New York CNN Business —  

Wall Street is helping finance the transformation of Saudi Arabia’s economy. Now, that lucrative relationship is coming under strain.

In recent years, American banks have spent significant energy courting the deep-pocketed kingdom, setting themselves up to profit from a wave of deals and investments as the country opens up its economy and reduces its reliance on oil.

These connections put Wall Street in an awkward position as Saudi Arabia’s isolation from the business world grows this week. Questions about the kingdom’s role in the disappearance of journalist Jamal Khashoggi could complicate ties.

“There’s a lot of pressure, in terms of PR, to make a statement regarding this Khashoggi incident,” said Ellen Wald, author of the book “Saudi, Inc.” and senior fellow at the Atlantic Council’s Global Energy Center.

Top executives, such as JPMorgan Chase (JPM) CEO Jamie Dimon, BlackRock (BLK) boss Larry Fink and Blackstone CEO Stephen Schwarzman have dropped out of a high-profile Saudi investment conference in Riyadh due to take place next week. That indicates US financial companies are “proceeding with caution,” Wald said.

But experts expect Wall Street to keep its relationships with the kingdom intact, unless the United States decides to impose significant sanctions.

“The Saudi government, given its economic reform drive, seems like an okay bet,” said Ayham Kamel, practice head of the Middle East and North Africa team at Eurasia Group, a political risk consultancy.

Financing the future

Saudi Arabia has telegraphed big plans to remodel itself as a next-generation investment hub under Crown Prince Mohammed bin Salman.

Through an ambitious program known as Vision 2030, bin Salman aims to break the kingdom’s addiction to oil and build a futuristic zero-emissions mega-city known as NEOM.

It’s an expensive undertaking — and, for those that dominate global capital markets, a big opening.

Saudi Arabia had hoped to raise as much as $100 billion for the transformation plan by selling off a slice of Saudi Aramco, the state oil giant whose long-delayed IPO could eventually be the biggest of all time. JPMorgan Chase and Morgan Stanley were reportedly among the US banks advising the kingdom on the IPO. Moelis, a boutique investment bank, was also hired for the gig.

The daunting task of taking Aramco public, originally planned for 2018, has since stalled. The Saudis struggled to decide where to list Aramco, even though President Donald Trump was pushing for the New York Stock Exchange. And bin Salman’s dream of a $2 trillion valuation was met by doubt by analysts. Saudi Arabia may also be wary of an IPO that would require lifting the veil of secrecy around the size of the kingdom’s oil reserves.

Even so, the Aramco IPO may eventually arrive, and banks will want a piece of the pie when the time comes. Bin Salman vowed in a recent Bloomberg interview that the share sale will occur by 2021.

The Saudi government tends to pay much lower fees than a Western company would on a comparable deal, according to Jeffrey Nassof, a director at Freeman Consulting Services, which tracks investment banking. But banks see the prestigious deal as an important inroad for future work.

“Banks still compete eagerly for the Saudi business because it develops important relationships with the government,” Nassof said. “These relationships can pave the way for future corporate, commercial, and retail banking growth.”

American banks have also helped facilitate the country’s bond sales since it started to raise debt in international markets in 2016 to offset declining oil revenue. Saudi Arabia has borrowed $52 billion through dollar-denominated bond sales over the past two years, according to Dealogic.

Ties don’t end there. In September, Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, borrowed $11 billion from a consortium of banks, reportedly including Goldman Sachs, Citigroup and JPMorgan. PIF intends to become “one of the most prominent users of banking services in the region,” the fund’s managing director said in a statement at the time.

JPMorgan, which holds two operating licenses in the country, will add Saudi Arabia to its emerging market government bond index next year.

Since 2010, HSBC, JPMorgan, Citigroup and Deutsche Bank have scored $295 million in fees by advising Saudi clients on mergers and debt deals, according to Dealogic.

Saudi Arabia provides financial backing to US firms as well. The PIF has put $20 billion into a US infrastructure fund managed by Blackstone.

Banks also stand to profit from Saudi Arabia’s partnership with Masayoshi Son’s Softbank. The kingdom provided nearly half the money for SoftBank’s $93 billion tech-focused Vision Fund, which has made big investments in startups such as WeWork and Slack. When those companies eventually go public, US banks expect to cash in on underwriting fees.

“This is about Wall Street looking for opportunities,” Eurasia Group’s Kamel said.