Dent On Saudi Arabia

As the third leading producer of crude oil and a leading member of OPEC, Saudi Arabia, is facing a reputational test. The is caused by the assassination of Jamal Khashoggi, a Saudi dissident, and journalist for The Washington Post, in the Saudi Consulate in Istanbul, Turkey. The incident has been seen as premeditated and evidence from the Turkish government revealed that Khashoggi was not just assassinated but disembodied. The assassination resulted in series of call for the sanction of Saudi Arabia, however Saudi Arabia through it foreign affair minister threatened to use its economic strength (oil and sovereign wealth fund) to reply appropriately to any sanction. The United States President Donald Trump has been diplomatic with regards to actions on Saudi, given the economic and political relationship between Washington and Riyadh.

The incident cast a cloud on global crude supply, and given the market share of Saudi Arabia, imposing economic sanctions on Saudi oil could result in a significant increase in the price of crude oil. The increase in the price of crude oil is expected due to excess demand that will exist if Saudi stops exporting oil. Although there has been an increase in the volume of crude from the United States and Russia, it is definitely not sufficient to match the supply of the third-largest oil producer. Thus, countries are a bit careful in the way they react to Saudi Arabia. However, Saudi Arabia may have to battle with other sanctions for example; Germany has stopped the sales of arms and ammunition to Saudi. The response of the United States is also critical, given that the CIA concluded that the crown prince ordered the assassination, but the economic implication of any serious sanction on the Saudi will not only threaten the oil market but might lead to a global economic slowdown or recession.

Saudi Crown prince, Mohammad bin Salman. Source: recode.net
Murdered Journalist, Jamal Khashoggi. Source: inside business online

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