Donald Trump’s ally Saudi Arabia threatened retaliation on America if it imposes sanctions over the unexplained disappearance of the Washington Post columnist.
But Fox News host Stuart Varney has warned punitive action on the state could result in Saudi Arabia retaliating.
Turkish officials have accused Saudi Arabia of murdering the journalist in the nation’s consulate in Istanbul and removing Mr Khashoggi’s body. Saudi Arabia denied the allegations.
The Saudi journalist, a prominent critic of Crown Prince Mohammed bin Salman, was at the consulate on October 2 in order to obtain documents that certified his divorce.
Speaking to US diplomat Francis Rooney, Mr Varney said: “What kind of punishment would you think would be ok if it is clear that the Saudis did it?”
In response, Mr Rooney said: “Well, if the Saudi leadership, particularly, is complicit in something like this, I don’t think we can treat Saudi any different than we treat every other country that does these kinds of international atrocities.
“I would say Magnitsky sanctions and maybe look at some of this trade.”
Mr Varney responded and said: “But they will turn around, the Saudis will turn around and say, ‘Don’t you sanction us, we didn’t have anything to do with it, don’t care what you say.
“You sanction us and we’ll meddle around with oil, or we won’t be in your alliance against Iran.’ They’ll take action against us if we take action against them.
“We’re in a difficult position here.”
But the US diplomat urged President Trump to take action on Saudi Arabia if they are found responsible for the disappearance.
He said: “Well, we are, but you’ve got to be principled in this. Here, we’re beating up the European leaders for not wanting to sanction Iran to protect their companies.
“We’ve got to be willing to confront Saudi Arabia’s behaviour and have the world back us up.”
President Trump warned on Thursday there will be “very severe” consequences if Saudi Arabia is found responsible for the death of the US-based journalist.
The US President added: “It’s bad, bad stuff, but we’ll see what happens.”
Mr Trump also said it “certainly looks” like Mr Khashoggi is dead and said it is “very sad”.
He told reporters at Andrews Air Force Base: “It certainly looks that way to me.”
War fears were sparked as tensions between Saudi Arabia and the US escalated last weekend when Riyadh threatened to use oil as a weapon if Trump imposed sanctions on the state.
But Saudi media boss has warned US sanctions against Saudi Arabia could spark a worldwide economic disaster.
Turki Aldakhil, general manager of Saudi Arabia-based broadcaster Al Arabiya, claimed oil prices could jump if US President Donald Trump imposes sanctions on the country.
The move would “rock the entire world”, Mr Aldakhil threatened.
Writing for Al Arabiya yesterday, Mr Aldakhil said: ”If US sanctions are imposed on Saudi Arabia, we will be facing an economic disaster that would rock the entire world.
“It would lead to Saudi Arabia’s failure to commit to producing 7.5 million barrels.
“If the price of oil reaching $80 angered President Trump, no one should rule out the price jumping to $100, or $200, or even double that figure.”
Turkish and US media published leaked reports on Wednesday of what officials said were audio recordings that prove the Washington Post columnist was beaten, drugged and brutally killed before his body was disposed of.
The Wall Street Journal, citing a Turkish official who has heard the recording, said Mr Khashoggi was allegedly killed and dismembered in the office of the Saudi consul general, Mohammad al-Otaibi, who was in the room at the time. A voice on the recording can be heard inviting him to leave.
US Secretary of State Mike Pompeo is in Turkey where he has discussed the Khashoggi case with President Recep Tayyip Erdogan and Foreign Minister Mevlut Cavusoglu.
The Saudis have strongly denied the allegations and Mr Trump has previously speculated, without providing evidence, that “rogue killers” could have be responsible for the attack.