Gulf Arab states warn of fallout from US Congress’s Saudi 9/11 law

Decision could open floodgates to lawsuits and exacerbate tensions between Washington and the GCC.

President Barack Obama and Saudi Arabia's King Salman at Erga Palace in Riyadh, Saudi Arabia, on Wednesday, April 20, 2016. Carolyn Kaster / AP

ABU DHABI // Gulf Arab states warned of fallout for American economic interests and counter-terrorism cooperation on Thursday after the US Congress voted to override a presidential veto on a law that will allow families of 9/11 victims to sue Saudi Arabia.

“Populist legislation in the Jasta case prevailed over rationalism, which is required in all matters of international law and investment risks. The repercussions will be serious and enduring,” tweeted Dr Anwar Gargash, Minister of State for Foreign Affairs, referring to the Justice Against Sponsors of Terrorism Act, or Jasta.

Bahrain’s foreign minister, Sheikh Khaled bin Ahmed, tweeted that the law “is an arrow launched by the US Congress at its own country”, adding: “Are there no rational people among you?”

Congress voted overwhelmingly on Wednesday to override president Barack Obama’s veto of Jasta, which allows the families of 9/11 victims to sue Riyadh over alleged links to the hijackers. Mr Obama and his senior military officials had warned Congress that the law would undermine the principle of sovereign immunity, and lead to many unintended consequences.

It is still too early to determine how Riyadh and its allies may respond with action, whether by selling hundreds of billions in US assets, as Saudi officials had said they would be forced to do; curtailing crucial security cooperation; or “reciprocating” by allowing private citizens to sue the United States in domestic courts over alleged war crimes or for other reasons.

“Until we know more of the direct consequences then I believe the GCC countries ... will voice their displeasure at this law but they will refrain from any immediate steps as countermeasures,” said Christian Koch, director of the Geneva-based Gulf Research Centre Foundation.

“The law will certainly confirm the thinking that the US is moving away from its strategic relationship with Saudi Arabia and the rest of the GCC and will lead the Gulf countries to continue with their determination to put in place more independent policies that put less emphasis on considerations for US interests,” he added.

The law could still be amended by Congress following the US elections in November and on Thursday the Senate’s top Republican, majority leader Mitch McConnell, said the legislation may have “unintended ramifications” and that lawmakers should discusses fixes.

A bipartisan group of senior senators is already working on drafting a compromise bill to amend Jasta that would narrow the focus of the law specifically to the 9/11 attacks – something that Riyadh and the UAE would likely support depending on the precise language.

But even if the law is narrowed, lawsuits against the kingdom over 9/11 – which were previously blocked by a 1976 law only allowing legal action against states designated as sponsors of terrorism – could proceed. If they do, the court could freeze Saudi bank accounts or other assets as possible future payments; civil suits in the US require lower standards of evidence than other court cases.

It is unclear whether Saudi Arabia will decide to sell its US assets that are worth at least US$500 billion (Dh1.8 trillion), including $96.5bn in US treasury debt, although some say this is unlikely. The assets would have to be sold rapidly, and thus at a significant discount, which “the Saudis simply cannot afford” given their current budget deficit, Douglas Ollivant, a former White House official, wrote on the New America Foundation website on Thursday.

In the long term, the economic repercussions could prove the most significant fallout for the US: there is potential for foreign countries to be turned off investing in the US, and American companies could face a more difficult time in the Gulf.

“I would think that if there was a choice between the US and another country for the delivery of the same product at a similar price, the choice would be taken in favour of the other country,” Mr Koch said.

US defence companies and other non-military corporations with significant investments and joint projects in Saudi Arabia will not be immediately affected, but preferences could begin to shift over time.

“The biggest loss is the loss of trust, that’s really the key,” said Jean-Francois Seznec, an expert on Gulf political economy and managing partner of the Lafayette Group, a consulting and investment company. Saudi deputy crown prince Mohammed Bin Salman has been “trying to bring US companies to invest in Saudi Arabia as part of his diversification plan, but now the companies will not be sure they will be welcomed in the end” if Saudi assets are threatened in US courts.

Other observers said the economic uncertainty created by Jasta exacerbated the larger tensions that have emerged in the bilateral relationship, most acutely in the past two years.

“I think in terms of big contracts that the Saudis ... will always look for the best partner, but it’s one other factor that creates uncertainty in the relationship,” said a Gulf source familiar with negotiations in Washington over Jasta. “When you overlay the noncommercial interests in a lot of these deals, it just creates another level of uncertainty.”

Ahead of the override vote, Gulf officials warned that counter-terrorism cooperation could also be affected if the law passed.

“How does this affect security cooperation going forward? The answer is it’s undetermined, but it certainly doesn’t help,” said the Gulf source. “When private litigants can now sue countries and try and compel them to release classified information, it undermines the trust that is central to security cooperation.”

Some played down the potential for longer-term repercussions.

“I don’t think Saudi Arabia will do anything to jeopardise its relationship with the US,” said Bernard Haykal, an expert on the kingdom and professor of near eastern studies at Princeton University. Riyadh “will seek to remedy this situation either through negotiations with the executive branch of government in the US or through the court system”.

But, for the Gulf source at least, “the damage has already been done”.