The Obama Administration is ignoring news reports that Russia is planning to sign a contract with Saudi Arabia, in which the Kingdom will receive over US $2 billion in Russian arms and military technology. Most likely, the contract will be signed by the end of this year.

Traditionally, the arms market of the Persian Gulf has been the hunting reserve of the American and European defense industries, which both provide up to 90 percent of the weapon needs of Saudi Arabia and the Gulf emirates.

The current deal was facilitated by the Treaty on cooperation in military technology initiated during the visit of the Russian then-President Vladimir Putin to the Saudi capital Riyadh, on February 11, 2007, and signed in 2008. That trip was a milestone–the first time in history that the head of Russia or the Soviet Union had visited the Kingdom.

That visit (perhaps to add gravitas) was preceded by a widely publicized speech by Putin at the 43rd Munich Conference on Security Policy. In that speech, Putin virtually declared a new Cold War with the United States, and thus it was clear to his host King Abdullah, in which direction the his Russians guests are moving.

According to reports, Saudi Arabia is poised to buy 150 helicopters (Mi-35 attack and Mi-17 transport helicopters); more than 150 T-90S tanks; 250 infantry fighting vehicles (BMP-3); as well as “several dozen” anti-aircraft missile systems. There are also ongoing talks over the purchase of Saudis modern anti-aircraft missile systems S-400 Triumph and the Mi-28 attack helicopters.

Saudi Arabia is a leading US arms sales customer. According to estimates for 2009, the military budget of Saudi Arabia exceeds $33 billion dollars, and will increase to $44 billion in 2010.

At this point, Russian arms exports to the Gulf are growing but do not yet undermine the US and Europeans’ positions in this market. However, the new Russo-Saudi deal has a great geopolitical significance.

Some analysts in the Gulf believe that this deal is a down payment to Russia in order to advance Moscow’s support for the future sanctions against Iran. This may explain why Washington is sitting quietly and not responding. But the White House should take seriously the consequences of possible increases of Russian military sales to the House of Saud in the future. This deal allows Saudi Arabia to diversify its supply of weapons and strategic orientation.

As Saudi Arabia is looking for new pillars of international security, the Kingdom may hope to persuade Washington to apply more robust pressure on Iran to stop the nuclear program; provide better security guarantees to Riyadh; and resolve the Arab-Israeli conflict on its terms. Moreover, closer cooperation between Russia and Saudi Arabia could lead to closer coordination between Russia and OPEC, including on oil production and pricing. Such increasing cartelization between the two largest oil producers on the planet may not be in the interest of oil-consuming countries.

Russia has once again confirmed that its military industry products are in demand abroad. A week ago, its military industries were able to conclude a number of deals during the Moscow Aviation and Space Salon (MAKS-2009), an extravagant military equipment show, including an agreement to supply 20 helicopters Mi-171 (upgraded version of the Mi-8) of the company from the UAE Airfreight Aviation LTD.

The lucrative arms market in the Middle East certainly attracts the attention of Russia’s military industrial complex, but it is not the main prize of the game. What Russia is really after is the bridgehead and influence in the main oil-producing region of the world and the increase of geopolitical weight at the expense of the United States. The Obama Administration better wake up and pay attention.