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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Trump’s Impossible Decision Over Saudi Arabia

The chips are finally starting to fall in place for Saudi Arabia over the killing of dissident Saudi journalist Jamal Khashoggi last month. Early Thursday, Denmark announced that it had suspended future approvals of weapons and military exports to Saudi Arabia over the killing of the outspoken journalist in Istanbul.

The decision was taken after recent discussions with other foreign ministers in the European Union. The suspension also includes some dual-use technologies, a reference to materials that might have military applications.

The Danish move comes just days after Germany suspended issuing future weapons export licenses to the kingdom while Berlin also made gestures that it will halt all arms sales to Saudi Arabia. France, for its part, said on Monday that it will soon decide what sanctions it would put in place over Khashoggi’s killing.

“With the continued deterioration of the already terrible situation in Yemen and the killing of Saudi journalist Jamal Khashoggi, we are now in a new situation,” Danish Foreign Minister Anders Samuelsen said in a statement. Denmark issued ten such approvals last year, according to the ministry. Already given approvals will not be suspended, a spokesman said.

Standing by his man

Despite growing angst in Europe over growing implication of not only Saudi Arabia’s killing of Khashoggi but likely involvement or at least knowledge by Crown Prince Mohammed bin Salman, President Trump is standing by the Saudis - even as many members of the president’s party in both the Congress and Senate call for a tougher line and sanctions against Riyadh.

In statements released by the White House on Tuesday, Trump tried to lay out why he was sticking to long time US ally Saudi Arabia. He defended Saudi intervention in the ongoing war in Yemen, stating that “Saudi Arabia would gladly withdraw from Yemen if the Iranians would agree to leave. They would immediately provide desperately needed humanitarian assistance. Additionally, Saudi Arabia has agreed to spend billions of dollars in leading the fight against Radical Islamic Terrorism.” Related: Is The World’s Most Indebted Oil Company About To Be Privatized?

Trump also discussed proposed Saudi investment in the US which came after he visited the kingdom in 2017. “After my heavily negotiated trip to Saudi Arabia last year,” the president said, “the Kingdom agreed to spend and invest $450 billion in the United States. This is a record amount of money. It will create hundreds of thousands of jobs, tremendous economic development, and much additional wealth for the United States. Of the $450 billion, $110 billion will be spent on the purchase of military equipment…” Trump also justified his decision to stick by the Saudi, claiming that if the U.S. pulled out of arms deals with the kingdom, the vacuum would be filled by China and Russia. However, noted analysts claim that it would take years for both China and Russia to fill the void left if the US ceased arms sales to Saudi Arabia.

Trump mentioned growing congressional disagreement over his decision to stick with Saudi Arabia, while also acknowledging that the “crime against Jamal Khashoggi was a terrible one, and one that our country does not condone.”

 “We may never know all of the facts surrounding the murder of Mr. Jamal Khashoggi,” Trump added. “In any case, our relationship is with the Kingdom of Saudi Arabia. They have been a great ally in our very important fight against Iran. The United States intends to remain a steadfast partner of Saudi Arabia to ensure the interests of our country, Israel and all other partners in the region. It is our paramount goal to fully eliminate the threat of terrorism throughout the world!”

Hard decisions

However, at the end of the day, despite growing alarm in Europe and the House over Trump’s insistence to stand by the Saudis, he may have little choice but to do so, even if it costs him political points with his base. Related: Is It Too Late To Avoid An Oil Supply Crisis?

To enact sanctions against Saudi Arabia over Khashoggi's killing would risk damaging bilateral ties with a middle eastern partner that for all intents and purposes is keeping Iran’s regional hegemony ambitions in check. A crack in the U.S.-Saudi alliance would be quickly exploited by Iran just as U.S. sanctions are hitting the Islamic Republic so hard that it’s conceivable that economic woes could force regime change, though admittedly any regime change would not be without considerable bloodshed.

Second, risking Trump’s own personal ties with the Saudi royal family could also roil global oil markets that often swing on little more than geopolitical developments and rumor, akin to market psychology in global financial markets. If Trump is indeed forced to enact sanctions against Saudi Arabia, the world’s largest oil exporter, Riyadh, would be forced to push back and that would mean using the oil weapon, by cutting production and oil exports.

Though global oil markets have been trending downward over the past month, dropping around 20 percent since October highs amid over supply concerns, the removal of Saudi barrels from the market would see prices escalate quickly, with the knock-on effect of rising gasoline prices in the US just as the 2020 presidential election cycle nears - not a desirable scenario for the president.

In effect, Trump has no easy answers over Saudi Arabia. Perhaps, the best course, at least for now, would be to continue to criticize Khashoggi’s murder as long as there is no incontrovertible evidence implicating both the kingdom and the Crown Prince that would force him to take a harder line and give into calls for tougher action and economic sanctions.

By Tim Daiss for Oilprice.com

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  • Alex Sahsa on November 22 2018 said:
    While it is true that replacing/ re-configuring the Saudi's military equipment from American to Russian would take years, these analysts forget an important factor. The Saudis do not have to finish their reconfiguration overnight to tilt toward Russia! If Russia only sends a thousand soldiers to KSA today to show their solidarity with the kingdom, for example, any 3rd country invading KSA and fighting war against these men would essentially be declaring war on Russia itself.

    After all KSA's arch rival is Iran. Iran would NOT move on KSA without Mr. Putin's approval!

    In fact, the Saudis have learned that it is more effective to rein in Iran through Mr. Putin than with the American hard line approach against Iran.
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