Saudi deal could be first of more Gulf U.S. arms pacts

U.S. arms manufacturers are capitalizing on fears of war with Iran to sell more weapons to Saudi Arabia and other nervous Gulf Arab neighbors of the Islamic republic.

U.S. plans unveiled this week to sell Saudi Arabia up to $60 billion in aircraft, helicopters and other arms could lead to the six Gulf Arab states spending as much as $100 billion in the next few years to overhaul their armed forces, analysts say.

European arms suppliers, less well established in the region, are likely to miss out on what promises to be a massive regional rearmament program, the analysts say.

Unease on the Arab side of the waterway about the prospect of retaliatory strikes in the event of war is also drawing the countries, known as the Gulf Cooperating Council (GCC), closer together. Their top U.S. ally looks set to benefit most.

"The GCC need to work together, not just what they do, also training and building up manpower," said Saudi political analyst Khalid al-Dakhil. "As individuals they can do nothing."

Riyadh and Washington, which formed seven decades ago a strategic relationship based on oil for security, share concerns over Iran's nuclear program, fearing Tehran wants to develop nuclear weapons, a charge Iran charge denies.

The arms deal, which top oil exporter Saudi Arabia yet has to confirm, would help Washington's key Gulf Arab ally to counter Iran's regional influence by giving it superiority over Iran's air force, security experts say.

The U.S. Congress also needs to approve the potentially record deal, which would benefit U.S. military suppliers such as Boeing Co and United Technologies Corp.

The United States and Israel have not ruled out military strikes to curb Iran -- a troubling prospect for Gulf states fearing they could become target of retaliatory strikes.

Diplomats also say the United States is in talks with Saudi Arabia and the UAE over an air defense system involving Lockheed Martin Corp.

Smaller Gulf states Kuwait and Bahrain, which are worried about retaliatory strikes as they are home to U.S. bases, are likely to buy surface-to-air missiles such as Patriots, made by U.S. firm Raytheon, said analyst Theodore Karasik.

U.S. Dry Spell Over

Flush with petrodollars, the six countries of the Gulf, which also include Qatar and Oman, have unveiled plans to modernize their small armed forces.

As they work on strategies to improve cooperation of their small armed forces a joint military buying strategy would make sense, analysts say.

In total the Gulf countries could spend as much as $100 billion of which 60 percent would be for air defense and air forces, 25 percent for ground forces and 15 percent for navies, said John Sfakianakis, chief economist at Saudi Banque Fransi.

The Saudi deal -- talks for it began in 2007 under the administration of former U.S. President George W. Bush -- would end a recent relative dry spell for the U.S. arms industry in the kingdom, one of the world's biggest arms buyers.

Although European firms have made inroads, such as Boeing rival EADS which won a border security contract worth more than $2 billion, European suppliers are likely to miss the bulk of a massive new wave of spending.

"I think the U.S. will get the lion's share," said John Sfakianakis, chief economist at Saudi bank Banque Saudi Fransi.

The Pentagon has yet to release details about this week's planned agreement but officials said it was expected to include 84 new F-15 fighter jets and upgrades for another 70, plus 70 Boeing Apache attack helicopters.

Britain had hoped Riyadh might buy more Eurofighter Typhoons but this seems unlikely given the deal's size.

"I don't think the Saudis will need anything else in the next years," said a Western diplomat in Riyadh.

That would leave European firms with a just a niche in border security or satellite systems.

France is in talks with Saudi Arabia on a satellite system to gather intelligence which could involve Thales and EADS, diplomats say.

[Source: By Ulf Laessing, Reuters, Ryadh, 15Sep10]

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