Trade, defense top Obama's Saudi agenda

RIYADH (Reuters) - U.S. President Barack Obama wants to foster the historic U.S. relationship with Saudi Arabia and defend trade links from competition, without raising questions about democracy in the Gulf Arab ally.

Washington is still the biggest trading partner for the world's biggest oil exporter but a second defense contract with a major European firm was a reminder that others are also tapping the kingdom, spending billions of petrodollars.

Diplomats and analysts say Obama's intent to nominate a veteran of the 1991 Kuwait war as ambassador in Riyadh is the latest sign that Washington will continue pursuit of defense and trade ties over pushing for changes in the monarchy which has no elected parliament and where clerics run the judiciary.

James B. Smith is a retired Air Force Brigadier General now working for U.S. defense contractor Raytheon Co (RTN.N) and previously for rival Lockheed Martin (LMT.N), according to the White House. Congress has to approve his appointment.

A fighter pilot during U.N.-led operations in 1991 to end Iraq's occupation of Kuwait, Smith could revive old Saudi military contacts which might help facilitate strategic and defense cooperations, said Rochdi Younsi at Eurasia Group.

"The pilots in the military ... back then had a good chance to (rise to) higher ranks, so did he. I think he would be able to use these contacts," the New York-based analyst said.

Both countries have since the 1940s shared a bond based on guaranteed oil supplies in return for U.S. protection for the kingdom that controls more than a fifth of world crude reserves.

In his election campaign Obama raised some potentially disturbing issues for the Saudis, such as ending dependence on Middle Eastern oil but he made every effort to reach out King Abdullah during a visit to Riyadh in May, diplomats say.

"Talks focused on reviving the Arab-Israeli peace process and Iran. Human rights were not discussed, and I doubt they will feature high in the future," said a Western diplomat in Riyadh.

A U.S. rapprochement with Iran -- which Riyadh fears -- has become a distant prospect now after the re-election of hardline Iranian President Mahmoud Ahmadinejad, whose oversaw a policy of expanding Iran's influence in the Arab world.

"Obama has gone out of his way to try to establish a good personal relationship with King Abdullah," agreed Gregory Gause, a Middle East expert at Vermont University.

"I think that the Obama administration is going to play down democracy promotion in the Middle East," he said.

FIERCE COMPETITION

The kingdom is a traditional buyer of U.S. arms and other industrial goods but analysts say the times are over when the Gulf Arab ally would order just anything for political reasons.

Riyadh-based SABB Bank said the United States is still Saudi Arabia's main trading partner with bilateral volumes rising over five years by 161 percent to $51.3 billion in 2007.

But the U.S. total market share fell to 13.5 percent from 19.7 percent in 2000 while China's exports doubled to 9.6 percent, it said. Others like Germany kept their share stable.

"Saudi has favored U.S. platforms as befits a key regional ally of Washington, especially in terms of missile defense. But for political and other reasons, Riyadh has moved to diversify suppliers for various other platforms," said Lauren Gelfand, Middle East and Africa Editor at UK defense magazine Jane's.

Major tenders are in the pipeline as Saudi Arabia plans to spend $400 billion -- accumulated from years of high oil prices -- to build roads, airports, ports or power plants, offering rare opportunities for firms coping with markets in recession.

Smith's business experience should be especially useful for defense deals where other exporters are emerging, diplomats say.

"It certainly shows that maintaining defense and trade business is a priority," said a European diplomat in Riyadh.

Riyadh is considering doubling a recent order of 72 Eurofighter Typhoons as it is worried about Gulf security due to Iran, sources familiar with the situation told Reuters in June.

A well-placed Saudi-based analyst and a European defense specialist said a disadvantage for U.S. defense firms was the often lengthy government approval for arms exports in Congress.

"The Saudis have made it very clear to the U.S.. If they cannot get the technology from them they will buy somewhere else," said the Saudi analyst who declined to be identified.

European aerospace group EADS (EAD.PA) won a second deal to improve Saudi border security, the firm said on Wednesday.

EADS' aircraft maker Airbus has also made inroads into state-run Saudi Arabian Airlines. Its 88 planes come mainly from Boeing (BA.N) and McDonnell Douglas but its future fleet of 70 will include 50 Airbus planes, according to its website.

France said in May it is close to sign an agreement with Saudi Arabia to develop civilian nuclear energy.

(Editing by Samia Nakhoul)