What deal are the Americans and Saudis negotiating?

Under the headline, “U.S.-Saudi Deal Sets Path to Normalize Kingdom’s Ties with Israel,” on Wednesday, The Wall Street Journal published a detailed report of the content of U.S.-Saudi discussions. The headline was accurate as far as that goes. But the content of the article made clear that Israel is not the real focus of the discussions.

Although the story paid homage to the media’s favored issue: Israeli concessions to the Palestinians, it acknowledged that the Palestinians are at best a tertiary issue for Saudi officials, who “have dwindling patience for uncompromising and divided Palestinian leaders with limited popular support.”

U.S. and Saudi negotiations are centered on two main issues: China and America’s strategic alignment in the Middle East.

China is the focus of U.S. demands from the Saudis. U.S. President Joe Biden’s advisers have presented economic, technological and military demands to the Saudis relating to their burgeoning ties with China. Economically, Biden’s advisers are seeking assurances from the Saudis that they will not replace the U.S. dollar as the currency of exchange in global energy markets. Over the past year and a half, the Saudis have agreed to sell their oil to the Chinese in yuan. The problem with the U.S. position is that it was the Biden administration itself that created the opening for a parallel market for energy sales not tied to the petrodollar.

The Biden administration responded to Russia’s invasion of Ukraine 18 months ago by imposing unprecedented economic sanctions on Russia’s international trade. Among other things, it barred the purchase of Russian oil. But price increases in the global energy market as a consequence of the move made it unsustainable. Russia was quick to respond in cooperation with China, India and other key economies by setting up alternative, non-dollar-denominated energy markets. If the United States wants to restore the petrodollar’s position as the sole currency of exchange in the global energy markets, then it has to scale back its anti-Russian sanctions or massively increase its own oil production to increase supply in the international market.