Jamal Khashoggi, a Saudi national living in the US and a columnist for the Washington Post , critical of Mohammed Bin Salman (MBS), the Saudi crown prince, was apparently brutally murdered inside the Saudi consulate in Turkey. According to reports on the site middleeasteye , audio recordings reveal that he was tortured for seven minutes before being decapitated, dismembered (to facilitate an exit from the consulate), and the body removed from the consulate.

President Trump has threatened severe punishment, including sanctions, against Saudi Arabia if this was found true. He faces a dilemma — whether to uphold the value of human life and free expression, the bedrock of the American society, or turn a blind eye, pin the blame on ‘rogue elements’, and not sour the alleged $100-billion order for military equipment.

Saudi has stated that MBS wasn’t directly involved. Yet seven of the 15 men who entered the consulate to handle the issue, were a part of his security detail.

Saudi Arabia has threatened counter measures if the US imposes sanctions. It threatens to push up the price of crude oil above $100/barrel, cosy up to Iran, and trade oil in Chinese yuan rather than the US dollar.

Advent of petro-dollar

The third threat is the deadliest of the three. After the first oil shock in 1973, when OPEC flexed its muscles and quadrupled oil prices, US President Richard Nixon deputed Henry Kissinger to Saudi Arabia. At the time, the US was importing 70 per cent of its oil requirement, and the sharp hike of crude would have crippled its economy. Kissinger struck a deal with King Faisal under which if Saudi were to sell its crude oil in US dollar, the US would, as quid pro quo, protect the kingdom (and the House of Saud). Other oil producers also sold their oil in US dollars. This gave rise to the petro-dollar, which are US dollars lying outside the US.

Since they reside outside of US, the US government can print as much of its currency as it wants, without a concomitant rise in domestic inflation. It is because of the petro-dollar that the US, the world’s largest debtor, is able to afford a high standard of living, making other countries pay for that privilege.

So the threat of pricing its crude oil in yuan is an extremely serious one.

Needless to say that the other two threats will derail the global economy and realign geopolitical forces.

The US Congress wants Trump to penalise Saudi if the State Department confirms that Khasoggi was killed and that MBS was involved. Yet, the Congress cannot force the President’s hand, given his parliamentary strength.

Commerce or human rights

In the end, commerce will win, as it usually does, over human rights, and the crisis will be forgotten. Crude oil, which has hit $82/barrel, would come under pressure from higher US shale oil production, slated to rise from an average of 10.7 million b/d to an estimated 11.5 mbpd according to EIA.

So, what do investors need to be concerned about?

Rising interest rates, and a tightening of money by central banks of the developed world, for one. As a result, foreign portfolio investors are selling aggressively; in the first half of October they pulled out $3.6 billion worth of equity and debt, more than in the whole of September. The outflow by FPIs was partly countered by net inflows into mutual funds from domestic investors, who pumped in ₹11,172 crore during September. So, it is the continuing faith of the retail investor that is key. He needs to feel protected from scamsters, but that is not happening.

(The writer is India Head — Finance Asia/Haymarket. The views are personal.)