King Fahd suffered a stroke in November 1995 and he has increasingly withdrawn
from day-to-day governance. His heir apparent is Crown Prince Abdullah who, like
Fahd, is about 75 years old. Abdullah is perceived as somewhat more willing than
Fahd to question U.S. policy in the region and U.S. prescriptions for Saudi security.

Jehl, Douglas. U.S. Fighters in Saudi Arabia Grounded. New York Times, December 19,12


The other Gulf states appear stable for now. The UAE is in transition from
Shaykh Zayid bin Sultan al-Nuhayyan, a founder of the UAE federation in 1971, to his
son, Crown Prince Khalifa. However, the UAE is well placed to weather this
transition because it has faced the least unrest of any of the Gulf states. In June 1995,
the current ruler of Qatar, Shaykh Hamad bin Khalifa Al Thani, overthrew his father
in a bloodless coup to become leader of that Gulf state; most of his father's supporters
quickly lined up behind the new Amir. Although the Amir accused his father and
other GCC states of attempting a countercoup in early 1996, the Amir and his father
reconciled to some extent in late 1996. In Kuwait, Islamic fundamentalist opposition
to the ruling Al Sabah family is contained within the context of Kuwait's elected
National Assembly — virtually no anti-regime violence has occurred there since the
Gulf war. Oman has also appeared relatively tranquil over the past four years, but
there is no heir apparent or clear successor to Sultan Qaboos bin Said Al Said, who is
about 60 years old.
Some of the Gulf states are attempting to ensure political stability through a
gradual opening of the political process. In the context of falling oil prices, Gulf
leaders say that economic decisions are becoming increasingly difficult, creating the
need to spread the burden of national decisionmaking. This is a trend the United
States has encouraged since the 1991 Gulf war, although U.S. Embassy officers in the
region imply that this issue is subordinate to that of defense and security issues.
Kuwait, Qatar and Oman have been at the forefront of political liberalization in
the Gulf. Kuwait, which revived its National Assembly in 1992 and still has the only
elected Assembly in the Gulf, began televising Assembly meetings in February 1999.
However, there has been no recent movement on female suffrage there. On March
8, 1999, Qatar held elections to a 29-member municipal affairs council. In a first in the
Gulf, women were permitted full suffrage and 6 women are ran as candidates (all six
lost). In late 1998, the Amir of Qatar announced that a constitution would be drafted
providing for an elected National Assembly to replace the appointed 35-member
consultative council in place since independence in 1971. On February 23, 1999,
House International Relations Committee Chairman Gilman introduced H.Con.Res. 35
congratulating Qatar on its holding of the municipal elections. Sultan Qaboos of
Oman has told visitors to Oman that the next consultative council, to be chosen in late
2000, will probably be directly elected. Two women were popularly nominated and
handpicked by the Sultan to serve in each of the previous two councils, chosen in 1994
and 1997. The Gulf Cooperation Council, as a body, formed a consultative council
that held its first meeting in November 1998.
In the other Gulf states, political liberalization has been somewhat slower. Saudi
Arabia expanded its national consultative council to 90 seats from 60 in 1997, but it
continues to rule out national elections. As noted above, Bahrain has resisted
opposition demands to restore an elected national assembly, although it has expanded
slightly the advisory powers of the appointed 40 seat consultative council. The UAE
has not moved to at all to broaden the authority of its forty seat advisory Federal
National Council. However, the wife of UAE President Shaykh Zayid bin Sultan al-
Nuhayyan said on January 31, 1999 that women would participate in the political life
of the UAE in the future. A few weeks after that statement, Shaykh Zayid appointed
a woman to be undersecretary of the Ministry of Labor and Social Affairs, the first
woman to hold such a high-ranking government post.

Despite the move toward political openness in some of the Gulf states, the
Administration and many in Congress believe that the Gulf states continue to rely
heavily on repression and denial of internationally recognized standards of human
rights to maintain political stability. Even the moves toward political liberalization in
the Gulf states do not give Gulf citizens the right to peacefully change their
government, and the foreign workers on which their economies rely have virtually no
political rights at all. Almost all the Gulf states are cited by human rights organizations
and U.S. human rights reports for arbitrary arrests, religious discrimination,
suppression of peaceful assembly and free expression, and the denial of popular ability
to peacefully change the government. Of the Gulf states, Bahrain has come under the
greatest criticism from human rights organizations for efforts to suppress the mostly
Shia Muslim unrest. In February 1999, Bahrain was reported to be planning to try a
prominent opposition Shia cleric, Shaykh Abd al-Amir Jamri, who has been held
without trial for more than three years. The Administration, apparently seeking13
stability, has publicly supported Bahrain's efforts to deal with the unrest.
Congress has been particularly interested in the issue of religious discrimination.14
The 105 Congress enacted the International Religious Freedom Act (P.L. 105-292)th
which, among other provisions, requires a report to Congress on the status of religious
freedom worldwide. Of the Gulf states, only Saudi Arabia actively prohibits the
practice of non-Muslim religions on its territory, even in private. In October 1998, a
French human rights group put Saudi Arabia at the top of its list of countries that
discriminate against Christians. Qatar prohibits public non-Muslim worship put15
tolerates it in private. In Kuwait, Bahrain, the UAE, and Oman, there are functioning
Christian churches and congregations. In January 1999, a Kuwaiti became the first
head of a church in the Gulf region; Emmanuel Benjamin al-Gharib was appointed
pastor of the National Evangelical Church of Kuwait. Small Jewish communities in
some Gulf countries are generally allowed to worship freely.
Effects of Declining Oil Prices.Although the Gulf states appear to be coping
with domestic political strains, they have been shaken by the steep descent in world oil
prices since late 1996. All the Gulf states are highly dependent on oil revenues; Saudi
Arabia depends on these revenues for about two thirds of its annual budget. Prices
fell throughout 1997 and, in 1998, they converged on a narrow range just above $10
per barrel. Pricing has improved slightly in March 1999 to about $14 per barrel for
U.S. crude, but the uptick might be temporary. Before the decline, oil had been
selling for about $21 per barrel.
Generally, the 1997-98 price drop decreased GCC export revenues by about one-
third. The 1998 revenue drop is chiefly attributable to lower prices; exports volumes
remained more or less the same as they were during 1997, consistent with OPEC
quota agreements. Iraq is a notable exception, having been permitted to increase
exports by U.N. Security Council Resolution 1153 (February 1998) to $5.26 billion in

Opposition Says Bahrain to Try Prominent Cleric. Reuters, February 12, 1999. 13
For further information, see CRS Report 98-444 F, Religious Discrimination in the Middle14
East. May 7, 1998, by Alfred Prados.
Saudis Least Tolerant of Christians - Rights Group. Reuters, October 22, 1998. 15

oil every six months, from the previous limit of $2 billion every six months. This
increased ceiling--which Iraq has yet to reach--came at the likely expense of other
producer-exporters, who now receive lower prices for roughly the same volume of
international sales.
Table 1. GCC Oil Export Revenue, 1997 vs 1998
($ billion)
Country 1997 1998'98 as % of '97
Iran 15.7 10.2 65%
Iraq 4.2 6.1 145%
Kuwait 11.8 7.9 67%
Saudi Arabia 45.5 29.4 65%
Qatar 4.0 3.0 75%
UAE 13.7 9.3 68%
Oman 5.2 3.6 69%
Source: Energy Information Administration (EIA). OPEC Revenue Fact Sheet
With current Gulf crude prices, measured in real or inflation adjusted dollars, at
their lowest point in more than a quarter-century, and no immediate sign of price
recovery, 1999 export earnings may fall further if Iraqi exports increase to Resolution
1153 maximum levels. Current Iraqi exports are constrained by production
bottlenecks stemming from lack of oil field maintenance and equipment, and exports
during 1998 never reached the $10.5 billion limit. While production in Iraq grew by
about 1.3 million barrels per day (mbd) during 1998, it remained about one million
barrels per day below the amounts which would be called for to realize allowable
levels. Were Iraq to have exported such an amount of extra output, it would have
likely resulted in single digit oil prices throughout the region and much lower oil
revenues for producers everywhere, including Gulf exporters.
The Gulf producers listed in the table below supply about one-quarter of the
worlds total oil needs. Of the 16.4 mbd Gulf producers exported, 13% -- or 2.1 mbd
-- was imported by the United States. During 1998, Gulf petroleum comprised 22%
of the nation's 9.4 mbd net imports.

Table 2. GCC Country Oil Production, Exports, and U.S. Imports, 1998
(million barrels per day)
Country ProductionTot. ExportsUS Imports % to US
Iran 3.6 2.4 00
Iraq 2.0 1.4 0.3 21
Kuwait 2.1 1.9 0.3 16
Saudi 8.3 7.1 1.5 21
Qatar 0.7 0.7 nil nil
U.A.E. 2.3 2.0 nil nil
Oman 0.9 0.9 nilnil
Total 19.9 16.4 2.1N/A
Source: DOE, Energy Information Agency (EIA), OPEC Revenue Fact Sheet. Some figures from
supporting EIA data.
An interruption in GCC oil exports would pose very serious problems for the
United States. Competition among importers would drive the oil market to reallocate
the remaining supply of internationally traded oil so that each importer's shortfall is
approximately proportional to the decline in internationally traded crude oil supply.
If all 16.4 mbd of this supply were halted, each importing nation would see its
imported oil supply drop by about half. Thus, absent new world market supply or
some extraordinary arrangement to secure supplies, the United States would see about
half of oil imports lost, as world oil market dynamics attempted to equalize the
shortfall among importers.
Responding to the Price Decline. The oil price decline has forced the Gulf
monarchy states to begin addressing longstanding economic weaknesses, including
their generous systems of social benefits, and to look for ways to cut their budgets.
This is politically risky because of the strong expectation in these countries of generous
social welfare benefits. Saudi Arabia cut the defense budget -- the least politically
sensitive item in the budget -- by 22% in its fiscal year 1999 budget, announced
December 28, 1998. Oman has been forced to raise corporate taxes and impose16
customs duties on some motor vehicles. Kuwait, where there is strong opposition in
the National Assembly to cuts in the generous social welfare benefits, is looking to
measures that would preserve benefits for Kuwaiti citizens while imposing utilities user
fees or indirect taxation on expatriates. Qatar, which has begun diversifying its
economy by developing its large natural gas reserves, is also projecting job cuts in
public sector companies. Bahrain is discussing benefit cutbacks, although these could
spark new unrest among the historically underprivileged Shia Muslim majority. Only
the UAE has been immune to budgetary shortfalls because of large overseas reserve

May, Barry. First Victim of Saudi Cuts is $1.7 Billion Arms Deal. Reuters, February 9,16


of assets (estimated at $150 billion) available to tide the government over during
periods of low oil prices. Many experts believe the Gulf states should have begun
trimming social spending when oil prices were high, thereby avoiding repeated
budgetary crises that occur when prices fall.
The price decline could have a salutary affect on some U.S. interests if, as
expected, Iran is forced to curtail military or technology imports due to lack of
revenues. In early 1999, Iran was forced to seek a rescheduling of $3 billion in loans
from its major creditors (France, Italy, and Japan) to help it cover a growing budget
deficit. Iran's budgetary shortfalls could force a slowdown in Russian construction
work on the Bushehr nuclear reactor project, for which Iran still owes Russia about
three quarters of the original $800 million contract price. Iran and Russia have
expressed firm determination to see the project completed, but work already has been
slow due to technical problems, and might not meet Russia's stated completion
deadline of 2003.
Some Gulf states have responded to the economic shock by accelerating the
process of opening up to the world economy. Low oil prices have led Kuwait and
Saudi Arabia to begin discussions with Western oil companies, including several
American firms, about further developing their oil and gas reserves. The international
firms bring technology and capital that are now in short supply to the Gulf's state-
owned oil companies, such as Aramco (Saudi Arabia) and Kuwait Oil Company.
!U.S. firms (Mobil, McDermott International, and M.W. Kellogg), drawing on
some U.S. Export-Import Bank assistance, have helped Qatar develop its
natural gas resources, and gas exports have already begun. Qatar owns 7% of
the world's gas reserves, but it has incurred about $12 billion in international
debt, in part to develop this sector.
!Many U.S. firms, including Texaco, Chevron, Phillips Petroleum, Exxon, and
Amoco, as well as major foreign firms, are showing strong interest in a Kuwaiti
offer to open its northern oil fields to foreign development investment, valued17
at about $7 billion. To blunt opposition in the National Assembly, and to get
around a constitutional restriction banning foreign exploitation of Kuwait's
natural resources, Kuwait has stressed that, under its development plan, the
foreign oil companies would not own the Kuwait oil they produce.
!Saudi Arabia excited U.S. energy industry interest in September 1998 when
Crown Prince Abdullah, during a visit to the United States, held talks with
seven U.S. energy majors and solicited recommendations about their potential
role in exploration and development of Saudi oil and gas fields. The meeting
appeared to reverse a policy, in place since the nationalization of the Saudi oil
industry in 1975, of keeping the energy sector fully under Saudi state control.
Press reports indicate that Texaco, Chevron, Atlantic Richfield (ARCO),
Exxon, Conoco, and Phillips have submitted proposals to the Saudi

Kuwait Hopes Oil Majors Start Local Work in 1999. Reuters, January 30, 1999. 17

government, mostly focused on natural gas development. (The Saudis are18
reluctant to allow U.S. firms more profitable upstream oil development
projects.) On February 5, 1999, Energy Secretary Bill Richardson visited Saudi
Arabia to discuss further the opportunities for U.S. energy firms in Saudi
Arabia. A Saudi opening of its energy sector has the potential to draw similar
investment away from Iran and the Caspian -- an outcome that might be Saudi
Arabia's key goal in the policy shift.
!The UAE recently became the first Gulf country to let a contract to a foreign
company to build a power plant. CMS Energy Corp. of the United States won
the $700 million project in September 1998. Qatar has invited five19
international firms, including U.S. companies CMS Energy and AES Energy,20
to submit proposals to build an independent power plant in Qatar.
The United States is conducting a dialogue with the GCC aimed at broadening
U.S.-GCC trade and investment. The Administration believes that increased trade and
investment will promote political stability by helping the Gulf states diversify their
economies and positioning them to survive oil price declines in the future. U.S.-GCC
trade totaled over $27 billion in 1997, up from only $9 billion in 1985, the year the
U.S.-GCC dialogue began. As of September 1998, U.S. investment in the GCC
countries had exceeded $5 billion and GCC investment in the United States was about
$3 billion. At the September 1998 session of the dialogue, U.S. officials recognized
progress by the GCC states in allowing greater percentages of foreign ownership,
eliminating the requirement that U.S. firms work through local agents, and protecting
intellectual property rights of U.S. companies. The United States said that each GCC
country now has laws to protect copyrights, patents, and trademarks, although more
enforcement of these laws is needed. 21
On the basis of this progress, the United States supports the applications of Oman
and Saudi Arabia to the World Trade Organization (WTO); the other four GCC states
are already members. Since 1994, all the GCC states have relaxed their enforcement
of the secondary and tertiary — and in some cases the primary (see below) — Arab22
League boycott of Israel. This has enabled the Gulf states to argue that they no
longer engage in practices that restrain trade (a key WTO condition). However, Saudi
Arabia has said it will not necessarily drop its ban on direct trade with Israel if Saudi
Arabia enters the WTO.

Hamilton, Martha and David Ottaway. Saudis Weigh U.S. Firms' Aid On Energy.18
Washington Post, February 6, 1999.
Pearl, Daniel. Saving for Rainy Day Makes Abu Dhabi a Persian Gulf Oasis. Wall Street19
Journal, February 9, 1999.
Sharman, Kedar. Qatar Considering Independent Power Project. Reuters, February 15,20


Kalicki: The U.S.-GCC Economic Dialogue -- Past, Present, Future. Statement by Jan21
Kalicki, Counselor to the Department of Commerce. USIS Washington File, September 29,


For further information, see CRS Report 92-802 F. The Arab Boycott of Israel. November22

10, 1992, by Clyde Mark.

Defense and U.S. Relations
To help meet the external threats they face, the Gulf countries have chosen to
stand under a U.S.-led security umbrella. The six countries of the GCC, even if their
armed forces were to fight in combination, are outmatched by either Iran or by Iraq,
despite international sanctions that ban Iraq from importing new military equipment or
spare parts. (See table below) Each GCC country suffers from a shortage of
personnel willing to serve in the armed forces or commit to a military career. Defense
agreements with the United States are the keys to their security.
Defense Agreements. With the exception of Saudi Arabia, the Gulf states have
entered into formal defense pacts with the United States, which provide not only for
facilities access for U.S. forces, but also for U.S. advice, training, and joint exercises;
lethal and non-lethal U.S. equipment prepositioning; and arms sales. (Saudi Arabia has
entered into more limited defense procurement and training agreements with the
United States). The pacts do not formally require the United States to come to the aid
of any of the Gulf states if they are attacked, according to U.S. officials familiar with
their contents. Nor do the pacts give the United States automatic permission to strike
Iraq or Iran from Gulf facilities — the United States must obtain permission to launch
strikes from its Gulf partners on a case by case basis.
Although committed to defense cooperation with the United States, the Gulf
rulers do not want to be seen by their populations as vassals of the United States. Gulf
leaders say their people are increasingly opposed to what they see as a U.S. desire to
punish rather than merely contain Iraq. Over the past year, Saudi Arabia, the UAE,
Bahrain and Qatar have refused to allow U.S. strikes on Iraq from their territory in the
absence of a clear security threat from Iraq. Qatar's Foreign Minister said during a
meeting with Secretary of Defense Cohen on March 9, 1999, said that Qatar does "not
wish to see Iraq being bombed daily," referring to the U.S. strikes on Iraq in the no fly
zones since December 1998.
Despite growing Gulf concerns about U.S. policy toward Iraq, existing U.S.
defense agreements with the Gulf states do not appear threatened. Bahrain has hosted
the headquarters for U.S. naval forces in the Gulf since 1948, long before the United
States became the major Western power in the Gulf. (During the 1970s and 1980s,
the U.S. presence was nominally based offshore.) It signed a separate defense
cooperation agreement with the United States on October 28, 1991. In June 1995, the
U.S. Navy reestablished its long dormant Fifth fleet, responsible for the Persian Gulf
region, and headquartered in Bahrain. It should be noted that no U.S. warships are
actually based in Bahraini ports; the headquarters is used to command the 20 or so
U.S. ships normally in the Gulf. An April 21, 1980 facilities access agreement with
Oman (renewed in 1985 and in 1990) provides the United States access to three Oman
airbases, and some Air Force prepositioning. The closeout of U.S. economic aid to
Oman as of the end of FY1996 (economic aid was a condition of the original access
agreements) has contributed to Omani threats to scale back -- but not cancel -- the
access agreements at the year 2000 renewal. Renewal negotiations have already
begun, according to U.S. defense officials. Oman has suggested that increased U.S.

military construction funding, for example at a planned airbase, could resolve any
disputes over renewal. 23
Two countries, Kuwait and Qatar, welcome a robust U.S. presence on their soil.
Kuwait, which sees itself as the most vulnerable to renewed Iraqi aggression, routinely
allows the United States to conduct airstrikes on Iraq from its territory and to station
additional air and ground forces in Kuwait during times of crisis. Under a ten year
pact with the United States signed September 19, 1991, Kuwait allows the United
States to preposition enough equipment to outfight a U.S. brigade, and joint U.S.-
Kuwaiti exercises are held several times per year. Since FY1996, Kuwait has
contributed about $350 million per year to defray U.S. costs associated with protecting
Kuwait; those contributions are provided for in annual defense appropriations laws.
Kuwait also pays two thirds of the $50 million per year costs of the U.N. peacekeeping
operation (U.N. Iraq-Kuwait Observer Mission, UNIKOM) on the Iraq-Kuwait border.
Qatar feels vulnerable to Iran, as well as its larger Gulf neighbor Saudi Arabia,
explaining its willingness to draw closer to the United States despite its misgivings
about U.S. policy toward Iraq. Qatar, which signed a defense pact with the United
States on June 23, 1992, has thus far accepted the prepositioning of enough armor to
outfit one U.S. brigade, and the construction of a facility that could, if there were a
U.S.-Qatari agreement to do so, accommodate equipment to outfit at least two U.S.
brigades. Qatar also is expressing a willingness to host a forward presence for U.S.
Central Command, which is based at MacDill Air Force Base in Tampa, Florida, and
it has begun allowing U.S. P-3 maritime patrols from Qatar. The United States is
currently helping Qatar expand a large air base that could potentially be used to
permanently host U.S. aircraft, if there were a joint decision to do so. As has Bahrain,
Qatar has hosted several temporary deployments of U.S. Air Expeditionary Forces
(about 30 combat aircraft) to cover gaps in U.S. aircraft carrier coverage of the Gulf.24
On the other hand, since 1998 Qatar has sought to clarify the defense pact in order to
gain greater Qatari legal jurisdiction over U.S. military personnel in Qatar, according
to observers.
Like Qatar, the UAE does not view Iraq as the only threat that a U.S. presence
might help deter. The UAE wants a close relationship with the United States in part
to deter and balance out Iranian naval power. Under its July 25, 1994 defense pact
with the United States, the UAE allows some U.S. equipment prepositioning, as well
as U.S. ship port visits (about 20 dockings per month), at its large man-made Jebel Ali
port. It also hosts U.S. refueling aircraft participating in the southern no fly zone
enforcement operation. However, concerned about a perceived loss of sovereignty
to the United States, the UAE also insisted on a clarification, resolved in mid-1997, of
the defense pact's provisions on the legal jurisdiction of U.S. military and other official
personnel in the UAE.

Finnegan, Philip. Oman May Limit U.S. Presence. Defense News, December 1-7, 1997.23
Finnegan, Phillip. Qatar Seeks Out Closer Military Ties With U.S. Defense News, June24

22-28, 1998.

Table 3. Comparative Military Strengths of the Gulf States
Field ArtilleryNaval Units
Country Military Tanks Other Attack Combat
Personnel Armored Helicopters AircraftTowed Self- Surface Sub-
Vehicles Propelled Combat- marines
Saudi 162,500 910 3,055 248 200 45 358 8 0
United 64,500 231 1,148 46 90 49 49 0 0
Oman 43,500 77 92 91 18 0 47 0 0
Kuwait 15,300 249 456 0 41 20 76 0 0
Qatar 11,800 34 248 12 28 18 18 0 0
Bahrain 11,000 106 411 36 13 26 24 1 0
Total: 308,600 1,607 5,410 433 390 158 572 9 0
Iraq 429,000 2,700 2,900 1,800 150 120 316 2 0
Iran 475,000 1,400 1,025 2,170 290 109 315* 3 3
* Includes aircraft flown from Iraq to Iran during 1991 Gulf war.
Source:International Institute for Strategic Studies, The Military Balance 1998-1999.
(Note: Figures shown here do not include materiel believed to be in storage and
U.S. Arms Sales.A key feature of the U.S. security umbrella over the Gulf has
been arms sales to the Gulf states. Since the Gulf war, in part because of the evident
security needs and in part because of the development of ties between the Gulf states
and Israel, there has been little congressional opposition to U.S. sales to the Gulf
states. During 1994-1997, Saudi Arabia and Kuwait were the largest and third25
largest, respectively, recipients of U.S. arms deliveries. However, both countries
appear to be scaling back their arms purchases in response to low oil prices and large
budget deficits. Press reports in early 1997 hinted that Saudi Arabia wants to
purchase from 24 - 96 Lockheed Martin F-16 fighter aircraft to replace aging U.S. F-5
fighter-bombers, but budgetary shortfalls will likely delay consideration of this buy for
at least a few more years. The U.S. Defense Security Cooperation Agency told CRS
on February 17, 1999 that, due to a large reduction in Saudi Arabia's arms budget, the

For further information, see CRS Report 98-647 F. Conventional Arms Transfers to25
Developing Nations, 1990-1997. July 31, 1998, by Richard F. Grimmett.

Saudis are not planning any major new weapons buys in 1999. During his visit to26
the Gulf in early March 1999, Defense Secretary Cohen offered to sell Saudi Arabia
U.S. AIM-120 Advanced Medium Range Air-to-Air Missile (AMRAAM) missiles to
outfit U.S. aircraft already in Saudi Arabia's arsenal, although the value and timing of27
a sale is not known.
In late 1998, Kuwait completed taking delivery of an $800 million package of 5
Patriot anti-missile firing units. The Kuwaiti government has decided to buy 48 of
the U.S. made M109A6 "Palladin" artillery systems, but the $650 million sale might
be delayed by opposition from several National Assembly members who believe that
the Palladin is not the best available system and that the purchase represents an attempt
to curry political favor with the United States. The Defense Security Cooperation
Agency told CRS on February 17, 1999 that Kuwait also will likely buy U.S. AH-64
"Apache" attack helicopters some time in FY1999. 28
The UAE historically has purchased its major combat systems from France, but
UAE officials now believe that arms purchases from the United States enhance the
U.S. commitment to UAE security. In May 1998, the UAE announced an intent to
purchase 80 U.S. F-16 aircraft, equipped with the AMRAAM, the HARM (High
Speed Anti-Radiation Missile) anti-radar missile, and the HARPOON anti-ship missile
system. Some in Congress objected to the inclusion of the AMRAAM equipment as
the first introduction of that weapon into the Gulf region, but the Administration
apparently satisfied that objection by demonstrating that France had already introduced
a similar system in an arms deal with Qatar. However, the UAE has not yet finalized
the purchase, estimated to be worth $8 billion (including $2 billion worth of
AMRAAM's) for F-16 contractor Lockheed Martin, because it wants to ensure that
the aircraft are equipped with software source codes for their electronic warfare
systems. This is sensitive data not normally provided to even the U.S.'s closest NATO29
allies, which Defense Department officials say cannot be provided. Of the proposed
sale, $2 billion is under the Foreign Military Sales (FMS) program for pilot training,
weapons, and other equipment. 30
Of the other three Gulf states, only Qatar is believed to have the financial
resources to make substantial arms purchases from the United States. It has
traditionally been armed by France and Britain, but the Foreign Minister said in mid

1997 that it is "probable" that Qatar will buy arms from the United States in the future.

Fact sheet provided to CRS by Defense Security Cooperation Agency, February 17, 1999.26
Aldinger, Charles. Cohen Says U.S. Arms Sales Help Mideast Stability. Reuters, March27

11, 1999.

Finnegan, Philip. Oil Price, Manpower Crunch Hits Gulf States. Defense News, November28
9-15, 1998. Factsheet provided to CRS by Defense Security Cooperation Agency, February

17, 1999.

Enginsoy, Umit and Philip Finnegan. New Obstacles Muddy UAE F-16 Purchase. Defense29
News, November 23-29, 1998.
Defense Security Cooperation Agency factsheet, February 17, 1999. 30

Among the systems under consideration is the Patriot. However, the Defense31
Security Cooperation Agency does not anticipate any sales to Qatar in FY1999.
Oman has said it might select a new fighter aircraft after 2000 and, if it does, it will
likely resurrect past consideration of the U.S. F-16. However, with its funds limited
over the past few years, Oman has had to refurbish British-built aircraft already in its
possession. In 1998, Bahrain chose to purchase 10 F-16's from new production at a
value of about $390 million. The Defense Security Cooperation Agency told CRS on
February 17, 1999 that Bahrain would likely purchase AMRAAM missiles in FY1999
to accompany the F-16 purchase. The sale of AMRAAM's to Bahrain, together with
associated equipment and training, has a value of about $110 million. 32
Bahrain and Oman are the only two Gulf states that receive U.S. security
assistance. In FY1999, Bahrain and Oman will each receive about $225,000 in
International Military Education and Training (IMET) funds. For FY2000, the
Administration has requested another $225,000 in IMET for Bahrain, and $325,000
for Oman. The United States has also tried to assist both countries by providing them
excess defense articles (EDA). In 1996, Oman received 30 and Bahrain 60 U.S.-
made M-60A3 tanks on a "no rent" lease basis. Since July 1997, Bahrain has taken
delivery of a U.S. frigate and a HAWK air defense battery as EDA. In 1994, Oman
had to turn down a U.S. offer to grant it a U.S. FFG-7 frigate as an excess defense
article (EDA), because of Oman's concerns about its financial ability to maintain and
man the ship.
Joint Security/Theater Missile Defense. The United States has encouraged
the GCC countries to cooperate militarily, building on their small (approximately

10,000 personnel) Saudi-based force known as Peninsula Shield, formed in 1981.

Peninsula Shield did not react militarily to the Iraqi invasion of Kuwait, casting doubt
on the force's viability. Manpower shortages and disagreements over command of the
force have prevented the GCC states from agreeing to a post-Gulf war Omani
recommendation to boost Peninsula Shield to a 100,000 man force. Suspicions of
Syria and Egypt have prevented closer military cooperation with those countries, as
envisioned under the March 1991 "Damascus Declaration." However, the GCC states
have taken some steps to increase cooperation. They have agreed in principle to
double the size of Peninsula Shield and to rotate the command periodically, in
alphabetical order. In October 1997, the GCC defense ministers agreed to collectively
purchase a $500 million ground-based early warning system that would link the radar33
and communication systems of the GCC countries. They also plan eventually to
install downlinks to retrieve information from Saudi Arabia's U.S.-made AWACs
(airborne warning and control) aircraft. 34

Finnegan, Philip. Qatar Seeks Out Closer Military Ties With U.S. Defense News, June 22-31

28, 1998.

U.S. Offers 26 "AMRAAM" Missiles to Bahrain. Reuters, March 15, 1999. 32
Faraj, Caroline and Barbara Opall. GCC Military Chiefs Endorse Radar Network Buy. 33
Defense News, October 20-26, 1997.
Fouad, Ashraf. Gulf Arabs Said to Move Toward Merging Defences. Reuters, November34

11, 1997.

The Administration sees an important opportunity for cooperation in the
deployment of a GCC-wide theater missile defense (TMD) system that can protect the
Gulf states from Iran's increasingly sophisticated ballistic missile program and from any
retained Iraqi ballistic missiles. The Department of Defense, according to observers,35
envisions a system under which separate parts (detection systems, intercept missiles,
and other equipment) of an integrated TMD network would be based in the six
different GCC states. In proposing such a project, Secretary of Defense Cohen said
on October 10, 1998, during a visit to the Gulf, that TMD technology was
sophisticated and costly. His statement implied that cost sharing and integration
among the GCC states are preferable to individual country purchases of Patriots or
other TMD equipment. France immediately criticized the U.S. proposal on the
grounds that the proposed network would spark a regional arms race. Some speculate
that France and other major arms suppliers are questioning the U.S. proposal out of
concern that they could be excluded from potentially lucrative arms contracts.
Highlighting the missile threat, during his March 1999 visit to the Gulf, Secretary of
Defense Cohen offered the Gulf states immediate access to U.S. intelligence on Iraqi36
or Iranian missile launches.
U.S. Forces in the Gulf. The United States and the GCC states recognize that
the Gulf states do not possess sufficient armed force to deter the threats from Iran and
Iraq, and the Gulf states want a robust, if low-profile, U.S. military force in the Gulf.
The United States maintains a baseline force in the Gulf of about 20,000 - 25,000 U.S.
military personnel, 200 combat aircraft, and 20 ships. At least one aircraft carrier task
force usually is in the Gulf and, on a few occasions during periods of crises with Iraq
in 1998, two carrier task forces were there. In periods of crisis, U.S. forces in the
Gulf swell to about 35,000. Several times each year, about 2,600 U.S. Army troops
conduct exercises with Kuwaiti forces and, during periods of crisis with Iraq,
additional Army troops are usually sent there on accelerated exercise schedule. As
noted above, about 6,000 Air Force and other military personnel are located in Saudi
Arabia, and approximately 1,000 U.S. Navy personnel are based in Bahrain to staff the
headquarters of the U.S. Fifth Fleet. In mid-March 1999, U.S. Central Command said
it is augmenting its mine countermeasures in the Gulf by sending 4 minehunting
helicopters to join two minesweeping ships already in the region.
Nearby, but outside the Gulf area, U.S. military ties to Yemen are expanding,
with recent visits by several high-ranking U.S. military officers, two ship visits, and
combined military exercises. Yemen has also undertaken to provide bunkering for
600,000 barrels of oil for use by U.S. forces in the Arabian Sea region. A barrier to
closer cooperation, however, is Yemen's reluctance to condemn Iraqi conduct.
Gulf Cooperation With U.S. Middle East Policy. The Administration has
justified defense cooperation with the Gulf states, and its arms sales in the region,
partly on the grounds that the Gulf states support the Arab-Israeli peace process. The
GCC countries, for their part, see their support for the peace process as an exchange

Under Resolution 687, Iraq is allowed to retain and continue to develop missiles with a35
range of up to 150 km, which would put parts of Kuwait and Saudi Arabia within range of
Iraq, even if Iraq abides completely by the provisions of the resolution.
Cohen in Gulf to Offer 'Warning.' Washington Times, March 9, 1999. 36

for the implicit U.S. security guarantee to them. All the GCC states have participated
in the multilateral peace talks, and Bahrain, Qatar, and Oman hosted sessions of the
multilaterals. Saudi Arabia, Kuwait, and the UAE have been less enthusiastic in their
participation. A regional water desalination research center has been set up in Oman
as a result of an agreement reached at the multilaterals. In November 1997, at a time
of considerable strain in the peace process, Qatar bucked substantial Arab opposition
and hosted the Middle East/North Africa economic meeting, the last of that yearly
event to be held. However, Saudi Arabia, the UAE, and Bahrain joined Egypt and
other Arab states in boycotting that meeting.
As a by-product of the peace process, Oman, one of the few Arab countries not
to denounce the 1978 Camp David Accords between Israel and Egypt, exchanged
trade offices with Israel. In May 1996, after a visit to Qatar by Israel's then Prime
Minister Shimon Peres, Qatar allowed Israel to open a trade office in Qatar. These
moves represented a de-facto abrogation of the Arab League ban on direct trade with
Israel (primary boycott) by these two Gulf states. Qatar, however, did not open a
trade office in Israel and, since early 1998, has been threatening to close the Israeli
office in Qatar because of the lack of movement in peace between Israel and the
Palestinians. It is likely that only full Israeli implementation of the Wye River accords,
or the May 1999 election of an Israeli government perceived as more willing to make
concessions for peace, will cause the Gulf states to resume building ties to Israel.
The Gulf states continue to have reservations about closer relations with the PLO-
led Palestinian Authority. They continue to blame PLO leader Yasir Arafat for
backing Iraq in the 1990-91 Gulf crisis. Of the Gulf states, Kuwait is the most
resentful of Arafat; in May 1998 high-level Kuwaiti leaders welcomed Arafat's key
rival, Hamas founder Shaykh Ahmad Yassin, to Kuwait. Saudi Arabia, Qatar, and the
UAE also received Yassin during his regional tour, but did not accord him the high
profile welcome that Kuwait did.
Despite their reservations about Arafat and the PLO, several of the Gulf states
have been responsive to U.S. appeals to provide financial support to the peace process.
In the aftermath of the September 1993 Israeli-Palestinian Declaration of Principles,
most of the Gulf states pledged aid to the Palestinian Authority. For the period during

1994-98, Saudi Arabia donated $200 million; Kuwait and the UAE $25 million each;

and Qatar $2.5 million. On November 30, 1998, following the Wye River
Memorandum, another donors' conference for the Palestinians was held in Washington.
At that meeting, Saudi Arabia pledged $100 million for 1999-2003— one half their
pledge of the first five year period — and Kuwait pledged $80 million for that time
period, a substantial increase over its 1994-98 donation. 37

Shenon, Philip. U.S. and Other Nations Plan More Aid for Palestinians. New York Times,37
December 1, 1998.

Conclusions and Prospects
For the remainder of 1999, it is difficult to envision major changes in the Persian
Gulf security environment. Analysts expect that Iraq will continue to attempt to break
out of its isolation, probably with mixed success, by attempting to portray the United
States as an aggressor whose actions against Iraq are unjustified. Iraq is likely to
persist in its efforts to bring about UNSCOM's demise altogether, although it might,
in an effort to appear cooperative, work with U.N.-sponsored disarmament experts
operating under less intrusive guidelines. It is conceivable, although not likely, that
U.S. efforts to support Iraq's opposition will lead to a coup d'etat or uprising against
Saddam Husayn or that, even without U.S. help, Iraq's continued repression of its Shia
Muslim community will provoke popular unrest that engulfs the regime. Iraq might
respond by lashing out at its neighbors or the United States through terrorist acts
against Gulf military facilities or U.S. embassies in the region.
In Iran, observers do not anticipate that, during 1999, President Mohammad
Khatemi will overcome internal opposition to beginning a political dialogue with the
United States or accepting the Secretary of State's proposed "roadmap" to normal
relations. Khatemi's supporters were victorious in February 1999 local elections, but
a more important opportunity to best his political opponents comes in early 2000,
when parliamentary elections will be held. Should pro-Khatemi candidates achieve a
decisive parliamentary majority in those elections, Khatemi might have the strength to
name a reformist Cabinet that is safe from parliamentary impeachment. This outcome
might allow him to push forward on some controversial foreign policy initiatives,
possibly including outreach to the United States. Whether Khatemi is politically weak
or strong, Iran will probably push forward with its WMD programs, especially its
ballistic missiles. There is a consensus among all Iranian factions that the strategic
threats facing Iran, from Iraq, the United States, Afghanistan, or other quarters, justify
developing WMD. Unexpected developments in Iran in the remainder of 1999 cannot
be completely ruled out, including the political demise of Khatemi or his key allies,
such as the Foreign Minister, at the hands of determined political opponents. Such an
outcome could produce stepped up Iranian efforts to undermine the Arab-Israeli peace
process, and increase the potential for anti-U.S. or anti-Israel terrorism worldwide.
The Gulf states face major economic difficulties and potential political unrest in
1999. Very few, if any, analysts envision a jump in oil prices sufficient to cover
relatively large Gulf budget deficits. Resulting cutbacks in social spending could lead
to unrest in some Gulf countries. In 1999, Saudi Arabia might see the completion of
a leadership transition from King Fahd to Crown Prince Abdullah, who is now King
in all but formal title. The UAE is in transition from Shaykh Zayid, who forged the
formation of the UAE in 1971, to his son, Crown Prince Abdullah bin Zayid al-
Nuhayyhan. A potential new flareup in unrest in Bahrain remains a key concern —
unrest that might be touched off by the ongoing trial of Shia Muslim opposition cleric
Shaykh Jamri. Politics could be especially volatile in Bahrain following the sudden
death of Shaykh Isa and the accession of his son, Hamad, as the new Amir. However,
some analysts believe that falling oil prices are forcing the Gulf states to undertake
major structural reforms and to welcome foreign investment, moves that could improve
the long-term economic and political health of the Gulf states.

Appendix 1.
Gulf State Populations, Religious Composition
CountryTotalNumber of Non-Religious Composition
Population Citizens
Iran68.9 million607,00089% Shia; 10% Sunni; 1%
Bahai, Jewish, Christian,
Iraq21.7 million— 60-65% Shia; 32-37%
Sunni; 3% Christian or
Saudi Arabia20.8 million5.2 million90% Sunni; 10% Shia
Kuwait1.91 million1.56 million45% Sunni; 40% Shia; 15%
Christian, Hindu, other
United Arab2.3 million1.56 million80% Sunni; 16% Shia; 4%
EmiratesChristian, Hindu, other
Bahrain661,300224,60075% Shia; 25% Sunni
Qatar697,000516,00095% Muslim; 5% other
Oman2.36 million— 75% Ibadhi Muslim; 25%
Sunni and Shia Muslim,
and Hindu
Source: Central Intelligence Agency World Factbook, 1998. Population figures are estimates as of
July 1998. Most, if not all, non-Muslims in GCC countries are foreign expatriates.

Appendix 2.
UNSCOM Accomplishments and Unresolved Issues
Weapons Category AccomplishmentsUnresolved Issues
Overall Status: NuclearIAEA reports Iraq'sQuestions remain about
nuclear programnuclear design drawings,
dismantled and rendereddocuments, and fate of
harmless (April andsome equipment
October 1998 reports)
Nuclear FuelAll removed by IAEA
Nuclear FacilitiesDismantled by IAEA
SuppliersIAEA says it hasMost of 170 technical
assembled a picture ofreports from a German
Iraq's nuclear supplierssupplier unaccounted for
Overall Status: ChemicalDeclared munitions,Most outstanding questions
chemical precursorsinvolve Iraqi production of
destroyed by UNSCOMVX nerve agent
VX nerve agentIraq admits producing 4No verification of the fate
tons of the agent
VX precursor chemicals191 tons verified asAbout 600 tons
destroyed unaccounted for, enough to
make 200 tons of VX
Other chemical munitions38,500 found andFate of 31,600 munitions,
destroyed by UNSCOM550 mustard shells, and
107,000 chemical casings
unaccounted for
Chemical Weapons Agents690 tons found and3,000 tons unaccounted for
destroyed by UNSCOM
Precursor Chemicals3,000 tons found and4,000 tons unaccounted for
destroyed by UNSCOM
Chemical Monitoring170 sites placed under long
term monitoring
Overall Status: BiologicalUNSCOM has obtainedUNSCOM says most work
ProgramIraqi admissions that it hadremains in this category;
a biological warfareno biological weapons
programfound by UNSCOM
Biological AgentsIraq admitted producingNo verification of
19,000 liters of botulinum;destruction or amounts
8,400 liters of anthrax; andproduced
2,000 liters of aflatoxin
and clostridium
MunitionsIraq admits loadingNo verification of bomb
biological weapons ontodestruction; fate of

157 bombsadditional 500 parachute-

dropped bombs unknown

Agent Growth MediaSupplier records show 344 tons unaccounted for
tons imported
Delivery EquipmentIraq admits testingFate of these systems
helicopter sprayingunknown
equipment and drop tanks
Production FacilitiesSalman Pak facility buriedUNSCOM notes that
by Iraq before inspections;biological agents can be
Al Hakam bulldozed byproduced in very small
UNSCOM facilities
Monitoring86 sites under long term
Overall Status: BallisticAlmost all importedQuestions about Iraq's
Missilesmissiles accounted for indigenous missile
production remain
Imported Scud MissilesUNSCOM says it hasTwo Scuds missing by
accounted for 817 of 819UNSCOM accounting;
Scuds imported fromU.S. and Britain believe
Russia 10-12 Scuds still
unaccounted for
Chemical/Biological75 warheads declared. 30Two declared chemical
Warheadsdestroyed by UNSCOM,warheads may be missing.
and at least 43, includingUndeclared chem/bio
25 biological warheads,warheads may exist
verified as destroyed
Imported ConventionalIraq admits importing 50Warheads unaccounted for
WarheadsScud warheads for high
Indigenously-produced30 warheads and 7 missiles
Missilesunaccounted for
Missile Propellant300 tons unaccounted for
Production EquipmentIraq admits having 150Fate unknown
tons of equipment
Monitoring63 sites under long termMissiles of up to 150 km
monitoringrange permitted. Outside
experts believe programs
used for research on
prohibited-range missiles.
Source: The information in this table is derived from reports to the U.N. Security Council by
the U.N. Special Commission on Iraq (UNSCOM) and the International Atomic Energy

Appendix 3. No Fly Zones in Iraq

T u r k e y
I r a nZ O N E
3 6 °
S y r i a
I r a q
B a g h d a d
3 3 °
J o r d a n 3 2 °
K u w a i t
Saudi Arabia
Adapted by CRS from Magellan Geographix. Used with permission.
Northern No Fly Zone Established April 1991
Southern No Fly Zone (South of 32 Parallel) Established August 1992ndrd
Southern No Fly Zone Extended to 33 Parallel Established September 1996

Appendix 4. Map of the Persian Gulf Region and Environs