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Hamas’ Offensive Against Israel: The Economic Repercussions

Written by Kendrick Low

After the massive, coordinated Hamas attack across its border with Israel from the Gaza Strip, Israel is responding with its own ‘Iron Swords’ counterattack, but its economy has been severely shaken, with its main stocks index plummeting 6%. Repercussions continue to ripple through the world economy, especially in the oils, fuels and lubricants sector, and the global outlook is far from positive; the war’s implications are muted at best.

According to CNBC News, over 300,000 ordinary Israeli workers have joined the military to bolster the Israeli counteroffensive. With the region being a key supplier of oil and a major trade passageway, it is entirely evident that oil prices will be substantially affected in the days to come, having already risen by 4%. With the global economy still struggling to recover from further oil supply shocks caused by the Russian invasion of Ukraine, the already devastating impacts would be further exacerbated, Politico reports, especially in European regions, which have sought reliance on Gulf states for their alternative supplies of oil, making them uncomfortably dependent on the region, and thus vulnerable to Middle Eastern tensions and pressures.

In the case of a proxy war, the global economy, Bloomberg estimates, would prove itself resilient. Even in a limited war, if the US imposes economic sanctions on Iran for its involvement in the conflict, the price of oil would merely rise by $4 a barrel to $90, reducing global growth by a tenth of a percentage point and increasing inflation by the same amount. The impact could be further stifled if Saudi Arabia and the UAE begin releasing spare capacity due to the increased profitability in the market, satisfying lost demand. As for a multi-frontal proxy war involving more of the Middle East, the volatility index would rise by 8 points, as well as oil prices increasing by $8 and finally a 0.3% decrease in GDP, while inflation would rise another 0.2%, a surprisingly muted response. While the situation may seem hopeful, it does rest on a huge assumption: no Teheran military involvement.

Of course, there is the omnipresent fear of Iranian intervention. While Teheran has voiced support from the sidelines, it has not opened a new front to combat the Israelis, while its proxy Hezbollah, a militant group in Lebanon, had launched guided rockets and artillery onto three posts in the Shebaa Farms, disputed territory between Israel and Lebanon. Iran at least had known of the offensive prior to its commencement, unlike other Arab states, pointing to its possible involvement. However, top Israeli officials have warned not to overstate its role, cautious of aggravating it so it does not enter the fray. If it does, however, Bloomberg estimates global growth is projected to drop to a paltry 1.7%, oil prices will soar to $150 a barrel, up $64. This would slash $1 trillion off of global output, reducing global economic growth by 1%. Worryingly, inflation would rise 1.2%, possibly forcing the US Fed and the EU to have to further raise interest rates, in turn negatively impacting emerging nations with dollar-denominated debt.

Overall, while the repercussions certainly vary highly between such estimates off involvement, it is clear that the situation could very well be troubling. As it is still early days, it will be difficult to concretely predict the course of the war, but the global economy should prepare itself for huge supply shocks to come.

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