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26 October 2018

Talking turkey

James Rowbury, Investment Research Coordinator, discusses the impact of the international crisis facing Saudi Arabia on its domestic and international affairs.

The death of Jamal Khashoggi at the Saudi consulate in Istanbul earlier this month has caused a complex global backlash, with seemingly united scepticism from world leaders towards the official response. This appears to be justified, as the latest statement from the office of the Saudi public prosecutor said that the killing was premeditated, contradicting earlier claims by Riyadh.

Geo-political tensions have been intensifying of late, with Turkish President Recep Tayyip Erdogan vowing to issue a statement detailing the truth around the killing “in all its nakedness”. The two countries maintain cordial relations in public, though, in private, it is a different story. However, Erdogan backed down at the eleventh hour, presumably deciding it did not benefit Turkish-Saudi relations to release damning evidence.

Donald Trump has given various and contrasting views on the matter. Initially condemning the killing and threatening “very severe” consequences, he shifted position to a more sympathetic stance towards Saudi Arabia, alleging that critics of the state were too quick to point the finger, saying: “Here we go again with… you’re guilty until proven innocent”, drawing parallels between the incident and the sexual assault allegations against Justice Kavanaugh.

In the minds of many, this was perhaps a consequence of Trump’s phone call with King Salman, where he was likely reminded of the costs of poor relations. More recently, however, has come another shift in his view. In an interview with the Wall Street Journal he said that Saudi crown prince Mohammed bin Salman could have been involved.

Saudi Arabia is the world’s second largest oil producer, producing 12.7% of global oil output. The country’s role in controlling global oil prices means it has strong influence in the global economy. Saudi Arabia’s Energy Minister has downplayed any use of oil as a political weapon, claiming the country uses its oil policy as a “responsible economic tool”, and “we will exercise our wisdom”.

Beyond the political noise, international investors have withdrawn US$650m of funds from the region, though only 5% of the country’s stock exchange, the Tadawul, is owned by overseas investors. Granted, the withdrawals are piecemeal compared to the exchange’s market cap of US$507bn, but Saudi leaders had hoped for US$20bn of passive investment inflows over the year, following a recent addition to the MSCI Emerging Markets Index.

The timing of this incident has been unfortunate for Saudi business, as this week the country is due to host its prestigious investment conference in Riyadh. It had high hopes of attracting high profile global capitalists, however, the delegation has been decimated, with the Blackrock Chief Larry Fink being amongst a plethora of C-suite peers saying they will not attend.

Ends
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Talking turkey
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