The Political Economy of the Arms Deal between the United States of America (USA) and Saudi Arabia (SA)

The "strategic vision" agreement between the United States and the SA on May 20, 2017 with a size of $ 350 billion in 10 years and the arms deal worth $ 110 billion that will go into effect immediately signify, according to the terminology of international experts, that the USforeign policy in the Middle East will not be based on soft power and that the US military and political economic engagement in the Middle East will deepen. The arms deal includes tanks and helicopters for frontier security, coastguard vessels for coastal security, aircraft to be used in gathering intelligence, a missile defense radar system and cyber security equipment.One important aspect of this agreement in terms of military relations is that after the Obama administration approved a 115 billion $ deal with SA in September 2016, the US did not sell some of the weapons included in the deal due to human rights violations in the ongoing war in Yemen, and with this newly-signed deal itincludes a wider arms package. In particular, given the missile systems Iran possesses, it can be said that the missile defense system, which has recently been added to the list of the deal, is a maneuver against Iran. Another important aspect of this agreement in this context is that it coincides with Rouhani’s victory in the elections in Iran where the Iranian people have given their approval for the nuclear disarmament, normalization in economic and political sense, and reintegration with the international system, and an environment where hopefor a relatively stable period in the region is expected. Despite contradictory statements about how the deal concerns Iran, the US State Department's announcement has emphasized that the main purpose of the deal is to support the long-term security of SA and the Gulf countries against the growing influence of Iran in the region and Iran-related threats,and to contribute to the regional anti-terrorist campaigns of SA so that the burden on the shoulders of the US military forces would decrease. In this context, US Secretary of State Tillerson stated that the deal is a strong message to the common enemies of the two countries about not financing terrorism, and more importantly, that providing security in this part of the world will reduce the cost to the American people.

The prominence of this agreement apart from the military dimension is that it includesthe clues of Trump’s both national economic policies and political economic approachtowards the Middle East. Trump has described the deal as "billions of dollars of investment and business in the US". With the agreement, SA is not only committed to buy military supplies from the US, but also committed to employ American companies to deploy the given supplies in the SA. The deal includes sales of military supplies which are worth $350 billion over 10 years and $110 billion that will take effect immediately,a joint vision declaration, economic and defense cooperation between the two countries' private sectors. Thus, the deal creates new economic opportunities for the US companies in Saudi Arabia and other Gulf countries, and it paves the way for tens of thousands of employment opportunities in sectors based on defense industry in the US. On the other hand, there is also an economic-ideological content of the deal. Trump's son in law and adviser Kushner called the president of Lockheed Martin, one of the largest defense industry companies in the US-SA arms sales agreement, to ask for price discount.This situation is assessed in the US as direct interference of the government in free market and price formation. As to the said company, itregards the deal as a direct contribution to the 2030 Vision program of the SA and the opportunity to create thousands of highly qualified jobs in new economic sectors in the US. Another importance of the deal for Trump’s national economic policy is that SA plans to invest about $50 billion for infrastructure investments in the United States. When Trump's $ 1 trillion dollar infrastructure investment plan is taken into account, such a large financing channel constitutes one of the most favorable political economic backgrounds of the deal.

This agreement means a significant and controversial political economic decision for SA where the oil sector accounts for nearly 90% of the budget revenues and 50% of the gross domestic product (GDP), and which had an approximately 90 billion dollar deficit (14% of its GDP) in 2016 due to low oil prices. SA had to finance this budget deficit by selling government bonds, contracting debts and by reducing its reserves. Moreover, due to the budget deficits, the government had to put economic policies into practice such as reducing physical capital investments, applying value added tax, and reducing subsidies in many goods and services such as electricity, water and petroleum products.More importantly, budget deficitsprompted the government to plan to privatize certain parts of the state-owned oil company ARAMCO and other public assets. Given that the GDP of SA was approximately $ 638 billion in 2016, it can be seen that the deal to be immediately put into effect equals up to 17% and the rest, worth $ 350 billion in a decade, up to 55% of the GDP of SA. In the context of the Vision 2030 program, for SA which plans to create a more diversified economy by reducing the dependence of its economy upon oil, improve private sector,reduce the unemployment among its citizens, especially youth unemployment, and provide a qualified education required for the private sector to its large young population, it is a matter of debate whether this military expenditure is economically rational. Finally, while Turkey hosts over 3 million Syrian refugees and has spent about 30 billion dollars in the last six years as a consequence of the civil war in Syria,the lack of Saudi effort regarding the given issue and its huge military spending in such a big size are other questions open to debate.