Unrest prompts U.S. review of arms sales

A Lebanese man displays 7.62mm AK-47 bullets with a shotgun and an AK-47 Kalashnikov submachingun he bought in Beirut.

TEXT OF UPDATED STORY

STEVE CHIOTAKIS: Oil prices have risen above $97 a barrel -- a two-year high for U.S. buyers -- a byproduct of the unrest in Libya. The government there today violently cracked down against demonstrators. And now there's a report this morning that a military crew refused to bomb the city of Benghazi, and instead parachuted out of an aircraft and let the military plane crash. That plane came from Russia.

And a lot of armaments across the region have come from the U.S. And the White House is launching a review of military assistance and arms sales in light of the protests and what's happening in Libya.

Marketplace's Janet Babin joins us now live with the details. Good morning, Janet.

JANET BABIN: Good morning Steve.

CHIOTAKIS: How important is this market to U.S. defense contractors?

BABIN: Well it's become more essential since the Pentagon budget began to level off a few years ago. Now, the Middle East is one of the top markets for big ticket arms sales items like fighter jets.

CHIOTAKIS: How big are these sales? What are we talking about here?

BABIN: Pretty big Steve. Let's take Egypt as an example. It received more than a $1 billion in U.S. aid last year. And a big recipient of that money has been Lockheed Martin -- for the F-16 fighter jets it sold to Egypt. And Boeing did pretty well too for a deal to sell F-15s fighter jets and C-17 Transport Jets to Saudi Arabia.

CHIOTAKIS: Are these sales at risk from the unrest there?

BABIN: They're somewhat protected by long delivery times for orders, and usually the contracts with governments are pretty long. I spoke with Richard Aboulafia about this. He's an aerospace analyst with the Teal Group and he says so far, these defense markets are relatively safe. But that could change.

RICHARD ABOULAFIA: The real risk here is Saudi Arabia as a possible area of unrest moving forward. And they just signed off on one of the biggest arms deals in history. And that provides an awful lot of revenue to both Boeing and United Technologies Corporation, who makes Sikorsky helicopters.

That Saudi arms deal by the way Steve was worth $60 billion.

CHIOTAKIS: Marketplace's Janet Babin. Thanks Janet.

BABIN: Thank you.


TEXT OF ORIGINAL STORY

JEREMY HOBSON: Well as the State Department starts evacuating American citizens from Libya today, and France's president calls for economic sanctions against the country, the White House is launching a review of military assistance and arms sales.

Marketplace's Janet Babin joins us now live with the details. Good morning, Janet.

JANET BABIN: Good morning Jeremy.

HOBSON: All right, so we know the arms industry is a big business. Give us a sense of the size.

BABIN: Well, six Gulf nations, including Saudi Arabia, Bahrain, Kuwiat and Jordan, are expected to spend $70 billion on defense this year. And the U.S. will get some of that. And the Wall Street Journal reports this morning that figure is expected to rise to $80 billion in 2015.

HOBSON: And now we're talking about a White House review of some of the business that has to do with the United States.

BABIN: That's right. The paper reports that before all this unrest, the Obama Administration's strategy was to sell arms sales to Arab Allies in an effort to isolate Iran. Right? But that strategy can backfire if you're not sure who's in charge in some of these places. And these concerns stretch to Europe as well. Prime Minister David Cameron happens to be in the region this week. He brought with him a group of eight U.K. defense industry officials.

Roy Isbister is with SaferWorld. That's a U.K. advocacy group.

ROY ISBISTER: There seems to be no thought to scaling back on the interest that's been shown in this.

So Isbister says there's a huge arms sales expo that's still going on in Abu Dabi this week, and that's where Cameron and the industry officials are headed. So it looks like the U.K. at least, still hopes to sell £5 billion, that's about $8.1 billion, worth of arms to Middle East allies this year.

HOBSON: All right Marketplace's Janet Babin, thanks Janet.

BABIN: Thank you Jeremy.

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