Saudi Arabia Goes Shopping for a Nuclear Deal

10 MINS READMar 19, 2018 | 09:30 GMT
The Saudi kingdom had grown accustomed to relying on its domestic oil supplies to subsidize cheap electricity and water desalination during the hot summer months.

Riyadh might sit atop the world's largest cache of oil reserves, but Saudi Arabia has an energy problem.

  • Saudi Arabia will strive to develop a civilian nuclear energy program due to the need to diversify its energy mix away from oil.
  • But Saudi Arabia's push for ownership of the nuclear fuel cycle will open up the possibility that Riyadh will use its greater nuclear capabilities to satisfy its security imperatives, including defending itself from its biggest nemesis, Iran.
  • The United States will weigh its desire to maintain leverage over Saudi Arabia by helping it develop a peaceful civilian nuclear program against its concerns about Riyadh's security motives.
  • If an agreement is not reached, Saudi Arabia will look to other nuclear powers such as Russia, whose limits on enrichment ownership are weaker than those of the United States. 

Saudi Arabia's crown prince was not holding back any punches: “Without a doubt, if Iran developed a nuclear bomb, we will follow suit as soon as possible.” Mohammed bin Salman's comments came in an interview with "60 Minutes" that aired just days after Saudi Arabia's Cabinet approved the country's nuclear energy policy, which clearly spells out Riyadh's intention to develop its own nuclear activities for peaceful purposes. It also comes amid the start of the crown prince's trip to the United States, as well as negotiations between Washington and Riyadh that the latter hopes will permit U.S. companies to assist the desert kingdom in fulfilling its nuclear energy ambitions.

Inevitably, though, there is a catch. Saudi Arabia desires the right to enrich and reprocess fuel in any agreement with the United States, even though Washington typically avoids enshrining the feature in nuclear pacts with other countries, such as the United Arab Emirates and Taiwan — especially because it can jump-start a nuclear weapons program. With the crown prince visiting the United States this week, his statement will naturally do little to allay concerns about Saudi Arabia's long-term ambitions to develop nuclear weapons. Salman, however, is hoping his close relationship with the current White House will aid Riyadh in securing a elusive nuclear agreement for energy development. But Washington's refusal to play ball would be at its peril, for Riyadh has the option of taking its business elsewhere, including such countries as Russia, which has less stringent controls on enrichment and reprocessing.

The Big Picture

In Stratfor's 2018 Second-Quarter Forecast, we said Saudi Arabia would attempt to leverage its relationship with Washington and the continuing concerns over the Iranian nuclear deal to secure an agreement with the United States that would permit the kingdom to enrich uranium at home. Crown Prince Mohammed bin Salman, however, has subsequently gone further, suggesting that Riyadh would push to develop a nuclear weapon if Tehran did so.

Riyadh's Need for Nuclear Power

Two primary concerns are driving Saudi Arabia's pursuit of an atomic program: energy and security. Riyadh might sit atop the world's largest cache of oil reserves, but the country has an energy problem. Before oil prices collapsed in 2014, the Saudi kingdom had grown accustomed to relying on its domestic oil supplies to subsidize cheap electricity and water desalination during the hot summer months. In the past, Saudi Arabia has burned over 1 million barrels of oil per day for power generation during seasonal peaks. In an effort to diversify, the country has targeted the development of nuclear energy, renewables and its own natural gas resources so it can — like most of the world — cease burning crude oil for electricity generation and water desalination. 

Riyadh endeavors to construct 16 nuclear reactors with a capacity of 17.6 gigawatts by 2032. The ambitious plans are not new; in 2009, King Abdullah issued a royal decree announcing the kingdom's intent to develop its nuclear energy capabilities. Two years later, it unveiled plans for the 16 reactors, but the country has struggled to accelerate the program. Still, with so much political momentum and state-backed funding behind Vision 2030, Riyadh's ambitious plan to reduce the country's dependence on oil and diversify the economy, rapid progress is all but certain. Riyadh has already identified two sites, Umm Huwayd and Khor Duweihin, for the potential location of its first plant, along with 17 more for future consideration. In December 2017, Saudi Arabia began sending out feelers to international companies such as the United States’ Westinghouse to gauge their interest in placing a bid. According to the current schedule, Riyadh plans to pre-qualify firms by the end of May and award contracts by the end of 2018. By next year, Saudi officials hope the King Abdullah City for Atomic and Renewable Energy — which oversees the nuclear energy development portfolio — will begin signing joint ventures with international partners.

The competition among nuclear energy development companies to sign a deal with Riyadh is expected to be fierce. As one of the few financial powers wishing to construct nuclear reactors but doesn't (unlike China), Saudi Arabia will draw much interest from foreign contractors — especially since they have suffered in established markets such as Japan. Saudi Arabia has already signed a nuclear energy cooperation agreement with Russia, although Westinghouse, as well as French, Chinese and South Korean companies, is also expected to participate in construction. 

Keeping Up With Iran

Of all the potential purveyors of nuclear power to Saudi Arabia, the United States has historically had the most stringent controls on the export of the technology. As a result, Washington is likely to push Riyadh to forgo its drive to enrich and reprocess nuclear fuel, lest it develop its own nuclear weapons. Saudi Arabia, however, has consistently told the United States that it has no intention of abandoning these goals to achieve enrichment (unlike Abu Dhabi, which stated from the beginning that it did not require control over the fuel cycle), and it has gone so far as to draft plans to develop its own uranium reserves and sign a cooperation agreement with Amman to mine the element in Jordan. If Saudi Arabia dropped its demands to engage in enrichment, it could become beholden to foreign providers of nuclear fuel, which could present a strategic liability if relations ultimately sour with supplying countries. At the same time, Saudi Arabia could generate economic growth and employment by attaining self-sufficiency in fuel.

Ultimately, however, the perceived threat of a nuclear-armed Iran underscores Riyadh's security concerns and compels Saudi leaders to pursue a robust, wide-ranging defense policy that includes demands for the right to enrichment and, if necessary, the right to develop atomic weapons — even if the country has been a signatory of the Treaty on the Non-Proliferation of Nuclear Weapons for decades. If Iran were to develop an atomic weapon, Saudi Arabia could seek safety under the U.S. nuclear umbrella. Outsourcing protection to Washington presents risks for Riyadh, however, especially if strains emerge in their ties, as occurred during the administration of U.S. President Barack Obama. Saudi Arabia could also find itself out in the cold if a nuclear-armed Iran succeeded in normalizing its relations with the West. In such a scenario, the diminishing importance of Saudi Arabia's oil reserves amid the growth of energy alternatives could reduce Riyadh's significance in the eyes of the United States, compounding the kingdom's isolation.

Accordingly, Saudi Arabia is in no position to negotiate away its right to process its own nuclear fuel, even if it does intend to develop nuclear weapons as part of its short-term and medium-term goals. While there is a significant distinction between a nuclear weapons program — which requires both the device and, frequently, a delivery system — and a civilian nuclear energy program, they share some of the same processes, such as the enrichment of uranium to varying degrees. Some countries use a civilian nuclear energy program to conceal the research and production of highly enriched uranium needed for a nuclear weapon (as Iran is accused of doing).

To rectify this dilemma, Saudi Arabia could sign the Additional Protocol with the International Atomic Energy Agency (IAEA), as Iran has provisionally agreed to do as part of the the Joint Comprehensive Plan of Action (JCPOA) — the nuclear deal between Tehran on one side and six global powers and the European Union on the other. The Additional Protocol does not prohibit countries from enriching uranium domestically but does grant the IAEA more oversight and authority to conduct inspections to prevent anyone from developing a nuclear weapon. And with Iran allowed to retain control over some of its enrichment in return for greater inspections, Saudi Arabia is eager to strike a similar deal. As part of the JCPOA, Iran can only enrich uranium to levels of 3.67 percent of uranium-235 — far lower than what is needed for a nuclear weapon — and must keep its stockpiles of enriched uranium at 300 kilograms or less. But because that clause will expire in 2031 (a date that U.S. President Donald Trump is seeking to extend with EU support), Riyadh aims to cultivate a civilian nuclear program in which it engages in its own enrichment and reprocessing — something that could be beneficial if Iran suddenly develops atomic weapons in the next two decades.

The Conundrum for Congress

While the Trump administration and Saudi Arabia ultimately wish to seal an agreement on nuclear power, many challenges remain. Before a U.S. company can transfer any technology or equipment to assist Saudi Arabia in its nuclear development, Washington and Riyadh must sign a "123 agreement" — so named for Section 123 of the U.S. Atomic Energy Act, which stipulates that U.S. technology transfers may only be used for the development of energy production. But by insisting that it maintain the right to enrich and process uranium, Saudi Arabia is requesting a modified 123 agreement — which would require U.S. congressional approval. 

Saudi Arabia could assuage the Congress' worries by promising to keep enrichment at a low baseline and by agreeing to the Additional Protocol to enable a more significant inspection process. 

In making any decision on a 123 agreement, Congress will weigh the long-term risk that Saudi Arabia could someday use advanced nuclear technology to develop a nuclear weapon and pursue aims that diverge from U.S. strategic goals in the region. Such concerns are shared by other U.S. allies such as Israel, which disapproves of Saudi Arabia acquiring the capability to develop a nuclear weapons program, even though the two view Iran as a mortal enemy. After all, the United States and Israel remember how Iran itself rapidly transformed from friend to foe when it underwent a revolution in 1979.

But if Saudi Arabia becomes discontent at the slow pace of negotiations with the United States, or if Congress fails to find a solution that suits Saudi demands, Riyadh could beat a path to the door of other nuclear powers for assistance in developing a nuclear program. One such partner is Russia, which has already made inroads in the Middle East in places such as Egypt and Turkey, where it is constructing nuclear plants. At the same time, even if Saudi Arabia deepens cooperation with U.S. allies such as South Korea or France, Washington would still lose potential leverage and security ties if it does not succeed in becoming Riyadh's primary partner in the nuclear sector. 

As Salman arrives in the United States, Washington's delicate ability to discuss such a deal and satisfy its major concerns will be on display. The United States wishes to assist Saudi Arabia in its economic and energy diversification while also maintaining leverage over the country and limiting its ability to ever develop a nuclear weapon. In that respect, the United States is likely to push for some concessions, but if it demands too many, Washington will only push Riyadh into the arms of others who may grant Saudi Arabia greater control over enrichment and reprocessing. Still, Salman appears set to capitalize on the current administration's anti-Iran and pro-Saudi stance to secure a nuclear deal that would never have been possible under Trump's predecessor. Through it all, Iran — and the rest of the world — will be watching with bated breath.

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