Saudi Oil Threat in Khashoggi Disappearance Seen as a Bluff
Trump lowers the rhetoric, sends Pompeo to Riyadh.
Tensions between Saudi Arabia and the United States escalated sharply over the weekend, with Riyadh issuing a veiled threat to use the oil weapon if Washington slaps sanctions on the kingdom over the disappearance of journalist Jamal Khashoggi.
But most experts dismissed the rhetoric as mere bluster, saying Saudi Arabia doesn’t have the dominant position in the oil market that it did decades ago, and pointing out that if Riyadh cut output in order to cause a price spike it would boomerang spectacularly.
The Saudi government warned in a statement over the weekend that it would meet any response with “greater action,” stressing the oil producer’s “vital role in the global economy.”
“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,” it said.
The threat was made more explicit in a high-profile column Sunday by a figure close to Saudi Arabia’s leaders. “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,” Turki Aldakhil wrote in Al Arabiya.
On Monday, U.S. Secretary of State Mike Pompeo headed for Saudi Arabia to meet with King Salman regarding Khashoggi’s disappearance. President Donald Trump, for his part, appeared to walk back some of the tough language he’d used just a day before, saying that he had spoken with Salman and that the Saudi king denied any knowledge of what happened to the missing journalist. Trump suggested “rogue killers” somehow entered the Saudi consulate in Turkey and killed the columnist.
If it were carried out, the veiled Saudi threat to use its weight as the world’s biggest oil exporter to hold the global economy hostage would be a sharp departure from the stabilizing role it has played since the disastrous 1973 to 1974 oil embargo OPEC imposed on Western countries to protest their support for Israel.
Still, few analysts were ready to take it seriously.
“It’s a bluff,” said Bruce Riedel, a Saudi Arabia expert at the Brookings Institution. “We have much more leverage than they do.”
Saudi Arabia’s role as a major oil producer is crucial right now to Trump as he increases economic pressure on Iran. Renewed U.S. sanctions on Iranian oil exports, which go into effect next month, have already led to a shortfall in global oil supplies and steadily rising prices. Riyadh, along with other big producers like Russia, had pledged to increase oil production this autumn to keep crude prices from rising beyond already-high levels.
If Saudi Arabia tried to retaliate against any U.S. actions with an oil cut, it would be “hugely self-defeating and probably ineffective,” said David Goldwyn, the head of Goldwyn Global Strategies, an energy consultancy.
He noted that any decline in Saudi exports would just push customers in Asia and Europe to accelerate their transition toward other forms of energy. And sending prices higher right as the United States is trying to keep Iran’s feet to the fire would undermine a key Saudi security priority, he said.
“I don’t think it’s a shift in policy, just a lapse of judgment,” said Goldwyn, who was a top State Department energy official in the Obama administration. “There’s panic in the kingdom.”
Saudi leaders were stung in particular by Trump’s threats Sunday of “severe punishment” if the investigation into Khashoggi’s disappearance implicates them, he said. “It was a pretty hard slap that the Saudis got from the president, so they reminded the president how important Saudi Arabia is to the global market.”
Khashoggi entered the Saudi consulate in Istanbul on Oct. 2 and has not been seen since. Turkish authorities say he was killed in the consulate.
On Monday, just hours after the threats from Riyadh, Saudi Energy Minister Khalid al-Falih tried to reassure markets. He said in a speech in India that the country would continue to act as a “shock absorber” for the global market, and he pledged to keep the global economy well supplied with oil.
“There’s no sign yet of a shift in Saudi oil policy,” said Matthew Reed, the vice president at Foreign Reports, an energy consultancy.
“I can’t imagine the Saudis engineering a price spike when market sentiment is so fragile, the facts remain disputed, and it’s unclear yet what the U.S. response will ultimately be,” he said. “Triggering a global recession doesn’t serve their interests.”
Merely brandishing the oil weapon as a possible way to hurt the United States underscores how the relationship between Riyadh and Washington is changing. Since World War II, the two countries have established a strategic relationship that—with rare exceptions like the 1970s embargo—saw Saudi Arabia keeping the world well supplied with oil in exchange for U.S. security.
But as other big oil producers have gained prominence, especially the United States itself over the past decade, Saudi Arabia’s relative importance as an oil supplier has declined. it still produces more oil than any other country inside OPEC, but it doesn’t have the same ability to provide stability to the much bigger global market that it once did. U.S. oil production in the meantime has soared, and imports (including from Saudi Arabia) have fallen.
“The relationship is at risk,” Goldwyn said. “We don’t need each other as much as we did.”
For Trump, preventing a break with Saudi Arabia is more about arms sales than about maintaining a decades-old relationship or even shoring up an anti-Iran bloc in the Middle East. He has repeatedly stressed his desire to complete the $110 billion in arms deals reached on his trip to Saudi Arabia last year.
“We used to have a strategic relationship with the Saudis, but the relationship has become transactional,” said James B. Smith, who was the U.S. ambassador to Saudi Arabia from 2009 to 2013. “We saw it moving that way in the Obama administration, but now it’s clearly transactional.”
Given Trump’s focus on the pending arms deals, he said, “this administration will be looking to give the Saudis a ladder to climb down the limb they’ve gotten themselves on.”