The murder of Jamal Khashoggi has been headline news during the past few weeks. Nevertheless, all the attention this story has generated so far is nothing compared to what this story could possibly mushroom into.
Khashoggi was a Saudi Arabian journalist, author, and a former editor-in-chief of Al-Arab News Channel. He also served as editor of the Saudi Arabian newspaper Al Watan, which he turned into a forum for Saudi Arabian reformers. In plain English, he was an activist, critical of the kingdom. Being outspoken cost him his life. Was Khashoggi about to release a major news development?
Khashoggi is not the first political critic to have disappeared. However, his murder was so gruesome, so brutal, that the world was shocked.
Logging into major business websites also shows how jittery investors are
The Saudis killed him and afterward made additional mistakes that were very damaging to them politically. Had they come clean from the start, admitting that something went very wrong during the “interrogation” and that measures would be taken so a mistake like this would never happen again, the story probably would have quieted down and gone away.
But the Saudis responded very differently. They denied obvious facts and kept changing their story, exacerbating the problem.
Congressman Adam Schiff, the ranking Democrat on the House Intelligence Committee, said that “the kingdom and all involved in this brutal murder must be held accountable, and if the Trump administration will not take the lead, Congress must.” Republican Sen. Lindsey Graham, for many years one of Saudi Arabia’s most vocal defenders, said Crown Prince and apparent heir to the Saudi throne bin Salman “has got to go.”
When this story first broke, Pres. Trump expressed his outrage and said that if the Saudis were found to be responsible “there would be severe punishment.” However, meting out punishment to the Saudis is a lot easier said than done.
Is The Customer Always Right?
The Saudis made it clear that they were not in a penitent mood, didn’t want to be lectured, and that they could retaliate for any punishment.
The Saudis are a major purchaser of U.S. arms (and other products) and are fighting a proxy war with Iran in Yemen. But their leverage extends well past this. Saudi Arabia is the world’s number-one producer of oil, the world’s number-one exporter of oil, and it has the greatest amount of oil reserves – nearly one-fifth of the world’s total. They also have reserves of many hundreds of billions of dollars.
And all of this places them in a very strong bargaining position.
One source with very close ties to the king wrote about how the kingdom could respond to American “punishment.” “Do you remember the 1970s?” he asked, referring to the energy crisis that resulted in the price of oil tripling. “We control the price of oil.” To emphasize the point, he talked about a barrel of oil spiking to $100, $200, “or double that.”
It doesn’t take a financial wizard to know that oil at that price would devastate the economy, unleash hyperinflation, and devastate the budgets of Americans – not to mention the impact it would have on both the stock and bond markets.
The Saudi energy minister was quick to say that those views are not the kingdom’s official position and that they would work to keep oil prices steady. However, the point was made: The Saudis said they would react quickly and harshly to any “punishment.”
Even More Bargaining Chips
But the Saudis have even more powerful chips to bargain with, and one of these is the threat of a political realignment with Iran. Former Republican Congressman from Texas Ron Paul, never an alarmist, said that such a development would be “pretty major.”
The Saudis have also threatened to “go with China and Russia and Iran [a long-time enemy and regional competitor] and work on a new currency,” said Paul. “And that would be a big deal.”
Some investors read the tea leaves somewhat differently: They are concerned that our long-time ally Saudi Arabia is not just threatening these moves but also making plans to implement them. They believe that behind the scenes, a major shift away from the petrodollar is in the works.
Petrodollars are U.S. dollars paid to oil-exporting countries. As part of this system, set up years ago, all oil-exporting nations are paid in dollars. Economists explain that the countries that buy their oil have to convert their currencies into dollars. All of this demand helps keep the dollar strong; it also helps Americans enjoy a high standard of living. In return, the Saudis (and other oil-exporting countries) benefit because America defends their oil fields.
However, these investors are concerned that there is a global shift away from the dollar, and that this is the real reason why the number of countries doing business in currencies other than the dollar is increasing. That the Saudis would now publicly threaten the U.S. with $200-plus barrels of oil and possibly also join forces with America’s principal enemies in the region suggests that major economic and political upheaval may be in the works.
If this theory is correct and starts to unfold, how will America respond? A related question is how changing alliances and uncertainty about the price of oil might affect Israel.
Meanwhile, Wall Street is very nervous. On Wednesday, Oct. 24, the Dow fell 608 points. It made up most of those losses on Thursday. But on Friday the selling resumed, and by midday the Dow was down nearly 500 points, wiping out the gains of the day before.
At that point the Dow was in the red for the year, and down some 2,500 points from the all-time high it made on Oct. 3. Even some of the tech stocks that had propelled the market to its highs looked as if they were in a free fall.
Logging into major business websites also shows how jittery investors are. Without exception, every day there is a story about at least one expert warning that a painful drop in stocks is imminent, and usually there are several such stories. In this climate, how would stocks react to news that the Saudis decided to price oil in yuan? Or possibly jack up oil to double its current price? Or maybe establish an alliance with Iran? Whatever the answers are, it won’t be reassuring.
So far, stocks have been taking Khashoggi’s death and the possible ramifications from it in stride. Whether current market conditions are evidence of real calm or are just the calm before the storm will become more evident in the coming weeks. Ironically, Khashoggi may have a greater impact in his death than he did when alive.
Gerald Harris is a financial and feature writer. Gerald can be reached at email@example.com