In the news today, the fox has just opened an investigation in the recent disappearance of several chickens. A bystander purportedly videotaped the operation, but the fox denied the culprit was he.
How crazy is this? It doesn’t take a lot to make stock markets nervous. The yen and Swiss franc are rising, indicating smart money looking for safe havens. The US deficit has worsened, again. There’s a trade war with China.
All of that pales right now compared to the fox in the henhouse situation with Saudi Arabia.
Saudi Arabia has been accused of luring journalist Jamal Khashoggi to his death at the Saudi Consulate at Istanbul, Turkey. The Turkish government has surveillance videos showing that two Gulfstream jets carried 15 men believed to be professional assassins into the country before dawn on the day Khashoggi disappeared. The men checked into two hotels, then left the country by private jets later the same day. Grisly details include an accusation that the team killed and dismembered the journalist.
Now the Saudis have promised to investigate and let us know what they find out about themselves. But heaven help us all if anyone tries to intervene.
Some rumors have it the Saudis will confess to an interrogation gone wrong. But push the Saudis on this, invoke sanctions, and King Salman says we’ll be buying oil from them at $400 a barrel.
The threat of $400 oil is hard to ignore because the Saudis can unilaterally influence global prices. Less than a month ago, they quietly raised their own production to help keep prices low as Iranian and Venezuela pulled back.
As it stands now the White House, Wall Street, the media and thousands of business relationships are in the crosshairs. It’s not just about the price of oil.
Saudi Arabia has worked hard to overcome its reputation as a backward kingdom run by a family of oligarchs. While “average” income is high in Saudi Arabia, a fourth of the country is dirt poor.
At this point, the Saudis may have some explaining to do and fast, but they also have a good bit of leverage besides barrels of oil. They are strategic partners in the Trump administration’s Middle Eastern foreign policy as well as major clients of Trump’s businesses. England’s Prime Minister Theresa May also thinks the Saudis serve Britain’s interests in the Middle East.
Saudi Arabia buys more arms than any country outside of India. President Trump is proud of a recent $110 billion deal that he says he intends to keep.
The Saudis have more clout in the US than they have ever enjoyed before. Trump’s instinct is not to unsettle that. King Salman told President Trump his people didn’t do anything, and Trump believes him. So it remains business as usual in the White House. Arms sales proceed. Secretary of State Mike Pompeo is going over to talk to the king.
Trump is also sending Treasury Secretary Steve Mnuchin to a major conference in Saudi Arabia next week, The Future Investment Initiative, that has been dubbed the “Davos in the Desert.” The former Goldman Sachs exec won’t be seeing many of his old pals.
Whatever the White House is doing, Congress is angry and the business world is unhappy.
So far, Jamie Dimon, CEO of Citibank (C) has pulled out of the Future Investment conference. Ditto Larry Fink, CEO of Blackrock (BLK), and Stephen Schwarzman of Blackstone.
Industry captains are turning their backs on Saudi Arabia as well. Bill Ford, Executive Chairman of Ford (F) won’t go to the conference. Nor will Ajay Banga from MasterCard, Dara Khowrowshahi from Uber.
The media are taking a pass, too. The New York Times, The Economist, and CNN have pulled partnerships. The Financial Times is tentatively out unless the Saudis can reveal what happened to Khashoggi and affirm they had no part in any wrongdoing. Bob Bakish, CEO of Viacom, was supposed to speak at the conference. He’s staying home.
And Deals Come Undone
Conferences are one thing. Business is another. The regular business transaction, meeting, or contract gets little attention. So most companies could remain Saudi-friendly without adverse publicity. But even that is changing as a result of the Khashoggi affair.
Richard Branson is putting put the brakes on any deals with the Saudis. He suspended talks with them about investing $1 billion in Virgin’s space companies.
Branson said that he once had “high hopes for the current government in the Kingdom of Saudi Arabia and its leader Crown Prince Mohammed bin Salman and it is why I was delighted to accept two directorships in the tourism projects around the Red Sea.” But he has drawn a line in the sand.
“What has reportedly happened in Turkey around the disappearance of journalist Jamal Khashoggi, if proved true, would clearly change the ability of any of us in the West to do business with the Saudi Government.”
Donald Trump, dealmaker, vows he will keep his Saudi deals going. But Virgin, Uber, Viacom, and a whole lot of bankers suggest that looking the other way won’t fly anymore.
Whether defense companies like Raytheon (RTN) and Lockheed (LMT) will take a hit remains to be seen.