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Al-Yamamah Arms Agreement

One practical way in which the Minister for the Middle East, who I think will be speaking next, could help us is by giving some indication of how the advice from the Saudi Government was received. If it was a formal demarche from the Saudi authorities, that is of a very different order from the British ambassador’s having tea with one of his contacts and passing on his impression of what might be the case. It would help if the Minister clarified how we were briefed by the Saudis. Let me turn to the history of this issue. The al-Yamamah contract originated in the mid-1980s, and the context is often forgotten. It was not achieved primarily as a result of competition and British technological excellence; the context at that time was the very close relationship between Saudi Arabia and the United States, which both sides wished to perpetuate. However, the problem was that, as President Reagan provided Saudi Arabia with more and more sophisticated equipment, there were objections from Israel. Perfectly understandably, the Israelis were concerned about one of their potential adversaries acquiring sophisticated technology. The situation was not helped, of course, by the tirade of anti-Semitic abuse that often comes from the Saudi authorities. Israel protested, and friends of Israel in the United States Congress blocked the F-15 deal, which was in turn passed on to Britain and Mrs. Thatcher. The Reagan Administration were very anxious to bless this arrangement. They owed the Saudis various favours. They were supporting the Nicaraguan Contras and helping gallant freedom fighters in Afghanistan—such as Osama bin Laden. Reagan was perfectly happy to support this British arrangement, which proved to be one of the largest arms deals in history. It has been worth about £40 billion to date, and could be worth something of the same magnitude again in the future. It is not merely an arms deal, but one of extraordinary complexity that involves two major subsidiary features. One is an offset agreement, which, essentially, is a joint venture set of arrangements under which British companies put in capital and expertise, and their Saudi partners take their cut. There is also an oil element. There was an oil barter arrangement whereby oil was marketed, initially by Shell and BP, and the proceeds were routed through the MOD to BAE Systems. There was much criticism of these arrangements in the Treasury. Of course, the British taxpayer was taking the risk of oil price fluctuations. One consequence of the deal was that Saudi over-produced and drove down the price of oil, damaged the British North sea oil industry—among other things—and contributed to the lack of capacity that we are experiencing.