Are Saudi Billions Leaving America?

Last time America went to war against Iraq, Saudi Arabia picked up much of the tab. That's not likely today; Saudis have indicated they won't even allow their territory, which houses some of the largest U.S. bases in the region, to be used for an attack on Iraq. But, if reports emanating from Riyadh are to be believed, the U.S. won't only be left with a bill that could run upwards of $80 billion; its own coffers are at risk of being considerably denuded by a breakdown in relations with the Saudis.

The Financial Times reported Tuesday that Saudi investors have withdrawn $100 billion or more from the U.S. in recent months. Besides the natural movement of capital in response to market conditions, the report cited the souring of relations since last September's terror attacks on New York and Washington, the trillion-dollar lawsuit by families of 9/11 victims and talk among some conservatives about freezing Saudi assets as reasons for the alleged capital flight. The news triggered a brief dip in the value of the dollar against other currencies before jitters were calmed by subsequent reports questioning the FT's claims.

Leading Saudi investor Prince Al-Waleed bin Talal bin Abdul Aziz Al-Saud, a leading advocate of strong U.S.-Saudi ties, challenged the FT report and said he was expanding his U.S. holdings. But other leading investors are urging disinvestment in response to threats against Saudi holdings in the U.S. And a follow-up FT report notes that fund managers suspect capital flight is underway, and expect it to have an impact on the dollar.

Whether or not Saudi disinvestment proves to be as extensive as reported, the news certainly functions as a warning shot from Riyadh over the future of U.S.-Saudi relations. The September 11 attacks, in which 15 of the 19 hijackers were of Saudi origin prompted some Washington hawks to challenge the longstanding U.S. alliance with the House of Saud. In the weeks and months that followed, they painted the Saudis as double-dealing autocrats whose rigidly controlled society actively nurtured extremism, and who could not be relied on as an ally in the U.S. war on terrorism.

The neo-conservative hawks and the Saudis are in opposition on two key U.S. foreign policy questions — Iraq and Israel. Despite their hostility to Saddam Hussein, the Saudis oppose a U.S. attack on Iraq for fear that the resulting instability would pose a threat to the region far greater than that of the Iraqi dictator — and could even see their own increasingly fragile regime swept aside by anti-Western extremists. They haven't only demurred from allowing the U.S. to invade Iraq from their territory; they've actively rallied the Arab world against such an attack, choreographing Iraq's diplomatic rehabilitation among its neighbors at the April summit of the Arab League in Beirut.

On the Israeli-Palestinian conflict, the Saudis are pushing for a peace-plan based on Israel's 1967 borders, and urging the U.S. to restrain Israeli prime minister Ariel Sharon. The Saudi position, once again is motivated in part by the fear that the survival of the House of Saud requires placating the anti-American rage generated among ordinary Saudis by the Israeli-Palestinian conflict, and like many moderate Arab regimes, they're particularly alarmed at the potential domestic consequences of a U.S. attack on Iraq while battles rage in the West Bank and Gaza. But the most forceful advocates of attacking Iraq, such as Defense Policy Board chairman Richard Perle, reject the notion that calming the Israeli-Palestinian conflict is a prerequisite for attacking Iraq, arguing instead that removing Saddam's regime will break the logjam in the Israeli-Palestinian conflict. It's not an argument that resonates anywhere in the Arab world, but the neo-cons have little patience right now for Arab reservations.

A steady stream of conservative columnists has been asking the question "Do We Still Need the Saudis?" (No, is the usual answer). Concerns over everything from the price of oil to the prospect that cutting Saudi Arabia loose might very well hand the country over to the likes of Osama bin Laden are given short shrift. Typical is the essay in the neo-con flagship journal Commentary, arguing for Washington to abandon the Saudis and foment a region-wide revolution against Arab authoritarianism in an effort to remake the Middle East on terms friendlier to the U.S. and Israel.

It would scarcely be surprising if such talk provoked some rather bearish behavior on the part of Saudi investors. But open calls for Saudi disinvestment and reports that hundreds of billions of dollars could soon leave these shores may also be calculated as a warning to the Bush administration that the Saudi elite won't be the only losers if the longstanding alliance is ruptured. As the Bush administration's internal debate over going to war with Iraq intensifies, we can expect to see plenty more dire warnings from both sides over the consequences of maintaining, or of severing, the traditional U.S.-Saudi alliance.