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Fri 29 May 2009 12:34 PM

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Background: Saudi relations ahead of Obama visit

A preview of some of the main topics Obama and Saudi are likely to discuss.

US President Barack Obama will meet Saudi Arabia's King Abdullah in Riyadh next week to seek his support over the nuclear standoff with Iran and reviving the Israeli-Palestinian peace process.

Here is some background on relations between the US and the world's largest oil exporter and on some of the main topics Obama and his host are likely to discuss on Wednesday.

Strategic alliance

Since the modern Saudi state was founded in 1932 by King Abdul Aziz, or Ibn Saud, father of all succeeding monarchs, the kingdom has nurtured ties with Washington that date back to Ibn Saud's grant of an oil concession to a US firm in 1933.

The king's first trip abroad was to meet President Franklin Roosevelt on a US destroyer in the Suez Canal in 1945.

Washington has relied on the world's biggest oil exporter to play a moderate role in the OPEC cartel by countering demands by countries such as Iran or Venezuela for higher prices or the use of oil as a political weapon to pressure the West.

But the strategic alliance, based on interlocking interests in oil, business contracts and regional security, was tested to the limit by the Sept. 11, 2001, attacks on the United States by mainly Saudi hijackers loyal to al Qaeda leader Osama Bin Laden.

Many US officials then took a hostile line, arguing that Saudi Arabia's lack of political freedom and its austere Islamic Wahhabi doctrine made it a breeding ground for militants.

Ties improved after the ruling family, allied to a rigid religious establishment, cracked down on militants who attacked Saudi and Western targets in the kingdom. Riyadh has reviewed its education system, fired hundreds of clerics for inciting anti-Western hatred and begun a scheme to reintegrate militants.

King Abdullah has also started an interfaith dialogue with Christians and Jews to show a more tolerant face of Saudi Arabia, which sees itself as bastion of Sunni Islam.

Political issues

In 2002, Abdullah floated an Arab-Israeli peace plan, offering Israel normal ties with the Arab world in exchange for a Palestinian state in the West Bank and Gaza, with East Jerusalem as its capital, and an agreed solution for refugees.

Saudi Arabia wants Obama to play an active role and pressure Israel's Prime Minister Benjamin Netanyahu, who is reluctant to endorse the two-state idea at the heart of US-led peacemaking.

Riyadh has tried to contain the power of non-Arab, Shi'ite Iran. It fears its interests could suffer if Iran cuts a deal with the United States or pursues nuclear work the West suspects has military aims as well as the declared peaceful ones.

The Sunni royals also worry about a shift in the regional balance of power after the 2003 overthrow of Saddam Hussein's Sunni-based regime in Iraq, where Shi'ite factions now dominate.

Saudi Arabia and Egypt see Iran's hand behind the Sunni Palestinian Hamas group as well as the Shi'ite Hezbollah movement in Lebanon, which both espouse armed struggle against Israel.

Saudi Arabia helped ensure OPEC made no move to cut output at last week's Vienna meeting. Obama, keen to avoid any big oil price rebound that might crimp economic recovery, said it was not in Saudi interests to have "huge spikes" in crude prices.

Saudi Arabia will have significant spare capacity -- and even more market clout - after opening a new oil field in June.

The kingdom has been buying U.S. weapons and other goods for decades but has in recent years also boosted trade with Japan, China and other Asian countries. Companies from Asia have won several deals as part of a $400 billion Saudi investment plan to diversify the energy export-dominated economy.

Saudi Arabia is among America's top 15 trading partners. Last year two-way trade was worth $67.3bn, roughly 2 percent of total US trade, with Saudi exports to the United States worth $54.8bn and imports $12.5bn.

"The US will remain one of the top exporters to Saudi Arabia because the kingdom needs high-tech goods for which the US has a niche and the dollar peg also helps to develop bilateral trade as it minimises currency fluctuations," said John Sfakianakis, chief economist at SABB bank in Riyadh. (Reuters)