How much injury can Saudi Arabia do to the global economy?

0
88

Should the kingdom make good on its warns, the repercussions is likely to be felt around the world

Saudi Arabia enjoys a privileged posture both in geopolitical and economic terms. It will have a powerful hand to play if tensions with the US and the west escalate and it follows through with Sunday’s warning of retaliation.

Its vast oil reserves- it claims to have about 260 bn barrels still to extract- afford the most obvious advantage. The kingdom is the world’s largest petroleum exporter, pumping or shipping about 7m barrels a day, and dedicating Riyadh huge clout in the global economy because it exerts power to push up prices.

An editorial in Arab News by Turki Aldhakhil, the general manager of the official Saudi news channel, Al Arabiya, offers a hint of what could be in the offing.

He said Riyadh was weighing up 30 measures designed to put pressure on the US if it were to impose sanctions over the disappearance and presumed slaying of Jamal Khashoggi inside the country’s Istanbul consulate. These would include an oil production cut that could drive costs from around $80( PS60) a barrel to more than $ 400, more than doubled the all-time high of $147.27 achieved in 2008.

This would have profound outcomes globally , not only because motorists would pay more at the petrol pump, but because it would force up the cost of all goods that travel by road.

Donald
Donald Trump shakes hands with the Saudi crown prince, Mohammed bin Salman, after a $110 bn defence deal was agreed. Photograph: Evan Vucci/ AP

Saudi Arabia also supports thousands of US tasks via its arms purchases. It is the world’ssecond-largest arms importer after India and 61% of those importations comes here the US.

It was the US’s biggest limbs client last year, signing $17.5 bn worth of bargains, a trend that appears set to continue after Donald Trump signed a $110 bndefence agreement in Riyadh last year.

The alliance stands to benefit US employers such as Lockheed Martin, Boeing, General Electric and ExxonMobil. Some of the firms are reported to have expressed concern to Trump already about the impact that a freeze in Saudi-US relations might have. Riyadh could, for example, simply switch its purchases to other large arms exporters such as Russia and China.

Trump’s journey to the Arabian peninsula last year also yielded an agreement that the kingdom’s Public Investment Fund, which manages its vast petroleum wealth, would invest in US infrastructure programmes. The PIF is to stump up $20 bn of a $40 bn pot overseen by the global asset manager Blackstone. The money, however, has yet to gather any serious momentum.

Saudi Arabia has shown in the past that it is not afraid to leveraging its own unique political and economic position to get its own way. An investigation into allegations of bribery involving the British defense firm BAE Systems in the country was fallen under Tony Blair’s government in 2006. Blair said Riyadh had threatened to stop cooperating on intelligence matters, putting Britain at greater risk of a terrorist attack.

Seth Frantzman, the managing director of the the US-based Middle East Center for Reporting and Analysis, said the kingdom’s importance to US strategy in the Gulf, particularly as a bulwark against Iran, dedicated it great influence.

” They’re part of an American-Saudi-UAE alliance, and the current US administration is tough on Iran, so in some ways the US is more beholden to Saudi Arabia than in previous years ,” he said.

” They don’t want to be humiliated in this exchange. The US press says Trump will punish Saudi Arabia, and they don’t want to come out of this looking like the child being punished.

” Saudi probably feels it’s on a winning streak economically and if it has to take a hit, which it already is in terms of its image, it will be made up for by the fact they’ll find markets somewhere else .”

Saudi Arabia does have something to lose though, given that foreign fund is a key plank of its plans to diversify its economy away from oil and address a high unemployment rate of nearly 13%. The Saudi stock market plunged by as much as 7 %, or around $33 bn, over dreads about the ramifications of the country’s threat of retaliation against the US.

International investors are already turning their backs, and a number of high-profile names have pulled out of an investment conference later this month dubbed” Davos in the Desert “.

They include Uber’s chief executive, Dara Khosrowshahi, and the US media giant Viacom’s boss Bob Bakish. Sir Richard Branson has suspended discussions with the Saudi government that might have led to it investing in his space tourism project Virgin Galactic.

Read more: www.theguardian.com

LEAVE A REPLY

Please enter your comment!
Please enter your name here