The order, if confirmed, will be the biggest defense contract for Germany and reinforces a contentious major policy shift by Berlin away from the longtime stand of never selling weapons to countries in conflict zones.
The German newspaper Bild am Sontag, quoting government sources, said a deal for the first batch of 300 tanks is ready for signing. The Saudi Defense Ministry wants the deal wrapped up by July 20, before the annual fasting season of Ramadan is due to start, the daily reported.
The Saudis are currently equipped with 115 M1A2 Abrams MBTs, produced by General Dynamics of the United States, with another 200 in store. Most of the Saudi army's heavy armor is American but it also has several hundred French AMX-30 light tanks and AMX-10 fighting vehicles.
The Saudis have generally been U.S.-oriented when it comes to acquiring combat aircraft, missiles and armored vehicles but they signed a $7.21 billion deal with Britain for 72 Eurofighter Typhoon strike jets, with options on more, in 2007.
A Leopard 2 contract with the Saudis would make it Krauss-Maffei Wegmann's first export sale, a major defense market breakthrough for Berlin and a significant financial opportunity for German companies at a time of major cutbacks in the European defense industry.
It's not clear which tanks now in Saudi service will be replaced by the Leopard 2s and Defense Industry Daily has speculated that the kingdom's 450 M-60A3 MBTs, its second string after the Abrams, or the French AMX-30s. Nor is it clear why the Saudis opted for a German tank rather than buying American, as they usually do.
But it may have something to do with doubts in Riyadh the United States can no longer be relied on to defend the Persian Gulf monarchies against Iran after Washington summarily ditched Egypt's Hosni Mubarak in 2011.
A Leopard deal on the scale reported would involve lucrative after-sales contracts, since the Saudis always put maintenance, training and upgrade programs in the hands of foreign contractors. This would be a boon to German defense outfits looking for foreign customers because of military budget cutbacks across Europe.
KMG Chairman Frank Haun has been the driving force behind efforts to clinch the Saudi deal, pressing government leaders to change the rules on military exports, always a highly sensitive issue in Germany because of World War II.
The political upheaval across the Arab world that began in 2011 and appeared to be ushering in a new era of democracy helped change official minds.
The turning point came June 27, 2011, when, the newsmagazine Der Spiegel reported, Chancellor Angela Merkel and her Cabinet reached "a historic decision, approving the delivery of 200 of Germany's most modern tank … to Saudi Arabia.
"This would be the first time Germany supplied heavy arms to an Arab government that has declared its intention to fight its opponents with "an iron fist," a country that deployed tanks against demonstrators in a neighboring country -- Bahrain -- and ranks 160th on The Economist's Democracy Index, just a few spots above North Korea, which holds the very bottom spot."
The way things stand now in Berlin, with political opposition to the reported deal mounting on moral grounds, Merkel's government is split on upping the Saudi deal to as many as 800 Leopards, but has not blocked it -- not yet, anyway.
Merkel's coalition has sold Israel six Dolphin class submarines, reportedly capable of launching nuclear-armed Israeli cruise missiles and has agreed to pay most of the cost.
Three are in service with the Israeli navy and the others are scheduled for delivery over the next few years, transforming Israel's navy from essentially a coastal patrol force to a strategic arm of the country's military forces.
It's not clear whether those decisions, which stemmed from Germany's need to exculpate the guilt of its Nazi past, influenced the decision to move ahead on the Leopards for Saudi Arabia.
But, as Der Spiegel reported, Merkel's government argued that "an armed Saudi Arabia would function as a counterbalance to Iran and its nuclear ambitions."