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Mr. Dion says Sweden endured blowback from Riyadh in early March, 2015, after Stockholm, citing a dispute over human rights, cancelled a defence agreement with the Saudis.Adrian Wyld/The Canadian Press

Sweden appears to have suffered little economic hardship in relations with Saudi Arabia as a direct result of cancelling a defence agreement with Riyadh last year – aside from the one category of trade where you'd expect it: arms sales to the Mideast country.

"We have not experienced any economic effects due to the issue that you mention and our bilateral relations with Saudi Arabia are good," Anna Ekberg, a spokeswoman for the Swedish government's foreign ministry told The Globe and Mail.

Nevertheless, the Swedish experience has been cited by Canadian Foreign Affairs Minister Stéphane Dion as he defends sticking with a $15-billion deal to supply weaponized armoured vehicles to Saudi Arabia. Mr. Dion invoked the example of Sweden when discussing the severe consequences that could result from abrogating an agreement to provide Riyadh with the combat machines.

In an interview with The Globe and Mail last month, Mr. Dion noted Sweden endured blowback from Riyadh in early March, 2015, after Stockholm, citing a dispute over human rights, cancelled a defence agreement with the Saudis that had reaped hundreds of millions of dollars for Swedish businesses in the past.

"Sweden did a bit the same about a contract and the reaction has been very harsh. Saudi Arabia reacted in a way that cut many things. … They cancelled a contract and the reaction has been very harsh," Mr. Dion told The Globe in April.

The Canadian minister added at the time that this threat shouldn't affect Canada's determination to exercise control over shipments of arms to a country like Saudi Arabia. But, he felt it worth mentioning nevertheless.

The Saudi government reacted angrily in 2015 after Sweden's Social Democrat-led government announced it would end rather than renew a defence co-operation agreement with Riyadh. The deal, originally inked in 2005 and renewed in 2010, generated the equivalent of about $750-million in business in recent years. It had been slated to run out in November, 2015, unless renewed.

The move followed a tit-for-tat dispute between Swedish Foreign Minister Margot Wallstrom and the Saudis. She had earlier publicly criticized the Saudis in undiplomatic language and called the flogging of Saudi blogger Raif Badawi "medieval." She also said the kingdom violates women's rights and described Saudi Arabia as a "dictatorship." In response, Saudi Arabia blocked Ms. Wallstrom from giving a speech at the League of Arab states in Cairo.

After Sweden cancelled the defence agreement, Saudi Arabia recalled its ambassador and temporarily suspended business visas for Swedes. A few weeks later, however, both sides were making efforts to patch things up. Stockholm sent an envoy to Riyadh, Sweden's King intervened and the Saudi ambassador returned to his post.

In late March, Ms. Wallstrom celebrated the normalization of diplomatic ties and said she wanted to clear up the "misunderstanding that we have insulted the religion of Islam." Still, she didn't apologize for her comments, saying, "I do not regret my choice of words."

It's hard to find evidence the incident had any long-term consequences other than a decline in military trade. A spokesperson for Business Sweden, a group that represents corporate interests in the Scandinavian country, declined to comment when asked whether the defence agreement's demise had a big impact.

Sam Perlo-Freeman, a senior researcher at the Stockholm International Peace Research Institute, an independent group that studies conflict and the armaments trade, said Swedish exports to Saudi Arabia by value fell about 6.5 per cent in 2015, to the equivalent of $1.6-billion from $1.8-million in 2014.

But, he noted, Sweden's exports to Saudi Arabia also dropped 12 per cent in 2014 compared to 2013 – a decline that came ahead of the rupture on the defence agreement. "It is … not possible to tell whether the drop in exports is connected to the ending of the agreement. At any rate, Swedish trade with Saudi Arabia has not undergone a drastic collapse," he said.

Arms sales, however, are down. Sweden exported the equivalent of $2.2-million worth of military equipment to Saudi Arabia in 2015, compared to $54-million in 2014 and $110-million in 2013. The last export licence awarded for arms shipments to Saudi Arabia was in March, 2015, Mr. Perlo-Freeman said.

Any arms exports still heading to Saudi Arabia are the remnants of older contracts, Aaron Karp, a lecturer in political science at Old Dominion University in Norfolk, Va., said.

With a report from Reuters

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