While Saudi Arabia isn't likely to follow through with what many saw as a veiled threat to pressure the energy market if the West imposes sanctions against Riyadh, analysts aren't ruling that scenario out.
- There is increasing evidence Saudi Arabia was behind the disappearance of Jamal Khashoggi, a US resident who has been a critic of the crown prince.
- After the US threatened sanctions against Saudi Arabia, the oil-rich country seemed to hint at its ability to hit back through the energy market.
- Analysts see a 1973-style embargo as unlikely, but warn oil prices could hit triple-digits if tensions escalate.
Saudi Arabia has pushed back against the overwhelming evidence that it was behind the disappearance of the Washington Post journalist Jamal Khashoggi, emphasizing its “vital role in the global economy.”
And while the oil-rich country isn’t likely to follow through with what many saw as a veiled threat to pressure the energy market if the West imposes sanctions against Riyadh, analysts aren’t ruling that scenario out.
“We believe that Saudi leadership would be extremely reluctant to exercise the oil weapon option, as its reputation as the world’s stable, reliable oil central banker would be severely undercut,” RBC analysts wrote in a research note. “Perhaps more likely is a Saudi decision to slow-walk any Trump inspired output hikes as the Iran energy sanctions deadline looms.”
Saudi Arabia, the largest crude exporter in the world, is set to play an increasingly crucial role in maintaining global supply when US sanctions against Iran take effect next month. Following requests from the Trump administration, Riyadh agreed to increase output by a “measurable” amount earlier this year.
“The Kingdom already looks to be close to reaching the upward limits of what it can easily bring on, and it could now dress up any near-term production constraints as a deliberate policy choice,” the analysts wrote.
While analysts doubt Riyadh would go as far as an energy embargo now, the government has used oil resources to exert political pressure before. During the 19 70s, a Saudi-led coalition slashed oil exports to the US in protest of Washington’s support of Israel in the Yom Kippur War.