DISARMAMENT: Mideast Arms Market Dwindles

By Thalif Deen Reprint | | Print |

Thalif Deen

NEW YORK, May 27 1996 (IPS) - The world’s most prosperous arms market is drying up. The politically volatile Middle East, which accounts for more than 40 percent of the world’s arms transfers, has been hit by a recession.

According to latest figures released by the Pentagon, the two largest cash customers for arms, Saudi Arabia and Kuwait, have significantly cut back their purchases from the United States.

Saudi weapons purchases have plummeted from a staggering 11.6 billion dollars in 1993 to 838 million dollars in 1994 and a low of 486 million dollars last year. The Kuwaitis have cut their military purchases from 2.8 billion dollars in 1993 to 183 million dollars in 1994 and 84 million dollars in 1995.

The decline in Middle East arms sales is also reflected in a sharp drop in overall U.S. weapons sales overseas. Sales nearly doubled immediately after the Gulf crisis in 1990-91. Sales jumped from 11.8 billion dollars in 1990 to 20.3 billion dollars in 1991, reaching a peak of 32.1 billion dollars in 1993.

The biggest single beneficiary of the Gulf War against Iraq was the post-Cold War U.S. military industry. Sales have since plummeted, sinking to 12.8 billion dollars in 1994 and 9.0 billion dollars in 1995. The projected sales figure for 1996 is 9.5 billion dollars, a far cry from the high of 32.1 billion dollars.

President Bill Clinton’s administration decided last year to freeze sales of big ticket-items to Saudi Arabia because of the cash crisis the Arab country faced in the context of falling oil prices.

“As far as I know, the U.S. has not changed its policy to hold off on large arms deals to the Saudi government until more payments are made,” Tom Cardamone, Editor of the Washington-based Arms Trade News told IPS. “They have not paid off all their debts and their cash reserves have been greatly reduced.

“With the price of oil at the current level, I don’t see where the Saudis or other regional powers will get the cash to pay for significantly higher levels of weapons. Pumping more oil will only lower the per-barrel price and won’t result in greater cash flows.”

The food-for-oil agreement finalised last week by the United Nations and Iraq is also expected to force oil prices down. Under the agreement, Iraq will be permitted to sell about one billion dollars’ worth of oil every 90 days and use the money to buy food and medicine.

The re-entry of Iraq into the oil market – its first appearance since the Gulf crisis in Aug. 1990 – is expected to bring down the price of crude oil by about two or three dollars per barrel, according to analysts.

Since 1950, the Saudis have purchased more than 79 billion dollars in weapons and military services from the United States. And since the Gulf crisis, Saudi Arabia has ordered more than 30 billion dollars’ worth of arms worldwide and about six billion dollars in commercial airliners from the United States.

Responding to its cash-flow problems, Saudi Arabia cut its national budget by 20 percent across the board. The budgetary cuts announced in 1994 were expected to eliminate waste while sustaining the country’s multi-billion-dollar weapons programme.

Saudi Arabia’s international reserves, which reached a hefty 80 billion dollars during the oil boom of the 1970s, were down to 9.4 billion dollars in January. The country’s oil income alone has declined from about 120 billion dollars in the 1970s and early 1980s to the current 40 billion dollars.

In its 1995 annual ‘Congressional Presentation for Promoting Peace’, the Pentagon said it was helping the Saudis to “restructure” their weapons purchases.

Saudi revenues “are linked to the price of oil which are at the lowest level in years,” the Pentagon said. Despite a severe cash shortage, Saudi Arabia has fought to secure its financial credibility on the global arms market.

In a report released last year, the U.N. Economic and Social Commission for Western Asia (ESCWA) said the 1994 aggregate gross domestic product (GDP) for the region showed a negative growth rate of 0.4 percent compared with 3.7 percent in 1993. Overall earnings from oil exports also declined from 75.4 billion dollars in 1993 to 74.3 billion dollars in 1994, despite a 2.8 percent increase in production.

According to the report, oil prices in 1994 reached their lowest level since 1988. The average price of a a barrel of oil was about 15.6 dollars, down from 16.3 dollars per barrel in 1993. The fall in oil prices precipitated a decline in oil revenues in the oil-exporting countries, which in turn, negatively affected their trade balance and government budgets.

The biggest single threat to the Middle East arms market has, therefore, come from falling oil prices primarily because the major players in the market,~ including Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates ~depend heavily on oil incomes to finance their weapons purchases.

In a study released last year, the League of Arab States says that Arab governments spend more than 50 billion dollars annually on weapons. The 22-member organisation says Middle Eastern governments earmark 28 to 50 percent of their budgets for defence annually, even though much of the equipment has been left in storage for years.

“Aircraft become rusty while grounded as they have never been used,” the report says. “Arms factories in the United States and Europe, which are backed by their governments, are always ready to offer all facilities to lure purchasers.”

“The North Americans, in particular, admit that the Gulf war gave them the opportunity to sell stored weapons and test their advanced equipment,” according to the report.