In a letter to oil company consortiums, Saudi Foreign Minister Prince Saud al-Faisal said the kingdom would "absolutely not" open up its premier fields to non-Saudi companies.

Instead, the Saudis are offering less significant regions for natural gas exploration and production. However, many oil companies feel these areas wouldn't yield the necessary 15 per cent return on capital they require to justify the multi-billion investments in desalination and other projects.

The Saudi Gas Initiative was the pet project of Crown Prince Abdullah who saw it as a way to give disgruntled young Saudis job opportunities. In exchange for building and operating large power, water and petrochemical complexes, Saudi Arabia would - in a historic move - allow western companies access to its vast petroleum reserves, including the giant Ghawar field.

Besides ExxonMobil and Shell, the negotiations with the Saudis have involved BP plc, TotalFinaElf SA, Marathon Oil Corp, Occidental Petroleum Corp and ConocoPhillips. The largest of the plans involved a $US15 billion project led by ExxonMobil that included a gas processing plant, gas production to feed a petrochemical operation and a string of water and power plants.

Ironically, while the Saudis are making it difficult for western companies, Iraq on the other hand is keen to do business. TotalfinaElf has agreed to develop two giant oilfields in the south of the country. The Russian company Lukoil along with Italy's ENI and Spain's Repsol are also involved. Even Shell has an agreement to develop an Iraqi prospect.

With a huge budget deficit and growing population, a 'regime change' in Iraq could prove disastrous for the Saudis as millions of barrels of Iraqi oil would flood the global market, forcing the price and profit down for the rulers of the Arabian peninsula.