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By Andrew Pollack
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August 21, 1990
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Section D, Page
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The Saudi Arabian port of Yanbu was the site where the boycott and blockade of Iraq were first tested. Tankers were turned away there without being able to take on oil from Iraq that flows there through a pipeline.
But Yanbu is also a symbol of the importance of Saudi Arabia to American business. This desert city on the Red Sea is being built from scratch, complete with oil refineries, a steel mill, aluminum smelter, hospitals, schools and housing for about 100,000 people. And the multibillion-dollar project has been a significant source of revenue for the builder, the Ralph M. Parsons Company of Pasadena, Calif., a subsidiary of the Parsons Corporation.
Besides its importance as an oil supplier, Saudi Arabia has become a large purchaser of American goods and services, from compressors to Chevrolets. That gives many companies in the United States a direct stake in the outcome of the crisis in the Middle East.
Lost Opportunities
Yet losses of American companies in the event of hostilities in the area are likely to be more in the form of lost revenues and opportunities than in lost plants. Outside of the oil business, American companies generally have sales and service arms but not manufacturing operations in Saudi Arabia. ''The market is large, but it's not big enough to build anything,'' said Fariborz Ghadar, professor of international business at George Washington University.
The amount of business done by American companies in Saudi Arabia has fallen in recent years as declines in the price of oil have slashed Saudi revenues and as companies from other nations have gained market share. And fears in America that Arab petrodollars would buy up prized assets in the United States have long since been displaced by anxiety over Japanese purchases.
About 200 American companies operate in Saudi Arabia, compared with 67 in Kuwait and 13 in Iraq, according to 1987 lists compiled by the World Trade Academy Press in New York. While many are in construction and oil-related businesses, a smattering are in electronics, consulting, accounting and public relations. And the State Department estimates that there are about 28,000 Americans in Saudi Arabia.
In recent days, American companies have been moving the families of employees out of Saudi Arabia. The Boeing Company, which has about 400 employees and dependents in Saudi Arabia, flew in one of its new 747-400 jets, the largest commercial aircraft in the world, to bring out the families last week.
Although most companies have asked employees to stay and work, the General Motors Corporation has removed all but three of its 20 employees and dependents. G.M. sells about 40,000 cars and trucks in the Middle East a year, more than half of them in Saudi Arabia, and the expectation that the region's turmoil would reduce sales there has caused the auto maker to lay off more than 4,000 workers in Michigan for two weeks.
According to the Commerce Department, American direct investment in Saudi Arabia amounted to $2 billion in 1988. While American companies have contributed skills, the Saudis have provided most of the capital to American-Saudi joint ventures.
Personnel and Services Provided
The Arabian American Oil Company, the consortium of four American oil companies that once controlled all the oil in the kingdom, has since the 1970's gradually been taken over by the Saudi Government. But the four companies - the Chevron Corporation, the Exxon Corporation, the Mobil Corporation and Texaco Inc. -still provide personnel and services to Saudi Aramco, as the company is now called, and buy much of its oil.
Chevron, the company that first discovered oil in Saudi Arabia, said it directly owned only five houses in the country and had only 65 to 70 employees there. The Shell Oil Company, which is part of the Royal Dutch/ Shell Group, has a joint petrochemical venture and about 40 American employees there.
Mobil is believed to have the biggest stake of any American company. It is involved in two huge joint ventures with the Saudi Government - a refinery and a petrochemical complex. These ventures, estimated to have cost more than $1 billion each, came on line in the 1980's.
Involved in Smaller Ventures
Mobil is also involved in several smaller ventures, including a refinery that makes lubrication oils, a plant that makes cans, a chemical-importing operation and a producer of plastic products. It has more than 200 American employees in Saudi Arabia.
But perhaps no American company is identified with Saudi Arabia more closely than the Bechtel Group, the large San Francisco construction company that has one of the longest relationships with the Saudis, having established a presence there in 1944.
Bechtel is now building Jubail, a $20 billion industrial city on the Persian Gulf that is similar to Yanbu but larger. It is also the project manager for two airports and is rehabilitating a water desalinization plant on the Red Sea. Bechtel had 900 employees and dependents in Saudi Arabia before the turmoil began, and has moved out employees and dependents whose presence is not required.
Bechtel has always had a certain mystique because of the prominent former Government officials it has employed as executives or consultants, including former Secretary of State George P. Shultz, who has held numerous other posts, and former Defense Secretary Caspar W. Weinberger, who also has had long Government experience. Some analysts have long suspected such ties have helped the family-owned company acquire contracts in the Middle East and other areas.
But other construction companies have managed to get their share of contracts. The Fluor Corporation and Parsons, for instance, beat out Bechtel in some recent bidding.
Boeing's involvement in Saudi Arabia comes from the Peace Shield and Peace Sentinel programs, two military contracts it won from the United States Air Force, which was representing the Saudi Government. In exchange for getting the contracts, it set up an operation in Saudi Arabia to make radios and other gear.
The Westinghouse Electric Corporation owns 75 percent of a company that manufactures and services electrical and mechanical equipment for the oilfields. It is also involved with Boeing in the military program and electronics manufacturing operation. William Lackey, director of international business development for Westinghouse, said it had fewer than 1,000 employees in Saudi Arabia, fewer than 100 of them Americans.
American business relations with Saudi Arabia have been strong since the mid-1930's, when Standard Oil of California, now called Chevron, first discovered oil there. But interest exploded after the 1973 Arab oil embargo, when Saudi Arabia began earning tens of billions of dollars each year in oil revenues and decided to spend much of it to build factories, universities, hospitals and other projects to modernize.
'Intense Enrichment'
American companies flocked there. ''The intense enrichment in such a short period of time for American companies has never been duplicated,'' said Steven Emerson, a Washington writer who chronicled such business relationships in a 1985 book, ''The American House of Saud.''
CRS Design Associates, an architectural concern in Houston, tripled in size largely because of Saudi contracts, according to Mr. Emerson's book. The Whittaker Corporation of Los Angeles won huge hospital supply contracts and the FMC Corporation of Chicago, which makes chemicals anf military and food processing equipment, did so much business in the Middle East that it began printing part of its annual report in Arabic.
According to the Saudi Government, some 224 joint Saudi-American ventures were licensed between 1974 and 1988, with a total capitalization of $3.3 billion.
'Risk Assessments' Provided
The more than 50,000 Americans living in Saudi Arabia in the late 1970's and early 1980's could drive Chevrolets, shop at Safeway and eat at Pizza Hut. In the United States, numerous companies, often run by former Government officials, set up shop to help American companies procure business in Saudi Arabia or to provide ''political risk assessments'' of the volatile Middle East.
But in the last few years Saudi Arabia has become less important to American companies, causing some of them to pull out of the country.
In the peak year of 1982, Saudi Arabia's imports from the United States totaled $9 billion, making it the sixth-largest market for American goods. By 1988, Saudi Arabia's imports from the United States had dropped to $3.8 billion, ranking it as the 20th-largest market. The leading exports are cars, cigarettes and agricultural products.
''Now Saudi Arabia is seen by American business as a relatively small market but a very affluent market,'' said Gilbert E. Dwyer, a consultant in Nanuet, N.Y., and president of the American/Saudi Roundtable, a group of American companies with business interests in Saudi Arabia whose membership has dropped to 35 companies from a peak of 53.
Behind the decline, of course, is the drop in oil prices and in Saudi production in the early 1980's. That drastically cut Saudi Arabia's revenues from about $100 billion a year early in the decade to a third of that in recent years, forcing the Government to cut back on its grandiose modernization plan. Many of the needed factories, schools and refineries had already been built so construction work was bound to slow anyway. To the extent that oil prices are higher now and the Saudis are raising output, revenues should climb.
At the same time, American companies were starting to lose out to foreign competitors, as they have elsewhere in the world. Cadillacs driven by oil sheiks have been replaced by Mercedes autos, and Chevrolets by Toyotas for the less well off. Japan edged ahead of the United States as the leading exporter to Saudi Arabia in 1987, although the United States regained the lead in 1988.
Rules against foreign ownership have also played a role. Citicorp, which owned a bank in Saudi Arabia since 1955, had to reduce its stake in 1980 to 40 percent of the Saudi American Bank. Chase Manhattan, the other American bank with a direct interest in Saudi Arabia, bought 20 percent of the Saudi Investment Bank in 1975 but sold off 5 percent in 1988.
But in the last year or so, even before the recent crisis caused oil prices to climb, there have been signs that Saudi spending would pick up. Saudi Arabia announced last year that it would embark on a $30 billion to $40 billion project to expand oil production. In the weeks before the turmoil began, big contracts were awarded to Parsons and Fluor, the first extremely large projects in many years.
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