Arms, and oil, are significant—but our financial gains come at a geopolitical costby David Wearing / June 19, 2017 / Leave a comment
One of the signs that something unusual was happening in the run-up to the general election came when the terrorist attacks in Manchester and London failed to boost Theresa May’s fortunes in the polls. Instead, Jeremy Corbyn was able to push back forcefully against criticism of his national security credentials, in part by highlighting a suppressed Home Office report thought to implicate Saudi Arabia in the funding of extremism. That the UK-Saudi relationship came up as a negative in such a high-profile context will have alarmed officials in London and Riyadh. The question now is whether this key strategic alliance is becoming a liability to the British government.
Saudi Arabia’s primary value to London is related to the recycling of “petrodollars” (oil export revenues) to the UK in various ways. Lucrative arms sales help to sustain a domestic weapons industry that is central to Britain’s capacity to remain a global military power. With sales to the rest of the world in long-term decline, the Gulf has become a crucial market with Saudi Arabia now accounting for a third of British arms exports over the last decade.
In addition, Saudi capital inflows are a major source of financing for Britain’s chronic current account deficit, and the combined Gulf market is more significant for British exporters than China, as well as being a rare net contributor to Britain’s balance of trade.