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The new war between Israel and Palestinians in Gaza likely has dashed hopes, at least for now, for normalized relations between Israel and Saudi Arabia, potentially disrupting financial markets and possibly sending oil markets into turmoil when trading resumes on Monday.
Israeli Prime Minister Netanyahu declared war on Hamas earlier Saturday after the group’s forces poured across the border from Gaza, clashing with Israeli forces and pushing into large sections of territory in the southern part of the country.
The Wall Street Journal reported late Friday that Saudi Arabia had told U.S. officials it could be willing to increase oil production early next year if crude oil prices were high, a move aimed at winning goodwill in Congress for a deal in which the Saudis would recognize Israel and in return get a defense pact with the U.S.
The Biden administration had hoped to broker a Saudi-Israel agreement in the next six months, as the three sides had agreed on the broad outline of a deal and were starting to work through the details, according to the report.
Public acknowledgment of a deal that would include a Saudi commitment to boost oil output might have resulted in keeping crude prices under $100/bbl.
But “it’s very hard to see the way forward with this grand bargain effort this morning,” RBC Capital head of commodity strategy Helima Croft told Barron’s, adding the surprise attack leaves Israel unlikely to make any concessions to the Palestinians that the Saudi government might have sought.
Prior to the Hamas attack, Democratic and Republican lawmakers in the U.S. often have expressed concerns about aligning too closely with Saudi Arabia or giving a diplomatic boost to Saudi Crown Prince Mohammed bin Salman.
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