According to the UK daily The Guardian, BAE systems remitted $2,000 million in previously undisclosed payments to help secure the order. Unless there is a comprehensive and authoritative rebuttal, this allegation will become the final word about the most valuable contract in business history.

The Yamamah affair of June 2007 should be a watershed moment for the British defence industry, second only to America in selling weapons to foreigners. The future direction of BAE Systems will be altered. It may also be a seminal moment for the global arms industry, with important implications for Saudi Arabia and the Gulf.

British domestic politics is playing a role. UK prime minister in waiting Gordon Brown will be content that one of the biggest issues in British politics is Tony Blair’s problem. He must hope it will be picked clean by parliament and the media by the time he enters 10 Downing Street next month. Blair has said there will be no inquiry into the affair. The UK government is confident that disclosure of the amounts paid will satisfy most people’s curiosity about an issue that has dogged Whitehall for years.

Change overdue

It could be a sign that Brown plans a fresh approach to BAE Systems, Britain’s largest manufacturing company. There are good arguments for ending its preferential treatment by the British armed forces. And it is time to end the practice of allowing former UK defence officials, including ministers, to sit on the boards of British weapons firms.

The reports may suit Brown, but they are embarrassing for BAE Systems, which says it has done nothing illegal. The issue will now be investigated by US congress, under Democrat control. The Senate and House of Representatives are considering whether there are grounds for blocking BAE Systems’ plans to buy an American weapons company. This might be only the beginning – the US Defense Department is the UK company’s largest customer.

The immediate question is whether the revelations will have any impact on BAE Systems’ plans to sell 72 Eurofighter Typhoons to Saudi Arabia in a deal agreed in principle at the end of 2005. It was probably Blair’s greatest Middle East coup. Two years ago, Riyadh appeared uninterested in new, multi-billion-dollar foreign weapons orders. But Blair’s visits just before and soon after the succession of King Abdullah in August 2005 triggered a change in policy.

There seem to have been several motives. They include the desire to reward Britain for its role in helping to stabilise Iraq and the wish to provide an incentive for London to use its influence on Washington. With Blair gone and Bush in decline, these arguments are no longer compelling.

Maximum influence

The kingdom does need new fighter aircraft, perhaps not now but in due course. Washington, under intense congressional scrutiny, is not ready to supply the most advanced type. President Chirac blew France’s chances with diplomatic gaffes in 2005. The British defence industry hope is that Riyadh is waiting to do the deal with Brown as head of the UK government to maximise its influence on future policy, particularly in Iraq.

Other issues thrown up by the revelations are connected to developments within Saudi Arabia. Prince Bandar bin Sultan, who has denied he received ‘improper secret commissions or backhanders’ as part of the Yamamah deal, returned to Riyadh in 2005 after almost two decades as the kingdom’s US ambassador to head the new National Security Council. It was interpreted as evidence he was going to work closely with his father, Prince Sultan, on the kingdom’s foreign policy. One reason given for why his successor, Prince Turki al-Faisal, resigned as US ambassador in 2006 was frustration about Prince Bandar’s continuing influence in Washington.

The Yamamah affair could therefore be both the cause and the consequence of change in Saudi policy. King Abdullah, who is greatly loved by ordinary Saudi Arabians, wants an end to practices that suggest a powerful few disproportionately benefit from the kingdom’s oil wealth. This might be his opportunity to demonstrate unambiguously that a new era has started, and not just in defence procurement, but for the kingdom and the Middle East as a whole.