REUTERS/Faisal Al Nasser
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There is mounting evidence suggesting Saudi Arabia was complicit in the death of a Washington Post journalist.
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It isn't clear whether the US would impose sanctions if an investigation reaches that conclusion.
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But the affair may have already damaged the reputation of the kingdom, according to experts.
As evidence suggesting Saudi Arabia was involved in the death of Washington Post journalist Jamal Khashoggi mounts, investors are pulling out of a major investment conference in Riyadh left and right. And experts say that may be just the start of economic troubles for the kingdom.
Jason Tuvey, senior emerging markets economist at Capital Economics, said the Khashoggi case and the manner in which Saudi Arabia has handled it "will damage the country’s long-term economic prospects, and another political shock will remain a key risk to the outlook."
Earlier this week, Saudi Arabia’s stock market, which had just recently been recognized as an emerging market on the MSCI, suffered its steepest drop since December 2014. Meanwhile, the riyal temporarily breached its 3.75 peg to the dollar and fell to a two-year low.
"We’ve seen a lot of volatility," Karen E. Young, a resident scholar at the American Enterprise Institute, said Thursday. "We can see now that markets are trying to figure out how to price-in this risk in Saudi Arabia."
While it isn’t clear how the US would respond if it is determined that the Crown Prince Mohammed bin Salman is guilty of involvement in Khashoggi's death, sanctions are an option. In a bipartisan letter sent to President Donald Trump last week, top senators demanded an investigation into whether "the highest ranking officials in the Government of Saudi Arabia" were complicit in the case.
The Trump administration, which did not respond to an email requesting comment, has 120 days to decide if it will impose sanctions under a human-rights statute invoked in the letter. Gregory J. Wawro, a political science professor at Columbia University, said he isn’t betting on any formal penalties at the moment.
"If some sort of diplomatic reaction is going to happen — whether it’s sanctions or some sort of formal statement condemning Saudi Arabia or top leaders there — I think the story is going to have to last through the election," he said. "And that is a tall order."
But sanctions or not, analysts say the economy could suffer as companies continue to delay or even cancel investment plans in the country. Foreign direct investment inflows fell to just 0.2% of gross domestic product last year, according to Capital Economics, down from about 9% in 2009.