Riyadh silent, Saudis urge US curbs – Freeze on terror cooperation, review of investment policy in US among retaliatory options

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RIYADH/DUBAI, Sept 29, (Agencies): A US law allowing lawsuits against Saudi Arabia over the Sept 11 attacks met a stony silence from Riyadh on Thursday but some Saudis bristled, saying the kingdom should curb business and security ties in response.

The Senate and House of Representatives voted overwhelmingly on Wednesday to approve legislation that will allow the families of those killed in the 2001 attacks on the United States to seek damages from the Saudi government. Riyadh has always dismissed suspicions that it backed the attackers, who killed nearly 3,000 people under the banner of Islamist militant group al-Qaeda.

Fifteen out of the 19 hijackers were Saudi nationals. 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. But Saudi officials who had lobbied against the bill stopped short of threatening any retaliation if the law was passed.

There was 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. 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 jeopardise 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. The Saudi riyal fell against the US dollar in the forward foreign exchange market on Thursday after the bill was passed, prompting a drop in dollar demand in Riyadh.

“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 stabilise in the coming days there will be no demand. This would be a big loss for the market”.

The Saudi riyal is pegged at 3.75 to the dollar in the spot market, but banks often use the forwards market to hedge against risks. Some analysts argue the Al Saud ruling family will interpret the move as political expedience by lawmakers in a US election season and that the chances of a successful lawsuit are uncertain at best. But the measure does nothing to ease long-standing friction in the alliance: US President Barack Obama, who had vetoed JASTA but was overridden by Congress, is increasingly seen by the kingdom and fellow Gulf Arab as favouring 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 US trade with the biggest Arab economy or restrict cooperation on security, a crucial relationship for US 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 said 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.

The kingdom owns $96.5 billion of US Treasury bonds, and is believed to hold at least that sum in other US assets and bank accounts. The Saudi riyal fell against the US dollar in the forward foreign exchange market on Thursday after the US Congress voted to allow relatives of victims of the Sept 11 attacks to sue Saudi Arabia.

Any legal action could take years to wind through the US court system, and analysts said there might be little if any impact on the Saudi economy or state finances. But the decision by Congress was an unwelcome reminder of political and financial pressures on Riyadh as low oil prices strain its budget. Saudi Arabia has been preparing to make its first international issue of sovereign bonds next month to raise $10 billion or more, but some Gulf bankers said the issue might now be delayed to give investors time to digest the news.

Similarly, the legal threat could make Riyadh less likely to choose New York for a listing of shares in national oil giant Saudi Aramco. An offer of Aramco shares is expected as soon as 2017, possibly raising tens of billions of dollars, and Saudi officials have said they are considering several foreign bourses. “In the short term you might have volatility but the legislation will take a decade to have a result, so markets will calm down”, predicted a banker involved in Gulf currency trade, adding the main impact might be to saddle the Saudi government with tens of millions of dollars in annual legal fees.

Five-year Saudi credit default swaps, used to insure against the risk of a sovereign debt default, rose slightly to 157 points from 152, and the Saudi stock market fell slightly. But the price of state-run Saudi Electricity Co’s April 2023 dollar Islamic bond, one of the few outstanding international bonds from Saudi Arabia, did not move significantly. Some analysts speculated that trade and investment ties between Saudi Arabia and the United States could be hurt. The kingdom owns $96.5 billion of US Treasury bonds, according to the latest official US data, and is believed to hold at least that sum in other US assets and bank accounts.

Fixes
Meanwhile, the Senate’s top Republican is warning that legislation enacted over US President Barack Obama’s veto to allow families of Sept 11 victims to sue Saudi Arabia in US courts may have “unintended ramifications” and that lawmakers should discuss fixes to the measure. Majority Leader Mitch McConnell said the White House was too slow to warn about the “potential consequences” of the measure.

Both the House and Senate overwhelmingly overrode Obama’s veto of the measure on Wednesday. Those concerned about the law warn that it could have a chilling effect on Saudi Arabia’s cooperation with the US in fighting terrorism. They also warn that it could trigger lawsuits from people in other countries seeking redress for injuries or deaths caused by military actions in which the US may have had a role.

The chairman of the US Senate Foreign Relations Committee said on Thursday he had tried to find a compromise before Congress’ rare override of a presidential veto of a bill that allows relatives of Sept 11 victims to sue Saudi Arabia. Republican Senator Bob Corker of Tennessee said he had spoken twice during the weekend with Secretary of State John Kerry, who had opposed the “Justice Against Supports of Terrorism Act” known as JASTA.

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