Oil slump threatens Saudi arms deal

SAUDI ARABIA may have to pull out of parts of the pounds 20bn British arms deal for which Mark Thatcher allegedly received a commission of pounds 12m, according to financial analysts in the Gulf.

The second stage of the transaction already faces delays, according to bankers and businessmen in the region.

British officials are not keen to be drawn on the matter. But it is understood that detailed agreement of the programme's second phase has not gone to schedule.

On his visit to Saudi Arabia this week, the Foreign Secretary, Douglas Hurd, was reportedly reassured in general terms by King Fahd that the arms purchases would continue. But Western diplomats and businessmen say the Saudi government - faced with slumping oil revenues and domestic unrest - has imposed a severe cash squeeze on all government contracts.

The Yamamah deal is estimated to generate a minimum of pounds 20bn in orders for Britain and to secure 40,000 jobs. Last week British Aerospace said it had generated pounds 13bn so far and was expected to continue earning pounds 2bn a year.

The slump in oil prices to between dollars 16 and dollars 17 a barrel has forced the Saudi government to cut its budget by 20 per cent. It is having difficulty paying the dollars 51bn bill for the 1990-91 Gulf war.

Arms sales to Saudi Arabia form part of the Islamic opposition's agenda, assiduously fostered by inflammatory broadcasts on the Arabic service of Tehran radio. Abu Rish, author of a critical study of the kingdom, says: 'There's an argument that these massive arms purchases are actually going to destabilise the regime and the evidence is that they are consuming a high percentage of oil revenues.'

Saudi troubles, page 10