U.S. 9/11 law exasperates Saudis, government silent

RIYADH/DUBAI (Reuters) - A U.S. law allowing lawsuits against Saudi Arabia over the Sept. 11 attacks met a stony silence from Riyadh on Thursday but some Saudis bristled, saying the kingdom should curb business and security ties in response.

The Senate and House of Representatives voted overwhelmingly on Wednesday to approve legislation that will allow the families of those killed in the 2001 attacks on the United States to seek damages from the Saudi government.

Riyadh has always dismissed suspicions that it backed the attackers, who killed nearly 3,000 people under the banner of Islamist militant group al Qaeda. Fifteen out of the 19 hijackers were Saudi nationals.

The Saudi government financed an extensive lobbying campaign against the "Justice Against Sponsors of Terrorism Act", or JASTA, in the run-up to the vote, and warned it would undermine the principle of sovereign immunity.

But Saudi officials who had lobbied against the bill stopped short of threatening any retaliation if the law was passed.

There was no official reaction from Saudi Arabia after the votes, and in the short-term, few expect little more than a curt statement of disapproval from Riyadh.

The long-standing alliance between the kingdom and the United States is one of the cornerstones of Middle East politics, security and trade, and in their reactions on Thursday some Saudis said JASTA would jeopardize what they see as an interdependent relationship.

"What would happen if Saudi Arabia froze its cooperation with the United States with regards to counter-terrorism as a response to JASTA?" Salman al-Dosary, editor-in-chief of the pan-Arab, Saudi-owned Al Sharq al-Awsat newspaper, wrote on Twitter.

The Saudi riyal fell against the U.S. dollar in the forward foreign exchange market on Thursday after the bill was passed, prompting a drop in dollar demand in Riyadh.

"People are reluctant to buy dollars ... because of the price," said Raed al-Sayari, whose family runs an exchange shop in a bustling commercial district popular with foreign workers.

"We’re concerned that if the dollar keeps appreciating and the situation doesn’t stabilize in the coming days there will be no demand. This would be a big loss for the market."

The Saudi riyal is pegged at 3.75 to the dollar in the spot market, but banks often use the forwards market to hedge against risks.

POLITICAL EXPEDIENCE?

Some analysts argue the Al Saud ruling family will interpret the move as political expedience by lawmakers in a U.S. election season and that the chances of a successful lawsuit are uncertain at best.

But the measure does nothing to ease long-standing friction in the alliance: President Barack Obama, who had vetoed JASTA but was overridden by Congress, is increasingly seen by the kingdom and fellow Gulf Arab as favoring their bitter rival Iran, a charge Washington denies, and differs with Riyadh over Syria and other Arab crises.

"This bill reflects an anti-Saudi campaign. It is time to see less of America in our midst," said Abdulkhaleq Abdulla, a political scientist in the United Arab Emirates.

Some analysts have speculated that Riyadh could retaliate by curbing U.S. trade with the biggest Arab economy or restrict cooperation on security, a crucial relationship for U.S. counter-terrorism and for peace efforts in Arab conflicts.

Theodore Karasik, of Gulf State Analytics, wrote on al Arabiya website that JASTA would "ignite a firestorm of legal warfare that will directly undermine political relationships at a time when robust ties to fight terrorism is required".

He said the measure could also disrupt sweeping economic reforms meant to boost the private sector and foreign investment and wean the kingdom off oil dependence.

Some analysts speculated that bilateral trade and investment could be hurt. The kingdom owns $96.5 billion of U.S. Treasury bonds, and is believed to hold at least that sum in other U.S. assets and bank accounts.

(Additional reporting by Stanley Carvalho, Davide Barbuscia, Celine Aswad, Andrew Torchia and Tom Arnold; Writing by William Maclean; Editing by Raissa Kasolowsky and Alison Williams)