Paying Back the Americans

On March 5, 2000 — only five days after the Energy Secretary’s return to Washington — the United Arab Emirates signed a long-delayed contract to purchase 80 new F-16 combat jets from U.S. defense contractor Lockheed Martin. That is indeed good news for the ailing defense contractor whose stock price has fallen by more than 50% over the past year.

Lockheed’s benefactor is situated along the strategically important Strait of Hormuz, which ships pass through to enter or exit the Persian Gulf. But the United Arab Emirates, a truly tiny country, also happens to be the fourth leading exporter of oil among the 11 OPEC nations.

With about 20% of U.S. oil imports coming from this politically volatile region, it is perhaps not surprising that the United States hoped for some kind of payback for contributing to the riches of the region.

The U.A.E. is home to only 2.3 million people — if one includes the 1.6 million non-citizens working in the country. Using the larger number, the U.A.E.’s order of 80 new F-16s represents one new plane for every 28,750 people living there. But if we consider only the 700,000 U.A.E. citizens, the country’s aircraft purchase works out to one new plane for every 8,750 people!

By comparison, the U.S. Air Force itself has an arsenal of only 809 F-16s. If, in a wild spending bonanza of weapons acquisition, the Air Force ever tried to obtain a similar ratio of F-16s-to-population, Lockheed would find itself filling an order for 30,506 additional planes. Such a fact only underscores how armed-to-the-teeth the Middle East has become.

Still, there is one possible benefit — at least to oil-importing nations like the United States — from this sort of arms stockpiling. With so many U.S. planes to secure the Persian Gulf’s shipping lanes, the risk premium built into the price of Gulf oil should start to fall — and Americans should start to see a lower price at the pump. They hope.

Nevertheless, if the U.A.E. was truly serious about guarding the Gulf to safeguard the world’s oil supply, we have a more far-reaching proposal. Consider that Lockheed Martin’s current market capitalization is only $7.1 billion. That’s right — for a mere $300,000 more than what it’s spending on the F-16s, the U.A.E. could own its own U.S. defense contractor.