In This Article:
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U.S. and Saudi Arabia relations could impact oil prices for U.S. consumers.
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Saudi sanctions might force the U.S. to increase domestic crude production, which would devalue shares.
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Alternate investments mostly include renewable energy sources.
U.S. and Saudi Arabia relations continue to grow tense after the disappearance and killing of journalist Jamal Khashoggi on Oct. 2. The event has sparked an international backlash, with various executives, including JPMorgan Chase CEO Jamie Dimon, withdrawing from Saudi Arabia’s Future Investment Initiative conference. Furthermore, U.S. politicians are demanding that President Donald Trump take action, with some floating the possibility of sanctions against the country.
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Saudi Arabia has already gone on the defensive against such acts, threatening to hike its oil prices in response. The country produces about 10.5 million barrels of oil per day, which is more than 10 percent of global crude demand, according to CNBC. So its threat, if put into action, would dramatically increase oil prices. The price of oil surged more than 25 percent in 2018, and has steadily risen from around $67 per barrel since January 2018, according to Brent Crude, the international benchmark.
Click to read about how much gas prices might drop thanks to Trump’s ethanol plan.
Saudi markets are already reacting to sanctions talk. Stocks of top Saudi companies fell as much as 9 percent following international outcry in response to Khashoggi’s disappearance, with the country’s main stock market dropping as much as 7 percent, CNN reported.
See: How Do Political Conditions Affect the Stock Market?
The Effect of Higher Oil Prices for the US
Drawing from lessons learned during the 1973 oil embargo, which was imposed by Saudi members of the Organization of Petroleum Exporting Countries on countries supporting Israel, threats from Saudi Arabia might turn out a greater loss for itself. The embargo resulted in other producers moving in on the market, as well as strengthened research into oil alternatives.
To be sure, a similar tactic today would be a drain on U.S. dollars. Plus, the Trump administration is slated to impose crude oil sanctions on Iran, which, according to CNBC, could mean the disappearance of 500,000 barrels of oil per day.
Current US Oil Production
Oil dropped below $80 per barrel due to a sudden spike in U.S. crude inventory for the month of October. Good news for consumers, but the secure supply means a devaluation in domestic oil shares.
Saudi restrictions on oil exports might push U.S. production even higher. World events plus the domestic increase in crude oil inventory have many investors anxious and unsure of whether to sell or buy oil stocks.