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Saudi Arabia would lose from escalation with US — experts

Wednesday, October 17, 2018

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DUBAI, United Arab Emirates (AFP) — Saudi Arabia has more to lose than to gain from an economic showdown with its ally the United States, experts say, as the diplomatic fallout continues following the disappearance of dissident journalist Jamal Khashoggi.

Washington's top diplomat Mike Pompeo held urgent talks with King Salman in Riyadh on Tuesday after reports Khashoggi was murdered two weeks ago inside the kingdom's Istanbul consulate.

Khashoggi's disappearence shocked Saudi allies, prompting the US — the kingdom's top trading partner — to threaten “severe punishment”.

Despite being the world's largest oil exporter, selling a million barrels per day to the United States, Saudi Arabia would gain little from using black gold as leverage, said Jean-Francois Seznec, a Senior Fellow at the Atlantic Council's Center for Global Energy.

That “would completely destroy its image as a 'reliable supplier'” and undermine the king's powerful son, Crown Prince Mohammed bin Salman, he said.

The affair has embarrassed President Donald Trump, who has made his personal relationship with the crown prince a pillar of his strategy in the Middle East, where his administration is seeking to rein in Iran with Saudi and Israeli support.

The US president has also been counting on Riyadh to plug any gap in world oil supplies as he prepares to reimpose a second tranche of crippling sanctions against Tehran in November following his abandonment of a landmark 2015 nuclear deal.

Members of the US congress — both Democrat and Republican — could vote to block arms sales to Riyadh, and the White House would be under pressure to punish Saudi individuals if they were proved to have played a role in Khashoggi's disappearance.

Trump suggested Monday that “rogue killers” could be to blame for Khashoggi's disappearance — an apparent row back from earlier threats of “severe punishment” against the Saudi government if it turned out Khashoggi was murdered.

“Trump is torn — he says everything and its opposite,” said Francois Heisbourg, a special adviser at the Fondation pour la recherche strategique in Paris.

But, he added, Congress “will not let go”.

The crisis has sent the Saudi stock market tumbling and reportedly threatened a US$400-million deal between Riyadh's sovereign wealth fund and Hollywood's most powerful talent agency, Endeavour.

Yet Saudi Arabia has remained assertive, with a senior official underlining the kingdom's “effective and vital role in the world economy” and threatening to “respond to any action with a bigger one”.

 

OIL FOR YUAN?

Seznec suggested that if the crisis escalated, the crown prince could even demand payment for oil in China's currency, the yuan, instead of US dollars.

“That would destabilise the entire world economy and prompt the United States to take drastic measures” that could lead to a change of leadership in Riyadh, he said.

Richard LeBaron, a former US ambassador to Saudi Arabia's neighbour Kuwait and a senior fellow at the Atlantic Council, said Riyadh had “various ways” of responding to punitive measures.

But “none of them would help them in the short or long term since such measures would reinforce the Saudi regime's growing reputation for unpredictability and brashness,” he said.

He added that Riyadh is keen to attract international investors to support the crown prince's ambitious economic reform drive.

Heisbourg said a Saudi oil embargo would make US shale oil producers “rub their hands” in glee.

A congressional ban on arms sales to the kingdom could prompt Riyadh to “turn to Russia”, he said, but added that Riyadh's current reliance on US weapons systems would soon make it vulnerable because of “a serious problem of spare parts”.

An escalation could also affect intelligence-sharing and trade between Saudi Arabia and Western countries, but Heisbourg said Saudi Arabia has “no interest in going too far”.

Capital Economics, a London-based think-tank, said an ongoing stand-off between the allies would affect Saudi financial markets, although the kingdom's vast currency reserves would help it weather the crisis.

The US-based Soufan Center slammed Trump's approach, saying the US-Saudi relationship “since the ascendance of Crown Prince Mohammed bin Salman demonstrates the problem with basing relationships on personalities over principles”.

Trump has said that were the Saudis to take their defence spending and “spend it in Russia or China or someplace else”, it could cost America US$110-billion in lost weapons sales.

But the New York Times called that figure “wildly inflated and misleading”, saying the package in question “essentially consisted of letters of intent or interest, not actual contracts”.

Seznec said the kingdom has more to lose than to gain from an escalation.

“It's all about posturing to give them time to find a solution,” he said.

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