Businessman’s Role in Deal Told : Saudis Reported Hedging Bets in Iran-Iraq Conflict

A Saudi Arabian businessman who helped arrange the controversial U.S. arms-for-Iran pipeline through Israel has had contacts with former Prime Minister Shimon Peres for at least six years and was clearly operating with the Saudi government’s knowledge, if not at its direction, according to Israeli sources.

The sources, some of whom move in Israeli intelligence circles, say the Saudis, who have been a major financial backer of Iraq in the Persian Gulf War, have begun making gestures toward Iran as a way of both hedging their bets and discouraging Iranian attacks against vulnerable Saudi targets in the gulf.

Besides acting as a middleman between Iranian officials and Israeli arms dealers during early discussions about the arms pipeline, the Saudi businessman, Adnan Khashoggi, arranged for Iran to pay for the weapons into a Swiss bank account, according to one Israeli source with good Iranian contacts.

The Israeli source, a prominent businessman who requested anonymity, spoke before Tuesday’s disclosure by U.S. Atty. Gen. Edwin Meese III that some of the money paid by Iran for U.S. arms was diverted to the guerrillas fighting the Sandinista government in Nicaragua.

It is unclear whether the Swiss account allegedly run by Khashoggi and Israeli arms dealer Jacob Nimrodi was connected in any way with the reported payments to the U.S.-backed Nicaraguan rebels, known as contras. Meese had said that, after Israeli middlemen paid the U.S. government for the arms shipped to Iran, they put the remaining funds in a Swiss banking account set up for the contras.

A member of Nimrodi’s family said Wednesday that the arms dealer had not been involved in the Iranian pipeline for a year.

The Israeli government confirmed for the first time early Wednesday that it had helped transfer American arms to Iran at U.S. request. But it said it had no knowledge of any money being diverted to the contras.

“The payment for this equipment was made directly by an Iranian representative to a Swiss bank in accordance with instructions from the American representatives,” according to a statement issued after a two-hour meeting of Israel’s top three officials--Prime Minister Yitzhak Shamir, Defense Minister Yitzhak Rabin and Peres, who is now alternate prime minister and foreign minister.

“These funds did not pass through Israel,” the statement continued. “The government of Israel was surprised to learn that supposedly a portion of these funds was transferred to the contras. If such a transaction took place, it had nothing to do with Israel. . . .”

According to some reports, which could not be confirmed, it was at least in part Saudi money, funneled through Khashoggi, that paid for the American arms transferred to Iran by Israel.

Called Richest Man

The billionaire Saudi businessman, who has been described as the richest man in the world, is the perfect representative to handle a discreet Saudi involvement in the affair, Israeli sources said.

He has “very close” contacts with the Saudi Royal Family and enough business interests still in Saudi Arabia to “provide the Saudis with leverage,” commented one.

Meanwhile, he has maintained contacts with Israeli businessmen and politicians for at least a decade. He and Peres reportedly met in early 1981, when Peres was an opposition member of the Knesset (Parliament) and eager to explore his belief that common economic interests were a promising avenue to Middle East peace.

At that time, according to Israeli sources, Peres and Khashoggi spoke about turning the Red Sea coast into a major regional tourist haven.

Late in 1984, the sources added, Peres, who by then was prime minister, was anxious to find some solution to a border dispute with Egypt over a sliver of Sinai Peninsula beachfront called Taba, in hopes that an answer would clear the way for further peace efforts. He approached Khashoggi with a proposal that the Saudi lead a group of international investors in taking over the disputed property and turning it into a “sort of no man’s zone, or a joint Israeli-Egyptian area,” said one informant.

Opposed by Egypt

Khashoggi’s position on the proposal is unclear, but it is known that Egypt opposed the idea.

The two met the following year to discuss Peres’ proposal for a Middle East version of the Marshall Plan, which revitalized postwar Western Europe, the sources said.

Khashoggi is said to have played a key role as intermediary between the Israelis and then-President Jaafar Numeiri of Sudan in laying the groundwork for “Operation Moses,” the airlift of Ethiopian Jews from refugee camps in Sudan to Israel in late 1984.

According to an account published in the East Jerusalem weekly journal Al Bayadir al Siyassi (Political Initiative) last June 21, the Saudis supported Khashoggi’s help with the Ethiopian Jews.

An Israeli source who confirmed the essential points of the account said that Khashoggi met Peres in Israel last May to “call in his marker” in connection with the Ethiopian Jews, pressing Peres to drop Israeli objections to a proposed U.S. sale of arms to the Saudi government.

A spokesman for Peres would “not go into” the reports of various meetings with Khashoggi.

Israeli sources see a Saudi hand in Khashoggi’s involvement in the Iranian arms deal as well.

‘Have No Illusions’

The Saudis have spent an estimated $25 billion or more supporting Iraq, an Arab nation, in its war with non-Arab Iran over the last six years. However, noted Jacob Goldberg, acting director of Tel Aviv University’s Dayan Center for Middle East Studies, the Saudis “have no illusions about the regime” in Baghdad.

Iraq’s “Arab radicalism” is almost as much of a threat as Iran’s “Islamic fundamentalism” to Saudi Arabia, as well as to Israel and the United States, Goldberg said. And there have been signs lately that the Saudis are hedging their bets in the gulf.

“Traditionally, the Saudis have been trying to open some avenues of communication with precisely those forces that can endanger them,” noted Goldberg. He pointed to the kingdom’s overtures to Moscow in 1980, not long after the Soviet Union invaded Afghanistan, a country that shares the Saudis’ Muslim faith.

An Israeli source close to the intelligence community confirmed recent Western reports that the Saudis have lately been refining large amounts of badly needed fuel for Iran. Also, the two countries have adopted a common stance in support of an $18-per-barrel oil price.

Reason for Firing?

That agreement is said to be the principal reason for the dismissal late last month of Sheik Ahmed Zaki Yamani, Saudi Arabia’s longtime oil minister, who reportedly opposed what amounted to a significant Saudi policy shift on pricing.

Earlier last month, Iran attacked Saudi and Kuwaiti tankers in the southern Persian Gulf in what was seen here as a warning.

“Some good will toward Iran is very important given the fact that Iran has the capacity to bomb certain oil facilities on the Saudi side of the gulf,” said another Israeli expert. “The Saudis read very well these signals, which give them an extra incentive to operate appropriately.”