Defence company BAE Systems’ share price fell sharply on Thursday after it warned that a German ban on arms exports to Saudi Arabia, imposed after the killing of journalist Jamal Khashoggi, could scupper a multibillion-pound deal to sell Typhoon fighter jets.

Alongside its annual results on Thursday, BAE Systems stressed that its business is “reliant on the approval of export licences by a number of governments in order to continue supplies to Saudi Arabia”. The Gulf state accounted for around 14% of BAE’s annual sales in 2018, and is seen as a key customer for the Typhoon.

Germany is part of a four-country consortium that builds the Eurofighter Typhoon and its ban could threaten the future of lead partner BAE’s pending £10bn deal to sell 48 new jets to Saudi Arabia.

BAE said Germany’s arms export embargo could also threaten its maintenance and support contract with Saudi Arabia for the Typhoon, which currently brings in around £2.5bn in annual revenue for the UK firm.

“Current German government position on export licensing may affect the group’s ability to provide capability to Saudi Arabia, which may have a consequential impact on the group’s financial performance and relationships,” BAE warned.

Shares in the company closed down nearly 8% at 465p, as investors took fright at the warning.

Germany announced in November that it would no longer offer arms export licences to Saudi Arabia over the killing of Khashoggi. The UK has been critical over the dissident journalist’s death, but has so far refused to take similar action. A Lords committee last week criticised the British government for being on “the wrong side of the law” amid concerns that UK arms sold to Saudi Arabia were being used in the war in Yemen.

BAE Systems, which is headquartered in London and Farnborough, said it was “working closely with the UK government to minimise the risk of any such occurrence and the impact it would have on financial performance, the supply chain and relationships”.

Germany this week rejected a plea by the UK foreign secretary, Jeremy Hunt, to restart arms sales to the Gulf state. In his letter, Hunt reportedly warned that Riyadh was seeking compensation from BAE over the German ban.

At a joint press conference in Berlin with the German foreign minister, Heiko Maas, Hunt was told his plea for a resumption of arms sales made in a leaked letter had been rejected for the moment.

Maas said any future decision would be “dependent on developments in the Yemen conflict and whether what was agreed in the Stockholm peace talks are implemented”.

The two sides in the Yemen civil war met in Sweden last December to start a process of confidence building, including a limited ceasefire in the Red Sea port of Hodeidah. No date has been set for the resumption of the main talks and few expect a settlement for many months.

BAE still expects higher profits in 2019, forecasting “mid-single digit” growth in earnings per share this year, according to latest earnings report. Underlying earnings per share were relatively flat last year at 42.9p compared with 42.1p for the previous 12 months.