BY GINA CHON, LAUREN SILVA LAUGHLIN
Congress is walking a fine line with potential sanctions on Saudi Arabia. U.S. lawmakers are invoking a law used to impose Russian sanctions to demand answers about missing Saudi journalist Jamal Khashoggi. There’s momentum for a similar penalty for the kingdom. But retaliation from Saudi Arabia could send oil prices higher – which would fly in the face of U.S. President Donald Trump’s recent hectoring of oil-rich countries.
The audacity of the allegations in the Khashoggi case have united Republicans and Democrats in their condemnation. A bipartisan group of 22 senators sent a letter to Trump last week asking him to investigate Khashoggi’s disappearance. Under the so-called Global Magnitsky Act, Trump has 120 days to report to Congress the results of a probe and determine whether sanctions are warranted for foreign individuals. It implied that Mohammed bin Salman, the Saudi crown prince, could be included in the sanctions, subjecting him to frozen assets or being barred from entering the United States.
Although Trump has vowed punishment if the kingdom is responsible, he also said on Monday that “rogue killers” may be behind the disappearance. It’s doubtful that Trump would target MbS, a move that may be too ambitious for many in Congress as well. That said, Republican Senator Lindsey Graham, a close Trump ally, told Fox on Tuesday that he wants to “sanction the hell out of Saudi Arabia” and would not visit the kingdom until MbS is ousted.
But lawmakers could broaden the impact by following its Russian playbook and targeting Saudi businesses. While sanctioning state-owned oil company Saudi Aramco may not be realistic, lesser-known but still important firms like petrochemicals company SABIC or Saudi Arabian Airlines might be on the list. Three congressional aides told Breakingviews that all options are likely to be considered.
Congress could act on its own without Trump’s support. Lawmakers have a good chance of getting support from two-thirds of members in each chamber – enough to stave off a veto. Ire against Saudi Arabia has galvanized Congress in the past. Lawmakers in 2016 were turned off by the kingdom lobbying against a bill that would allow the families of victims in the 9/11 attack to sue the Saudi government over alleged support for the perpetrators of that event. Then, Congress overrode a veto by President Barack Obama, allowing the bill to succeed. This time on the Khashoggi case, Saudi lobbyists, a few of whom have abandoned their client, aren’t trying to sway Congress.
That leaves some unwanted consequences, though. Any U.S. sanctions could prompt Saudi to use oil as a weapon – a move similar to the one it infamously made 45 years ago against countries, including the United States, that provided military aid to Israel. Trump has been pressuring the country and other sovereign states in the Organization of the Petroleum Exporting Countries to increase their oil production, as a clampdown on pumping has sent prices for a barrel of Brent crude skyrocketing almost 40 percent in the past year.
But in retaliation for potential sanctions, Saudi could drain more black gold from the market. The country is responsible for producing 12 percent of the world’s crude oil and is the world’s largest exporter. If the kingdom were to cut oil production as much as it did in the 1970s, the price for a barrel of oil could hit $150, according to research firm Capital Economics.
Meanwhile the outlook for the U.S. market has changed, which limits the ability of Washington officials to use their own natural resources to fight back. Earlier this year Citigroup predicted the United States could become the world’s largest oil exporter as early as next year. Yet bottlenecks in the region, in part a result of steel tariffs that have cut into building the necessary infrastructure, have started to hit production. The U.S. Energy Information Administration recently lowered its U.S. production forecasts.
Some of the issues in the oil market should be fixed in the next 18 months or so. But in the meantime, congressional action is probably months away, giving Saudi more short-term power. Lawmakers are currently on a break and aren’t returning to Washington until about a week after U.S. sanctions on Iranian oil are slated to go into effect on Nov. 4. That has made the oil market even tighter. Trump has been counting on Saudi Arabia to offset the effects of Iranian sanctions.
Still, Riyadh would stand to lose more if it decided to properly butt heads and Trump looked elsewhere for Gulf partners. And Washington has other levers of pressure besides sanctions, such as halting billions of dollars in arms sales to the kingdom, which Trump opposes. In June, Democratic Senator Bob Menendez put a hold on a U.S. munitions purchase by Saudi Arabia and the United Arab Emirates for the war in Yemen. The Khashoggi case gives Congress another reason to pile on.
First published Oct. 16, 2018
(Image: REUTERS/Jonathan Ernst)