What lethal goods were Harold Wilson, Margaret Thatcher, and Tony Blair all keen on selling to one particular client while they were in Downing Street?
The three make for strange company.
But their political differences – Wilson’s price fixing, Thatcher’s free marketeering, and Blair’s globalism – didn’t get in the way of them all indulging what has become a lasting prime ministerial pastime: selling fighter jets to Saudi Arabians.
For Wilson it was the Lightning made by the British Aircraft Corporation, for Thatcher it was the Panavia Tornado, and Blair the Eurofighter Typhoon. And those were just the planes – not mentioning the munitions, training aircraft, and instructors.
Thatcher’s deal for the Tornados remains the largest export deal the UK has ever had, worth tens of billions of pounds. Nobody knows the exact extent or details of the deal to this day, but it served BAE Systems, the prime contractor on the deal, exceptionally well.
Successive governments (including BoJo’s) all do their best to hush up the bribery and other corruption associated with the deals. The Financial Times, ever the moral authority, printed this take on Blair’s cover-up back in 2008:
Viewing the activities of arms salesmen decades ago through the moral prism of the tree-hugging noughties would not have been a useful exercise. We all did things we were ashamed of in the 1980s, as anyone who danced to Duran Duran while dressed as a pirate will testify.
The allegations of foul play certainly didn’t help the share price of BAE at the time, which had a rough 1990s:
BAE employs tens of thousands of folks in this country today, and the deal was great for British manufacturing.
But look to what the Saudis used to pay for the jets, and the reasoning behind such government-sponsored salesmanship becomes more revealing. The money paid was not in the form of banknotes, but in a precious commodity: 600,000 barrels of oil per day.
Anglo-Arabia?
… I know the British do not want [Arabia], yet what can I say, when they took the Sudan, also not wanting it? They hunger for desolate lands, to build them up; and so, perhaps, one day Arabia will seem to them precious. Your good and my good, perhaps they are different, and either forced good or forced evil will make a people cry with pain. Does the ore admire the flame which transforms it?
– Prince Feisal, leader of the Arab Revolt, in Seven Pillars of Wisdom by TE Lawrence
The US-Saudi relationship is relatively well known and accepted. The US used to be the world’s largest oil consumer, and needed to make sure the Soviets would not get a stranglehold on the world’s oil supply.
It also needed somebody to buy its government debt, and so arranged the petrodollar agreement with Saudi Arabia back in the 70s. Saudi Arabia would only sell oil for dollars, and recycle its surplus dollars by lending them to the US government. In return, the US would secure Saudi Arabia against external foes and look the other way at its bad behaviour internally and elsewhere including its export of Islamic extremism.
The Ronald Reagan administration ran into domestic political trouble back home when it came to maintaining Saudi Arabia’s arms however, which is one of the reasons Thatcher stepped up to the plate to promote British industry.
I’m currently reading a book called AngloArabia: Why Gulf Wealth Matters to Britain by David Wearing, which I highly recommend. In my limited experience the Saudi-UK relationship is not nearly so well appreciated or even investigated the way the Saudi-US partnership is – I wouldn’t even be able to tell you what the political consensus on Saudi Arabia is, other than not many politicians wish to be seen as critical of the Kingdom.
The book explores much of the financial history of Britain’s involvement in the Middle East. Post-World War II is particularly interesting, where it explores the fears in Whitehall and the City that global oil supply would no longer be in their control and priced in pound sterling. This fear became particularly acute and came to a head in the Suez Crisis in the 50s:
At the time of the crisis, three-quarters of Britain’s oil imports came from the Middle East, and the [Suez] canal carried two-thirds of Britain’s sterling oil to Western Europe. There had been another run on the pound in the summer of 1955, and the loss of the canal threatened to further damage confidence in sterling. In September 1956, Britain’s dollar and gold reserves were nearing the US$2 billion mark, the minimum required, according to the Bank and the Treasury’s estimate, to keep the sterling area afloat.
Whitehall feared that if the crisis forced a second devaluation in less than a decade it would spell the end for sterling’s international reserve role. In addition, if Nasser were successfully to nationalise the canal (and resist any Western countermeasures), he would be in a position to turn the oil producers of the Middle East against Britain. The forcefulness of London’s actions during the crisis can be attributed to the fact that it viewed Nasser’s move as nothing less than an existential threat to the British Empire.
When the US scuttled the UK/France/Israeli operation to seize back control of the oil-bearing canal, it was the end of the road for the “petro-sterling” system, paving the way for the US to build their own version, the petrodollar system in the 70s.
With no financial leverage, the UK took to arms sales instead to keep the Saudis on side.
This entire dynamic of Anglo-Arabian arms deals and petrodollars are the product of the last energy revolution, where the Saudis reaped the reward of their vast oil reserves, gaining vast wealth and power.
But what will happen in the next energy revolution? And will these existing dynamics and prime ministerial pastimes survive when it arrives..?
More to come,
Boaz Shoshan
Editor, Capital & Conflict
PS At the time of writing, nobody has given the correct answer to yesterday’s question. I’ll leave it again here in case you missed it.
What made the Foreign Office threaten to kill Americans after World War II?
I want the incident that triggered it, the year it happened, and the reason why.
First person to get all three in an email to me gets the beer: [email protected].
In case this happened more than once I’m after the earliest post-WWII instance this occurred (I’ve only got so much beer).
One final clue:
So far, the majority of answers I’ve received are for the Suez Crisis – this is incorrect.
Category: Market updates