FUELLING THE DEBT Saudi Arabia's plan to pay for 132 planes with oil has been hit by the slump in the price of crude.
Oil barter agreements have long been the resort of cash-hungry Opec nations such as Nigeria or Gabon. But Saudi Arabia's deal with the UK Defence Ministry to pay for military aircraft with oil opened a new era. And it raised the question of when will the desert kingdom come to the Euromarkets to borrow?
Saudi Arabia signed a $7.5 billion contract with the MoD for 132 aircraft, including 72 Tornado jet fighter/bombers made by the UK-West German-Italian consortium Panavia. The payment is to be effected through the supply of 300,000 barrels of oil a day to British Petroleum and Shell. Proceeds from the sale of the oil are paid into a London account of Lloyds Bank. But Riyadh's hopes of paying off the debt in two years have been dashed by the fall in the price of oil. It has more than halved since the deal was agreed in September 1985.
Saudi Arabia may need an overdraft facility of $1.5 billion to cover the shortfall if it wants the plane deliveries made on time.