Back in the early days of the Great Recession, there was a lot of foreign policy pundit panic that China would somehow use its holdings of American debt as an economic lever to force Washington to kowtow to Beijing. Also back in those early days, I argued that this was nonsense. Seven years later, I like to occasionally bring up this fact, mostly because it’s one of the rare times I think I was unequivocally right.

Today, however, I’m bringing it up because we’ve just witnessed Saudi Arabia exercise a weak echo of that gambit. The New York Times’ Mark Mazzetti reported late last week that the Saudi government has warned U.S. officials about the economic repercussions of a bill moving through Congress:

Saudi Arabia has told the Obama administration and members of Congress that it will sell off hundreds of billions of dollars’ worth of American assets held by the kingdom if Congress passes a bill that would allow the Saudi government to be held responsible in American courts for any role in the Sept. 11, 2001, attacks.
The Obama administration has lobbied Congress to block the bill’s passage, according to administration officials and congressional aides from both parties, and the Saudi threats have been the subject of intense discussions in recent weeks between lawmakers and officials from the State Department and the Pentagon. The officials have warned senators of diplomatic and economic fallout from the legislation.

The Los Angeles Times’ Michael Hiltzik provides some useful context behind Saudi concerns:

Since the Saudis long have been suspected of complicity in the attacks, it’s fair to say they’re the prime target of the legislation. But the Saudis’ immediate concern is that their U.S.-based assets could be frozen by a court for the lengthy period it would take for lawsuits for damages to make their way through the judicial system. That makes their representation about U.S. assets look a bit less like a threat than an expression of defensive strategy.

Regardless of the Saudi threat, the Obama administration’s resistance to this bill makes a bit more sense.


What’s interesting about all of this has been the American reaction to the revelation of the Saudi economic threat. Seven years ago, all China had to do was clear its throat on the matter and there were paroxysms of news coverage about threats to the U.S. economy.

This time around, there has been some minor hand-wringing, but most of the analyses have echoed what the New York Times’ Binyamin Appelbaum wrote about the threat:

If Saudi Arabia follows through on its recent threat to sell off its investments in the United States, the financial maneuver could be painful — mostly for Saudi Arabia….
Such a fire sale might roil financial markets or cause problems for companies that lost funding, but experts say it is hard to imagine a significant or lasting impact on the American economy. Global investors continue to shovel money into the United States; if the Saudis go, the experts say, others will take their place.

Pretty much, yeah.

To elaborate a bit more, the current Saudi threat is way weaker than the implicit Chinese threat of seven years ago, because:

  • Saudi Arabia holds fewer dollar assets than China;
  • Saudi Arabia’s 2016 economy is far less imposing than China’s 2009 economy;
  • The U.S. dollar is even more dominant now than it was in 2009;
  • The U.S. economy — in particular the fiscal picture — is in far better shape now than in 2009;
  • The array of alternatives to dollar-denominated assets look way worse now than in 2009;

The one difference in the Saudis’ favor is that the kingdom is a U.S. ally, while China is viewed as a rival. This helps explain the administration’s position on this issue (though I suspect its concern is about the precedent this bill would set if it became law). The thing is, recent Obama interviews and news stories highlight the ways in which these ties are fraying. And the very fact that this threat got publicized is not going to improve U.S. attitudes toward Riyadh.


No, the most interesting thing about the revelation of this threat has been the lack of pundit panic in Washington. If anything, the response has been either a shrug of the shoulders or an insistence on calling the Saudi bluff.

Maybe this is just the fact that memories of 9/11 trump appraisals of economic statecraft. Or maybe, just maybe, Washington has learned not to panic as much about these kinds of empty threats.