By Doug Cameron
U.S. government approvals for U.S. weapon sales to Iraq have
nearly tripled this year to almost $15 billion, promising
much-needed work for U.S. weapons factories if the proposed deals
can overcome congressional concerns.
The slew of deals includes $3 billion in possible sales
announced last week that still need to be approved by Congress and
would boost sluggish U.S. demand for General Dynamics Corp.'s M1A1
Abrams tanks as well as Humvee armored cars produced by closely
held AM General LLC.
The intensifying battle between Iraq's depleted armed forces and
Islamic State militants also has spurred demand for big-ticket
equipment, including fighter jets, attack helicopters and
laser-guided missiles.
This year's approvals, which the Pentagon brokers through its
Defense Security Cooperation Agency, are up from the $5 billion of
arms it approved for sale last year and the $7.5 billion in
consummated deals over the previous five years.
Congress has yet to approve around half of the Iraq deals
cleared by Pentagon and the State Department this year. Some
lawmakers are conditioning any approval on reassurances that the
weapons won't fall into enemy hands or that declining oil prices
could leave Iraq unable to fund some purchases.
A senior Senate aide said Tuesday that lawmakers have requested
monthly updates from the Pentagon on the status of the Iraqi
military and their ability to retain any purchased weapons.
The Pentagon inserts itself between contractors and the customer
in such deals to protect the transfer of sensitive technology, so
Iraqi budget problems would force the Pentagon to either cancel
deals or seek congressional approval to reclassify them as military
aid and foot the bill itself.
Iraq has ordered fighter jets and attack helicopters from Russia
under a 2008 deal valued at around $4 billion, and it turned to
South Korea and the Czech Republic among others to modernize its
military.
The battle with Islamic State has already led to accelerated
deliveries to Iraq of Hellfire missiles made by Lockheed Martin
Corp., as well as increased demand for military surveillance and
intelligence services from contractors.
The Middle East and North Africa have become one of the most
important markets for defense exports, with consultant Avascent
forecasting demand of about $100 billion in new weapons in the next
five years. Iraq spent $16.9 billion on defense last year, about a
third of it on weapons, the International Institute for Strategic
Studies said.
Iraq's existing and proposed arms imports from the U.S. and
elsewhere lag behind those of Saudi Arabia and the United Arab
Emirates. But its focus on ground-based weapons such as Humvees
fitted with machine guns that can be delivered relatively quickly
have made it a key swing customer that could keep some factories
humming.
The proposed order for an additional 1,000 Humvees comes as AM
General of South Bend, Ind., is weighing job cuts as it awaits a
Pentagon decision on who will build a replacement for the armored
vehicle. AM General has slowed production, though on Tuesday
secured a $246 million deal to supply Mexico with 2,200
Humvees.
"We are fully able to respond as needed to all our customer
requests in the production time frames that are required," an AM
General spokesman said of the latest proposed deal.
Iraq also wants an additional 175 Abrams tanks. With ammunition,
spare parts and support vehicles, that would cost an estimated $2.4
billion. General Dynamics has been lobbying hard for additional
Pentagon orders to keep its Abrams factory running in Lima,
Ohio.
U.S. Army leaders have said for several years that they don't
need any new or refurbished tanks. Meanwhile, General Dynamics'
output at its facility in Lima, Ohio, is set to fall unless it can
secure fresh orders, even though Congress overruled the Army this
month and approved $120 million to upgrade some of the Army's
existing fleet.
Jim Hasik, a policy analyst at the Atlantic Council, said he
didn't believe congressional approval would be a problem as long as
Iraq has the funds.
Mr. Hasik said that while it is obviously better to maintain
production with willing buyers, he questioned whether Iraq needed
tanks given the lack of heavy weaponry fielded by Islamic state
forces. "It makes you wonder whether it is just a matter of
prestige [for Iraq]," he said.
The acceleration of deliveries of missiles and other equipment
to Iraq armories in recent months comes amid broader questions over
long-term weapons sales to the country because of its
instability.
Such concerns have already caused delays. Lockheed Martin moved
in June to deliver the first of 36 F-16s destined for Iraq under a
$3.6 billion contract brokered via the U.S. Air Force. But the
deteriorating security situation there caused the Air Force to keep
the jets in the U.S. and train Iraqi pilots on them in Arizona even
though Lockheed said it's being paid for the aircraft on
delivery.
The oil-price slide could also have a bearing on Iraq's ability
to pay for future arms imports. The country relies on energy sales
for around 90% of its budget revenue, estimates Byron Callan at
Capital Alpha Partners LLC.
"Iraq's government expenditures are being clipped by lower oil,
and that bears directly on its ability to contain and roll back"
Islamic State, Mr. Callan said in a recent client note.
Write to Doug Cameron at doug.cameron@wsj.com
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