How the War Between Israel and Hamas Will is Hitting World Economy
The recent conflict between Israel and Hamas has injected a fresh set of uncertainties into an already delicate global economy. Experts caution that it might be a while before the full extent of the repercussions becomes evident.
Speaking at a joint IMF and World Bank meeting in Morocco, Pierre-Olivier Gourinchas, the chief economist of the International Monetary Fund, pointed out that the global economy is currently moving at a sluggish pace rather than a brisk one.
World Bank President Ajay Banga echoed this sentiment, emphasizing that the situation is not only a humanitarian tragedy but also an unwelcome economic shock.
Over the weekend, Hamas militants initiated a series of unprecedented attacks on Israeli villages near the Gaza border. The toll was severe, with over a thousand Israelis losing their lives, and more than a hundred being taken captive in Gaza. In retaliation, Israeli warplanes conducted days of airstrikes. According to Palestinian authorities, the Israeli airstrikes resulted in at least 900 casualties and left over 4,500 people injured.
The world watched in horror as these events unfolded. In the financial realm, the price of oil spiked by up to five dollars per barrel, futures markets saw a downturn, and the Israeli shekel hit a seven-year low.
Since then, market responses have been relatively subdued. However, experts caution that this may be due to the uncertainty surrounding future developments.
Paul Samson, the president of the Centre for International Governance Innovation, emphasized the historically high-risk nature of conflicts in the Middle East, with the potential to spread beyond the immediate region.
Israeli Prime Minister Benjamin Netanyahu declared that Hamas had made a mistake of significant proportions, vowing to exact a price that would resonate for decades. Israel’s call for 300,000 reservists and the mobilization of tanks along the border, alongside the U.S. dispatching an aircraft carrier strike group in support of Israel, heightens concerns of the conflict’s potential escalation.
Experts like Mohamed El-Erian caution that if the conflict broadens and involves additional parties, it could lead to a weaker global economy and increased inflationary pressures, posing challenges for financial markets.
Rory Johnston, founder of the newsletter Commodity Context, raises the possibility of Saudi Arabia and Iran, major oil suppliers in the region, being drawn into the conflict due to their alleged ties with Hamas. The extent of their involvement remains uncertain.
The conflict’s implications extend to inflation, as rising oil prices directly impact the cost of living worldwide. Consumers would face higher fuel costs if crude oil prices continue to climb.
Mark Manger, a professor of political economy, notes that bond prices have risen, reflecting investors’ pursuit of safe assets like U.S. treasuries and German bonds in times of uncertainty and conflict. This, too, contributes to inflationary pressures.
Overall, it’s evident that regardless of how events unfold, a resolution to this crisis is likely to be a protracted process, necessitating preparedness from consumers, investors, and policymakers alike for the long haul.
