Saudi Arabia and Canada are not getting on.

As the FT reported Monday, the Middle Eastern kingdom expelled the Canadian ambassador, reacting against Ottawa's support for jailed human rights activists.

The feud adds to a growing list of global trade tensions. But we'd like to direct your attention to one particular consequence. From the FT's coverage:

Saudi Arabia also said on Monday that it would suspend all its educational exchange programmes with Canada. An official told state television there are more than 12,000 students and their families currently in Canada. They will be transferred to universities and schools in the US, UK, Australia, New Zealand and Singapore, he said.

In English-speaking countries, higher education sectors have become highly reliant on flows of international students. China, which provides over 60,000 new students to the UK each year, is the most commonly cited example. The Saudi Arabian episode serves as a reminder that the trend extends further afield.

Here is a table that captures the direction of travel, from a recent Centre for Global Higher Education report:

Such relationships generate political risk, as the Saudi-Canadian example shows. Emerging market economies with the concentrations of wealth required to afford Western university fees also tend to be marshalled by authoritarian states with the political power to halt student flows, effectively overnight.

The Canadian higher education sector is now heavily international - incoming students rose by more than 50 per cent from 2011 to 2016. Data from Macleans, which provides university rankings in the country, shows that at six Canadian universities, including McGill and Toronto, more than a fifth of first-year undergraduate students were international in autumn 2016. At 23 universities, more than a tenth were international.

As in the UK, Canadian tuition fees for international students are dramatically higher than those charged to domestic students. They have also been rising. Annual fees for international undergraduates studying law, for example, went from $23,254 in 2013/14 to $30,367 in 2017/18, according to data from Statistics Canada. Humanities fees have gone from $18,332 to $24,402 over that period.

Why does all this this matter? First, it represents a political problem for Western universities. If they become financially dependent on certain regions, they become constrained in their criticism of that region. Students become diplomatic leverage - the Saudi statement, in suggesting transfers to other countries, plays on the competitive dynamic between English-speaking higher education sectors. (This is an issue far bigger than universities; the Australia-China dynamic was analysed in immense depth this week by John Garnaut, here).

Second, it represents a financial problem for Western universities - if flows are halted, their revenues and existing financial arrangements would be threatened. This risk is understated in current approaches to investment.

Third, and perhaps more important, higher education functions as a gateway to real estate investment (this is also true domestically). Demand for flats in university and global cities is facilitated by international study, especially for parents who may be incentivised to move their assets to a safer legal regime, killing two birds with one capital outflow.

Ben Rivera, a buying agent in London, has over the last decade been involved in a number of transactions in prime central London in which Chinese and Arab parents have been buying for their children studying at the city's universities, especially Imperial and LSE. He adds that previously, demand of this kind was much more European in nature. The specialist university accommodation sector has also attracted inflows recently.

Over the same period that Canada has welcomed a greater number of international students, its housing markets have been dramatically reshaped in part by international demand. Students may be a marginal part of the overall demand dynamic for such real estate. But in the highly leveraged global cities where prices have become divorced from the domestic economy, margins can make all the difference.

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