BOOMING OIL SALES EXPECTED TO TURN INTO ARMS BUYING SPREE

by Thalif Deen

(IPS) UNITED NATIONS -- The unprecedented rise in oil prices is expected to trigger an increase in arms purchases by some of the world's leading oil-producing nations, including Saudi Arabia, Algeria, Venezuela, Iran, Nigeria and the United Arab Emirates (UAE).

If history has a way of repeating itself, a significant portion of the growing petrodollars will spill over into the coffers of the world's five leading arms merchants: the United States, France, Britain, China and Russia.

All five countries, ironically, are veto-wielding permanent members of the UN Security Council, exercising decision-making powers over war and peace.

After the first Gulf War in 1990-1991, U.S. weapons exports doubled to more than $30 billion, around the same time that oil prices peaked at 40 dollars a barrel, says Frida Berrigan, senior research associate at the New York-based World Policy Institute's Arms Trade Resource Center.

"In the midst of the 'oil crisis' of the early 1970s, Iran and Saudi Arabia alone accumulated $40 billion in cash revenues, much of which they spent on weapons," Berrigan told IPS. She said that during 1973-1974, those two countries plus Kuwait spent more than $4 billion just on U.S. weaponry.

Still, Berrigan thinks it is too soon to tell if rising oil prices will equal increased weapons sales. Major weapons contracts so far in 2006, she said, have gone to Australia, Japan, Thailand, Turkey and South Korea, none of them major oil exporters.

"But a look at recent history indicates that demand for U.S. weapons and military hardware could be on the rise," said Berrigan, who closely tracks arms sales worldwide.

The International Monetary Fund (INF) has estimated that hard currency surplus in oil-fueled Middle Eastern nations could rise to about $218 billion -- up from $57 billion in 2003.

According to the London-based military magazine Jane's Defense Weekly, Russia has finalized a $7.5 billion arms deal with Algeria, with a possibility of a $3 billion additional military contract, taking the total to over $10 billion.

Under the agreement, Russia will provide 36 MiG-29 and 28 Sukhoi Su-28 fighter planes, along with 16 Yak-130 advanced jet trainers. The Russians have sweetened the offer by agreeing to cancel Algeria's $4.7 billion Soviet-era debt.

During a visit to Algeria last February, Defense Secretary Donald Rumsfeld said he discussed possible arms sales to that oil-producing North African country. "They have things they desire, and we have things we can be helpful with," he said, in a cryptic message to reporters.

Algeria is specifically interested in helicopters and night-vision goggles which may be helpful in monitoring anti-government rebels.

Tom Baranauskas, a senior Middle East analyst at Forecast International, a leading provider of defense market intelligence services in the United States, does not see that much activity toward big arms buys.

"Algeria is a bit of an exception to the other Middle East arms buyers in that it has not spent all that much on major defense equipment purchases in recent years, except to address counterinsurgency needs," Baranauskas told IPS.

The Russian deal probably represents an initial phase to address more pressing needs, and further phases may follow should oil prices remain high, he added.

Saudi Arabia, one of the biggest single buyers of U.S. arms, has agreed to buy 72 Typhoon multirole fighter planes from a European consortium led by British Aerospace Systems. The contract could go as high as $16 billion.

In January, the United States imposed sanctions on nine European, Indian and Chinese companies for supplying military equipment and technology to Iran, another leading oil producer. Currently, the Bush administration is on a confrontation course with Iran over its disputed nuclear program.

Since China and Russia are the major arms suppliers to Iran, both countries have shown reluctance to support a U.S. move to impose UN economic and military sanctions on Tehran.

The London Financial Times reported last February that the United Arab Emirates plans to spend about $15 billion on building its own aerospace manufacturing and aviation services in Dubai, its commercial hub.

Last year, China signed a $250 million military contract to provide 12 fighter aircraft to Nigeria, the biggest oil producer in Africa. Nigeria's future requirements include high-speed patrol boats to protect against rebel attacks in the delta.

Berrigan said when there was an earlier surge in U.S. arms sales to countries floating on rising oil revenues, one Pentagon official expressed the reasons for the U.S. Defense Department's unofficial policy of trading weapons for petrodollars by saying: "The biggest long-range problem facing the United States is finding a way to get the Arabs to spend their dollars without letting them get control of their economy."

Weapons do that quite efficiently, she pointed out. "It is interesting to note that the United States has departed somewhat from that policy in its recent decision to cut off weapons sales to oil-rich Venezuela," Berrigan added.

Baranauskas said the Arab Gulf states in particular have had long-term military force overhaul programs in the works or planned, and enough equipment has been procured to date that some of the militaries have even had to slow down procurement in order to absorb these new and often complex systems.

"Granted that the Saudis are planning some big aircraft buys, but these have been under discussion for years, particularly a potential Rafale buy (an advanced French fighter plane), and the additional oil revenues probably will just speed things up a bit," he added.

"What I find interesting in the Saudi market is the government's plans to basically militarize the entire land border. Discussions with the French have been ongoing for a couple of years regarding a program worth as much as $8.8 billion to build a national border surveillance system that would include patrol aircraft, unmanned aerial vehicles (UAVs) and early warning systems, as well as a fence-type barrier along the nation's 4,531 kilometers of land borders," he said.

This program, he said, has a high priority because the Saudis are increasingly concerned over closing off the infiltration into Saudi Arabia of Islamic militants and weapons to stage terrorist attacks. The Iraqi and Yemeni borders are regarded as particularly dangerous in this regard.

Initial Saudi efforts to build a fence along the border with Yemen met with fierce criticism from the Yemeni government and work was suspended.

Now, the Saudi defense and aviation ministry has invited bids from local contractors to build an 814-kilometer-long double-line fence along the entire border with Iraq.

The Iraq border barrier will cost several hundred million dollars and consist of 135 electronically-controlled sliding gates, fence-mounted ultraviolet intruder detection sensors, and buried radio detection sensors.

Baranauskas also said there are indications of some significant Iranian arms buys in the works, but these are driven more by the threats being issued by the United States and Israel.

"Yes, higher oil prices will make it easier to fund such purchases, but the Iranians would be upping their arms buying anyway because of the growing threat level," he added.