The disappearance of a Saudi-born journalist in early October has set off a geopolitical firestorm that could have an impact on oil prices going forward.
The Trump administration has opted to back Saudi regime and the Crown Prince Mohammed bin Salman reportedly issued a firm denial to the President. Some U.S. officials and members of the Republican Party have offered firm denunciations and have pushed for sanctions or other measures against the Saudi government.
A top representative of the Saudi state-run media said that the government would move closer to Russia if sanctions were imposed. Turki Aldakhil warned that Saudi Arabia would seek to raise oil prices and allow Russia to establish a military presence within the country. Such an action would severely hinder the geostrategic position of the United States in the Middle East.
The price of WTI crude was mostly flat in late afternoon trading on October 16. The most recent global sell-off has hurt the stock prices of American energy giants have had gained momentum in the spring and summer. Exxon Mobil (NYSE:XOM) stock has dropped 2.5% over the past month. Chevron Corp. (NYSE:CVX) is down 5.7% over a three-month period.
The tensions in the aftermath of the episode in Turkey appear to be dying down, but there is still pressure within the U.S. and across the Western world to investigate and potentially punish Saudi Arabia. Investors should monitor this situation as it progresses into October as a breakdown in relations could result in a huge spike for oil prices.
