The economic heavyweight of the Middle East, Saudi Arabia, is beginning to see its power gradually diminish after it was alleged the kingdom murdered prominent journalist Jamal Khashoggi while he visited the Saudi consulate in Istanbul. The Saudi government has denied the allegations, denouncing the accusations by Turkish officials as “lies,” but the rest of the world ostensibly believes the claims.
Following in the footsteps of entrenched swamp creatures, President Donald Trump has warned that his administration will inflict “severe punishment” on the country if it is confirmed that the government did kill the fierce critic of the House of Saud. The Saudis did respond to the threats, promising “greater action” against the West.
Even if it is found that Saudi Arabia is guilty of the charges laid against them, is it feasible for the U.S. to engage in economic warfare with Riyadh – and vice versa?
Looking at the Numbers
It might seem impossible at this point, but if the U.S. ended its relationship with Saudi Arabia, then billions of dollars and thousands of jobs would be lost. So, President Trump may need to tread carefully.
Today, Saudi Arabia is America’s 22nd largest trading partner, impacting roughly 165,000 U.S. jobs.
In 2017, U.S.-Saudi trade totaled $45.6 billion; exports were $25.5 billion and imports were $20.1 billion. The U.S. has enjoyed a $5.4 billion surplus with the oil juggernaut, something the White House has been trying to achieve with the rest of the world.
With U.S.-Saudi relations dominating the news cycle right now, predictably the media is focusing on arms and ammunition sales to Saudi Arabia, which total $1.4 billion annually. But the U.S. exports a lot of other goods, including machinery ($1.6 billion), agriculture ($1.5 billion), and services ($155 million). Meanwhile, U.S. imports consist of mineral fuels ($18 billion), organic chemicals ($303 million), aluminum ($164 million), and agriculture ($5 million).
Both sides continue to invest billions in each other’s countries. U.S. foreign direct investment (FDI) surged 4.7% to $11.1 billion last year. The dollar figures remain unclear, but Saudi Arabia’s FDI covers real estate, retail trade, and information services.
Military Contracts and Oil
Saudi Arabia’s influence in global crude oil markets is not as big as it once was, thanks in part to Saudi America’s rise to energy king, but it is still considerable enough to worry investors and consumers.
Riyadh owns approximately one-fifth of the planet’s proven oil reserves and possesses the top spot on the world’s list of biggest crude exporters. In other words, it is still a power player and many nations rely on the kingdom for energy.
For example, if Trump decides to apply sanctions on Saudi Arabia, then the government could respond by slashing domestic output, lifting global prices until other producers offset the shortfall. The result could be $100-per-barrel oil and higher gasoline prices.
Even the U.S. dollar could take a beating should the Saudis could demand payment for oil in yuan instead.
In May 2017, the White House touted “the single biggest” arms deal in U.S. history. The Saudi Arabian government, which maintains the third-largest defense budget in the world, had agreed to purchase $110 billion from the U.S. over 10 years – and there are options to raise it to $350 billion.
In May 2017, the White House touted “the single biggest” arms deal in U.S. history.
It isn’t just the U.S. that has these military contracts. Germany, France, and the U.K. supply weapons to Riyadh. Should Washington and other Western actors abandon these contracts, then Saudi Arabia will likely turn to China and Russia to meet its military needs. An alliance between these three states could create a tense geopolitical situation.
A Tough Move
The elitist ruling class is ditching the kingdom. Lobbyists are parting ways with Saudi Arabia. Foreign leaders are rebuking the royals. But for the White House, punishing Saudi Arabia is a lot easier said than done. It is easy enough to publicly slam Riyadh, but when you’re in office, the only thing you can do is bow and smile, much like what former Presidents George W. Bush and Barack Obama did. That said, if there is one thing we have learned from Trump it’s that he is not afraid to break up friendships, and this may be one alliance that will need some time apart.
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