Fears are spreading that Saudi Arabia, in retaliation against the growing global outcry caused by the disappearance of Saudi journalist Jamal Khashoggi, may hit back at potential economic sanctions by weaponizing its oil dominance.
Saudi Arabia's not-so-veiled threat issued in a government statement Sunday emphasized its "vital role in the global economy" and that any action taken upon it will be met with "greater action". But as oil ticks upward, a look at history and geopolitics suggests that while a Saudi-driven oil price spike would bring pain for much of the world, it would ultimately backfire on itself.
"If this is something the Saudis were allowed to do, they'd be really shooting themselves in the foot," Warren Patterson, commodities analyst at ING, told CNBC's Squawk Box Europe on Tuesday. "In the short to medium term we'll definitely see an incremental amount of demand destruction, but the bigger issue is in the longer term."
Any action in withholding oil from the market, he said, "would only quicken the pace of energy transition."
The crisis began after Turkish officials alleged that Khashoggi, a U.S. resident and Washington Post contributor, was murdered on orders of the Saudi government after he was last seen entering the Saudi consulate in Istanbul on October 2. The Saudis have fiercely denied this claim, but have so far provided no evidence to the contrary, sparking furor in Congress, where momentum is building to impose sanctions on weapons imports to the kingdom. Media companies and corporate executives are pulling out of Saudi Arabia's annual investment conference, scheduled for late October, in droves.
And Saudi markets are already feeling the impact — its benchmark Tadawul index tumbled 7 percent on Sunday, and fell 4 percent on opening trades Tuesday.
An incendiary op-ed published in Saudi news outlet Al Arabiya on Sunday threatened "economic disaster" if countries came down on Saudi Arabia over the Khashoggi case. "If the price of oil reaching $80 angered President Trump, no one should rule out the price jumping to $100, or $200, or even double that figure," the outlet's general manager Turki Aldakhil wrote.