In the ten days since his disappearance inside the consulate offices of Saudi Arabia in Istanbul, it now seems increasingly likely that Jamal Khashoggi, a Saudi dissident and legal resident of the United States, was murdered by Saudi state security operatives under orders from the Crown Prince of the Saudi Arabia, Mohammed bin Salman.
We should acknowledge at the outset that Khashoggi’s disappearance strikes close to home, as he is — we are not yet able or willing to write this in the past tense — well known to SGH, a relationship that dates back decades to the early 1980s. And we still hope Jamal somehow, somewhere, suddenly resurfaces.
But the escalating and gruesomely detailed media reporting, largely based on Turkish and US intelligence sourcing, including a Turkish tap of the consulate and US signal intercepts, points in the other direction, to his likely death. And whether his presumed death was an unintended consequence of a botched, clumsily handled kidnapping rather than a cold blooded torture and murder is at this point not especially relevant.
And while the truth of what happened or why remains elusive, it is not too early to weigh the potential political and economic reverberations of Khashoggi’s presumed death that are mounting with each passing day the Saudis are unable or unwilling to offer a remotely coherent or credible explanation of exactly what happened that day inside their consulate walls.
A number of points, for now to consider:
*** On the oil front, we believe the Kingdom will be doubling down in its efforts to dampen oil prices — and by extension, US gasoline prices — in the hopes to maintain continued US political support while the Crown Prince scrambles to manage the crisis. But added output from the Neutral Zone is handicapped by the ongoing dispute with Kuwait, and we doubt the Kingdom can add much more than perhaps 500,000 bpd in total or much above 11 million bpd in output without billions of dollars in new investments. ***
*** We also expect a higher political risk premium to be priced into the Kingdom’s international borrowings, while domestic spending is likely to spike to quell political disquiet. Foreign investments flows are also likely to slow, perhaps sharply — attendance is already plunging for the “Davos of the Desert” showcase conference planned for next week — while domestic capital flight may worsen amid a loss of confidence and an extended political uncertainty. ***
*** Saudi internal security are also likely to intensify domestic repression to deter any stirrings of discontent. Despite his efforts to promote his standing as a economic and social reformer, MbS as he is known, has overseen sweeping arrests of thousands over the last year, pitched as an anti-corruption drive or being agents for Iran or Qatar, among them potential rival Princes, scores of businessmen, journalists, moderate Islamic scholars, even feminists who lobbied for the right to drive. ***
*** As inept as the Saudis have been in struggling to develop a strategy to deal with the crisis — the state-controlled media has been spinning stories about a Qatari or Moslem Brotherhood plot, and even that the 15 Saudi security operatives suddenly showing up in Istanbul that day were tourists — the Turks have deftly handled the scandal from the start, turning over their evidence, including their taps on the Saudi consulate, and now releasing the American pastor Andrew Brunson. ***
*** After an initially muted response when the news first broke of Khashoggi’s disappearance, the Saudis have since sent Khaled al Faisal, governor of Makkah and the most senior of the influential al-Faisal branch of the Royal Family, to meet with Turkish President Recep Tayyip Ergodan while phone calls were made between MbS and several US officials. President Trump is said to have called King Salman. “We will probably know what happened in the very short future,” President Trump has said. “We don’t like it. I don’t like it.”
*** Indeed by far the most significant damage of the Khashoggi affair is to US-Saudi relations. The bi-partisan outcry on Capitol Hill is escalating rapidly — Sen. Lindsey Graham, perhaps the president’s closest ally in the Senate, predicated a “bipartisan tsunami” if the Saudis were involved — and shows little signs of abating. President Trump, clearly taken aback by the initial reports, is for now standing by the Saudi Crown Prince, hoping the crisis will die down and playing for time, keenly aware the next stage of US-led sanctions on Iran looms. ***
*** In addition to a reliance on the Saudis in the confrontation with Iran, there is also a fair degree of political vulnerability for the President. Early in his presidency he quickly aligned with the young MbS on the advice of his son-in-law Jared Kushner, and strongly backed MbS when he ousted his cousin, then Crown Prince Mohammed bin Naif, who was supported by the US intelligence and foreign policy communities. If the evidence proves convincing, and the political cost is rising, our sense is that President Trump will begin to distance himself and the US from the Crown Prince.
*** That US support, we believe, is key to whether Crown Prince Mohammed, the son of the ailing King Salman bin Abdul Aziz, will be able to maintain his absolute grip on power in the Kingdom. To be sure, the Crown Prince has absolute control over the Saudi military, intelligence, and security services. If the US does indeed signal it can no longer support the besieged Crown Prince, we think the senior Saudi princes would seek an audience with the King to ask that his son be removed and replaced in order to protect the continued rule of the Al Saud.
*** In theory, the fate of the Crown Prince could be decided by the princes who sit on the Allegiance Council, or the King could simply issue a royal decree and that’s that. The King could also announce a Deputy Crown Prince as a signal of his displeasure with his son’s reckless actions. But the King himself set a precedent when he dismissed Crown Prince Mugrin bin Abdul Aziz soon after becoming King, and Crown Prince Mohammed could do the same on becoming King following his father’s death.
*** Whether of course such a sequence and steps surrounding Al Saud succession would ever be set in motion is at this point entirely speculative. Nor is it clear how the Crown Prince will respond if he picks up wind of the political moves and thus whether a succession could be undertaken smoothly. But it has happened before, when Prince Faisal bin Abdul Aziz al Saud led a family ouster of then King Saud in 1964, albeit after several years of Royal Family infighting. We doubt this would take as long if it comes to that sort of flashpoint within the Royal Family.
*** And it is perhaps telling that in recent tweeted declarations of support by ruling family members in Bahrain and the United Arab Emirates, they declared their support for Saudi Arabia, but failed to mention the Crown Prince by name. We suspect President Trump and US officials could begin to see resolution of this crisis through the same lens.