The Impact of the Israel-Hamas War on Saudi-Israel Relations
The recent outbreak of violence between Israel and Palestinians in Gaza has put a halt to the hopes of normalizing relations between Israel and Saudi Arabia. This escalation threatens not only financial markets but also has the potential to disrupt the stability of oil markets as trading resumes on Monday.
Israeli Prime Minister Netanyahu initiated the conflict by declaring war on Hamas after their forces crossed the border from Gaza, engaging Israeli forces and gaining control of significant portions of southern Israeli territory.
Adding to the uncertainty, a recent report from The Wall Street Journal suggested that Saudi Arabia had informed U.S. officials of its willingness to increase oil production early next year if crude oil prices remained high. This move was intended to garner favor in Congress for a deal in which Saudi Arabia would officially recognize Israel and, in return, receive a defense pact with the U.S.
The Disruption of a Potential Saudi-Israel Agreement
The Biden administration had been working towards brokering a Saudi-Israel agreement within the next six months. The parties involved had agreed on the broad outline of a deal and were in the process of ironing out the details. However, with the recent conflict between Israel and Hamas, the prospects for this grand bargain effort appear bleak.
RBC Capital’s head of commodity strategy, Helima Croft, expressed doubt about the way forward, stating, “It’s very hard to see the way forward with this grand bargain effort this morning.” The surprise attack from Hamas has made it unlikely that Israel will make any concessions to the Palestinians that the Saudi government may have anticipated.
Prior to the Hamas attack, there were concerns among U.S. lawmakers, both Democrats and Republicans, about aligning too closely with Saudi Arabia and giving a diplomatic boost to Saudi Crown Prince Mohammed bin Salman.
The Potential Impact on Oil Markets
One potential consequence of the Israel-Hamas war is the impact on oil prices. The public acknowledgment of a Saudi commitment to increase oil output as part of the deal could have helped keep crude prices under $100 per barrel. However, with the current state of affairs, this outcome is uncertain.
The Road Ahead
As the Israel-Hamas conflict continues, the prospects for a Saudi-Israel agreement and stable oil prices remain uncertain. Investors and traders should closely monitor the situation and its potential impact on financial markets.
ETFs to Watch
- US Oil Fund (USO)
- United States Brent Oil Fund (BNO)
- ProShares Ultra Bloomberg Crude Oil ETF (UCO)
- ProShares UltraShort Bloomberg Crude Oil ETF (SCO)
- United States 12 Month Oil Fund (USL)
- PowerShares DB Oil Fund (DBO)
- MicroSectors FANG+ Index -3X Inverse Leveraged ETN (DRIP)
- MicroSectors FANG+ Index 2X Leveraged ETN (GUSH)
- MicroSectors FANG+ Index 3X Leveraged ETN (NRGU)
- MicroSectors FANG+ Index 2X Leveraged ETN (USOI)