As the mystery, and blowback, over the fate of missing Washington Post columnist Jamal Khashoggi grows, moments ago president Trump tweeted that he has spoken to the King of Saudi Arabia “who denies any knowledge of whatever may have happened to our Saudi Arabian citizen.” According to Trump, the King also said that “they are working closely with Turkey to find answer” and added that he is “immediately sending” Secretary of State Mike Pompeo “to meet with King.”
Just spoke to the King of Saudi Arabia who denies any knowledge of whatever may have happened “to our Saudi Arabian citizen.” He said that they are working closely with Turkey to find answer. I am immediately sending our Secretary of State to meet with King!
— Donald J. Trump (@realDonaldTrump) October 15, 2018
Trump’s tweet follows an escalation in rhetoric in which the president threatened Saudi Arabia with severe punishment if it is found that the Saudis were involved in Khashoggi disappearance and/or death, sending Saudi stocks plunging the most since 2016.
In response, Riyadh made a not so veiled threat to use the kingdom’s oil wealth as a political weapon – something which Bloomberg said was “unheard of since the 1973 Arab embargo that triggered the first oil crisis.”
On Sunday, Saudi Arabia said on Sunday it would retaliate against any punitive measures linked to the disappearance of Washington Post columnist Jamal Khashoggi with even “stronger ones.” In an implicit reference to the kingdom’s petroleum wealth, the statement noted the Saudi economy “has an influential and vital role in the global economy.”
Additionally, the fact that the Arabiya article was published only minutes after Saudi Arabia’s press release was issued led many to conclude it was either a message conveyed outside diplomatic channels or a trial balloon that quickly went flat.
Roger Diwan, a longstanding OPEC watcher at consultant IHS Markit Ltd., said the Saudi comments broke “an essential oil market taboo.”
While few think that Saudi Arabia is prepared to follow through, even the suggestion of using oil as a weapon undermines Riyadh’s long-standing effort to project itself as a force for economic stability. Jeffrey Currie, the head of commodities research at Goldman Sachs Inc., said Middle East tensions impacting the oil market have now “broadened to include Saudi Arabia.”
The tensions were exacerbated by an article written by Turki Al Dakhil, who heads the state-owned Arabiya news network and is close to the Royal Court, in which he openly talked about using oil as a weapon.
“If President Trump was angered by $80 oil, nobody should rule out the price jumping to $100 and $200 a barrel or maybe double that figure.”
As we noted overnight, the Saudi embassy in Washington later said Al Dakhil didn’t represent the official position of the kingdom and Saudi officials, speaking privately, said there wasn’t a change in the long-held policy that oil and politics don’t mix.
In an attempt to further defuse the tense situation, on Monday, Khalid Al-Falih, the Saudi energy minister pledging his country will continue to be a responsible actor and keep oil markets stable, during a speech in India.
“I want to assure markets and petroleum consumers around the world that we want to continue support the growth of the global economy, the prosperity of consumers around the world,” Al Falih said.
On Sunda, Saudi Arabia said it’s begun an internal investigation into the disappearance Khashoggi at its Istanbul consulate and could hold people accountable if the evidence warrants it.
Still, concerns about a potential retaliation by Riyadh using its oil output have spooked markets, with oil jumping in overnight trading.
To be sure, Riyadh could easily bring the global economy to its knees in the short-term by cutting output and sending prices sharply up, something we noted on Sunday afternoon as the kingdom pumps one-in-ten oil barrels produced worldwide, and holds nearly all the spare capacity available to respond to any supply outage.
Saudi response to Trump:
Did we say we will pump 10.7mmb/d? Silly decimal comma typo: we meant 1.07mmb/d
— zerohedge (@zerohedge) October 14, 2018
Even just hinting that it won’t replace the barrels lost from Iran due to U.S. sanctions could be enough to push prices toward $100 a barrel.
But if the Saudis retaliate using oil, it would lead to “calamity,” said Stephen Innes, Singapore-based head of Asia Pacific trading at Oanda Corp. “This would be so destabilizing for global markets that it would make the current trade tensions between the U.S. and China look like a game of Axis & Allies.”
As a reminder, the last direction confrontation between Saudi Arabia and the US, namely the 1973-74 embargo, and the second oil crisis in 1979, destroyed oil demand for ever as industrialized countries taxed gasoline and diesel and embarked on conservation policies. Oil consumption is lower today than in 1974 in Germany, Japan, France, Italy and the United Kingdom.