Before retreating and conceding the murder of Jamal Khashoggi in the early hours of Saturday, Saudi Arabia had threatened to use oil as a weapon.
And although Riyadh has now stepped back from the rhetoric, yet, the very hint that in case of sanctions, the oil kingdom would retaliate with even “stronger ones” was enough to send ripples all around.
“The Kingdom affirms its total rejection of any threats and attempts to undermine it, whether by threatening to impose economic sanctions, using political pressures, or repeating false accusations…” the official Saudi Press Agency (SPA) said last Sunday, quoting an unnamed government source as saying.
“The Kingdom also affirms that if it receives any action, it will respond with greater action and that the Kingdom’s economy has an influential and vital role in the global economy,” the source added, without elaborating.
Pundits felt this was a warning from the oil kingdom to use its oil resources as a weapon to shield itself from the growing international pressure.
Market anxieties were further exacerbated by the opinion piece penned by Turki Al Dakhil. Al Dakhil heads the state-owned Al-Arabiya news network. In his opinion piece, Al Dakhil openly talked about using oil as a weapon, underlining that imposing sanctions on the world’s largest oil exporter could spark a global economic disaster.
He cautioned the Trump administration in case actions are taken against Riyadh, the United States would “stab its own economy to death”.
He pointed out, “it would lead to Saudi Arabia’s failure to commit to producing 7.5 million barrels. If the price of oil reaching $80 angered President Trump, no one should rule out the price jumping to $100, or $200, or even double that figure”.
This was enough to unravel the entire facade Saudi Arabia had helped create over the last four decades, underlining oil as an economic commodity and not a strategic weapon - for political use.
But despite the threat, was Saudi Arabia really positioned to do so? Can Riyadh still use oil as a weapon today to counter the global outcry on Khashoggi murder? And in the perspective, the larger question still was: Can Saudi Arabia even afford to do so?
The answer is a big no!
Saudi Arabia is no more in a position to act so. The rush from camel to Cadillac has taken its toll.
The world has moved ahead from the 70s. We are living in a different era now. Saudi Arabia needs petrodollars, and in plenty, to manage its expenses and lavish lifestyle. Gone are the days, when the late King Faisal had the guts to tell Henry Kissinger, ‘if we are pushed to the wall, we would burn our (oil) wells and go back to tents’. No more – it seems. King Salman is in no position to even say so.
Saudi expenses are up. The oil kingdom is running a budget deficit today. Despite some plugging of the gap, even in 2018, Riyadh was expected to register a budgetary deficit of 195 billion riyals ($52bn) - some 7.3 per cent of GDP.
Riyadh is now one of the biggest emerging market debt issuers since it started borrowing internationally in 2016. From a peak of $737bn in August 2014, the Kingdom’s current foreign exchange reserves have dwindled and are hovering at around $506bn.
The fruitless war on Yemen initiated in March 2015, as soon as Prince Mohammad bin Sultan (MBS) had emerged on the scene, is extracting a price of its own. The cost of war to Saudi Arabia is somewhere around $100-200bn, per annum. Other estimates go even further.
And despite all this, in order to obtain political support in the concerned capitals, Riyadh appears on a spending spree. Under MBS, it has signed defence contracts worth billions of dollars with major western powers.
In one of the “biggest single arms deals in US history, contracts worth $110bn were signed between the US and Saudi Arabia last year during President Donald Trump’s maiden overseas visit. According to some reports the deal was expected to stretch past the $350bn mark, over the coming 10 years. Agreements of increased economic cooperation were also signed during the trip.
Riyadh has also signed defence contracts worth more than $100bn with the United Kingdom. Smaller contracts were signed with other countries too.
Under the ‘Vision 2030’ programme launched by MBS, Saudi Arabia has also inked MoUs, worth hundreds of billions of dollars, with a number of high-tech global companies.
Managing these outflows is simply not possible without the inflow of petrodollars and in abundance. For Saudi Arabia to stop selling crude, and live without the inflow of petrodollars, even for a few months, simply seems improbable, implausible and indeed inconceivable.
The threat was an empty one.
Published in Dawn, October 21st , 2018