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The gruesome killing of Jamal Khashoggi inside the Saudi consulate in Istanbul sparked global outrage against the ultra-conservative kingdom. Shortly after Khashoggi disappeared, all evidence indicated that the Saudi crown prince Mohammad bin Salman – known as MBS – ordered the assassination and dismemberment of Khashoggi’s body. MBS vehemently denied the accusations, initially claiming that Khashoggi died after an argument descended into a fist-fight inside the consulate.
Most observers were skeptical of MBS’s version of events, which they say amounts to little more than an inadequate cover story. After all, the Saudis never produced a body or a shred of evidence to support their claim. The most certain scenario was that Khashoggi was killed for writing columns critical of MBS in the Washington Post.
The allegations were confirmed after Sky News reported that the remains of Khashoggi’s body were found in the garden of the consulate. CNN also published surveillance footage that showed one of the members of the Saudi hit-squad walking out of the consulate disguised in Khashoggi’s clothes.
The brutal murder now threatens to undo MBS’s ambitious plans to reform the kingdom. Just one year ago, he revealed to dozens of CEOs and investors his big plan to build a $500 billion metropolis. At the time, many were convinced that MBS was committed to creating an open environment that would appeal to investors.
But the news of Khashoggi has alarmed CEOs and investors, deterring many from following through with their business ventures in the kingdom. British billionaire Richard Branson was one of the first executives to suspend two tourism projects in the Red Sea following reports of Khashoggi’s unexplained disappearance. He also cancelled talks with the kingdom over a possible investment in space companies, priced at more than $1 billion dollars.
“I had high hopes for the current government… and its leader, Crown Prince Mohammed bin Salman,” Branson said in a statement. “What has reportedly happened in Turkey… if proven to be true, would clearly change the ability of any of us in the West to do business with the Saudi government.”
Dozens of other technology, media, and financial honchos elected to pull out of the Saudi-led conference, which took place at the end of October and was dubbed the “Future Investment Initiative.” The heads of the multinational bank JPMorgan Chase and asset management giant Blackstone Group were among the highest profile executives to pull out.
The move by JPMorgan could harm its standing in Saudi Arabia. The bank has helped the kingdom sell large bonds, including a deal that awarded Saudi Arabia $11 billion. More significantly, Saudi Arabia hired the bank to advise it on privatising large chunks of its state-owned oil sector. The crux of that plan is to offer a part of Aramco, which remains the world’s largest oil company.
David Schwimmer, who runs the London Stock Exchange, was reportedly supposed to have the edge over New York in purchasing the initial public offering (IPO) of Aramaco. Yet he too pulled out of the conference following reports of Khashoggi’s death. Schwimmer, it appears, has little interest in generating a political backlash to flatter MbS, especially after the crown prince indefinitely suspended the selling of shares of Aramaco last August. The setback frustrated potential bidders, endangering MBS’s Vision 2030 even before the death of Khashoggi. The murder is now compounding the challenges to modernize the kingdom.
“If the Aramco IPO was crucial to Vision 2030’s success, so were the hundreds of billions of dollars of potential foreign investment from the world’s biggest companies and funds,” wrote Eric Reguly, the European Bureau Chief for the Canadian daily The Globe and Mail.
However, some high-level executives appear to have too much at stake to severe ties with the kingdom. And while many have pulled out of the scheduled conference in Riyadh, some sent lower-level representatives to the event.
The chief executive of U.S investment manager BlackRock is just one example. Although he confirmed that he was pulling out of the conference, he stressed that his firm would not cut ties with the kingdom, as doing so would give companies from major markets in China and Japan a serious advantage in securing bids and investment from Saudi Arabia
“In the new year, the impact (of the Khashoggi affair) may start to ease, particularly given that the U.S. seems to be helping Saudi Arabia sweep the incident under the carpet,” said Jason Tuvey, senior emerging markets economist at Capital Economics. U.S president Donald Trump has said that he doesn’t want to sabotage security cooperation or billions of dollars worth of arms sales to Riyadh. Trump also posed the idea that “rogue killers” might have assassinated Khashoggi, an unlikely scenario since no foreign policy decision is made without consent from the crown prince. Trump’s theory would nevertheless relieve MBS from any responsibility for the incident.
To save face, the U.S may enforce the Global Magnitsky act, which would impose visa bans and asset freezes on any person believed to have committed human rights abuses. This response would have, at most, a minor impact on Saudi Arabia’s economy. Hani Sabra, a Middle East analyst and the founder of the New York based Alef Advisory, told Fanack Chronicle that economic ties between the kingdom and America could take a major hit in the future, assuming the next president of the United States is more critical of MBS than Trump.
For now, Sabra says that the Khashoggi case seriously jeopardizes foreign direct investment in the short-term, and while Vision 2030 will remain intact as a concept, genuine reforms will be put on hold.
“Investors want stability and predictability,” he said. “The Khashoggi case has generated such intense attention and criticism that it may appear to investors that MBS delivers neither. Furthermore, Saudi Arabia’s bungled response has probably intensified the negative sentiment.”