Vickers, the defence group, said yesterday that it had warned the Government of the threat to trade with Saudi Arabia because of the activities of Mohammed al-Masari, the London-based Arab dissident.
The company said it was under no pressure from Riyadh to act, but admitted that the removal of Mr al-Masari could help clear the way for important UK defence deals.
Other companies have privately admitted to telling the Government of their concern that the Saudis were deliberately holding up contracts until Britain had curbed the dissident's activities.
Shares in leading UK defence companies rose as City investors speculated that the Saudis would lift a block on fresh deals.
Saudi Arabia is Britain's biggest market in the Middle East, and according to latest figures bought pounds 1.5bn of UK goods in 1994.
But that figure is set to rise following the Al-Yamamah deal signed in 1985 under which Britain supplies the kingdom with arms worth pounds 20bn including Tornado fighter-bombers, used in the Gulf War, the Falklands and missions in Bosnia.
Some of the UK's leading industrial giants feared that the second part of this huge arms deal, signed in 1988, known as Al-Yamamah 2 and worth pounds 5bn, could be jeopardised because of Saudi anger over the reluctance to expel Mr Masari.
About 70,000 jobs here are dependent on Al-Yamamah contracts. But yesterday GEC, the defence electronics giant - headed by Lord Weinstock- and Rolls- Royce, the aero- engine manufacturer, both declined to comment.
British Aerospace, which is leading Al-Yamamah, said it had not made any formal representations to the Government.
Other deals thought to have been caught up in the row include a pounds 160m order for 10 British Aerospace small aircraft for the Saudi national airline.
GKN and Alvis have been awaiting news of a deal for armoured vehicles, and VSEL is tipped for a contract to sell its AS90 self-propelled howitzers. Together these contracts may be worth up to pounds 2bn and could create thousands of new jobs.
Vickers, maker of the Challenger II tank, is in competition with the French defence group Giat and America's General Dynamics for an order for more than 200 vehicles worth about pounds 1bn.
Vickers, favourite to win the order, said: "We are in a commercial environment so it is in any company's interest to express its concern.
"There are many difficult factors that affect a contract. This has possibly removed one of those difficult factors. But it does not mean we have won the tank order."
Vickers shares rose 2p to 259p yesterday, while BAe's climbed 18p to a new high of 806p, and GEC put on 9p to 350.5p.
Shares in Vosper Thornycroft, the shipbuilder said to be in line for frigate orders, rose 7p to 832p.Reuse content