Saudi oil 

Recently, Saudi Arabia told the White House it would be willing to boost its oil production early next year if crude prices are still high. This move is seen as targeting goodwill in congress for a deal in which the Saudi Arabia would recognize Israel and in return get a defense pact with the U.S. 

U.S. – Saudi relations have plummeted over the last couple of years as Biden criticized Saudi Arabia and the de facto ruler, the crown prince Mohammed bin Salman, for murdering the journalist Jamal Khashoggi. At this point, the U.S. is feeling the pressure of the global commodity market and has shown willingness to work closer with the Saudis and even provide military and nuclear assistance. The price would be recognition of Israel, the U.S. key ally in the Middle East. This would be a move that could revamp the geopolitical situation and be seen as a major victory for Biden, similar to the successful Abraham Accords during the Trump administration, in which United Arab Emirates and Bahrain recognize Israel’s sovereignty, enabling the establishment of full diplomatic relations. 

The situation might have changed after Hamas recent attack on Israel and the ongoing war. Most Arab states do not necessarily approve of Hamas and their terror methods, but the conflict will still complicate any efforts to find peace and in particular support for Israel’s sovereignty. Saudi Arabia has not recognized Israel since its founding in 1948, and a deal establishing diplomatic relations would expand Israel’s ties to the Arab world, potentially constrain Iran’s military ambitions and curb China’s effort to supplant Americas influence in the region. 

The Hamas – Israel war has shown the brutality of Hamas terrorism, but also displayed the untenable living conditions for the Palestinian people. Many claim that they are virtually living under an apartheid-like system as second-class citizens. This does not justify terrorism, but it does raise the question if there can even be lasting peace in the region. The longer the current conflict continues, the more the sympathy for the ordinary Palestinians will grow, both in the west and in the Arab world. This will likely make it impossible for Saudi Arabia to recognize Israel in the current situation and it will require stability in the region before further deals can happen. 

The Saudis have been pressing for higher oil prices as they pour tens of billions of dollars into megaprojects aimed at transforming the kingdom’s economy. With crude oil close to $90 per barrel and projected to increase, the pressure is growing on the Biden administration to act to lower gas prices and inflation. This is of some urgency given the upcoming 2024 election. 

As the world’s largest oil exporter, Saudi Arabia has a unique capacity to influence crude prices, with the ability to restrict the world’s oil supply or flood it. The Saudis and Russians lead an oil-producing group known as OPEC+, which is set to meet at the end of November to decide output levels. The 23-member group might increase supply, but it is too early to say now, and given the situation with Israel, politics friendly towards the U.S. might be off the table. The OPEC+ forecasters predict a global deficit of 3.3 million barrels a day in the fourth quarter 2023, and many oil analysts now expect prices to top $100 eventually. 

Long-term, it seems likely that Saudi Arabia and Israel will work closer together and form more economic ties. With a Saudi future recognition of Israel, the business could gain substantially in the region. At this point though, the war between Israel and Hamas needs to end and once the dust has settled, there will be a new evaluation of next steps. As long as the terrorist groups like Hamas and Hezbollah continue to attack Israel or even exist, there can be no peace and the Palestinian people will continue to suffer. Israel has no choice but to defend themselves, but long-term, they will have to find a reasonable solution for the Palestinians. 

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