Saudi Arabia is understood to be delaying plans to buy British defence equipment after the controversy and public debate surrounding its links with BAE Systems.

Defence industry and diplomatic sources said that the Saudis are deeply embarrassed by the furore that followed the Government’s decision to halt an investigation into BAE’s dealings with the Kingdom.

Negotiations to buy defence equipment, including two Type 45 destroyers worth £800 million each, have stalled as the Saudis wait for calmer times.

Last December the Attorney-General shut down an investigation by the Serious Fraud Office (SFO) into alleged corruption and bribery by BAE. The company was accused of setting up a $100 million entertainment slush fund for Saudi officials and members of the Saudi Royal Family. BAE has also been accused of paying commission to those involved in the £43 billion al-Yamamah arms-for-oil deal. BAE said that it had broken no laws.

The Saudis protested when the SFO asked Swiss authorities for access to private bank accounts held in the country. Acting on the advice of Downing Street, the Attorney-General ended the SFO investigation, claiming that it could harm national security.

The Saudis are upgrading their armed forces and billions of dollars are being spent with Western defence contractors. The Kingdom is flush with oil revenues and feeling threatened by a resurgent Iran. It is understood to be looking at a number of British-built systems including missiles, Type45 destroyers and Hawk trainer jets. The 7,300-tonne Type45 is the most sophisticated destroyer in the world and six are being built by BAE and VT Group for the Royal Navy. BAE has also held discussions with the Saudis, but negotiations are understood to have virtually come to a halt.

Yet the Saudis’ reticence does not extend to equipment that it has agreed to buy already, including BAE’s Eurofighter jets. The £20 billion Eurofighter deal is expected to be signed in July.

The Saudis are also commissioning BAE to upgrade the country’s existing Tornado fleet. The Royal Saudi Air Force is testing possible new armaments for its Tornados as part of this upgrade.

However, other deals will have to wait until the SFO-BAE controversy dies down. They may include a £1 billion-plus deal to buy Hawk trainer jets.

Defence sources believe that new sales may not restart until next year, when the Organisation for Economic Cooperation and Development concludes its investigation into the UK’s compliance with international corruption laws.

Symon Hill, a spokesman for the Campaign Against Arms Trade, said: “People from all walks of life are objecting to the unhealthy level of influence that BAE enjoys within the Government. If the Saudi regime is waiting for the outrage to die down, they might have to wait forever.”

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