Last week we got news that MBS is still keen on pursuing a mega deal with the US that would normalize relations with Israel. We envisage a scenario in which Biden for instance gets MBS to open the crude oil taps and in return lets the Saudis get their hands on American military hardware and perhaps more importantly helps push global disinflation and a weaker USD. We note that the House has passed substantial sanctions on Iranian Oil just about when traders are going short. Safe to say that the Oil market now trades between real economic needs and events at the top geopolitical stage.

Regardless of what the specifics of a potential deal between the White House and Ryadh may contain, we thought it would be great to think in simple game theoretical terms about this, and thus we’ll look at the positives and negatives for MBS, Biden and Xi. Most importantly we note that out of the big three, the US and the Saudis stand to be the massive winners in this, while a deal wouldn’t be a catastrophe for Xi. 

Geopolitically a deal would be an important step in the efforts of the US to disengage from the Middle East and create a self-sustainable security infrastructure in which Israel and the Saudis are the key cornerstone.  

Chart 1: The Riyadh Accord that everyone needs?