The Obama administration may go ahead with the 9/11 Bill declaring the Saudi government responsible for the September 11 attacks on the WTCs. In response, Saudi Arabia warned the Obama administration of a sell-off of American assets well over $750 billion if the Congress passes the 9/11 bill. Reportedly, the Obama administration is making moves to block the bill as this move by Saudi Arabia may result in a diplomatic and economic fallout between the two countries.
A former senator, Bob Graham, who was the Chairman of the commission to investigate 9/11 attacks called upon President Barrack Obama to discuss the issue of Saudi Arabia’s involvement. CBS News aired the report commenting on this very visit after which the US news channels went into a complete frenzy. Saudi Arabia was swift in their threat of a sell-off. Reportedly, Saudi Foreign Minister Adel al Jubeir brought King Salman’s message while his visit to Washington last month. The message was meant for lawmakers and said that Saudi Arabia would be forced to sell up to $750 billion in treasury securities and other assets in the United States before they could be in danger of being frozen by the American courts. Many remain skeptical that the Saudis will actually follow through with the threat. As devastating as it may be to the economy of the United States, the Kingdom stands to suffer as well. Moreover, there is still no concrete evidence as to whether Saudi Arabia was actually involved in the 9/11 attacks.
There are two scenarios this could blow up. Either Saudi Arabia will be frozen by the courts, or otherwise. The former is likely to happen if the Kingdom is found involved in the 9/11 attacks however, even if the courts found Saudi Arabia guilty, chances of it being a political decision are rather high compared to it being a factual decision. If the Kingdom is frozen, it would result in $750 billion of US assets sold off. If the US tries to prevent that sale from happening, Saudi Arabia could make things difficult for US citizens living and working in the Kingdom. US in response could put an end to Saudi oil market, at least in the Americas. The United States may seize Saudi Arabia’s assets in the US and vice versa. So an economic and diplomatic devastation is a very real possibility. The scariest reaction however, is one where Saudi Arabia may make things difficult for the US citizens in the Kingdom.
If a US court were to declare Saudi Arabia responsible, would that allow for freezing the Kingdom? Typically yes, but the problem is that local courts indirectly claim jurisdiction over foreign nations. The investigation should be carried out by an international court or at the very least at an intergovernmental level. The US could employ the services of the International Criminal Court. The irony here is that the United States passed a law basically suggesting that if this court convicts an American citizen and tries to enforce it, the US will prevent that even if it meant to invade the country where the citizen is convicted. Convenience.
Another possible scenario is where the US freezes Saudi Arabia’s assets within the country. If this happens, the Kingdom will not be able to sell the assets worth $750 billion and it stands to lose no matter which way one looks at it. However, it basically sends a message to the entire world that no matter what you invest in the United States, can and will be taken away from you; not a very good message when you’re trying to sustain a huge economy.
What will happen if Saudi Arabia does manage to sell assets worth $750 billion? Basic economics here, the supply will increase and the prices will fall. Basically, $750 billion will be up for grabs and the stock markets would drop massively and the US will feel an economic squeeze, a rather serious one. But if the Kingdom goes ahead with this, Saudi Riyal stands to suffer as well. Saudi currency is pegged to the US dollar. In simpler words, the weaker the dollar, the weaker the riyal. That situation is not favorable to either of the countries, but Saudi Arabia may still be worse off. At this stage, Saudi’s only major export is oil, and oil is valued rather low and they have a lot less control over the supply as they used to. On top of that, they can’t really bear a weaker riyal, or have their assets frozen in the US.
Coming to the $750 billion worth of assets that will be up for grabs, is that good for the United States, a weaker dollar? Many would argue that it is, since a weaker dollar means more exports. But it would not be good for the American banks. Of course the United States could buy the sold-off assets, but the purchasing power of the US government may not allow that entirely. They are already under severe debt. The Federal Reserve could print money, but that will mean an unplanned round of Quantitative Easing which could have potentially unknown and rather severe consequences. The US could turn to the other nations to buy those assets, but that may not work either. China may be the biggest contender for those assets but even China may hold off until the prices dropped further. What’s worse is that China could sell their assets in the United States to actually drag the prices down, and other nations could follow.
Whatever the case may be, 9/11 bill spells trouble for the United States and the Kingdom of Saudi Arabia. Both nations will effectively be killing their economies one way or the other. United States cannot hurt Saudi Arabia without hurting herself, and Saudi Arabia can’t hurt the United States without hurting herself.You can follow us on Facebook, Twitter, or Google+ for more updates. Otherwise fill in the subscription box above, or subscribe to our RSS Feed.