Experts downplay JASTA’s ramifications for US-Saudi trade
While the bilateral ties have certainly been affected, the real costs might be political, not commercial
In April, Saudi Arabia warned the US that it could sell hundreds of billions of dollars worth of American assets if the Justice Against Sponsors of Terrorism Act (JASTA) was passed. This proposed bill would allow US citizens to sue the Saudi government in American courts. Back then the threat was already interpreted by some as an empty threat, although Saudi investors did remove billions from the US immediately following 9/11, afraid that their assets would be seized or frozen by the American government.
Despite a veto by Obama, JASTA was passed a week ago. The question now is what happens next in the US-Saudi relationship: will the hundreds of billions be repatriated?
Nobody knows the precise amount of Saudi assets in the US, but estimates range from $500 billion to $1 trillion, with almost $200 billion in US Treasury bills alone. Similar to the capital flight right after 9/11, Saudi investors will now be worried about potential asset freezes. As Saudi foreign minister Adel al-Jubeir said in May, JASTA would cause “an erosion of investor confidence.”
More significantly, the Saudi government could consider delivering on its warning from April as a retaliation to the US.
This seems unlikely at the moment, though. “I have seen talk in the Saudi press about the possibility of pulling Saudi funds out of US banks, but I think it is mostly talk,” said Dr. Charles Schmitz, Saudi Arabia and Gulf economy expert from the Middle East Institute in Washington DC.
“I don’t think JASTA will have any impact unless a US court decides in favor of the 9/11 families’ cases. The legal cases, as far as I know, have very little basis, so the likelihood of a case moving forward is slim. But if a US judge did allow a case to move forward, we might see more significant moves by the Saudis to protect themselves.”
The idea of significant moves by the Saudi government has recently created some attention-grabbing headlines but experts have argued for a while that selling hundreds of billions of Saudi assets in the US would damage Saudi Arabia more than the US. The feat would be technically difficult, could destabilize the dollar, to which the Saudi riyal is pegged, and Saudi Arabia could very well be blamed for causing chaos in the global market.
In Riyadh banking circles, the view is one of unease rather than panic. “JASTA may affect the business between Saudi Arabia and the US but I doubt that the law is representative of US policy,” said Mohammed al-Suwayed, the head of capital and money markets at Riyadh-based asset management firm Adeem Capital.
“JASTA only took place because Americans today are more divided than before and because the election year helped the bill pass without due diligence from congress members. If something does affect the business relationship between the two countries it is more likely to be the austerity measures Saudi Arabia has taken so far in 2016 and will carry on next year.”
JASTA is concerning for the US-Saudi commercial relationship, but there is no need to panic. There will be an increased skepticism on the part of Saudi investors as to whether the US is a safe destination for their money and an increased caution on both sides which may hinder certain business deals. But the fundamental economics of the relationship are unlikely to drastically change. Saudi Arabia has too much to lose by selling hundreds of billions worth of assets, and the legal cases against Saudi Arabia are unlikely to be successful.
The US-Saudi relationship has certainly been damaged by JASTA, but the real costs will be political, not commercial.