Home News Analysis World economy to jolt if Saudi Arabia retaliates against US

World economy to jolt if Saudi Arabia retaliates against US

Saudi Arabia
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One of the strangest news in the global media is the disappearance of Jamal Khashoggi, a journalist who worked for the Washington Post and was a critic of the family that rules Saudi Arabia, in a Saudi consulate in Turkey. Khashoggi went to the Saudi consulate to get documents prepared for his upcoming wedding. Reportedly, he was killed there with his body torn to shreds with a bone saw.

Turkey alleges that Khashoggi was assassinated after being lured in. Saudi Arabia denies this charge. And Donald Trump is promising ‘severe punishment’ to the Saudis if the accusation is proven to be true. Saudi Arabia, for their part, has also promised to retaliate if hit by US sanctions. The Saudi Press Agency (SPA), the official mouthpiece of the government, quoted an unnamed official as saying “The Kingdom affirms its total rejection of any threats and attempts to undermine it, whether by threatening to impose economic sanctions, using political pressures, or repeating false accusations.”

A $100 per barrel of crude is simply unacceptable, given that the country is already mired in debt and the Saudis have declined to allow delayed payments to Pakistan for crude oil imports.

The official further added that “the kingdom also affirms that if it receives any action, it will respond with greater action and that the Kingdom’s economy has an influential and vital role in the global economy.” Saudi Arabia has a Gross Domestic Product of about $646 billion, with a GDP per capita of over $20,000. But the real economic strength of Riyadh lies in its energy riches. It’s the world’s largest exporter of oil.

In August of 2013, it was producing up to 10.2 million barrels per day. Furthermore, it costs very little to drill oil in the Saudi Kingdom. Saudi oil is often referred to as ‘sweet oil’ because it doesn’t have to be refined to the same extent like crude oil from, say, the United States. Due to its oil production capacity, Riyadh can dominate OPEC. In other words, if the US hits Saudi Arabia with sanctions, the Saudis can raise oil prices to record levels and hurt the American economy in return.

Read more: Saudi Arabia vows retaliation if punished over missing critic

That’s the argument given by the Turki Aldakhil, general manager of Saudi owned ‘Al Arabiya channels’. He said, “It [i.e. American sanctions] would lead to Saudi Arabia’s failure to commit to producing 7.5 million barrels. If the price of oil reaching $80 angered President Trump, no one should rule out the price jumping to $100, or $200, or even double that figure.”  Trump promised ‘severe punishment’ to the Saudis; the stock market in the Kingdom dropped by nearly 7%. It has recovered partly now though.

Another possibility is that Riyadh begins trading oil in the Chinese Yuan. The US dollar is the world’s most-used reserve currency. The rise of China, however, will probably pose a challenge to that. If Saudi Arabia begins selling oil in Yuan, that could fuel the rise of the Yuan as well. The entire relationship between the US and the Saudi Kingdom relies on the premise that the former provides security while the latter makes sure oil prices remain stable. Containing Iranian expansionism in the middle-east, as they both see it, is another common goal.

Khashoggi went to the Saudi consulate to get documents prepared for his upcoming wedding. Reportedly, he was killed there with his body torn to shreds with a bone saw.

Some US lawmakers have triggered the Global Magnitsky Human Rights Accountability Act. It authorizes the president to block or evade the visas of certain ‘foreign persons’ (both individuals and entities) or to impose property sanctions on them. People can be sanctioned for any extrajudicial killing abroad, which the killing of Jamal Khashoggi is presumed to be by the Turks. Officials from The United Kingdom, Germany, and France are demanding a full probe into ‘what’s happened’.

Read more: Saudi Arabia vows a heavy response in case of sanctions

If Trump acts with the authority vested in him under this law against the Saudis that could mean Riyadh stops buying weapons from Washington. The two have signed deals worth billions of dollars. The American president even mulled out loud about the cost of sanctioning the Saudis for the murder of the journalist. The Russians and the Chinese would be more than willing to fulfill Riyadh’s needs. Should Islamabad be concerned with these developments? Being an energy-starved country, high oil prices are always bad for Pakistan’s economy.

A $100 per barrel of crude is simply unacceptable, given that the country is already mired in debt and the Saudis have declined to allow delayed payments to Pakistan for crude oil imports. Pakistan is an important nation for both the US and Saudi Arabia and enjoys friendly relations with Turkey as well, all three nations directly involved in this entire saga. It can offer its good office to mediate, to the extent possible, mediate between the Riyadh, Ankara, and Washington. And help cooler heads to prevail before things boil up any further.


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