US, WASHINGTON (ORDO NEWS) — According to forecasts of the International Monetary Fund, the oil revenues of the Arab Gulf countries should have dried up in 2034, but the crisis due to the coronavirus pandemic accelerated this process.
Western reports have begun to indicate the need for Gulf states to take strict measures to rationalize spending, especially Saudi Arabia, which experts expect to begin to reduce the volume of military transactions to make up for the increasing budget deficit due to the collapse in oil prices.
Military expenses
According to a report published on May 18 in the British newspaper The Guardian, Saudi Arabia, it may be necessary to abandon new contracts for the supply of weapons and postpone already planned transactions as a result of the financial crisis that it is currently facing.
Newspaper correspondents Stephanie Kirchgesner (Washington) and Dan Sabbach (London) note that the expected delay in new arms deals could have long-term political consequences for the kingdom.
Saudi Arabia is facing an unprecedented budget crisis due to the collapse of the oil market and the global economic turmoil caused by the coronavirus pandemic. As you know, Saudi stocks have declined from $ 750 to $ 500 billion over the past five years.
Saudi Arabian finance minister Mohammed al-Jadaan said May 11 that the kingdom needs 220 billion riyals ($ 58.6 billion) to cover the difference between current income and expenses.
“I have no doubt that this is the end of an era … The end of an era when the Persian Gulf was so rich,” commented Bruce Riddle of the Brookings Institution in Washington, a CIA expert who had worked for 30 years in this agency.
Saudi Arabia spent about $ 62 billion on weapons last year, making it the fifth largest arms importer in the world.
Although this figure is lower than in 2018, it still makes up about 8% of the country’s GDP. This means that the kingdom has spent even more on weapons than the United States. According to a study by the Stockholm Peace Research Institute, the amount of weapons acquired by Americans was 3.4% of GDP, while China spent 1.9% of GDP on arms, Russia 3.9%, and India 2.4%.
According to The Guardian, for decades, huge spending was aimed at strengthening the political influence of Saudi Arabia.
Andrew Feinstein, an expert on corruption and the international arms trade, said in an interview with a British newspaper that one of the consequences of buying weapons is that the country is buying relationships.
In light of the current crisis, according to Riddle and others, the Saudi government has no choice but to cut military spending. According to the expert, oil prices should be kept at $ 85 per barrel so that Saudi Arabia maintains a budget balance.
Anti-arms activist Andrew Smith noted that officials in the kingdom may postpone some major deals in the short term, such as buying a new group of warplanes. The UK has long been negotiating this deal.
According to former U.S. ambassador to Yemen, Gerald Feierstein, the Saudis will postpone or cancel new arms contracts, but are likely to maintain maintenance contracts to keep their armed forces alert.
“In the past, Saudi Arabia tried to revise payment schedules for weapons and defer payments for a longer period,” the American diplomat added.
He explained: “Remember, when Muhammad ibn Salman visited the White House, he and President Donald Trump made deals for the sale of Saudi Arabia’s arms worth $ 100 billion. Most of these transactions did not take place, and they were not signed. These were just words.”
If Joe Biden Wins
In November, Joe Biden, the presidential Democratic candidate for the presidency of the United States, may triumph as Trump‘s influence wanes due to the crisis around the pandemic.
Biden said he would limit the sale of US weapons to Saudi Arabia.
Therefore, Christina Fontaines, a former Gulf director of affairs for the National Security Council under the Trump administration, believes that perhaps the Saudis want to wait for the results of the American election. If Biden wins, the Democrats will reduce the number of deals, and then the kingdom will be able to pretend that it is reluctant to make this decision.
“This will allow them to avoid political consequences and preserve part of their influence on the private sector,” the expert said.
However, not all analysts agree that the Saudis plan to cut their military spending because of the many security challenges.
According to Christian Olriksen, a fellow at the Baker Institute for Public Policy, the Saudis may seek to double their defense spending, despite the current economic pressure, as they doubt that the United States still guarantees the security of Saudi Arabia.
At the same time, in the reports of the American media it was reported that the State Department inspector general Stephen Linick began to investigate the circumstances of the participation of Saudi Arabia and the UAE in arms deals worth $ 8 billion. However, Trump decided to dismiss the inspector before the completion of this investigation, although it was at the final stage.
New investment
Last week, the Saudi Arabia Sovereign Fund increased its investment in shares of 24 US companies, the volume of which reached $ 9.8 billion. Of these investments, 713.7 million dollars were invested in Boeing shares, another 522 million in Citigroup, the same amount on Facebook, 495.8 million in Disney and 487.6 million in Bank of America.
In addition, the Sovereign Fund acquired $ 514 million in shares of the Marriott Group, as well as $ 827.7 million in shares in BP.
Analysts still do not know when these investments will be profitable in the light of the protracted economic downturn as a result of the coronavirus pandemic.
In February of this year, German experts called the Saudi Sovereign Fund investment a waste of the kingdom’s financial resources.
In 2018, Masayoshi Son, director of the Japanese holding company SoftBank Group, told how he persuaded Muhammad ibn Salman to invest 45 billion euros in the Vision technology fund. In a television interview, he said: “If I say that I convinced him in one hour, then this will not be true. It took me just 45 minutes to convince him to invest $ 45 billion. ”
Saudi Arabia Sovereign Fund intends to acquire English football club Newcastle for $ 445 million. The architect of this transaction is said to be an American named Carla DiBello, who does not have much experience in financial matters.
According to media reports, DiBello’s role is limited to the friendship that ties her and the head of the Sovereign Fund, Yasser al-Rumayan. This friendship allowed her to play the role of an intermediary and help Riyadh in concluding a number of transactions.
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