From tech tycoons to media giants, a host of Western companies are now distancing themselves from the Gulf state, imperilling Crown Prince Mohammed bin Salman’s much-hyped economic reform drive.
US President Donald Trump threatened ally Saudi Arabia on Saturday with “severe punishment” if Khashoggi, who has been critical of Prince Mohammed, was killed inside its Istanbul mission.
But Riyadh vowed to hit back against any punitive measures.
“The kingdom affirms its total rejection of any threats or attempts to undermine it whether through threats to impose economic sanctions or the use of political pressure,” an official source said, quoted by state news agency SPA.
He said Riyadh would “respond to any action with a bigger one”, pointing out that the oil superpower “plays an effective and vital role in the world economy”.
According to Saudi-owned Al Arabiya, the kingdom has “over 30 measures” that it could implement to combat sanctions.
These measures include using sales of oil and arms, exchange of information between Riyadh and Washington, and a possible reconciliation with regional arch-rival Iran, said the report.
As investors took fright, Saudi stocks tumbled by around seven percent at one point on Sunday, wiping out their gains for 2018.
Business barons including British billionaire Richard Branson and Uber CEO Dara Khosrowshahi, as well as media powerhouses like Bloomberg and CNN, have pulled out of next week’s Future Investment Initiative (FII) in Riyadh, dubbed “Davos in the desert”.
– ‘Baseless allegations’ –
Khashoggi, a Washington Post contributor, vanished after entering the consulate on October 2.
Turkey on Saturday stepped up pressure on Saudi Arabia by accusing the kingdom of failing to cooperate with a probe into the journalist’s disappearance.
Turkish officials have said they believe Khashoggi was killed inside the mission and claims have been leaked to media that he was tortured and even dismembered.
Saudi Arabia insists Khashoggi left the building safely and dismissed accusations that authorities had ordered his murder by a hit squad as “lies and baseless allegations”.
The kingdom’s Tadawul All-Shares Index (TASI) lost more than 500 points, diving by seven percent in the first two hours when trading resumed after the weekend, in panic selling reminiscent of the days after the global financial crisis in 2008.
It later clawed back some losses to close down 3.5 percent at 7,266.59 points.
Mohammed Zidan, market strategist at Thinkmarket in Dubai, said the drop in Saudi stocks was the result of panic selling because of several political and economic factors.
“There has been a kind of uncertainty surrounding the situation of the disappearance of Khashoggi which has caused the market to fall,” Zidan told AFP.
“The withdrawal of top participants from the Riyadh investment conference has also negatively impacted traders’ sentiment,” he said.
White House economic adviser Larry Kudlow said on Sunday that Saudi Arabia should take Trump’s warning seriously.
“When the president warns, people should take him at his word,” he told Fox.
“If the Saudis are involved, if Khashoggi was killed or harmed or whatever, bad outcome here. He (Trump) will take action.”
– ‘Public relations crisis’ –
The cancellations have cast a pall on the annual summit at which Prince Mohammed wowed investors last year with talking robots and blueprints for a futuristic mega city.
The withdrawal of Uber’s Khosrowshahi from the event is particularly symbolic as the kingdom’s vast Public Investment Fund (PIF) has invested $3.5 billion in the ride-hailing app.
Branson, who dropped two directorships linked to Saudi tourism projects around the Red Sea, said claims about Khashoggi’s disappearance would “change the ability of any of us in the West to do business with the Saudi government”.
Global multinational corporations “see potential in a developing market like Saudi Arabia, but for many the reputational risk of being associated with FII outweighs the potential gains from the Saudi economy,” said Michael Stephens, a Middle East expert at the RUSI think tank.
Washington lobbying firm Harbour group which represented the Saudi government, has also terminated its $80,000 per month contract.
“We (have) ended the relationship,” Richard Mintz, managing director of the firm, told AFP.
Additionally, actor Gerard Butler pulled out of a trip to the kingdom, where he was scheduled to attend the premiere of his new movie “Hunter Killer”.
“We heard about Khashoggi going missing the day before we were supposed to leave… and it just didn’t feel like a smart move,” the 48-year-old Scot told CNN on Saturday.
The Saudi leadership faces “an acute public relations crisis” over Khashoggi’s disappearance, said consultancy group Eurasia.
“The leadership will now have to manage a more serious threat to its economic liberalisation strategy,” Eurasia said.
“At this point, Saudi Arabia will find it incredibly challenging to contain the emerging crisis.”