A surprising spat: The causes and consequences of the Saudi–Canadian dispute

Cordial but limited relations

Canada’s calculus broadly mirrors—albeit on a far smaller scale—that of the United States. The partnership between the United States and Saudi Arabia is built on a fundamental bargain reaching back seven decades: Riyadh helps ensure the stability of global oil markets in exchange for security guarantees from Washington. ¹ Contrary to widespread misperceptions, imports of Saudi oil are not a pillar of this partnership: in recent years, less than 5 percent of American oil consumption has come from Saudi Arabia. Rather, relations are premised on Saudi Arabia holding the world’s largest reserves of conventional oil and being the world’s largest exporter, providing it with significant leverage over the global economy. The United States thus has a vital interest in ensuring that Saudi Arabia remains a partner and not a rival.

This calculus has allowed the partnership to weather multiple crises, including the oil shocks of the 1970s, severe disagreements on the Israeli–Palestinian conflict, the fact that fifteen of nineteen hijackers for the 11 September 2001 attacks were Saudi citizens, Saudi Arabia’s abysmal human rights record, and, more recently, Saudi frustrations with what it viewed as President Barrack Obama’s efforts to disengage from the Middle East. This has made bilateral relations a constant source of frustration in Washington. Yet successive administrations have not budged from their assessment that they remain necessary.

Canada and other mid-sized Western powers have an interest in this partnership: they benefit from its perpetuation and from its flaws remaining contained. That is why Canada and Saudi Arabia had, until recently, cordial but limited relations. They were cordial, in that they cooperated on shared interests, notably counterterrorism, while they usually ensured that disagreements maintained a low profile. Arguably, the main area of success in the bilateral relationship has been in the education sector: about 15,000 Saudi students were, until the last academic year, in Canadian universities.

At the same time, relations have been limited in their breadth and depth: each country has historically ranked as a marginal priority for the other. Annual bilateral trade, for example, has fluctuated in recent years at around $3–4 billion, or roughly two days of Canada–US trade, making Saudi Arabia Canada’s seventeenth largest trading partner. In 2017, Canada exported slightly over $1 billion of goods to Saudi Arabia, almost half of which was military equipment, while it imported roughly $2 billion of goods from Saudi Arabia, mostly oil. ²

The LAV deal

Canada–Saudi ties underwent a significant evolution in 2014 when the Conservative government of Stephen Harper announced the largest arms export contract in Canadian history, a $15-billion deal for the sale of light armoured vehicles (LAVs) and associated weapons systems, spare parts, and technical data, manufactured by General Dynamics Land Systems – Canada (GDLS-C). The deal sustains 3,000 well-paid jobs for up to fifteen years, and involves the work of about 500 small- and medium-sized businesses. Upon assuming power in 2015, the Liberal government of Justin Trudeau decided to uphold the contract, exposing Ottawa to domestic criticism from the media and civil society because of Saudi Arabia’s poor human rights record and its use of previously acquired Canadian-made armoured vehicles during its interventions in Bahrain in 2011 and in Yemen.

The deal has remained shrouded in secrecy. It was not initially known, in particular, how many and what types of vehicles were to be delivered, according to what calendar, and what penalties either side would have to pay in case of cancellation. CBC did report in September 2018 that the contract had been scaled back in 2016 and 2017, bringing down the number of vehicles to be delivered from 928 to 742 (including 119 of the heavy assault variety). ³ The reasons for this downgrading are not clear; analysts have posited that they could include Saudi fiscal challenges as a result of dropping oil prices.

It is important to understand why Saudi Arabia pursues large weapons deals such as this one with Western powers. These purchases are only partly about Riyadh seeking to acquire advanced weapons systems. They are also meant to be investments in strategic partnerships, primarily with the United States, Saudi Arabia’s security guarantor. But Riyadh has been careful over the years to hedge its bets by diversifying its security relations with other Western powers, especially Great Britain and France, as well as lesser ones such as Canada and Spain. Riyadh views the billion-dollar price tags of these weapons purchases as investments: in exchange, it expects a broadening and deepening of relations.

The Trudeau government was initially interested in exploring further opportunities with Saudi Arabia. ⁴ Ottawa, in particular, was eager to expand trade and deepen cooperation in areas such as security and education. This momentum stalled, however, as the LAV deal created incentives for the government to put relations on the back burner. Ottawa wanted to keep the deal, or, more precisely, the economic benefits it brought. But it came to calculate that the best way to ensure its survival was to limit public attention to relations with Saudi Arabia since media coverage was so negative. The Saudis, for example, had been pressing Canada for years to organize high-level visits between both countries, but very few became reality. This also explains why Ottawa was reluctant to call out the Saudi-led intervention in Yemen, for fear this would expose it to criticism that it was hypocritical given its weapons sales to the Kingdom.

The August 2018 explosion

On the evening of Sunday 5 August 2018, Saudi Arabia stunned Canadians by expelling Canada’s ambassador, recalling its own, freezing new trade and investment, and selling off Saudi assets in Canada. Over the next two days, it rolled out additional measures, recalling the 15,000 Saudi students in Canada and launching an aggressive campaign on traditional and social media criticizing Canada. By the Thursday, the situation had stabilized, as became clear when Riyadh confirmed that the 100,000 barrels of oil per day it exports to Canada would not be cancelled.

What provoked Saudi Arabia to launch such aggressive measures? Riyadh claimed that two tweets, released the previous week by the Canadian foreign ministry, calling for the immediate release of jailed civil and women’s rights activists, represented “overt and blatant” interference in its internal affairs and could not go unpunished. ⁵ These tweets were the immediate cause triggering the dispute, but other factors must be taken into consideration to understand why Riyadh chose to sanction Canada so harshly. Indeed, the Canadian government had previously used similar language when referring to human rights in Saudi Arabia, as had other Western governments.

The first of three deeper causes is the failed promise of the LAV deal and the growing irritation this caused in Riyadh. Upon taking power, the Trudeau government rapidly came to understand that it was politically costly for a government seeking to brand itself as progressive and feminist to justify selling weapons to a dictatorial monarchy with such a highly negative image. The government upheld the deal, but proposed initiatives were put on ice, mostly because of Ottawa’s concerns that any new dealings with Saudi Arabia would be viewed publicly through the prism of the LAV deal. This irritated Riyadh, as it amounted to a broken promise: Canada was pocketing benefits from the deal but failing to reciprocate. The debate in Canada on the LAV deal, moreover, was highly critical of Saudi Arabia, especially its human rights record and intervention in Yemen. The Saudi embassy in Ottawa became increasingly frustrated that the Canadian government was not playing a more proactive role in publicly defending bilateral relations. This is important: popular perceptions in Canada prior to the dispute held that relations were warm because of the deal, but the dispute did not occur in a vacuum. Tension had in fact been accumulating beneath the surface.

The second cause behind the decision to sanction Canada was the transformation of Saudi foreign policy from 2015 on. Under MbS, Riyadh has turned away from its traditional caution toward a more assertive and hyper-nationalist foreign policy, as witnessed by the brutal war in Yemen, the blockade of Qatar, and the assassination of Jamal Khashoggi. Viewed through this prism, Saudi Arabia’s excessive response to seemingly irrelevant tweets is not surprising: its overreaction is not so much about Canada, but more about sending the forceful message to Western countries that criticism will be punished. It is the same message it sent to dissidents with the murder of Khashoggi. Relations with Canada, in this sense, are collateral damage: Canada is an easy target because it lacks a strong retaliatory capacity.

The third cause was Trumpism, the American president’s dismissiveness toward norms and conventions of domestic and international behaviour. This signals to revisionist actors already leaning toward bending or breaking these norms that Washington will not oppose, let alone penalize, such conduct. President’s Trump’s warm embrace of MbS did not directly cause the dispute. But indirectly, Trump’s rhetoric represents a licence to act with impunity, and his refusal to hold MbS to account emboldens him, removing checks on his power. ⁶

The Saudi–Canadian spat is unlikely to be resolved in the short- to mid-term; instead, it is likely to evolve into a frozen, low-level dispute, with both countries muddling along with diplomatic relations below the ambassadorial level (embassies remain open in Ottawa and Riyadh). On the Canadian side, it is unlikely the Trudeau government will seek compromise with Saudi Arabia before the next federal elections in October 2019, as it would not be a winning political strategy to be perceived as conciliatory. The murder of Khashoggi and the highly critical coverage it received in Canadian media has further entrenched this dynamic. For MbS, seeking reconciliation with Canada would dilute his message that Saudi Arabia no longer tolerates criticism from Western states.

A costly spat?

The direct consequences of the dispute have been minor, since bilateral relations are limited. Crucially, moreover, Saudi Arabia only pledged to freeze new trade and investment; with some exceptions, what limited economic ties predated August 2018 have partly survived. Cirque du Soleil, for example, chose not to cancel a previously planned show in Saudi Arabia. ⁷ The impact on Canada has been concentrated in the higher education sector. By one count, prior to the dispute, the roughly 15,000 Saudi students pumped $1.2 billion in the economy. ⁸ All of this has not been lost: a few weeks after the onset of the dispute, Riyadh announced that medical students (of which there are about 1,000) and others, such as some graduate students and those nearing completion of their degrees, would be allowed to stay, presumably because relocating them would be too complicated. Others were told their scholarships were cancelled but that they could stay at their own expense. ⁹ It is not clear how many were allowed to stay or chose to stay using their own money, but it has steadily emerged that a significant proportion remains. ¹⁰

The dispute has been more consequential for Canada in terms of what is the most important variable in its foreign policy: relations with its allies, especially the United States and, to a lesser extent, Europe. Publicly, Washington and European capitals kept a low profile, blandly expressing their desire for a resolution. This was disappointing for Canada, with some commentators lamenting that the country had no friends in facing Saudi bullying. ¹¹ This loneliness has been fairly inconsequential given the limited costs of the dispute with Saudi Arabia. But it raises uncomfortable questions for Canada, which has benefited so much from the rules-based international order built and led by Washington for the past seven decades. There has been only superficial public debate on this, but it is urgent for Canada, just as it is for other mid-sized liberal democracies, to engage in a painful soul-searching exercise on the consequences of Trumpism. Even if President Trump is defeated in 2020, what if his unilateralist, hyper-nationalist, and protectionist impulses outlast him? The dispute with Saudi Arabia may, in this sense, only be a prelude to the new strategic loneliness countries such as Canada are bound to suffer from in coming decades.

The direct costs of the dispute have also been low for Saudi Arabia. Indirect and longer-term costs, however, will be more important. The cost to students is impossible to quantify. But thousands have had their lives upended; this is certain to create resentment. ¹² Some have reportedly sought asylum in Canada. ¹³ More broadly, MbS’s erratic and reckless policies hurt the Kingdom. ¹⁴ They damage its ability to meet the objectives of Vision 2030, MbS’s blueprint for economic and social reform, which is reliant on branding Saudi Arabia as a stable destination for foreign trade and investment. The intervention in Yemen, where Riyadh is stuck in a costly quagmire with no prospect for military victory or any viable exit strategy, and the embargo on Qatar, heighten this sense of risk. ¹⁵ According to JPMorgan, capital outflows could reach $65 billion in 2018, while foreign direct investment dropped by 80 percent, from more than US$7 billion in 2016 to $1.4 billion in 2017. ¹⁶ All this combines to damage the narrative that MbS has pushed so hard to promote: that the Kingdom is modernizing and is an attractive place for business.

The dispute was also revealing with regards to Saudi Arabia’s regional posture. Much was made of the timid reactions of Canada’s allies. But Saudi Arabia has been equally alone: some of its Arab friends provided rhetorical endorsement, but none changed its diplomatic relations with Canada or adopted the slightest sanction in parallel with Riyadh. And all—from the weak Palestinians to steadfast allies such as the UAE—took notice of MbS’s impetuousness, and have been watching with rising concern as his ambition and lack of regard for traditional norms of inter-Arab relations have grown.

Why the spat matters

Canada is not a major power, and the bilateral Canadian–Saudi relationship is marginal for both countries. But Saudi Arabia could well be ruled by MbS for decades to come, given the extent to which he has concentrated power in his own hands. In this context, Canada—working alongside its allies—needs to revisit the assumptions that have guided its approach to the partnership.

The partnership with Saudi Arabia has always been costly but necessary, but MbS has exposed this difficult calculus by bringing significant public attention to it, and magnified it by amplifying its costs. The calculus underlying the commitment to the decades-old relationship remains valid. It is still in the interest of Canada and its allies to have Saudi Arabia as a partner; it is far better to keep channels of communication open, maintain close ties to understand Saudi intentions, and protect counterterrorism cooperation and trade. It is also far better than jettisoning the partnership and encouraging the emergence of a rival Saudi Arabia, which would have significant ability to work against Western interests. But the status quo since MbS’s emergence has been highly unattractive as Saudi actions have proven increasingly costly to itself (and to Yemenis and Qataris) and to Western interests. The war in Yemen, in particular, has become a humanitarian disaster, and is having the opposite effect of what Riyadh set out to do by primarily benefiting Iran and Al-Qaeda in the Arabian Peninsula (AQAP).

Canada’s initial response to Saudi overreaction was illustrative of the dilemmas recent dynamics create. Viewed solely through the lens of the dispute, Ottawa responded appropriately. The Trudeau government vowed not to apologize and to continue addressing human rights. ¹⁷ It has kept a low profile, emphasizing that it is keeping channels of communication open while quietly working behind the scenes with allies to pass messages to the Saudis, and openly stating its willingness to continue engagement. It is notable, for example, that responses by Prime Minister Trudeau and Foreign Minister Chrystia Freeland in the first week after the August dispute were discreet, with their immediate priority being to avoid pouring oil on the fire. It would have been tempting for Ottawa to loudly beat its chest, claiming it was bravely protecting human rights and taking the opportunity to poke its giant southern neighbour for failing to do so. This would undoubtedly have been good domestic politics. But it would not have helped in calming tensions with Saudi Arabia, and it would have been perceived as criticism of President Trump at a crucial time in the renegotiations of the North American Free Trade Agreement.

This was the right approach for Canada given the circumstances. Its traditional allies in the United States and Europe looked away, not because they were closer to Riyadh than to Ottawa, but because they perceived little short-term interest in taking a stand against Saudi Arabia. ¹⁸ Canadians who felt slighted would have done well to remember that their own country had also kept quiet when Saudi Arabia had comparable disputes with Sweden and Germany. But the problem with this collective silence is that it feeds MbS’s sense of impunity. For every reckless action he has undertaken, there has been—until an escalation in the fall of 2018 in the wake of the Khashoggi murder—virtually no international response beyond governments or lawmakers rhetorically “voicing their concerns.”

Rebalancing the partnership

It is time for Canada and its allies to re-evaluate and rebalance their partnership with Saudi Arabia. MbS has fundamentally changed the equation; the partnership remains necessary, but its costs have become such that they significantly exceed the benefits. The goal must be to send an unprecedentedly strong signal to MbS, and to others in the Saudi royal family and establishment, that the status quo of the past four years is unacceptable. If Saudi Arabia does not change course, Canada and its allies must significantly downgrade—though not jettison—their involvement.

The goal must be to impose sufficient pressure on MbS to convince him to change his cost-benefit calculus. A secondary goal must be to stimulate checks and balances to his rule within the royal family. The intention should not be to provoke his overthrow—an unlikely scenario, which, if it did come to pass, would be highly destabilizing. Instead, the more limited objective should be to steer the system to shore up elements marginalized by MbS, and to revert to a more consensus-based model of decision-making, as was the case before 2015 and which helped prevent the unchecked exercise of power seen since.

To achieve this, Canada and its allies must clearly state their objectives and adopt concrete, not merely rhetorical, measures. Western powers should increase sanctions on Saudi officials responsible for human rights abuses, including MbS, under their versions of the Magnitsky Act. High-level visits should slow down, and the tone should be of a calculated chilliness. Canada and its allies should push the United States (and Great Britain) to stop all support for the war in Yemen and to strongly signal to Saudi Arabia that its intervention has worsened an already disastrous humanitarian situation, and has benefited American rivals. Washington should then actively support the fledgling Yemeni peace process. Canada and its allies have, notably, a growing chorus of like-minded critics of Saudi Arabia in Congress as potential partners. Western powers should also seriously pressure Riyadh to end its pointless feud with Qatar. They should, finally, insist that future reckless adventures will trigger sanctions.

Canada and other American allies have a role to play, albeit a secondary one. Individually, they cannot impact Saudi behaviour much; sanctions would hurt their own economy and fail to make Riyadh budge. Together, however, especially if the United States leads, they can multiply their impact. Canada should take the initiative by suspending the LAV deal and making its resumption dependent on an end to the embargo of Qatar and the intervention in Yemen. If there is no progress, it should eventually cancel it. Europeans should likewise suspend and eventually cancel existing arms deals, and refuse to agree to new ones. They should also downgrade diplomatic contacts with Saudi Arabia by slowing down high-level visits. These measures are not without costs. For Canada, cancelling the LAV deal would cost thousands of jobs and lead to penalties. ¹⁹ For all, it would raise the possibility of retaliation. But these short-term costs are, by now, more than justified: they pale in comparison to the longer-term costs of dealing with the consequences of MbS ruling for the next fifty years the way he has for the past four.

What if this pressure works? The easy answer would be to return to the pre-2015 status quo of a costly but necessary partnership. This would be acceptable, but a better answer would be to modify the old partnership by maintaining its foundations while creating distance with Saudi Arabia, more strictly focusing on cooperation in areas of common interests. Relations should remain cordial, and the United States should remain the guarantor of Saudi security (and of its smaller oil-producing neighbours) but should define the terms of this arrangement more narrowly: it should stay away from Saudi domestic politics and only guarantee its territorial integrity while strongly opposing initiatives going against American interests. Washington and its allies should slow down sales of heavy weapons and focus more on selling equipment and providing training to make the Saudi military more effective and nimble, given their shared interest in counterterrorism. Also, if pressure does succeed, the United States and its allies should actively support and encourage those social and economic reforms which MbS has promoted, such as initiatives to diversify the economy, reform education, boost tourism, and develop the entertainment sector.

By bringing unprecedented scrutiny to costly Saudi actions, the Khashoggi murder has opened a window of opportunity for Canada and its allies to re-evaluate relations with Riyadh. The partnership was always necessary but costly. MbS, however, has amplified those costs and exposed them. It is a distinct possibility that current trends will continue, given MbS’s youth and the extent of his consolidation of power, and that he will rule the Kingdom until well into the twenty-first century. Absent a major course correction, this is a disastrous outcome for Saudi Arabia, for the region, and for Western interests.