Saudi Arabia Defence & Security Report Q1 2008

Although domestic terrorist activity has subsided somewhat and the government has been systematically bolstering its security services, Saudi Arabia remains unstable, with significant activity by anti-regime militants and the continuation of threats of violence against foreigners. This is worrying for the reigning House of Saud as it encapsulates anti-Western, Islamist and anti-government elements. Externally, doubts raised over the current stand-off between the West and Iran over Tehran's nuclear programme will continue to concern Saudi Arabia, although the international attention paid to the issue will be reassuring.

Riyadh has been diplomatically active - supporting the new Annapolis Middle East peace initiative, seeking to mediate in Washington's stand-off with Tehran over the latter's nuclear programme and continuing to exert a moderating influence within OPEC. The House of Saud has proven its resilience against many threats in a volatile region, and should be able to weather current risks from Iraq and Iran in particular. However, in the longer term the closed nature of the regime remains a potential threat to stability. In Q407 there was no sign of any break in the log jam over domestic political reforms.

Considering the size and wealth of the country, Saudi Arabia's defence industry is small and underdeveloped. The most significant development to affect the country's defence industry has been the sharp deterioration of personal security for overseas workers. The ongoing targeting of overseas employees could damage the defence industry, discouraging skilled employees from staying in the country. However, multinationals maintain strong representation within the Kingdom. The instability within Saudi Arabia has fuelled a lucrative market in industrial and commercial security equipment. Saudi Arabia is currently estimated to have an outstanding multi-billion dollar border security requirement.

However, the majority of equipment is sourced from outside the country, with the domestic militaryindustrial base still weak. Saudi Arabia has traditionally relied heavily on foreign sources of arms, and looks set to continue to do so in the medium term. The US has a large Foreign Military Sales (FMS) programme in Saudi Arabia, which affords the government the ability to purchase military items without bureaucratic delays. Recent surges in oil prices have allowed for new procurements, and the recent announcement of US preparations to provide Saudi Arabia with US$20bn of arms over the next decade should see that the Kingdom's defence imports remain high.

The Saudi Arabian monarchy is under no threat at a political level and sits on vast oil resources that will ensure economic viability for many years to come. At a security level, the Kingdom faces a significant threat from Islamist extremists but it is unlikely that the threat will become anything more than sporadic attacks. The regime has the support of the majority of the population and is backed by the US - two very important factors. Its defence industry is limited, but while it can rely on its oil wealth Saudi Arabia is able to procure its military requirements from the international market. However, this can no longer be expected to be the case once the oil dries up and the Kingdom cannot afford to provide for its people, nor acquire defence equipment. It would be well-advised to start now to make provisions for that time.