Donald Trump probably wasn’t trying to sink the Saudi equity market with his comments about “punishing” the Kingdom for Riyadh’s assumed role in the disappearance of Jamal Khashoggi, but on Sunday, the Tadawul All Share Index plunged as much as 7% at one point.
Ultimately, Saudi stocks would trim losses, but still ended down 3.5%. The index has fallen sharply over the course of what is now a four-day slide and sits at its lowest levels since January.
Volume was twice the 30-day average. Saudi Telecom dove the most in more than 2 years.
As alluded to above, Trump is clearly not enamored with the prospect of cracking down on bin Salman. Trump and Jared Kushner have gone out of their way to build a cordial relationship with the Crown Prince and the President counts Riyadh as a valuable ally in the effort to isolate Iran and also to ensure that the loss of Iranian barrels amid the sanctions push doesn’t end up driving oil prices up, leading to higher prices at the pump for U.S. consumers.
During his address to the U.N. General Assembly last month, Trump accused OPEC of “ripping off the world“, so now, any action against the Saudis is likely to raise concerns that his relationship with (and thus his influence over) the cartel is deteriorating.
Trump is also extremely proud of the $110 billion arms deal he inked with the Saudis last year. If you watch the clip from his interview with 60 minutes (in the linked post below), you’ll see that canceling that deal is apparently a non-starter for the White House when it comes to answering congressional calls for action against bin Salman.
Of course if this were the Iranians who had murdered and dismembered a dissident with a bone saw, Trump and Mike Pompeo would be shouting about “evil” devils from Tehran to anybody who would listen. But since this is the Saudis, the administration is walking on egg shells.
On Sunday, state-run media in Saudi Arabia had this to say about the prospect of U.S. “punishment”:
The kingdom emphasizes that it will respond to any measure against it with an even stronger measure. The kingdom’s economy has an influential and vital role in the global economy, and that kingdom’s economy is only affected by the global economy.
This sets up a potentially volatile situation for crude. It’s still entirely possible that lawmakers in the U.S. will push for harsher sanctions on Russia following the midterms, including sanctions on sovereign debt. Meanwhile, November is the deadline for other nations to comply with U.S. demands that allies cut imports of Iranian crude to zero. Iran’s oil production has plunged since Trump pulled the U.S. out of the nuclear deal.
Now, the stage appears set for the White House to be dragged kicking and screaming into a diplomatic row with Riyadh.
As Trump would say: “Stay tuned, the ratings will be tremendous.”