Originally posted to The Guardian website, 18 May 2020
The world’s fifth largest weapons buyer is eating up its reserves – and its political clout
Saudi Arabia may be forced to forego new weapons contracts and delay already-agreed weapons purchases as a financial crisis grips the kingdom, experts predict.
The expected delay of new weapons deals could have long-term political repercussions for the country under the rule of Mohammed bin Salman, the crown prince and de facto ruler who has waged a bloody war with neighbouring Yemen.
Saudi Arabia is facing an unprecedented budget crunch because of the collapse of the oil markets and the global economic turmoil caused by the Covid-19 pandemic, which has reduced oil demand for the foreseeable future.
“I have no doubt, this is the end of an era. The era of the Persian Gulf having all this money is over,” said Bruce Riedel, a senior fellow at Brookings in Washington and 30-year veteran of the Central Intelligence Agency, who has served as an adviser on Middle East issues to several US administrations.
Saudi Arabia spent about $62bn (£51bn) in arms last year, making it the fifth largest spender on weapons globally. Although that figure was less than in 2018, it still represents about 8% of Saudi’s GDP, meaning that the country spent a larger portion of its wealth on weapons than the US (3.4%), China (1.9%), Russia (3.9%), or India (2.4%), according to research by the Stockholm International Peace Institute.
For decades, this spending has bolstered the country’s political clout.
“If Saudi Arabia wasn’t by far one of the largest buyer of weapons you probably couldn’t count on the uncritical support of powerful western powers. One of the outcomes of purchasing weapons is that you’re buying relationships,” said Andrew Feinstein, an expert on corruption and the global arms trade.
In the US, Donald Trump has in the past pointed to Saudi’s proposed weapons purchases – and inflated estimates about its impact on US jobs – to justify his administration’s soft response to the murder of Jamal Khashoggi, the Washington Post journalist.
Britain sells more arms to Saudi Arabia than to any other country – more than £4.7bn since the kingdom began a bombing campaign against Yemen in March 2015 – and Boris Johnson has faced criticism for allowing sales to continue despite concerns that the UK has risked being in breach of international humanitarian law by aiding the Saudi campaign.
But Riedel and others believe the Saudi government will have little choice but to delay military spending, in some cases permanently.
Andrew Smith, at the Campaign Against Arms Trade, said: “I expect that they may in the short term put off committing to some larger purchases, like a new set of fighter jets, for example, which Britain has been negotiating for quite some time.”
Another expert, Gerald Feierstein, a former US ambassador to Yemen, said it would be easy for the Saudis to delay or cancel new weapons contracts, but that the Saudi government would likely have to continue maintenance contracts to keep its current force operable. Feierstein said Saudi Arabia has in the past sought to renegotiate payment schedules for weapons, stretching out payments over long periods of time.
“Remember when Mohammed bin Salman came to the White House and Trump held up that cardboard graphic with $100bn in sales, that was all aspirational anyway,” Feierstein said. “Most of that stuff has never happened and it’s never been signed, it was just kind of pulled out of the air.”
Prince Mohammed does not only have the financial crisis to worry about. In the US, he is facing the prospect of Joe Biden, the presumptive Democratic nominee for president, winning in November. Biden has already said he would curb US arm sales to Saudi Arabia and called the current leadership a “pariah”.
“I do think that the [financial crisis] is going to affect all their spending,” said Kirsten Fontenrose, who served as senior director for Gulf affairs at the National Security Council in the Trump administration.
Instead of announcing cuts in spending, Fontenrose suggested, the Saudis could wait for the results of November’s election and – if Biden wins – for the Democrats to force the spending reductions, which they would “pretend to grudgingly accept”.
“That would be a way for them to escape the political repercussions and maintain some of their leverage with the private sector,” she said.
Meanwhile, Riedel said that among the companies likely to be hardest hit is Britain’s BAE Systems,, given the company’s exposure to Saudi Arabia.
“BAE will be hit enormously. There are thousands of BAE employees whose jobs revolve around supporting the Saudi air force in one way or another. Sooner or later they are going to be told ‘we can’t pay your salary anymore,’” he said.
In a statement, a BAE spokesperson declined to comment on whether Saudi would reduce arms sales, but said that the company, which generates 13% of group sales from the kingdom, would continue to provide “support and training” to Saudi Arabia through 2022.
Oil prices need to be maintained at about $85 a barrel for Saudi Arabia to maintain its budget, Riedel said. Instead, the kingdom has been siphoning off its reserves, which have dwindled from $750bn to $500bn over the past five years.
Publicly, Saudi Arabia appears to be on a spending spree, even as it recently introduced an unprecedented hike in taxes and budget cuts.
The Saudi sovereign wealth fund, which is controlled by Prince Mohammed, is set to acquire a majority stake in the Newcastle football club, and has bought hundreds of millions of dollars in shares of Carnival Cruise ships and in Live Nation, the world’s largest concert and events promoter.
Not every analyst agrees that the Saudis will rein in spending. Kristian Ulrichsen, Middle East fellow at the Baker Institute for public policy, said he believed the Saudis might seek to double down on their investment in defence, despite economic pressure, amid doubts about US commitment to Saudi security.
Link to the original post : https://www.theguardian.com/world/2020/may/18/the-end-of-an-era-oil-price-collapse-may-force-saudis-to-rein-in-arms-spending
