The Brazilian left the Gunners last month, and the Spaniard has emerged as the favourite to replace him at the end of the season.
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Olabe is leaving Sociedad in the summer and could be on his way to Arsenal afterwards having given priority to them ahead of other clubs keen on him.
Positive talks between the 57-year-old and the North London club about the project have taken place, and more talks are expected to happen soon.
Olabe was once on the radar of Real Madrid and Aston Villa, and he will not be short of top suitors once he leaves the La Liga club at the end of the season.
Arsenal manager Mikel Arteta knows him as he was the one who signed the former midfielder for Sociedad back in 2004, and a reunion could now be on the cards in the coming months.
The Gunners will be desperate to get the right sporting director to replace Edu and help them sort things out in the 2025 summer transfer window, and the English-speaking Olabe fits the bill.
He played for Sociedad before coaching their youth and senior teams after retiring, returning to the club in 2018 as director of football.
Olabe oversaw the sales of Martin Odegaard and Mikel Merino to Arsenal, and Alexander Isak to Newcastle United, making top recruitment for the club and helping them to generate much-needed funds by selling players for huge profit.
Due to his influence, Sociedad won the Copa del Rey in 2020, their first major trophy since 1987, and have become regular finishers in the European zone in La Liga since 2019-20, and Arsenal could do with such an experienced director.
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