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Oct 18, 2018 | 21:29 GMT

3 mins read

Saudi Arabia: The Khashoggi Disappearance Tarnishes Riyadh's 'Davos in the Desert'

Stratfor
The Big Picture

At the highest levels of their diplomatic relationship, Saudi Arabia and the United States receive mutual economic and security benefits by maintaining and deepening their close strategic alignment. The United States relies on Saudi Arabia to help stabilize the oil markets and counter Iranian regional influence, while Saudi Arabia relies on security backing from the United States, especially against Iran, and wants deeper and more sustained U.S. investment. The controversy over the disappearance of a Saudi journalist, however, highlights how private companies and organizations are less convinced of the value of working more closely with Saudi Arabia.

What Happened and Why It Matters

Several high-profile political and business leaders have dropped out or withdrawn sponsorship of Saudi Arabia's "Davos in the Desert" Foreign Investment Initiative (FII) conference, citing the ongoing investigation into the disappearance and suspected death of journalist Jamal Khashoggi. The event is set for Oct. 23-25 in Riyadh, and there have been an increasing number of accusations that the conference's main sponsor, Crown Prince Mohammed bin Salman, was involved in the incident.

Like its 2017 iteration, the FII is designed to spur foreign investor interest into the Saudi government's many Vision 2030 projects. Courting foreign investment is all the more important to Riyadh right now, since levels of foreign direct investment were lackluster through 2017 and most of 2018.

What's Next

In the near term, Saudi Arabia is hoping that the negative publicity surrounding so many high-profile sponsorship and attendance dropouts will decline once the conference is over. And considering that many of the protesting organizations are still sending delegations — and still retain business ties with Saudi Arabia — Riyadh will likely get its wish. Some key businesses, such as Siemens, will even attend the event as normal, despite the current controversy.

Longer-term, however, some businesses may decide they aren't willing to stomach the consequences of the crown prince's riskier decisions. Only a few organizations have actually canceled deals and projects in Saudi Arabia so far, but they include Richard Branson's Virgin Group, which has pulled out of Red Sea tourism projects and said it won't accept Saudi Arabia's Public Investment Fund money for its Virgin Galactic and Virgin Orbit projects.

More businesses may take similar stances, either if U.S. President Donald Trump or the U.S. Congress decides to sanction officials in Saudi Arabia, or if Congress signals its willingness to cut ties with Saudi Arabia by halting arms deals or cooperation in Yemen. Within the halls of otherwise friendly governments and in formerly eager boardrooms, the Khashoggi case is fiercely testing faith in the crown prince and his vision.

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