UK acts to smooth Saudi trade relations

19 January 1996

Trade relations between Saudi Arabia and the UK have come under scrutiny following the decision by the UK government to expel Saudi dissident Mohammed al-Masari from the UK to the Caribbean island of Dominica. Al-Masari has been waging a campaign by fax and E-mail against the Saudi government since he arrived in the UK from Yemen in 1994, and has become a thorn in the side of UK-Saudi trade relations. In 1995, a UK government attempt to return him to Yemen was thwarted by an independent adjudicator who said that his life would be at risk there.

The British government has made no bones about the reasoning behind its 3 January decision to deport Al-Masari. While rejecting claims that Britain had come under direct pressure to expel Al-Masari, Home Office Minister Ann Widdecombe confirmed that commercial interests had been paramount.'If people come here and use our hospitality in order to attack extremely friendly governments with whom we have good diplomatic and very good trade relations, we have a very difficult balance to strike,' she said following the announcement of the government's decision.

Saudi Arabia is by far the largest market in one of the few areas of the world where the UK can still boast a substantial trade surplus.

UK exports to Saudi Arabia peaked at just less than £2,000 million ($3,125 million) in 1992.

By 1994, the figure had fallen, but remained an impressive £1,515 million ($2,370 million).

This makes Saudi Arabia one of the UK's most important trading partners after the European Union and North America.

Fruitful relations The trade relationship between the two countries was given greater prominence following the victory of the UK's Conservative Party in Britain's 1979 general elections. Under Margaret Thatcher the kingdom was targeted as a key market for British exports. In September 1985 the policy bore fruit in a spectacular fashion. Aided by the refusal of the US Congress to sanction the sale of high tech military equipment to Arab states, Britain pulled off its largest ever defence export deal when the then Secretary of State for Defence, Michael Heseltine, signed the first Al-Yamama agreement with Saudi Second Deputy Prime Minister and Defence & Aviation Minister Crown Prince Sultan Bin Abdel-Aziz.

According to the deal, Saudi Arabia agreed to buy 132 military aircraft from the UK. The core of the package comprised an order from British Aerospace (BAe) for 72 Tornado fighter aircraft - 48 interdiction strike (IDS) models and 24 air defence variants (ADVs) together with 30 Hawk 100 & 200 combat and advanced fighters. It also included 30 Pilatus PC-9 basic trainers made in Switzerland, but fitted out in the UK. The total deal was valued at a minimum of $8,550 million. It was followed in July 1988 by Al-Yamama 2, a follow-up order of 48 IDS Tornadoes, 60 Hawk 100 & 200s, a number of BAe 124 and 146 communications aircraft, 80 Blackhawk UH 60 helicopters from Westland Helicopters and six minesweepers from Vosper Thornycroft. Both deals are financed through an oil barter agreement, according to which The British Petroleum Company (BP) and Royal Dutch/Shell are given 600,000 barrels of Saudi oil a day until the deal is paid off, expected to be by the end of the century. The revenues are paid into an escrow account at the Bank of England, before being distributed to the companies at set intervals. The programme is estimated to provide 70,000 jobs to British workers. BAe has around 3,000 employees in the kingdom alone.

The Al-Yamama deals are not direct orders with the companies involved, but government-to-government agreements setting out Saudi Arabia's planned defence expenditure in the UK. As such, they are subject to variation and could be extended or curtailed in the future.

Further arms sales are under consideration.

Vickers is hoping for an £3,000 million ($4,700 million) order for 150 Challenger tanks from its Tyneside factory, and GKN is hoping to sell 80 Warrior armoured fighting vehicles. An order for GKN Westland EHiOl transport helicopters is also in the pipeline.

Vosper Thornycroft, which has already completed orders for three of the minesweepers in the Al-Yamama 2 deal, is hoping for a firm order for the remaining three.

Lucrative contracts Britain's trade interests in Saudi Arabia go far beyond defence sales, however. UK companies chase lucrative contracts in the kingdom's substantial oil, gas and petrochemical industries, and the economic offset programme.

The expulsion of Al-Masari is intended to clear the air between Saudi Arabia and the UK. It has been accompanied by the appointment of a new UK ambassador to Riyadh. The outgoing ambassador, David Gore-Booth, is leaving the post after three years. His replacement is Andrew Green, a former ambassador to Damascus and a non-executive director of Vickers, the UK armaments company.

The UK's strategy is not without risks. London has become home to Islamist dissidents from other Middle East countries, including Egypt, Algeria and Tunisia. Britain has also faced criticism from the governments of these countries for accommodating radical opposition members.

What the decision does illustrate is the importance that the UK government places on relations with Saudi Arabia. British companies jostling for contracts in the kingdom's crowded but lucrative markets will be a lot happier when the dust has settled.

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