Saudi Arabia has maintained that establishing diplomatic relations with Israel requires a credible pathway to Palestinian statehood with East Jerusalem as its capital, a position reiterated by Riyadh through mid-2026 amid the aftermath of the Israel-Hamas war and related regional tensions. This stance, reinforced by overwhelmingly negative Saudi public opinion and perceptions of heightened risks from Israeli actions, has sidelined prior normalization momentum tied to the Abraham Accords framework. Recent U.S. efforts, including linkage of a July 2026 civilian nuclear cooperation agreement to broader talks, have not altered Riyadh’s conditions, while shifting regional dynamics—such as reduced shared threat perceptions with Iran—further diminish incentives. Traders’ strong consensus on low odds before 2027 reflects these entrenched barriers and the absence of near-term catalysts; a shift would require verifiable Palestinian progress or major changes in Israeli policy and regional alignments.