Normalisation with Saudi Arabia and a nuclear deal are now likely off the table for some time and risks of terror attacks could remain elevated
The tragic events in Israel and Gaza in recent days are likely to make this year the bloodiest since 1973. It is also the first time since 1949 that fighting has taken place on Israeli soil.
A ground invasion by Israel into Gaza is likely imminent, but Israel has failed to rescue hostages in the past and may struggle again. It is likely to inflict hefty retribution on Gaza. There is a high risk that there could be contagion with violence spreading to the West Bank, Jerusalem, Israel’s northern border with Lebanon and within Israel itself, involving the Palestinians that live there.
Regarding the impact on the wider region, improving relations between the GCC and Iran are now likely to be undermined and the chances of any new nuclear deal are very remote. With Iran pronouncing support for Hamas, the US is highly unlikely to remove sanctions before the 2024 elections. Worryingly, Iran could see the distraction as an opportunity to press ahead with the development of nuclear weapons. It could potentially deploy nuclear weapons on missiles within a few weeks.
Although still unlikely, the risk of minor terrorist attacks across the GCC will have risen, particularly in Saudi Arabia and the UAE. For example, the risk of attacks on Israelis in the UAE or of one-off terror attacks in Saudi Arabia, may have slightly increased.
One benefit for oil producers is that higher perceived risk in the region is likely to keep oil prices slightly elevated. However, if the war remains contained within Gaza and instability doesn’t spread to the rest of the region, then higher oil prices will probably not persist for long.
Normalisation between Saudi Arabia and Israel is now likely to be delayed. However, contrary to some assessments, this is probably not the main reason Hamas perpetrated the attacks. Granted, normal relations with the Arab world have been a key negotiating chip for the Palestinians for decades and normalisation has looked increasingly likely recently. However, the Hamas attacks have probably taken a long time to plan and the attacks were more likely to have been prompted by settlement expansion and recent restrictions on the Al Aqsa mosque in Jerusalem.
There could be a role for Qatar as a mediator in this crisis, something it has done effectively elsewhere. Qatar is trusted by Hamas but has also developed good working relations with Israel through working relations, providing aid to Gaza. Qatar and Egypt have historically helped to mediate ceasefires between the Palestinians and Israel. However, the current situation is likely to remain too hostile for a ceasefire for weeks.
