The Khashoggi Case as a Pawn in a Trade War

No matter what sort of motivation lies behind the brutal killing of Saudi Arabian journalist Jamal Khashoggi at the consulate in Istanbul, the developments before and after this event are obvious indicators that the U.S. is going to use this incident as a pawn in a trade war over oil.

More clearly stated, the U.S. has tried to reduce oil prices by forcing Saudi Arabia to increase oil production. However, despite that effort, the U.S. has not been able to achieve the result it was looking for and is now secretly using this incident to blackmail Saudi Arabia into achieving its goal.

By addressing the Khashoggi incident under international law, President Donald Trump is putting heavy pressure on Crown Prince Mohammad bin Salman, even threatening to remove him from power, in order to force the Saudis to increase oil production, which will help lower crude oil prices from their current rate of $80 per barrel.

Why does the United States want an increase in oil production and why is Crown Prince Mohammad bin Salman resisting it? On top of that, what sort of connection does he have to Khashoggi’s killing?

The oil connection to the incident actually began this past spring. Here is a look at how the events developed in chronological order.

April 20, 2018: In a tweet, President Trump argued that the Organization of the Petroleum Exporting Countries (OPEC) had artificially increased oil prices;

May 8, 2018: Trump announced the decision that the P5 + 1 countries would withdraw from the Iran nuclear deal, the agreement ratified during the Obama administration, and that the U.S. would re-impose economic sanctions on the Tehran administration.* The first phase of sanctions against Iran was set to begin on Aug. 7 and the second phase was to be launched on Nov. 5.

However, sanctions against Iran are a bit risky, since there is a chance that they can have a boomerang effect on the United States. Because of the sanctions Trump is putting in place, as of November, the U.S. will reduce the amount of oil bought from Iran to zero. Since Iran is the third-largest oil producer in OPEC, expelling Iran from global oil markets is going to be on the agenda. However, the drop in supply might lead to an increase in oil prices.

This development will contribute to the recovery of the Russian economy, which the U.S. wants to continue punishing for its involvement in Ukraine and in Syria. In addition, making such a decision before the 2018 midterms could be like shooting oneself in the foot.** The U.S. wants to prevent OPEC member countries, including Saudi Arabia, from increasing oil prices, and instead wants to force a declining trend in oil prices. Market analysts say that the uncertainty and concern in the markets following sanctions against Iran could increase crude oil prices even more, from the current level of $80 per barrel to possibly as high as $100 per barrel next year.

Of course, as countries that have greatly suffered from low oil prices, Saudi Arabia and Russia joined in encouraging an upward trend in oil prices, and Americans began to think that their second-most important ally in the Middle East after Israel had taken the oil market hostage along with Russia.

For this reason, the U.S. has been pressuring these countries for a long time.

June 22, 2018: Just before the 174th Ordinary Meeting of OPEC, President Trump tweeted, ” Hope OPEC will increase output substantially. Need to keep prices down!” At the OPEC meeting, which began on the same day in the Austrian capital of Vienna, a decision for reducing oil production was discussed – a decision which had been agreed to with Russian mediation in November 2016 and extended for another nine months at the 173rd meeting. As a result of the critical meeting [on June 22], it was agreed that the production of 1 million barrels of oil would be added to the average daily rate as of July, ending implementation of a reduction in oil production.

The Americans were relieved, to some extent. In fact, the Saudi Minister of Energy issued a statement saying they were given information about increasing the level of production to 1 million barrels to implement the agreement.

June 30, 2018: About a week after the meeting, Trump announced that he had received assurances from King Salman bin Abdulaziz of Saudi Arabia that his country would increase its oil production by maybe 2 million barrels. However, the Saudi government confirmed that there had been negotiations between the two leaders, but not a quantitative target for production growth.

September 2018: The Americans spent the summer trying to see how the OPEC decision would be implemented and what the actual increase would be. But the news at the end of the summer was not the kind that pleased the White House. OPEC member countries were able to achieve a production increase of only 428,000 barrels. OPEC had failed to increase oil production. The Americans were beginning to think that Crown Prince Mohammad bin Salman had now thoroughly stalled and put them off.

In terms of sanctions to be put in place, the Americans were not only monitoring Saudi Arabia but the whole world. However, it was not easy from any country’s perspective. Some 24 percent of oil exported by Iran would go to China, 18 percent to India, 14 percent to South Korea, 9 percent to Turkey and 7 percent to Italy. The Americans, who became increasingly tough in the international arena, threatened the world by declaring that they would impose sanctions on countries that imported oil from Iran unless they too imposed sanctions by November;

Sept. 15, 2018: Meanwhile, Iran’s OPEC representative, Hussein Kazempour Ardebili, announced that President Trump was trying to seize Saudi Arabia and Russia’s oil market after the U.S. decision to sanction Tehran.

Sept. 25, 2018: President Trump claimed OPEC has robbed the world and said, “I don’t like it. Nobody should like it. We defend many of these nations for nothing, and then they take advantage of us by giving us high oil prices.”

Oct. 2, 2018: At the same time, the Washington Post writer Khashoggi, who was known as an active journalist covering the Middle East, went to the Consulate General of Saudi Arabia in Istanbul on Oct. 2 with his fiancé, but days passed without any news from him.

Oct. 3, 2018: An opportunity to respond arose, and President Trump said, “I love … King Salman. But I said ‘King — we’re protecting you — you might not be there for two weeks without us.’” Perhaps for the first time, the stability of a dynasty in power since the 1930s was in question.

Oct. 4, 2018: The Consulate General of the Kingdom of Saudi Arabia tweeted that Khashoggi allegedly disappeared after he left the consulate building. The same day, concerns about whether the increase in oil production from such countries as the U.S., Saudi Arabia, Iraq, Kuwait and even Russia would be enough because of the sanctions imposed on Venezuela and Iran reached a climactic level. The markets were dominated by worry and speculation, Brent increased 4.82 percent and the WTI increased by 5 percent within one week. Oil prices rose above $80 a barrel.***

Oct. 9, 2018: NBC News said that, according to his friends, Khashoggi went to the embassy in the United States where he lived to receive his divorce papers. However, he might have been directed to the consulate in Istanbul as a trap.

Oct. 10, 2018: In remarks about the fate of Khashoggi, President Trump said, “It’s being looked at very, very strongly … We’re going to get to the bottom of it.” Trump also said that they had talked with Khashoggi’s fiancée and had invited her to the White House. At the same time, Secretary of State Mike Pompeo met with Prince Salman and asked about Khashoggi’s situation.

Oct. 20, 2018: Saudi Arabia’s state television announced that the preliminary results of the official investigation showed that Khashoggi died during a fight at the consulate. In an announcement, Saudi Arabia’s public prosecutor said, “The Saudi journalist had been in discussions with people inside the consulate when a quarrel broke out and escalated to a fatal fist fight. God rest his soul.” Saudi Arabian Intelligence Chief Ahmed al-Asiri and Prince Salman’s senior adviser, Saud bin Abdullah Al-Qahtani, also were dismissed from their positions.

Today, it appears that a policy of isolation imposed on Saudi Arabia by international leaders will not be enough for the Trump administration.

On Nov. 6, 2018, congressional midterm elections will be held and are crucial for Congress as well as for the Trump administration. Republicans hope to maintain their majority in both houses of Congress.**

Meanwhile, in the United States, high oil prices are known to bring failure at the ballot box. During the fall of 2017, the price of gas was $2.30 a gallon. Today it is $2.96. So, for Trump, Nov. 6 is a real headache. On the other hand, the sanctions against Iran will go into effect on Nov. 4, 2018. Therefore, Trump, who strongly needs to turn the state of affairs in his favor, will want to get results from Saudi Arabia and OPEC by the beginning of November by increasing pressure.

As for the Khashoggi incident, has U.S. intelligence set up an enticing trap like the one it set up for Saddam Hussein? We cannot possibly know. Moreover, because of the pressure imposed by the U.S. in the Khashoggi case, would the Saudi dynasty fall back on its heels? Would the U.S. consume Salman or discipline him? This is also difficult to guess.

However, we know that what really lies behind the United States’ harsh treatment of Saudi Arabia over the Khashoggi incident is the trade war that we have described above.

Therefore, while the U.S. administration has not articulated even a single word about the ethnic cleansing that Saudi Arabia is carrying on in Yemen, it is a fact that the U.S. will exploit this journalist’s murder, which, at the end of the day, is a violent crime against an individual. The U.S. is apparently going to use this crime as leverage to reach where the oil markets want to go.

Will this plan work or will there be a backlash? Together we will find out in the days ahead!

*Editor’s note: P5 + 1 is a reference to the permanent members of the United Nations Security Council: the United States, the United Kingdom, Russia, France and China, plus Germany.

**Editor’s note: This commentary was originally published prior to the 2018 midterm elections in the United States, but the authors felt that the perspective of the author remains relevant. As a result of the 2018 midterm elections, Republicans lost their majority in the House of Representatives, but retained their majority in the Senate.

***Editor’s note: Brent and WTI West Texas Intermediate refer to benchmark indices used in oil pricing.