A History of Bribery in the Arms Trade
Former Saudi King Abdullah had famously suggested that rather than sign a deal with Iran, the U.S. should "cut the head off the snake" -- and bomb Iran instead.
Saudi Arabia bought 600 Patriot missiles to bolster its air defenses.
Valued at $5.4 billion, the arms sale should yield significant revenue for Raytheon (NYSE:RTN) and Lockheed Martin (NYSE:LMT), the two companies named as principal contractors on the deal. Raytheon builds the Patriot's fire control and radar systems; Lockheed Martin makes the actual missiles.
While Raytheon and Lockheed earn similar profit margins on Patriot missile sales, missiles make up just 17.5% of Lockheed Martin's annual revenue stream. At Raytheon, in contrast, 26.8% of the company is devoted to building and selling Integrated Defense Systems such as Patriot -- and a further 27.6% of revenues come from selling other forms of "missile systems."
Raytheon's Integrated Defense Systems division is actually the business responsible for Patriot. With $6.1 billion in annual revenues (according to data from S&P Capital IQ), Raytheon IDS is the company's second-largest business. Earning operating profit margins of 16% on its products, IDS is also Raytheon's most profitable division.
Lockheed Martin churns out profits at the rate of 16.9 cents per revenue dollar.
Raytheon and Lockheed Martin are both currently mired in scandal, after it was revealed on Wednesday that they are among the leading US defense companies that provide significant funding for the Center for Security Policy (CSP).
CSP is a Washington-based think tank established to “promote US national security” and runs a number of ongoing campaigns like Shariah: The Threat to America and Jihadists in Our Own Backyard.
The organization is headed by Frank Gaffney, who is also its founder. Salon Magazine has previously dubbed Gaffney one of Washington’s “most outspoken critics of American Muslims”. He is known to have close relations with Washington insiders like Charles Fairbanks, former Deputy Assistant Secretary of State and Margaret Graham, a consultant at the Washington Institute for Near East Policy.
Despite controversy caused by the recent revelations, shares in Lockheed Martin hit an all-time high on Tuesday, a day before the Pentagon officially announced the company’s involvement in the $1.75 bn defence package.
Meanwhile at Raytheon, share prices hit record highs as US forces continued to bomb sites in Iraq and put in place plans for extending the campaign to Syria.
On the first night of those strikes in Syria, US forces dropped 47 Tomahawk missiles made by Raytheon, according to US Central Command. Each missile costs some $1.59 m.
Nicholas Gilby, author of “Deception in High Places: A History of Bribery in Britain’s Arms Trade” said “Times of political tension often see increased arms sales,” and there are indications that many of those buying are in the Middle East. “The rise of IS may well prompt some Middle East states to buy more equipment from main suppliers like the US, the UK and France, particularly as the group has been able to capture some very modern weaponry from the Iraqi Army.”
Research by the Stockholm International Peace Research Institute in March 2014 showed that Saudi Arabia and the United Arab Emirates were among the world’s five biggest arms importers in 2012-2013. The vast amounts being spent by Saudi Arabia on arms have grabbed the attention of UK-based weapons companies. In their 2013 annual report, BAE Systems noted that “in Saudi Arabia, regional tensions continue to dictate that defence remains a high priority.” Saudi Arabia has spent some $6 bn buying arms from the UK since 2008, according to Campaign Against Arms Trade, making it the largest buyer of UK weapons.
Journalist and Middle East expert, Patrick Cockburn has highlighted the role of official Saudi funding in the struggle against Assad in Syria, especially since the summer of 2013, when “Saudi Arabia took over from Qatar as the main funder of the Syrian rebels.”
Saudi Arabia has long voiced fervent opposition to Assad’s government, and has been involved in funding rebel groups throughout the drawn-out conflict. Added to the ambiguous outcomes of the current bombing campaign are long-standing allegations that Saudi Arabia has been responsible for funding groups like IS in Syria.
Stephane Lacroix, assistant professor of Political Science at Sciences Po in Paris, said, “there is private funding coming from Saudi Arabia, some of which certainly goes to al-Nusra Front and part of which goes to IS. This is channelled through private networks.” Lacroix, told MEE that many allege that the Saudi government has “turned a blind eye” to these funding channels.
Many analysts have pointed to this apparent contradiction which has seen Saudi Arabia join in the US-led airstrikes against groups like IS, al-Nusra Front and Ahrar al-Sham.
According to Lacroix, the decision to join the US-led campaign is particularly puzzling, since Saudi funding has been propping up the Islamic Front Coalition, of which Ahrar al-Sham is a member, since late 2013.
Lacroix explained that fear is the chief reason behind the seeming turnaround in Saudi policy towards IS and the Islamist rebel groups fighting Assad in Syria.
“I think the Saudis are scared. They are not taking IS lightly, because they are seeing this group developing quickly on their borders.” IS rhetoric could be attracting significant support within Saudi Arabia’s borders.
When it comes to U.S. debt, China is the one country singled out for owning too much of it. Saudi Arabia's holdings, meanwhile, are a mystery.
While China gets scrutinized, Saudi Arabia has benefited from an unspoken hands-off policy. Americans only got a whiff of how much the Saudis owned in U.S. assets when its government said it would sell over $700 billion worth if Barack Obama revealed some 28 pages of a Sept. 11 2001 report revealing alleged Saudi support of the Boston Logan Airport hijackers. A New York Times op-ed on Friday came out in favor of the Saudis and against the victims of the terrorist attack, ironically most of whom died in New York City.
The Donald has called out China for dumping steel onto world markets and on trade relations. For his part, Trump also said he would consider halting Saudi oil imports, which are not a major source of U.S. crude, if it did not fight ISIS. He also supports revealing the redacted 28 pages that he believes implicates some in the Saudi royal family.
China has yet to give up on the U.S. It used to lag behind Japan as the single largest foreign buyer of Treasury debt. Now it's equal to or greater than Japan with about $1.4 trillion in U.S. bonds.
Americans have no idea how much the Saudis own, but are consistent in our worries about China.
As of March 2016, the U.S. government owes almost $19 trillion to creditors in both long and short term debt.
China owns AMC Movie Theaters. Shandong Tralin Paper Company is pouring $2 billion into a paper mill in Virgina. Shuanghui International owns the Smithfields foods brand. HNA Group bought Ingram Micro in California for $6.3 billion, preserving blue collar jobs in Fullerton. Home appliance maker Haier acquired General Electric's appliance division for $5.4 billion, putting it in charge of even more middle class manufacturing jobs in the country. The Chinese are also major buyers of U.S. real estate and one firm is building a residential tower in Los Angeles.
Saudi Arabia is the top destination for U.S. arms, purchasing 9.7% of U.S. exports last year. Recent sales approved by the U.S. State Department include Sikorsky's Black Hawk helicopters worth a total of $495 million and Raytheon-made Patriot Missiles worth $5.4 billion, as well as a $1.3 billion sale of air-to-ground munitions meant to replenish stocks used in the Yemen war.
Saudi Arabia's total U.S. defense imports increased by a ridiculous 275% in just four years between 2006 and 2010, according to the research organization SIPRI. The United States also helps Saudi Arabia secure its oil assets by providing training and advisers to Saudi security forces on the ground.
In short, Saudi Arabia is a cash cow for big guns and butt-kicking security guards.
Saudi government officials and businessmen, both royals and commoners, have deeper ties to the United States than the Chinese. Saudi finance, economy, and petroleum ministers all have degrees from U.S. universities. Fahad al-Mubarak, the central bank governor who controls Saudi's dollar reserves, was chairman of Morgan Stanley in Saudi Arabia. FORBES billionaire Prince Alwaleed bin Talal owns stakes in Citigroup and Twitter.
Saudi oil wealth has long made the kingdom a source of investments for U.S. companies. No international fundraising "road show" for private equity or a new hedge fund is complete without kissing rings in Riyadh, or a visit to Dubai, the glamorous Westernized United Arab Emirates city that is basically being built by Saudi money.
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