In the aftermath of yesterday stunning snub of Barack Obama, when the Senate overrode Obama’s veto of the Justice Against Sponsors of Terrorism Act, or JASTA (aka the Sept.11 bill which would allow US citizens to sue Saudi Arabia over the Sept. 11 attack) with a whopping 99 votes, followed shortly by the same outcome in the House, there was just one question on everyone’s mind: would Saudi Arabia make good on its threat from April to sell some or all of its over half a trillion in foreign reserves.
And while so far there has been nothing but a stony silence from Riyadh, some Saudis have bristled, saying the kingdom should curb business and security ties in response. To be sure, Saudi’s government is in a tight spot as it has always dismissed suspicions that it backed the Sept 11 attackers even though the release of the “28 pages” clearly confirmed Saudi involvement. In the coming weeks it will have to not only simply deny, but also prove in a court of law it had no involvement when an avalanche of lawsuits hits it.
Deceased Saudi King Abdullah bin Abdul Aziz al-Saud presents
Barack Obama with the King Abdul Aziz Order of Merit
While the Saudi government financed an extensive lobbying campaign against the “Justice Against Sponsors of Terrorism Act”, or JASTA, in the run-up to the vote, and warned it would undermine the principle of sovereign immunity, Saudi officials who had lobbied against the bill stopped short of threatening any retaliation if the law was passed.
Officially. Unofficially the NYT reported on April 15 that Saudi Arabia had told the Obama administration and members of Congress that it will sell off hundreds of billions of dollars’ worth of American assets held by the kingdom if Congress passes the JASTA bill.
Adel al-Jubeir, the Saudi foreign minister, delivered the kingdom’s message personally last month during a trip to Washington, telling lawmakers that Saudi Arabia would be forced to sell up to $750 billion in treasury securities and other assets in the United States before they could be in danger of being frozen by American courts.
For now, however, there is no official statement, and no official reaction from Saudi Arabia after the votes, and in the short-term, few expect little more than a curt statement of disapproval from Riyadh. However, unofficial channels have been more forthcoming.
As Reuters reports, the long-standing alliance between the kingdom and the United States is one of the cornerstones of Middle East politics, security and trade, and in their reactions on Thursday some Saudis said JASTA would jeopardize what they see as an interdependent relationship.
“What would happen if Saudi Arabia froze its cooperation with the United States with regards to counter-terrorism as a response to JASTA?” Salman al-Dosary, editor-in-chief of the pan-Arab, Saudi-owned Al Sharq al-Awsat newspaper, wrote on Twitter.
Meanwhile, as we reported this morning, the Saudi currency and assets are crashing: long-term forward points (a proxy for borrowing costs and The Kingdom’s stability) have exploded…
… while National Commercial Bank, the largest bank in Saudi Arabia, has crashed to record lows.
While some of this move has been attributed to the OPEC “deal” which at least the domestic Saudi the market clearly sees right through the “farce” that it is, much of the move is due to worries how the passage of the bill would impact the Saudi economy.
And it’s likely to get worse.
“People are reluctant to buy dollars … because of the price,” said Raed al-Sayari, whose family runs an exchange shop in a bustling commercial district popular with foreign workers. “We’re concerned that if the dollar keeps appreciating and the situation doesn’t stabilize in the coming days there will be no demand. This would be a big loss for the market.”
But the biggest question is what happens to US diplomatic ties: after all, the bill does nothing to ease long-standing friction in the alliance: President Barack Obama, who had vetoed JASTA but was overridden by Congress, is increasingly seen by the kingdom and fellow Gulf Arab as favoring their bitter rival Iran, a charge Washington denies, and differs with Riyadh over Syria and other Arab crises.
“This bill reflects an anti-Saudi campaign. It is time to see less of America in our midst,” said Abdulkhaleq Abdulla, a political scientist in the United Arab Emirates.
Some analysts have speculated that Riyadh could retaliate by curbing U.S. trade with the biggest Arab economy or restrict cooperation on security, a crucial relationship for U.S. counter-terrorism and for peace efforts in Arab conflicts.
Theodore Karasik, of Gulf State Analytics, wrote on al Arabiya website that JASTA would “ignite a firestorm of legal warfare that will directly undermine political relationships at a time when robust ties to fight terrorism is required”. He added the measure could also disrupt sweeping economic reforms meant to boost the private sector and foreign investment and wean the kingdom off oil dependence.
Some analysts speculated that bilateral trade and investment could be hurt.
But the real question is whether Saudi Arabia will commence selling either its $96.5 billion in declared bonds (the true number is likely far greater and is held in custody accounts), and its hundreds of billions in various other assets, including equities. We should have the answer soon enough.
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