BERLIN (Reuters) - Germany’s hardline halt to arms sales to Saudi Arabia over the killing of Saudi journalist Jamal Khashoggi may jeopardize a big UK-led Eurofighter order from Riyadh and could hit jobs at a shipyard in struggling northeastern Germany.

The coast guard boats "Alriyadh", "Sharorah" and a third one for Saudi Arabia are pictured at the Luerssen Peene shipyard in Wolgast, Germany, October 23, 2018. REUTERS/Hannibal Hanschke

German Chancellor Angela Merkel has been more outspoken than fellow major arms exporters the United States, Britain and France about stopping sales to Saudi Arabia until Khashoggi’s case is cleared up, a stance that a senior conservative ally said could also affect previously approved orders.

Berlin is now reviewing all Saudi sales, including contracts approved in September for more patrol boats built by privately-held Luerrsen and four Cobra counter-battery radar systems built by a consortium that includes France’s Thales, Airbus and the U.S. defense company Lockheed Martin.

German authorities approved more than 400 million euros worth of Saudi arms supply contracts in the first nine months of 2018, but have not specified the value of equipment not yet delivered.

Germany accounts for just under 2 percent of total Saudi arms imports, a small percentage internationally compared with the United States and Britain - but, crucially, also makes components for other countries’ export contracts.

The biggest impact may be on a 10-billion-pound ($12.99 billion) agreement by Saudi Arabia to buy 48 new Eurofighter Typhoon fighter jets from Britain, given that a third of their components would come from Germany, industry sources said.

The deal, nailed down in a memorandum of understanding in March, has not been finalised yet, and is not reflected in BAE Systems Plc’s 2018 financial statements.

BAE declined to comment on the issue, as did officials from the German-based Eurofighter consortium. Britain’s Foreign Office had no immediate comment.

Nearly four years in the making, the Saudi Eurofighter order would secure thousands of jobs at BAE, and help extend production of the European warplanes until a next-generation fighter jet to be designed in coming years goes into production.

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Saudi Arabia is also one of the few remaining export markets for the Eurofighter, given the warplane program’s losses to the Lockheed F-35 fighter jet in other tenders, including a decision expected soon from Belgium.

PATROL BOATS UNDER CONSTRUCTION

Of more immediate concern are three patrol boats currently under construction at the Luerrsen shipyard in Wolgast, in the financially strapped northeastern German state of Mecklenburg-Vorpommern. It employs 300 people, Stern magazine reported. Of 33 boats ordered in total, 16 must still be approved, it said.

Luerssen declined to comment on the Saudi work, but said it would respect any political decision on the fate of the boats while underscoring the importance of the orders for the yard.

Germany has taken a far tougher approach on arms sales to Riyadh following Khashoggi’s killing inside the Saudi consulate in Istanbul, which has stirred international outrage, than major allies such as the United States, France and Britain.

U.S. President Donald Trump has voiced concern that shelving arms sales to Riyadh could push Saudi Arabia, its key Arab ally against Iran, to place orders with Russia and China.

Tim Stuchtey, executive director of the Brandenburg Institute for Society and Security (BIGS), said Germany faced a tough dilemma - whether to follow its moral instincts or pursue a realpolitik-led agenda of arms sales out of economic interest.

Merkel is guided in part by the March 2018 governing accord with her coalition partners, the left-leaning Social Democrats, who insisted on language that bans arms sales to any parties to the devastating war in Yemen - where Saudi-led Arab forces intervened in 2015 - except for certain previously approved items and those that will remain in the purchasing country.

Divergent views in Europe on the issue also underscore the challenges facing an ambitious Franco-German program to develop a future fighter jet, he said. “As long as we don’t have unified European rules for arms exports, we will always have this problem. It will be difficult to square French and British attitudes about arms exports with German moral imperatives.”

PRICE OF FOREIGN POLICY

If Berlin does halt work on approved orders for the Saudi patrol boats, it may have to compensate the shipyard, which invested heavily to be able to execute the work, said Jan Techau, a senior fellow at the German Marshall Fund think-tank.

“Ultimately, the question is, how much is a principled foreign policy worth,” he said. “If the shipyard in Wolgast suffers damage due to a policy shift, it may cost money. That’s the decision they’ll have to make.”

Arising in part from its Nazi past, Germany’s cautious approach to weapons sales, and past moves to slow down approvals for exports, have raised eyebrows in other European countries.

It has already prompted France to market certain weapons as “100 percent French” - not subject to disruption by suppliers in other countries, according to one executive.

Norbert Roettgen, who chairs the German’s parliament’s foreign affairs committee, told broadcaster ZDF on Monday that Germany’s credibility was at stake if it did not halt all arms deliveries to Saudi Arabia until the ultimate responsibility for Khashoggi’s killing is established, or serious consequences were seen in Saudi Arabia.

But industry experts say blocking work on contracts vital to its partners also raises questions about Germany’s viability and reliability as a partner for future projects.

“It’s clear,” Techau said, “that global supply chains require agreements among partners, and that coordinated positions are needed on a European level, but that is not yet the case today.”