U.S. President Donald Trump threatened "severe punishment" for Riyadh if it turned out that Khashoggi was killed in the Saudi consulate in Instanbul, as Turkish officials allege. Saudi Arabia has denied this and on Sunday warned it would counter any sanctions with greater ones of its own.
Oil prices moved only slightly on Monday as analysts said they doubted Saudi Arabia, the word's biggest exporter of crude, would risk international isolation and damage its own finances by cutting back exports at a time when it is pushing through reforms designed to create jobs and diversify its economy.
But Krisjanis Krustins, director in the Middle East and Africa team at credit ratings agency Fitch, said the affair could hurt some parts of the reform programme.
"If there is any lasting change in investor willingness to engage with Saudi Arabia, it could lead to slower and less complete implementation of some Vision 2030 initiatives, and greater need for Saudi Arabia to use debt and internal resources to finance them," he said.
WEAK PRIVATE SECTOR
The riyal SAR= was quoted at 3.7524 to the U.S. dollar in the spot market early on Monday, its weakest rate since September 2016, Refinitiv data showed.
The central bank maintains a peg of 3.75 riyals to the dollar, and usually the currency fluctuates in a range of about 3.7498-3.7503. In November 2015, when oil prices were plunging, the riyal dropped as low as 3.7598.
In the forwards market, the dollar rose on Monday as high as 100 points against the riyal, a nine-month high, from 54 points on Friday. In 2016, it briefly rose above 1,000 points.
Yields on Saudi Arabia's U.S. dollar bonds climbed, mostly at the long end of the curve; its notes maturing in 2046 were 15 basis points wider.
Krustins and other analysts noted that foreign investment flows into Saudi Arabia were already very low because of a weak private sector and uncertainty over regulation; this could limit the impact of any reduction of flows.
Media organisations and a growing number of executives, including JP Morgan Chase & Co chief executive Jamie Dimon, have pulled out of a major Riyadh investment conference scheduled for next week, dubbed "Davos in the Desert".
The Saudi stock market had tumbled 7.2 percent over the previous two trading days because of the Khashoggi case, but it rebounded 2.0 percent on Monday.
Traders said some institutional investors, including foreign ones, were buying stocks at the lows, believing Saudi Arabia's fundamental economic situation was unlikely to change much.
But many bankers and analysts said the Khashoggi case had fuelled perceptions of political risk in Saudi Arabia because it was the latest in a series of unexpected incidents over the past three years.
During this period Saudi Arabia has launched a war in Yemen, imposed an embargo on Qatar, arrested dozens of top officials and businessmen in a corruption purge, detained women's rights activists and seen tensions with Canada and Germany rise.
Jason Tuvey, senior emerging markets economist at London-based Capital Economics, said political developments in Saudi Arabia were becoming an increasingly important economic risk.
(Additional reporting by Tuqa Khalid and Davide Barbuscia, Editing by William Maclean) ((mailto:email@example.com; +9715 6681 7277; Reuters Messaging: rm://firstname.lastname@example.org))