Saudi Diplomatic Smackdown

There is a sad decline in the quality of British (and American) scandals. Since the Clinton days, American scandals have been fit only for the business page, not the front page. But British scandals never used to lack redeeming vices worthy of the tabloids.

Otherwise-boring corruption would be colored in rich tones of leaky cabinet ministers, lavish hotels and shady ladies gorgeous enough to elicit a raised eyebrow from James Bond.

Those ladies would be exposed — almost literally — on the tabloids' front pages until the minister resigned. Alas, those days are over. Now all we are left with are slangy puns about "Yamamah."

You may never have heard of the "al-Yamamah" deals before, and — if the Saudis have anything to do with it — you won't again. Dating back to the mid-1980s, the two al-Yamamah deals (named for the Saudi city in which the first was done) are probably the biggest international arms deals in history.

They are "counter-trade" deals in which the British government is paid with oil that it sells, using the money to pay for combat aircraft and other weapons the Saudis want. The principal beneficiary has been BAE Systems, now manufacturer of the Typhoon fighter-bomber, which might have gone out of business but for the Yamamah deals. But doing business with the Saudis is not just a matter of buying and selling or beating someone else's price.

As former British Secretary of State for Defense, Lord Gilmour, told the BBC a few weeks ago, "You either got the business and bribed or you didn't bribe and didn't get the business." If this is beginning to sound familiar, it should. Remember how Saddam did business in the U.N.'s Oil-for-Food scam?

About two years ago, British investigators began looking into allegations of bribes that made the al-Yamamah deals possible and by which they've been kept alive.

The ongoing investigation, according to a Nov. 19 London Sunday Times article, is looking into information about a "slush fund" — amounting to nearly $120 million — set up by BAE for Saudi royal family members.

According to that Times report, "The payments, in the form of lavish holidays, a fleet of luxury cars including a gold Rolls-Royce, rented apartments and other perks, are alleged to have been paid to ensure the Saudis continued to buy from BAE under the so-called Al-Yamamah deal, rather than going to another country." Several people, including senior BAE executives, have already been arrested in the case. And that is where the Saudis want it to stop.

In a meeting with Tony Blair last year, the Saudis apparently got the impression that the investigation would go no further. But to their surprise, this summer British investigators persuaded Swiss magistrates to order disclosure of some confidential bank records. The Times reports that the Saudis "hit the roof" on hearing of this and in September caused a senior diplomat to deliver an unprecedented threat to the Blair government.

The Saudis threatened to suspend diplomatic relations with Britain and end intelligence cooperation on Al Qaeda. Their threat included — and not just in passing — cancellation of the latest round of weapons-buying, a contract for 72 Typhoon aircraft, worth about $20 billion and 10,000 British jobs. The nature of this threat compels two conclusions about the Saudis.

First, if the exposure of financial corruption — even on the grand scale of Yamamah — can cause them to threaten to cut Britain off diplomatically and to end intelligence cooperation on Al Qaeda, the Saudis must believe that their hold on power is terribly fragile. To go to such lengths, they must be more ready to deal with Al Qaeda than with the effect of their own people learning just how corrupt the Saudi royal family is.

Second, they must think that their oil is a weapon that trumps all others, the ultimate tool of blackmail. The Saudis' brinkmanship may be their undoing. By threatening to break off diplomatic relations, they have converted an embarrassment into an international confrontation.

How the British answer the Saudis' ultimatum may have a significant effect on the future of the Middle East. If they stop the investigation, the brakes will be off on Saudi intransigence. Cooperation in tracing terrorists and their funding, only grudgingly given, will probably stop altogether. If they don't stop the investigation, the Saudis may cancel the Typhoon contract and buy Rafale jets from the ever-eager-to-please French. So far, the British haven't caved in.

In the nearly three months since their ultimatum was delivered, and because the Brits haven't done as the Saudis demanded, the Saudis have begun to carry out their threat. According to the Nov. 27 Financial Times, the Saudis broke off negotiations on the latest Typhoon purchase contract which could grow to four times the initial value of about $20 billion.

Nervous BAE Chief Executive Mike Turner said his company has done nothing wrong but — there's always a "but" — Turner also said, "...we do want to see a resolution of the [Serious Fraud Office] investigation. It's damaging to our business." Business and principle are often incompatible in the Middle East. In this case, because the Saudis have raised the stakes to a new height, and because the Saudis are not the only regime that is watching carefully, the Brits dare not back down.

Saudi Arabia is bluffing, in part. They may disrupt relations with the British, for a time, if the investigation goes on to a public trial. But in diplomacy, nothing is permanent and what is broken today can be mended tomorrow.

If the Brits forge ahead, they will lose the billions the Typhoon sale would have meant to them, and France (which has no qualms about bribery) will gain what the British lose. But the lesson for the Saudis — and the Iranians and others — will be taught: oil is not the ultimate weapon, and blackmail can't guarantee security, even from the danger posed by your own people. If the Brits back down, how long will it be before Iran demands of its European and Asian customers more than the Saudis demanded of Britain?