VZCZCXRO3205
PP RUEHDE RUEHDIR
DE RUEHMS #0003/01 0021257
ZNR UUUUU ZZH
P 021257Z JAN 08
FM AMEMBASSY MUSCAT
TO RUEHC/SECSTATE WASHDC PRIORITY 9107
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE

UNCLAS SECTION 01 OF 03 MUSCAT 000003 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR NEA/ARP 
H PASS 
FROM AMBASSADOR GRAPPO TO REPRESENTATIVE DAVID PRICE 
 
E.O. 12958: N/A 
TAGS: OREP PGOV PREL PTER MU
SUBJECT: SCENESETTER FOR CODEL PRICE'S VISIT TO OMAN 
 
REF: STATE 169292 
 
 ¶1. (SBU) Embassy Muscat and I warmly welcome you and your 
delegation to Oman.  We look forward to your arrival on 
January 7 to tour the Port of Salalah and discuss 
international trade security in the context of our overall 
bilateral relationship with Oman.  In order to fulfill the 
objectives of your visit, we are seeking an audience with 
Sultan Qaboos bin Said, Oman's head of state, as well as 
meetings with Yousef bin Alawi, Minister Responsible for 
Foreign Affairs, and Malik al-Ma'amari, Inspector General of 
the Royal Oman Police. End Summary. 
 
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Strong Bilateral Relationship 
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¶2. (SBU) We enjoy a strong bilateral relationship with Oman, 
one that officially dates back to 1833 with the signing of 
the Treaty of Amity and Commerce.  Under the leadership of 
Sultan Qaboos bin Said, Oman has proven to be a stable and 
reliable ally in a volatile part of the world.  Since taking 
over the government in 1970, the Sultan has been able to gain 
and keep the allegiance of tribal groups and religious sects; 
maintain amicable relations with neighbors; control religious 
fundamentalism; and guide the country through conservative 
but consistent economic growth and political reform.  With 
Oman's decidedly pro-West government and its strategic 
location presiding over the shipping lanes of the Strait of 
Hormuz, Oman likely will remain a key regional ally. 
 
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Military Cooperation 
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¶3. (SBU) Military cooperation forms a cornerstone of our 
relationship with Oman, as evidenced by our long-standing 
base access agreement with Oman signed in 1980.  Oman has 
supported all of our military requests, including substantial 
basing and access needs during the height of Operation 
Enduring Freedom, Operation Iraqi Freedom, and Desert Storm. 
Its location at the Strait of Hormuz makes it a natural hub 
outside of the Gulf to support current or future operations 
in Afghanistan, Iran, Iraq, the Horn of Africa and across the 
Indian Ocean rim. 
 
¶4. (SBU) Our engagement with the Omani military continues to 
grow and deepen, especially with the presence of our War 
Reserve Materiel (WRM) sites, the recent purchase of 12 
F-16s, and greater interest in cooperating on border security 
matters.  Oman's use of Foreign Military Financing (FMF) and 
Foreign Military Sales (FMS) has proven effective, and the 
military smoothly integrates new equipment into its 
operations.  Oman's FMF budget has been in decline, however, 
with FY08 figures equaling $10.1 million, down from $19.8 
million in FY05.  Oman has made good use of its approximately 
$1.08 million IMET allocation for U.S. military training, and 
its graduates have risen to high positions within Oman's 
armed forces. 
 
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Trade and Border Security 
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¶5. (SBU) We are working closely with Oman to strengthen 
security at its ports and along its borders to prevent the 
proliferation of nuclear and other weapons of mass 
destruction (WMD) or their components.  The Port of Salalah - 
one of the busiest transshipment ports in the world - has 
been a primary focus of these efforts.  The port is 
participating in the Department of Energy's Megaports program 
and is a pilot port in the Secure Freight Initiative (SFI). 
The Port of Salalah hosts three Customs and Border Protection 
(CBP) targetters, who have been working closely with Royal 
Oman Police (ROP) Customs since 2005 under the auspices of 
the Container Security Initiative (CSI).  Through ongoing 
technical and financial assistance from the U.S. Departments 
of Energy and Homeland Security, ROP Customs soon will be 
able to scan targeted containers through an Integrated 
Container Inspection System (ICIS) lane utilizing both x-ray 
and radiation detection equipment. 
 
¶6. (SBU) While Oman is a willing participant in 
U.S.-sponsored programs to secure international trade, 
contacts at Port of Salalah are concerned that the new 100% 
scanning requirement for U.S.-bound cargo under the 9/11 Act 
will adversely affect trade at the port by lowering 
productivity, and - if not mandated worldwide - ultimately 
 
MUSCAT 00000003  002 OF 003 
 
 
damage Salalah's ability to compete with other ports in the 
region.  Port officials hope that the U.S. will use lessons 
learned from the SFI pilot to tailor U.S. security 
requirements to the needs of major transshipment hubs. 
 
¶7. (SBU) Oman also has received equipment and technical 
assistance to strengthen its export control regimes under the 
U.S. Department of State's Export Control and Related Border 
Security (EXBS) program.  In 2007, EXBS provided the ROP with 
ground sensors to track movement of people and vehicles 
across its border with Yemen.  EXBS trainers also conducted 
workshops to encourage policy makers to pass export control 
legislation and adopt an export control list for sensitive 
and dual-use items.  Through EXBS, we also encourage Oman to 
fully meet its commitments under United Nations Security 
Council Resolution 1540 to prevent the proliferation of 
chemical, nuclear and biological weapons. 
 
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Regional Issues 
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¶8. (SBU) A traditionally staunch supporter of the Middle East 
peace process, Oman takes an objective, pragmatic and 
non-confrontational approach to pressing regional security 
issues.  On Iran, Oman maintains a cordial, although mostly 
non-substantive, relationship with Tehran.  The Sultanate 
prefers dialogue and cooperation on maritime security and 
other shared interests - including the possible importation 
of Iranian gas - rather than isolating the regime in Tehran. 
The Omanis are concerned about the impact of Iran's nuclear 
enrichment program on the region's stability, but believe 
that harsher economic sanctions against Iran would not have a 
strong deterrent effect, as it might constrain diplomatic 
maneuverability in the long-term. 
 
¶9. (SBU) Oman remains generally supportive of our efforts to 
promote security and political stability in Iraq, but is very 
concerned about the ability of Iraq's leadership to overcome 
allegiance to particular factions/groups in meeting this 
long-term goal.  Like its neighbors, Oman is worried that 
extremism and sectarianism in Iraq could spill over into the 
region.  Oman is not a source or transit country for either 
illicit funds or foreign fighters destined for Iraq. 
 
¶10. (SBU) The Israeli-Palestinian conflict continues to be a 
source of high-level interest, and the Omani government 
supported the President's November 26-27 Middle East peace 
conference in Annapolis.  On Lebanon, Oman supports the 
government of PM Siniora, who met with the Sultan in January 
2007, but hopes that the different Lebanese factions can 
reach a consensus to resolve the current political crisis 
there. 
 
¶11. (SBU) Oman has been free from terrorist activity and 
works closely with the USG on terrorism-related issues.  It 
is not a regional or offshore financial center; accordingly, 
it does not have a significant money laundering problem.  Its 
modest banking sector is closely supervised by the Central 
Bank of Oman, and the government has issued a series of 
decrees to combat money laundering. 
 
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Economic Overview 
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¶12. (SBU) Oman's economy is based primarily on revenues 
derived from petroleum and natural gas, which are expected to 
account for 79% of the government's income in calendar year 
¶2007. Oman's proven recoverable oil reserves are estimated at 
4.8 billion barrels, though Ministry of Oil and Gas officials 
are optimistic that over 35 billion barrels remain to be 
recovered.  The main oil producer is the government 
majority-owned Petroleum Development Oman (PDO, in 
partnership with Royal Dutch Shell), which controls 90 
percent of reserves and the lion's share of total production. 
 U.S.-owned Occidental Petroleum is the second largest 
producer in Oman, and has committed to investing more than $3 
billion over the next several years in enhanced oil recovery 
efforts in mature fields. 
 
¶13. (SBU) High oil prices over the past several years have 
led to solid Omani budget surpluses and GDP growth, despite 
declining oil production.  Oman's economy, with GDP estimated 
at $35.5 billion, grew over 15% in 2006, and is on track to 
gain more than 11% in 2007.  The government planned on 
spending approximately $4 billion more than in 2006 on 
investment-related expenditures, with $1.5 billion allocated 
 
MUSCAT 00000003  003 OF 003 
 
 
to enhancing oil production capabilities and $1 billion on 
gas production capabilities.  The hefty investment budget 
reflects continued government emphasis on reversing declining 
oil production rates, locating additional pockets of gas 
reserves, and promoting diversification of the economy. 
Under the government's seventh Five-Year Plan, to cover 
2006-2010, the average investment rate over the five-year 
period is estimated to be 24% of GDP.  Oman also is using its 
budget surpluses and oil revenues to strengthen the economy 
in the long-run by shoring up its 21-year old pension fund, 
reducing the debt, and strengthening a number of reserve 
funds. 
 
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Free Trade Agreement 
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¶14. (SBU) On October 2006, Oman became the fourth Arab 
country to sign a Free Trade Agreement with the U.S. 
Implementation of the Agreement, however, still is pending 
the resolution of issues related to intellectual property, 
customs, telecommunications, and transparency, among others. 
The Sultan has a personal interest in the FTA and has 
instructed his ministers to work actively for its success. 
The FTA supports Oman's efforts to diversify its economy, and 
Oman hopes that the Agreement will bring increased U.S. 
private investment to industry, telecommunications, tourism 
and high education.  Oman is planning a trade and investment 
promotional tour of the U.S. in 2008, with proposed stops in 
New York, Chicago, Houston, Los Angeles, and Washington. 
Oman also is using the promise of duty-free access to the 
U.S. market as a major selling point to attract investment 
from other countries in the region. 
 
¶15. (SBU) In order to comply with the FTA's labor provisions, 
the government introduced sweeping reforms to its 2003 labor 
law.  Under these reforms, workers now are allowed to 
organize unions, conduct strikes, and engage in collective 
bargaining - freedoms that were unheard of less than two 
years ago.  Due to the quick pace of reform, however, 
government, business and labor representatives are uncertain 
about their future relationships with each other.  Effective 
implementation of labor reforms and the development of labor 
unions are becoming major components of our bilateral 
assistance under the Middle East Partnership Initiative 
(MEPI). 
 
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Hot Button Issue 
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¶16. (SBU) While our relationship is generally free of 
bilateral irritants, the Omani government reacted strongly to 
its Tier 3 designation on the State Department's annual 
Trafficking in Persons (TIP) report.  Nevertheless, the 
designation has gotten their attention.  Since the 
designation, the government has drafted, with the assistance 
of a prominent U.S.-based expert, an anti-TIP law that both 
criminalizes TIP and establishes a national committee to 
coordinate anti-TIP initiatives.  In December 2007, the 
Ministry of Foreign Affairs hosted an inter-ministerial 
workshop to review and critique the draft law, and contacts 
hope that the Council of Ministries will approve the law in 
early 2008.  If passed, the law and formation of a national 
committee represent significant steps by the government in 
addressing our concerns. 
GRAPPO