Saudi Arabia Has The Money -- And Spends It

(MoneyWatch)  Fueled by their oil wealth which has only increased over the last three years the Gulf States have invested heavily in their defense forces. Much of this is driven by concern about Iran and Iraq and the general instability of parts of the region. Part of it is just that they can.

In recent times the U.A.E. has been very aggressive in investing in modern technology such as advanced missile systems, aircraft and ships. The Saudi's have for the last thirty years been investing in top-of-the-line U.S. systems as well as selected European ones. They have not recently made a big splash other than the Eurofighter Typhoon buy they just negotiated. Saudi Arabia currently has the ninth largest defense budget in the world.

It has always seemed though that the Saudi government doesn't do things by half buying expensive and complicated systems as if on a whim. They recently signed a contract with EADS to develop a new integrated border surveillance system. The country has concern not only with Iraq but to the south with Yemen which since the unification of the former North and South has has issues internally and exporting radical Islamic terrorists.

While there is obvious needs for these countries to posses a modern, capable military they still predominantly rely on the United States and its Allies for the defense of the region. The Gulf States are also facing internal threats from radicals and be honest the Typhoon is not the best system to use against that. There was also the stereotype that the government's would just throw money at problems and contractors would trick them into buying things they did not need at inflated prices. Of course this is not fair or true. If you have the money available it makes sense to invest it in the best systems available.

This means that there may continue to be a series of contracts over the next several years as the U.A.E., Saudi Arabia and Qatar continue to do this kind of investment. If there is a decline in the U.S. and U.K. budgets then there will be pressure on contractors to sell to these countries.