Who benefits and who loses if Saudi Arabia and Israel normalise ties?

As Israel presses ahead with its war on Gaza, near-term prospects of Saudi-Israeli normalisation remain elusive.

Riyadh is reportedly keen to strike a historic defence pact with the United States that is not conditioned on recognising Israel. But that hasn't stopped Washington from reviving normalisation talks with the kingdom, insisting it would facilitate regional peace and stability.

All this raises the broader question of who benefits and who misses out from Saudi-Israeli normalisation. Key factors merit consideration.

First, a US-brokered agreement could potentially complicate China's efforts to balance relations with Riyadh and Tehran. Beijing mediated a hard-fought detente between Iran and Saudi Arabia last year, and is keen to position itself as a regional mediator with substantial economic influence in both nations.

But those pursuits face some headwinds. The China-mediated deal entailed a commitment from Tehran that it will cease covert weapon supplies to Yemen's Houthis. They have a history of attacking Saudi energy installations and remain forcefully opposed to Israel.

That commitment could come under threat if Houthis and other Iran-aligned groups seek to capitalise on Israel's links with Riyadh and position themselves as spoilers.

Delicate balance

In the wake of Israel's onslaught on Gaza, the Houthis have focused attacks on many Israeli trade assets in the Red Sea, and even attacked those it considered allied to Israel. Thus, normalisation risks reviving Houthi attacks against Riyadh and could weaken the foundations of China's landmark mediation deal.

China also depends heavily on stability in the Gulf to secure its long-term energy and trade interests in the region. That includes sizable imports of crude oil and increased use of its yuan currency in energy purchases.

Saudi-Israeli normalisation itself cannot guarantee an end to simmering conflicts that have contributed to market volatility in the region.

For instance, Israel is unlikely to commit to future de-escalation in Gaza, given increased right-wing pressure from extremist parties. There is also vast potential for future Jewish settler violence in Palestine, which could serve as a trigger for conflicts and flare-ups.

On the other hand, close diplomatic proximity between Saudi Arabia and Israel could prompt Iran to accelerate progress on its nuclear weapons program, a major point of concern for both Riyadh and Israel. This could further complicate China's peacemaking ambitions in the region.

For Washington, normalisation could aid ambitions to limit China's economic influence in Saudi Arabia. The United States is struggling to compete with substantial Chinese investments in the kingdom, and has baulked at China's growing reach into strategically sensitive sectors such as defence.

As Riyadh's close strategic and defence partner, the US is keen to tie normalisation to a defence deal that imposes limits on China's investment and influence. Talks are already underway to increase Saudi access to more advanced US weaponry, if the kingdom agrees to curb Chinese arms purchases and limit future investment.

This presents a unique challenge for Beijing, which has vowed to "level up trade, investment and financial cooperation" with Riyadh in the coming years.

Iran factor

Iran will likely feel threatened by Saudi-Israeli normalisation as well. It sees US-brokered agreements as an attempt to forcibly "surrender" to Israel, and has denounced these deals as "reactionary and regressive."

Saudi recognition of Israel may provide Tehran with a strong rationale to beef up its support for allied proxy groups across the region. This includes groups such as the Islamic Resistance in Iraq and Lebanon's Hezbollah, which fall under Iran's long-running shadow war with Israel.

In a sign that Tehran may signal stronger support for these groups, Iranian President Ebrahim Raisi warned last year that the "only option" for all fighters in the Islamic world was to "resist and stand against" perceived enemies, principally Israel.

Interestingly, normalisation could also prompt fears in Tehran that Saudi-Israeli security cooperation is set to increase dramatically at its own expense.

In the wake of Israel's airstrike on the Iranian consulate in Damascus last month, Saudi Arabia played an important role in helping Israel take down hundreds of Iranian drones and missiles headed its way.

This was an attack that Iran justified as its sovereign imperative. Once Saudi-Israeli defence cooperation comes out into the open, it risks escalating the trust deficit between Riyadh and Tehran.

If a normalisation deal is reached, Washington's influence over Israeli-Saudi defence cooperation is also likely to increase.

The US already serves as an anchor in Israeli air defence cooperation with many Arab governments. This includes nations such as the United Arab Emirates which has fraught ties with Tehran, complicating prospects of deepening Iran's integration in the Arab world.

Meanwhile, for Israel, the domestic benefits are clear. Its leaders are keen to promote a narrative of diplomatic triumph that celebrates normalisation with Riyadh, and talks up future integration in the Arab world.

Prime Minister Benjamin Netanyahu also favours securing such an outcome without making significant concessions on Palestine, a possibility that resonates with his far-right coalition allies and could shore-up domestic support.

On the international front, Israel believes normalisation with Saudi Arabia could have a ripple effect on future ties with other Gulf states, including Kuwait and Oman. The deal could firmly cement Israel's economic interests in the Gulf's largest economy, and blunt potential criticism of its occupation.

Thus, Washington's bid for Saudi-Israeli normalisation carries widespread regional implications that risk long-term peace and stability in the Middle East.