The developing storyline of an unauthorized or botched abduction of Saudi journalist Jamal Kashoggi that led to his death marks the beginning of the end of the news cycle on the case.
With the exception of a rogue op-ed in a state-owned newspaper that suggested oil prices may be a potential retaliation to international sanctions, oil prices have remain largely unchanged. The Saudi embassy in Washington and Saudi energy minister Khalid al-Falih both made statements that calmed the sharp rhetoric and oil markets.
After two weeks of media outrage, we are now moving into a new damage control phase that we believe will further calm markets. As a result, we don’t see it fundamentally changing any policies or impacting oil markets.
Even before the rogue or botched adduction story, we were hearing from the administration that any response would be tempered and proportional. While Members of Congress continue to express critical comments of Saudi Arabia, we do not see sanctions in Congress gaining traction. First, from a practical standpoint, Congress is not even in session now until after the election and not expected back in Washington until about November 15. Second, we suspect this story will not be the focus when they return.
The White House views Saudi Arabia as a key ally on many strategic policy fronts in the Middle East and in helping to keep oil prices in check ahead of the US elections. We do not think they will risk altering this relationship with any type of harsh sanctions. Trump’s comment about dishing out “severe punishment” was his way of handling tough questions from the press and should not be taken literally. Instead, we see a proportional response from the administration that will head off any potential further steps from Congress. The response will never be enough for the media who is giving the story heightened attention because Kashoggi was a fellow journalist but we think the story will move quickly to conclusion or at least be overshadowed by the next news cycle.
While the Trump Administration is taking a US national interests approach to Saudi relations, the Kashoggi case has definitely impacted the Saudi relations in Congress and the media. The Kingdom has spent a lot of money to court both and the Kashoggi incident is a set back to put it mildly.
One potential outcome we hearing about is that the Administration may be pushing Saudi Arabia to end their dispute with neighboring Qatar. It was described to us as a low cost way to begin to repair relations with Congress. After Secretary of State Pompeo’s trip on Tuesday to Riyadh to meet with King Salman, the Saudi Foreign Minister was reported to have flown to Qatar for talks. The Saudi-Qatar flap has caused great discomfort in Washington especially at the Pentagon and in national security circles.
There is a tremendous amount of momentum for this chapter to be closed. It is not just Trump and the Saudis that want it to go away. There is very little daylight between Trump’s comments and those of other world leaders. In addition, the whole situation makes the international business community very uneasy. They want to continue with business and investment activities with the Kingdom but are naturally sensitive to the media concerns. So while we have seen some cancellations to the Saudi investment conference, we think this is a short-lived situation.
