Friday, May 06, 2016

Diplomacy Over Justice

The Justice Against Sponsors of Terrorism Act, more commonly known as the 9/11 bill is meant to allow United States (US) citizens to sue foreign governments responsible for funding citizens that conduct terrorism. For example, if it were proven that Saudi Arabia provided financing for the fifteen Saudi nationals involved in the 9/11 attacks. The bill passed the US Senate by unanimous voice, but the bill has not gone to a vote in the House.

Saudi Arabia responded to the bill by threatening to sell of all of their American assets. How much do the Saudi’s hold in US debt? According to the US Treasury, Oil exporters as a whole hold 281 billion US dollars in reserve. Those countries however include: Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria. This long list makes it difficult to know how much Saudi Arabia could actually sell off, however it is likely an empty threat. The first reason is that selling off US debt quickly would require the Saudis to sell at a discount, costing them significant losses. A second reason is that the Saudi riyal is pegged to the US dollar, so a massive sell off of US debt would not only hurt the US dollar, but also the riyal. Finally, Saudi Arabia has already sold off $139 billion of their total reserves since the end of 2014 to offset losses from lower oil prices.

Despite the threat likely being empty, US officials have listened to the Saudi’s disapproval of the bill. The White House signaled that President Obama would veto the legislation if it were to pass the House. The White House argues that the legislation could trigger other countries to pass reciprocal laws and jeopardize US citizens. House Speaker Paul Ryan (R-Wis) seems to be on board, saying, “I think we need to review it…not making mistakes with out allies and that we’re not catching people in this that shouldn’t be caught up in this.” The reason for diplomacy may not just be to head off reciprocal laws, but to preserve relations if Saudi Arabia can position their country to actually sell off US reserves in the future. They have public announced their determination to become more diversified, which would allow them to be less economically dependent on the US. Currently, forty five percent of GDP, and eighty percent of government revenue is from oil in Saudi Arabia. To counter lower oil prices and potentially help jumpstart diversification, Saudi Arabia’s state owned oil producer, Saudi Aramco, might go partially pubic. Talks of an initial public offering have been discussed for five percent of the company. The company is estimated to be worth between 1.25 and 10 trillion US dollars.

The choice to go with diplomacy over justice is clear, Saudi Arabia is a crucial ally to the US. The alliance with the US goes back seventy years when US business first became involved in the Saudi oil business. While the US does not receive the most oil imports from Saudi Arabia, the Saudis do hold the largest reserves of crude oil in the world. After the fall of the Iranian Shah, Saudi Arabia was the US’s biggest ally in the region. The Saudis helped the US fund Afghani resistance to Soviet forces in the 1980s, and they helped the US expel Iraqi forces from Kuwait in the first Gulf War (primarily through access to the region and supplying troops). Between 2011 and 2015, Saudi Arabia also bought almost ten percent of US military arms exports. As a key security and economic ally in a region where the US finds few, it is likely that policy will continue to overlook anything that could complicate the crucial relationship.

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