Saudis flex oil muscle hoping for a US quid pro quo

Saudi Arabia, armed with a double-edged sword, is waging an intensive campaign for undisputed leadership within the Arab world, the community of Islamic nations, and the Organization of Petroleum Exporting Countries (OPEC).

But the key to ultimate Saudi success -- despite a likely victory at this week's extraordinary Geneva OPEC conference on oil prices and production -- lies not in Riyadh but in Washington.

how willing the Us is to alter its Middle East policy is the essential question on which hangs the success or failure of the Saudi efforts.

Kuwaiti oil sources describe the meeting, of OPEC's long-term strategy commission in preparation of the Aug. 19 official opening of the OPEC conference as "purely political." That session was chaired by Saudi Oil Minister Sheikh Ahmad Zaki Yamani.

Commented one ranking Arab diplomat on Saudi Arabia's recent policy of flooding the international market with relatively low-priced oil: "Discussing oil prices and oil production is beating around the bush. The Saudis wish to demonstrate to the US what they are capable of achieving if the Reagan administration is more forthcoming regarding the Palestinians."

As Washington focuses its attention on finding its way through the labyrinth of problems between Arabs and Israelis, Saudi Arabia wishes to miss no opportunity to emphasize its tremendous weight as the world's largest oil producer. With Egyptian President Anwar Sadat and Israeli Prime Minister Menachem Begin vying for US support for their respective views on a comprehensive Middle East settlement, Saudi Arabia lost no time in capturing at least part of the headlines.

Reiterating an earlier stated position, Saudi Arabian Crown Prince Fahd recently announced an eight-point peace plan, implying Saudi acceptance of coexistence with the state of Israel if Israel withdraws from all territories captured in 1967 and recognizes Palestinians national rights.

This week's OPEC conference is to be the next milestone on the Saudi path. A compromise solution with African OPEC hawks lowering their official oil prices would demonstrate Saudi capability to strongly influence the performance of Western economies.

But many OPEC countries are feeling their contribution to the welfare of the industrialized world is not being paid due political respect. Thus the ultimate success of Saudi attempts to thwart demands of the more hard-nosed attitude toward the West depends on how willign the US is to fundamentally alter its Middle East policy.

"Well all agree that there can be no solution to the Middle East crisis without the return of the territories occupied in 1967 and a restoration of Palestinian national rights," said one Gulf official. "But," he added, "Saudi Arabia now needs quick evidence that being the nice guy gets us the goods because ultimately OPEC's political bargaining power depends on having unity within its own ranks."

Apparently aware that lack of a US response will strengthen the hand of those urging a more confrontationist policy toward the US within OPEC, Saudi Arabia has recently been covertly warning that time may run out.

The Saudi newspaper Asharq al-Awsat last week quoted ranking Saudi diplomats as saying that Crown Prince Fahd will cancel his scheduled October visit to the US if Washington does not radically change its attitude toward the Palestinians. Saudi foreign Miniter Prince Saud al Faisal is expected to stress the need for a US more during his visit to Washington later his week.

Echoing recent statements by a host of Arab officials, Kuwait's Al-Rai al-Amm newspaper commented last week: "We must force America to choose, and it will not matter to us who benefits from the internationally, because if Washington is fighting the Soviets, it has to stop Moscow from benefiting from any situation by responding to our rights." At stake for the Saudis in Geneva is more then simply an end to the disarray on the international oil market.

A Saudi victory would give the kingdom an edge in the battle between Arab states about who can best help the Palestinians present their case.

Said one senior European diplomat: "A Saudi victory in Geneva at the OPEC conference would set the stage. The Saudis then have demonstrated that they are at the least hard to challenge. It is then up to Reagan to decide whether or not he wants to keep it that way."

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