If the Saudi government follows through on the decision, it's believed that many students in Canada will seek placement at universities in the United States and United Kingdom.
In another explicit display of the country's displeasure with Canada, Saudi Arabia's state airline has suspended all flights to and from Toronto.
Thomas Juneau, an assistant professor at the University of Ottawa's Graduate School of Public and International Affairs, estimated the overall trade relationship between Canada and Saudi Arabia totals between $3 and $4 billion a year.
Saudi Arabia would also "put on hold all new business and investment transactions with Canada while retaining its right to take further action", it said. Officials said on state television that there are more than 12,000 Saudi students and family members in Canada, and that many will be transferred to other countries, including the United States.
McMaster University says it has about 150 Saudi students in the faculty of Health Sciences and another 40 in other programs.
Just two months ago, Saudi women were given the right to drive a auto, yet several of the country's most prominent women's rights activists - including some who fought for years to drive - were arrested earlier this year on national security grounds.
Morneau's comments reiterated the position expressed Monday by Finance Minister Chrystia Freeland, but did not directly address the larger question of what sort of lasting economic impact the dispute could have, including on Canada's $15-billion arms deal with Saudi Arabia.
"We're a little bit surprised by this sudden decision", said Associate Vice-President Livia Castellanos with University of Regina's worldwide program.
How did Saudi Arabia react?
European traders said on Tuesday that Saudi Arabia's main wheat-buying agency has told grains exporters it will no longer accept Canadian-origin wheat and barley.
"Instead of pursuing human rights reform, the government of Saudi Arabia has chosen to lash out with punitive measures in the face of criticism", said Samah Hadid, Amnesty International's Middle East Director of Campaigns.
The Saudi government on Sunday recalled its ambassador from Ottawa, barred Canada's ambassador to Riyadh and placed a ban on new trade, denouncing Canada for urging the release of rights activists.
Saudi has moved to expel the ambassador, suspend flights, trade, and scholarships with Canada following a tweet by its foreign minister on Friday calling for immediate release of detained activists. In tandem, the Saudi ambassador to Canada would also be recalled as well in light of the spat.
The Saudi Foreign Ministry made the announcement early Monday, giving Ambassador Dennis Horak 24 hours to leave the kingdom. Many students pay tens of thousands of dollars in tuition fees alone, while also paying huge sums on accommodation and living expenses.
In Washington on Tuesday, Ms. Nauert balked when asked during a media briefing whether the USA government would publicly decry the recent arrest of activists in Saudi Arabia.