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Could Saudi Arabia Destroy the US Economy?

Traders on the floor of the NY Stock Exchange (Illustrative Photo: Eduardo Munoz Alvarez/Getty Images)
Traders on the floor of the NY Stock Exchange (Illustrative Photo: Eduardo Munoz Alvarez/Getty Images)

Could Saudi Arabia destroy the US economy if sanctions are enacted against it? A potential pressure cooker situation is brewing over suspicions that Saudi Arabia murdered one of its own journalists.

While President Donald Trump threatens sanctions against the desert kingdom over the affair, American companies including J.P. Morgan, Ford, Uber, CNN, the Financial Times, The New York Times, CNBC and Bloomberg have pulled out of a preeminent Saudi investor conference in Riyadh next week.

One of Saudi Arabia’s 10 American PR firms, the Harbour Group, just dropped the Saudis as a client, forfeiting the $80,000 per month retainer.

It seems that while Saudi Arabia is under suspicions of murdering journalist Jamal Khashoggi, some American companies weighed the damage that doing business with the kingdom can do to their reputations and decided that negative perceptions aren’t worth it.

Yet, while that may work from a PR perspective in the short term, the long-term consequences of stopping business with the kingdom is much more complicated.

Since business decisions are rarely made on ethical lines alone (in fact, one could say they almost always depend on the “bottom line”), we need to understand the dynamics unfolding in what could become the financial crisis of 2018.

No one should make the mistake of believing that Saudi Arabia – a country that many major U.S. tech firms, banks and defense contractors have enjoyed doing an enormous amount of business with for decades – has not been a major player in the export of radical Islamist extremism and its accompanying terror worldwide.

From funding mosques throughout the world and installing imams trained in Saudi’s uber-extreme fundamentalist Wahhabist philosophy to using its petrodollars to fund terrorism, Saudi Arabia has done it all. Fifteen of the 19 terrorists who attacked America on 9/11 were from Saudi Arabia.

Yet despite the fact that reports fingered the Saudi government for its involvement in 9/11,  then president Barack Obama vowed to veto a bill that would allow 9/11 survivors and their families to bring a suit against the Saudi government for damages incurred in America’s largest terror attack.

All this never stopped American businesses and the American government from doing business with the kingdom.

What is different now? In fact, considering the vast control Saudi Arabia wields over the U.S. economy, burning those bridges now is a very risky business indeed. Consider the facts that:

  • Saudi Arabia is the world’s largest oil exporter

Reports in the Saudi outlet Al-Arabiya say Riyadh is considering 30 measures to pressure the U.S. if sanctions are imposed on the kingdom over the suspected murder of Khashoggi, including cutting oil production. That means oil prices could skyrocket from the current $60 per barrel to an all-time high of more than $400. It also means not only an increase in travel costs, but in the cost of every item delivered by truck or plane (basically all goods and services).

  • Saudi Arabia is the world’s second largest arms importer

Last year, the kingdom signed $1.7 billion dollars of contracts with the U.S. alone.  These contracts benefit vast numbers of American companies including giants such as Lockheed Martin, Boeing, General Electric and ExxonMobil. An angry Saudi Arabia could take its business elsewhere, for example, to Russia or China.

  • Saudi Arabia has plans to heavily invest in the U.S.

During President Trump’s trip to the kingdom last year, Saudi Arabia agreed its Public Investment Fund – expected to have $20-40 billion in available funds — would invest in U.S. infrastructure programs. Those investments could simply be cancelled.

  • Saudi Arabia is the U.S.’ strongest ally against Iran

This makes the kingdom an important player in U.S. foreign and Middle East policy. Lack of Saudi involvement could mean much more of a foothold for not only Iran but Russia as well.

Rulers in cultures like Saudi Arabia do not respond well to affronts to their honor, which the humiliation of sanctions – especially over (at present) unprovable charges — would certainly be perceived to be.

Yet, one more question needs to be addressed: If Trump decides to sanction Saudi Arabia over this human rights violation, what are the consequences for Saudi Arabia in taking a hit from America?

The kingdom’s oil supplies are predicted to dwindle in the long term. Thus the Saudis will need foreign money and investment to diversify their economy, which is already showing signs of distress with an unemployment rate of 13 percent. Current fears of sanctions have recently caused a 7 percent drop in the Saudi stock market, translating to a loss of $33 billion.

Next week’s Future Investment Initiative conference is one vehicle the Saudis intended to use to propel that diversification. The boycott by America’s leading companies will not go unnoticed.

Up until now, businesses and countries around the world have not seemed to care about Saudi human right violations. Yet, in our super-charged political climate, are the pullout of American companies from the Riyadh conference and Trump’s threat of sanctions merely posturing to satisfy the current news cycle of the chattering classes — or will there be teeth behind these warnings?

And if so, what will be the global consequences?

 

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MS
Meira Svirsky
Meira Svirsky is the editor of ClarionProject.org

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