Saudi Arabia also said it’s begun an internal investigation into the disappearance Khashoggi at its Istanbul consulate and could hold people accountable if the evidence warrants it, according to a Saudi official.
Whatever the Saudi leadership intended with it Sunday statement, it broke with the kingdom’s diplomatic orthodoxy: oil and politics are separate.
For example, during a recent diplomatic spat with Canada, Al-Falih reiterated the kingdom had a "firm and long-standing policy" that petroleum exporters are not mixed with political considerations. Saudi state-owned company Aramco continued to supply a refinery in Canada despite Riyadh severing most other economic links.
While the mere hint of Saudi Arabia using oil as an economic weapon still brings back memories of queues at the pump and stagflation in the Western world, there are good reasons why Saudi Arabia hasn’t wanted to brandish oil-market power as a political tool. Essentially, it has lots in common with another relic of the 1970s: the Cold War doctrine of mutually assured destruction.
True, Riyadh can bring the global economy to its knees in the short-term by cutting output and sending prices sharply up. The kingdom pumps one-in-ten oil barrels produced worldwide, and holds nearly all the spare capacity available to respond to any supply outage. Even just hinting that it won’t replace the barrels lost from Iran due to U.S. sanctions could be enough to push prices toward $100 a barrel.
But if the Saudis retaliate using oil, it would lead to “calamity,” said Stephen Innes, Singapore-based head of Asia Pacific trading at Oanda Corp. “This would be so destabilizing for global markets that it would make the current trade tensions between the U.S. and China look like a game of Axis & Allies.”
Over the medium-term it would lead to massive oil demand destruction and an accelerated race into renewable energy and electric cars. The 1973-74 embargo, and the second oil crisis in 1979, destroyed oil demand for ever as industrialized countries taxed gasoline and diesel and embarked on conservation policies. Oil consumption is lower today than in 1974 in Germany, Japan, France, Italy and the United Kingdom.
This article was provided by Bloomberg News.