How will the Khashoggi killing impact political stability in Saudi Arabia?

31 October 2018

The murder of journalist Jamal Khashoggi will have a near-term impact on political stability and investor confidence in Saudi Arabia. However, Crown Prince Mohamed bin Salman (MbS) should maintain his position, while the long-term economic impact will be limited, despite the risk of US sanctions against certain individuals.


The murder of Saudi Arabian journalist Khashoggi on 2 October 2018 after visiting the Saudi consulate in Istanbul is likely to weaken the position of Crown Prince Mohamed bin Salman (MbS). MbS has centralised power around himself in recent years, in the process alienating many members of the ruling family, meaning that there will be a willingness to blame him for the incident. However, MbS is unlikely to admit personal responsibility for Khashoggi’s disappearance, as to do so would further weaken his position and elevate coup risks. Instead, the government has blamed the murder on a ‘rogue operation’. MbS is expected to retain the support of his father King Salman, meaning that the most likely outcome is a managed replacement of key advisors in order to appease the United States.

The murder of Khashoggi feeds into wider geopolitical sensitivities, although interstate war risks are not expected to materially increase as a result. Both the US and Turkey will be reticent to allow the situation to materially undermine bilateral relations with Saudi Arabia. The Trump administration will prioritise US business activity in Saudi Arabia and anti-Iranian activities, rather than break with its regional partner.

However, upcoming mid-term elections in the US and congressional pressure may push Trump to take some action against Saudi Arabia, perhaps in the form of limited sanctions on individuals outside of the royal family. Wider sanctions targeting members of the royal family may occur, if Turkey releases unequivocal evidence of Saudi Arabia’s involvement in Khashoggi’s death. Turkey will also seek to de-escalate the situation, with President Recep Tayyip Erdoğan appearing reluctant to blame Saudi Arabia.


In the wake of Khashoggi’s disappearance, a number of high profile individuals withdrew from the international investment forum held in Riyadh on 23-25 October 2018, and/or announced their intention to rethink their engagement with Saudi Arabia. For example, Richard Branson has reportedly halted discussions with the Saudi Public Investment Fund over its investment in Virgin’s space companies.

This will elevate downside risks to Saudi Arabia’s economic diversification efforts, as international investors become more cautious of the possible reputational damage of engaging with the country. In recent months, investor confidence has also been knocked by delays to the public listing of Saudi Aramco. However, Western firms in the energy, defence, mining and infrastructure sectors are all expected to continue engaging with Saudi Arabia, reducing economic pressure on the country. Moreover, Asian firms may be willing to fill the void left by reticent Western companies.

As a result, the immediate economic impact of Khashoggi’s murder should be limited, as the country will continue to benefit from rising oil production and global prices, following a relaxation of OPEC output restrictions. The economy is forecasted to emerge from recession in 2018, achieving a real GDP growth rate of 1.9%, while production gains will allow a reduction to Saudi Arabia’s fiscal deficit, reaching 5.6% of GDP in 2018, from 9.3% in 2017. However, if the Khashoggi disappearance translates into a wider isolation of Saudi Arabia from the international community, a drop in investor confidence would prevent Saudi Arabia from effectively pursuing its economic diversification plans, weighing on the longer term growth outlook.

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MbS will continue to pursue the Saudi Vision 2030 agenda, which aims to reduce the country’s reliance on oil revenues through the growth of the private sector and economic diversification. Foreign investment will be critical in this transformation plan, and as a result the Saudi government is unlikely to expropriate privately-held assets. Infrastructure will be a priority sector, as rising oil prices will provide the fiscal space to invest in major projects, particularly in transport, energy and utilities. As a result, the construction industry is set to grow in value by 6.3% y-o-y in 2018.

However, the country is unlikely to meet its ambitious targets, as it struggles to implement its ‘Saudisation’ policy. The policy requires private companies to hire a percentage of Saudi citizens, and has contributed to an exodus of foreign workers. Between January and September 2018, an estimated 130,000 construction workers are believed to have left the country, threatening labour availability for projects.

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† Due to the potential impact of the murder of Jamal Khashoggi, several markets are closed to these risks until further notice.

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Iraq, Egypt, Qatar and United Arab Emirates all of which have been the subject of recent enquiries from JLT's client base.

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For further information, please contact Eleanor Smith, Senior Political Risk Analyst on +44 (0)121 626 7837 or email