Following the murder of journalist Jamal Khashoggi, there have been many calls for re-examining the US-Saudi relationship, even for imposing sanctions. As an economist, I understand there are diplomatic fine points to this relationship that lie beyond my expertise, but still: It is worth reviewing the economic and exchange-based reasons US-Saudi relations have been so robust.

First, trade between the US and Saudi Arabia is currently about $24 billion per year. You might think the US is now energy-independent, but many US allies, most notably Japan, rely on oil imports. Part of the larger US foreign policy stance is promising those allies freedom from major supply disruptions.

The Saudis typically have recycled their petrodollar surpluses, investing them in American enterprises. Whether you like it or not, the Saudis are America’s natural business ally.

The connections between the US and Saudi Arabia run much deeper than the import-export ledger. One feature of the geography of Saudi Arabia is that its major oil fields stand apart and can be taken over without controlling the major Saudi cities. That is one reason why the Saudis were so wary of Saddam Hussein.

That risk means the Saudis are especially dependent on American military protection. In turn, the US knows it has a lot of leverage over the Saudis, and therefore making deals with the Saudis involves easier enforcement and lower transaction costs.

Historically, Iran has been a very difficult country to capture or control, and the population has fought fiercely to defend Iranian territorial integrity. Iran doesn’t need American protection to the same degree as do the Saudis, and so Iran is more willing to be prickly or openly hostile to the US.

Iran shared a border with the former Soviet Union (though not Russia) and shares Caspian Sea rights with Russia, and the two countries often have had close and cordial relations. Iran also is easier than Saudi Arabia for China to reach with its “One Belt, One Road” initiative, which aims to build close ties with the countries to its west. In sum, Iran is going to diversify its geopolitical bets, which pulls it away from the US, even if the issues surrounding nuclear weapons and support for terrorism somehow were resolved.

When it comes to the Saudis, America has strongly encouraged the government to take what is effectively a fairly pro-Israel stance, including in security and military cooperation. There is no comparable deal to be had with the less dependent Iran or Turkey, and so this also leads to a relatively close relationship with the Saudis.

The Saudis in the past (less so now) have been an oil swing producer, with the ability to lower the price and damage the financial prospects of President Vladimir Putin’s Russia. That too has kept the US interested in good relations.

Of course, the Saudis have abused their position. They are dependent on the US, but they also know America has few other potential regional partners for cooperation on such a large scale. And so the Saudis have engaged in human rights abuses over the decades, figuring it may harm but will not irrevocably damage relations with America.

Americans may now feel they have gone too far with the killing of Khashoggi, but America has been complicit in such a relationship for decades. The death penalty is used against Saudi political prisoners, and had been used against women found guilty of adultery. It is a familiar pattern: The Saudis will not do as much to respect human rights as Americans might like.

Still, America should now demand higher human rights standards from the Saudis, as well as from other allies, and I rue the turn the Trump administration has taken in the opposite direction.

For better or worse, tolerating the killing of Khashoggi is the kind of foreign policy decision the US has been making for many decades. Americans are now behaving like Capt. Louis Renault in the movie “Casablanca,” shocked to discover that there is gambling in the casino. And they will be shocked again when their protestations do not, in fact, set everything right.


Tyler Cowen
Tyler Cowen is a Bloomberg Opinion columnist. -- Ed.

(Bloomberg)