HELSINKI and ABU DHABI — Swedish Prime Minister Stefan Löfven's socialist-led government has come under a torrent of criticism from local political and corporate quarters after his administration decided not to negotiate a fresh five-year defense-industrial trade agreement with Saudi Arabia.
Meanwhile, the diplomatic tensions between the two nations may lead to the Scandinavian government losing more allies around the Arabian Gulf, Mideast-based experts have warned.
Stockholm's decision, which has been roundly castigated by Sweden's leading corporate chiefs for potentially damaging the country's trade relations with Arab nations, surfaced amid a diplomatic row with Saudi Arabia that culminated in the Middle Eastern state recalling its Ambassador to Sweden, Saad bin Ibrahim al-Brahim, March 11.
On March 6, 31 of Sweden's leading captains of industry, including Volvo, fashion chain H&M's chairman Stefan Persson and bank group SEB's CEO Annika Falkengren, petitioned the government to negotiate a new defense-industrial agreement in order to safeguard Swedish exports and business interests among Arab nations.
In a joint statement, business leaders urged the government not to walk away from talks. "Without trade, Sweden will lose the opportunity to make its voice heard in a globalized world, and to achieve real change."
The prospects for the renewal of the defense-industrial trade agreement suffered a serious setback during the first week of March, when informal contacts between the Swedish and Saudi foreign ministries failed to produce a softening in the tone of the Swedish government's criticism regarding Saudi Arabia's record on human rights.
Reacting to what it perceived as a breakdown in constructive dialogue, Saudi Arabia intervened to block a speech by Swedish Foreign Minister Margot Wallström at the summit meeting of the Arab League in Cairo on March 9.
Wallström had earlier described Saudi Arabia a dictatorship, denouncing its treatment of women and its lack of transparent democratic and legal processes and systems. In reply, the Saudi Foreign Ministry described Wallström's criticisms as a "flagrant interference" in its internal affairs.
Löfven's socialist-green Cabinet, against a rising tide of censure from Saudi Arabia and fellow Arab states, confirmed its intent not to negotiate a new defense-industrial agreement on March 10.
The backlash from political quarters and Sweden's top industry leaders was swift and sharp.
"The decision not to negotiate a new defense-industrial agreement has damaged Sweden's reputation. In a very real way, this is about Sweden's credibility as a contractual partner. That credibility is important to a relatively small country like Sweden. This whole situation is unfortunate," Carl Bildt, a foreign minister in the Moderate-led Alliance government before it lost power in 2014, told Defense News.
The Löfven government's decision has serious implications for Swedish trade and political relations with Arab League countries, warned Leif Johansson, chairman of Swedish telecommunications and electronics giant LM Ericsson.
"Making oneself an enemy of the Arab League has the potential to cause very great damage. It will be several years before we know how this will play out, and it will depend entirely on what Sweden does to repair our relations with these countries," Johansson, a former CEO of Volvo Group, said in a statement.
The government's action in canceling fresh agreement talks will "weaken Sweden's voice globally," said Anna Kinberg-Batra, leader of the Moderate Party.
"It remains to be seen what effect this hasty decision will have on trade and jobs. We are a country that is dependent on exports," Kinberg-Batra told Defense News.
Normal political relations between Sweden and Saudi Arabia have effectively been in decline since January, when Wallström criticized the flogging of blogger Raif Badawi. The Swedish foreign minister described the action as unjustified, adding "this cruel attempt to silence modern forms of expression must be stopped."
The core problems besetting the now scrapped defense-industrial trade agreement date to 2010, when the government at the time dropped a secret and controversial defense-industrial plan to include weapons plants and military infrastructure construction projects in a re-energized memorandum of understanding with Saudi Arabia.
"The decision not to proceed with talks is not a concession we are making to our partners in government the Greens. This was done after careful consideration, and it is true to say that there are many members of the former government who would have made the same decision," Defense Minister Peter Hultqvist said.
The Löfven Cabinet's decision to cancel the trade agreement became almost inevitable once the Swedish government refused to reverse its critical position on Saudi Arabia's human rights record, said Annie Lööf, leader of the opposition Centre Party.
"It is quite possible Saudi Arabia would have canceled talks anyway. The outcome may be politically charged, but it is the correct result. Sweden needed to end its military cooperation with Saudi Arabia," Lööf said. "We should not cooperate militarily with non-democratic states. Other areas of trade cooperation that are outside the military area can be looked at."
Sweden's defense exports declined by 33 percent to $1.3 billion in 2014. Of this amount, around 14 percent of the export value in that year was earned in sales to Arab states Saudi Arabia, the United Arab Emirates, Qatar and Oman.
The government has appointed a parliamentary group to examine the whole area of restricting or terminating arms exports to so-called "undemocratic states." The group is scheduled to produce a report, along with recommendations, by mid-April.
The announcement by Wallström came around the time Saudi Arabia was named as the world's top arms importer, eclipsing India, according to an IHS report.
"The repercussions from such a move by Sweden will not just be confined to arms trade," said Riad Kahwaji, chief executive of the Institute for Near East and Gulf Military Analysis in Dubai.
"It will be more than this, the way it goes is if you don't want to do business with Saudi Arabia, selling arms the Saudis will not do business with you in everything else, period," he said.
"It will also have repercussions with arms deals in other countries in the gulf because they are very close and they will start having fears that the Swedes will do the same thing with them," he added. "The impact on the Swedish arms market will be bigger than just the Saudis and most likely include other countries."
According to the Stockholm International Peace Research Institute, Saudi Arabia in 2010 received 200 Bill-2 anti-tank missile systems, which were ordered in 2005 when the two countries signed their 10-year military cooperation agreement.
In 2013, Saudi Arabia purchased two Saab 200 airborne early warning aircraft worth $670 million, while gulf ally United Arab Emirates acquired four L-22 landing craft, 12 Ghannatha fast attack craft, six Giraffe AMB air-search radars, seven APID-55 unmanned aerial vehicles and two Saab 340 airborne early warning aircraft between 2007 and 2013.
Kahwaji added that Saudi Arabia also made deals with Sweden for ground and airborne early warning systems on behalf of Pakistan.
The move by Saudi Arabia is also an indication of a Saudi assertiveness that has not been visible for some time, according to the former British ambassador to the kingdom, Sir John Jenkins, who is now the executive director of the International Institute of Strategic Studies Middle East
"It's not a big deal on the face of it," he said.
"[The Kingdom of Saudi Arabia] has strategic relationships with other much bigger suppliers," Jenkins said. "But it shows a willingness to be visibly assertive on these issues in a way we haven't seen for some time. Perhaps a straw in the wind."
Kahwaji asserted that the most likely replacement for Sweden as an arms import partner would be France in light of their most recent closeness.
Abdulkhaleq Abdulla, a UAE-based political scientist and analyst, said that pulling the Saudi ambassador may well be the boiling point of the crisis, but he expects it to soon start to cool off.
"It's Saudi Arabia's right to be dismayed from what has been said by Sweden as it is an involvement in its internal affairs especially when it comes into a sensitive subject as the human rights issue," Abdulla said.
"I hope this issue remains closed between the two kingdoms and I think it will, because this crisis does not deserve escalation," he added.
Abdulla said added that none of the gulf capitals would want an escalation of this crisis, however if they are called upon, they would support Saudi Arabia.
"Sweden would not want to lose Saudi Arabia and Saudi Arabia would not want to lose Sweden as an ally, therefore I expect that gulf capitals, especially Abu Dhabi, would back channel to reduce the tensions between the two and restore relations."