Economic Consequences of Khashoggi Murder

The cold-blooded murder of Saudi journalist Jamal Khashoggi has shaken the world. Khashoggi was last seen while entering the Saudi embassy in Turkey. Soon after entering the Saudi embassy, Khashoggi was reported to have disappeared. The entire world has blamed the current Saudi government for this gruesome murder. Earlier the Saudi government did not acknowledge this accusation. However, because of mounting international pressure, the Saudi government has been forced to accept that Khashoggi did indeed die on their watch. However, they have not provided any information about Khashoggi’s body.

The brazen murder of a critical journalist has not gone down well with the international community. This is the reason that the Saudi government is likely to face many repercussions. It is true that Saudi Arabia is a wealthy country but the political outrage from across the world is leading to the creation of policies that can cause severe pain.

In this article, we will have a closer look at the economic consequences that Saudi Arabia is likely to face because of this state-sponsored murder.

Saudi Arabia’s Current Situation

It is true that Saudi Arabia is a powerful and wealthy country. However, it needs to be understood that Saudi’s wealth is directly proportional to the amount of oil that they have. The problem is that Saudi power has drastically reduced in the past few years. This is because of the falling prices of oil. As a result, the Saudi government found out that its expenses were way more than its income.

In order to reduce the excessive dependence on oil, Saudi Prince Mohammed Bin Salman has started investing in other industries. It is for this reason that Saudi Arabia hosts an annual investor’s meet. This event was so important till the last year that it had been nicknamed “Davos in the Desert.” After the Khashoggi murder, this event turned out to be an utter failure. Under pressure from media, most businesses, as well as political leaders, were forced to boycott the Saudi event. The only important leader attending the event was Imran Khan from Pakistan. He too was attending because Pakistan was in dire need of a bailout which Saudi Arabia was willing to provide.

Hence, simply put, the international media has created a very bad image of Saudi Arabia after the Khashoggi murder. None of the business or political leaders want to be associated with such an image since it would damage their credibility in the long run.

Saudi Arabia’s Power Struggle

This is not the first time that investors have come face to face with the high handedness of the Saudi government. Prior to this, Saudi Arabia government conducted a royal purge. This was a violent struggle in which major leaders of the royal family were kidnapped and kept at a hotel. It is believed that this was done by Prince Mohammed bin Salman in order to consolidate his power.

Investors generally prefer nations which are stable and are governed by laws. The Saudi government has projected itself to be the exact opposite of this. Instead of having the rule of law, the Saudi government functions on the whims and fancies of one particular ruler. This does not make investors feel secure about their investments. Investments had reduced drastically after the royal purge. Now, after the Khashoggi murder, they have come to a complete standstill.

Economic Sanctions

The Saudi government has come under major criticism from the global media. This is because western nations want to break the Saudi belief that they can undertake human rights violations and can easily get away with them. As a result, Saudi Arabia is likely to face economic sanctions from America as well as from European countries.

Ending of Qatar Blockade

Saudi Arabia and its allies have enforced an embargo on neighboring Qatar. Prior to the embargo more than 60% of the goods moving into Qatar would be routed via Saudi Arabia. This gave Saudi Arabia the confidence that they could pull off an embargo on Qatar. However, in reality, Qatar has been able to simply bypass Saudi Arabia. However, the attempted embargo has spoiled Saudi’s image. Now, after the Khashoggi murder, Saudi is in dire need of some goodwill. This is the reason why the Saudi prince has started praising the economy of Qatar. Since the embargo isn’t working anyway, Saudi Arabia wants to remove it and gain some political brownie points.

Risk Premium

The Khashoggi murder has increased the risk premium associated with Saudi investments. Now, the Saudi government has limited options from where it can borrow money. Also, the money is being lent out at high-interest rates. This is largely because the investing community is not sure how the rest of the world will respond to Saudi’s provocation. A stiff response may have an economic impact on Saudi Arabia’s economy, and that might end up hurting investor interests.

To sum it up, the murder of Jamal Khashoggi has grave consequences for the entire nation of Saudi Arabia. The nation’s policies are now being viewed in a negative light. Trade and commerce have taken a severe beating. It is unlikely that Prince Mohammed bin Salman will be able to attract foreign investments in the short run.

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