impact of Israel war on economy, impact of Israel war on crude oil

The Devastating Impact of Israel-Palestine Conflict: A Closer Look

Israeli PM Benjamin Netanyahu recently announced 'A State of War' in the country. Hamas Militants entered & spread around the areas of Israel. It has sparked the war between Palestine & Israel. This war has shocked & surprised everyone around the world. Conflicts like Israel vs. Hamas can disrupt the global economy in various ways. 

One critical aspect often overshadowed by the human cost is the impact of the Israel war on crude oil prices. We will discuss why it started and its effects on the global economy as tensions between Israel and Hamas rise. 

A Quick Look at the Israel-Palestine Conflict:

The world is shocked by the ongoing conflict between Israel and Hamas. We have mentioned below an overview of how the war escalated:

  1. The Offenders: As the situation worsened and terrorists from the Hamas organization kidnapped multiple Israeli people, Israel was compelled to declare an emergency.

  2. The Trigger:  Hamas claims they attacked in retaliation for Israeli attacks on the al-Aqsa Mosque and the West Bank in Jerusalem.

  3. The Impact: The conflict severely heightened with over 5,000 rocket launches from the Gaza Strip, which Hamas controls. Sadly, civilians on both sides of the border have been harmed in the crossfire.

  4. The Response: In answer to Hamas' "surprise" offense, the Israel Defense Forces (IDF) launched Operation 'Iron Swords,' showing their intent not to back down.

The fallout of this intense conflict has yet to be fully realized, but it's clear that it carries immense global implications, including the impact of the Israel war on the economy and crude oil prices.

How Will the Israel-Hamas War Impact the Global Economy? 

The Israel-Hamas conflict has impacted the global economy in several ways that go beyond the Middle East. Now, in simple language, we will discuss how the intensifying conflict affects oil prices, inflation, India-Israel trade, and global markets.

Oil Prices Boil

Almost thirty percent of the world's oil is held in the Middle East. This makes oil prices unstable in response to developments there. As a result of the warfare between Israel and Hamas, the price of crude oil has risen dramatically. US West Texas Intermediate (WTI) has increased by 3.85 Percent, while Brent crude has increased by 3.44 Percent. If the oil price issue continues, businesses and families worldwide may suffer, raising inflation.

Inflation

Rising oil prices can lead to imported inflation in major economies like the United States, India, and China as they import significant amounts of oil. High energy costs translate to higher production costs for various industries, ultimately driving up inflation worldwide. High inflation rates could undermine central banks' efforts to control inflation, causing prolonged elevated interest rates.

India-Israel Trade

Roughly 1.8% of India's exports are exported to Israel. If the Israel-Hamas war escalates, supply worries may arise. There are no noticeable effects on bilateral trade. However, the conflict can lead to a drop in the value of the Indian rupee, requiring intervention by the Reserve Bank of India (RBI).

Global Markets

Uncertainty from the conflict affects global investor sentiments as well. Investors shift to safe-haven assets as equity markets falter and risk-off sentiment takes hold. US stock futures have fallen, and Asian markets have also gone down. Gold and the Japanese yen have also appreciated. Such challenges may affect global companies in the short- and long-term.

Impact of Israel's war on crude oil prices 

The recent Israel-Hamas conflict has caused devastation on the ground and impacted global crude oil prices significantly. 

Oil Prices Spike Amid Conflict

The global Brent oil benchmark rose nearly 5%, fueled by concerns that the Israel-Hamas war could ripple across the petroleum-producing Gulf region and threaten global oil output. This price hike reverses a significant decline in recent weeks, which many market watchers and drivers had welcomed.

Why Oil Prices Matter

Crude oil prices hold major implications for the economy and consumers. They directly influence various products, ranging from gasoline to plastics, by driving production costs. Furthermore, since the production and transportation of numerous goods rely on oil, increased crude oil prices could affect a wider range of products.

Uncertainty and the Wider Middle East

The ultimate impact of the Israel-Gaza war on oil prices remains uncertain. A significant increase would require the conflict to escalate throughout the wider Middle East. The market is reacting to fears of a worst-case scenario: a conflict in Israel magnifies throughout the region and affects global oil trade.

Impact of Iran on Hormuz Strait

The fact that Iran backs the terrorist organization Hamas and controls the Strait of Hormuz, through which 15% of global oil flows, is quite concerning. Iran is a key oil supplier despite international sanctions.

The Effects on Gas Prices

Although higher crude oil prices could affect gas prices, the seasonal shift from busy summer travel to comparatively quiet fall months has reduced the demand for gasoline. If oil keeps rising for a very long duration, less gasoline demand may prevent excessive price increases at the pump.

Increasing crude oil prices might make matters worse for India, which is already struggling with increased energy expenses in many areas. Additional surges in oil prices could further fan the flames of inflation, an economic issue India has been steadily combating. Inflation remains much above the (RBI) Reserve Bank of India's 6% target despite falling.

Uncovering the Devastating Effects of the Israel-Palestine Conflict

Which country's economy will suffer the most from the Israeli-Palestinian War?  

The Israeli-Palestinian conflict makes it tough to estimate which economy will suffer most. However, countries with significant ties to both sides, like India, suffer the most. The Israel-Palestine war's influence on India's economy shows how linked the global economy is and how important it is for nations to unite to end conflicts and reestablish stability.

Implications for India's Economy

Due to its heavy reliance on oil imports and trade with Israel, India's economy is impacted by the current conflict. Rising instability in the Middle East's politics has made buyers in India's stock market nervous. The Indian economy may suffer if the crisis worsens.

Stock Market Investors on Edge

The Israel-Palestine war has already unsettled investors in the Indian stock market, with many fearing additional tension in the region could worsen the situation, leading to economic disruptions in the Indian market.

Crude Oil Prices and India's Dependency

One particular concern surrounding the ongoing conflict is its impact on crude oil prices. With India heavily reliant on oil imports, any escalation in the unrest could increase oil prices, affecting various sectors of the Indian economy and stoking inflation.

Trade Ties with Israel

India's strong trade connection with Israel is another factor to consider. Disruptions in trade due to the conflict might lead to setbacks in various industries, potentially jeopardizing job markets, investment opportunities, and overall economic growth.

Challenges in Achieving Peace:

Factors slowing down the progress toward a peaceful resolution include:

  1. Jerusalem: Israel and Palestine claim Jerusalem as their capital due to its religious importance—making it a significant point of contention.

  2. Regional Proxies: The presence of regional player proxies in Palestinian territories complicates matters, preventing a peaceful resolution.

  3. Arab Support: Many Arab nations demand a reversal of Israeli occupation in Palestine for broader, long-lasting peace. This expectation becomes another hurdle to finding a permanent solution.

  4. Right-Wing Politics: Unyielding right-wing politics in both Israel and Palestine block room for compromise, making negotiations challenging.

Final Words

While the human cost of war is undoubtedly high, conflicts such as the Israel-Hamas war also pose severe consequences for the global economy. From oil prices and trading relationships to global markets, these geopolitical events can provoke waves that reach even those far from the battlefield. It underscores the interconnectedness of our global community and the shared vested interest in peace and stability.

Win Harrison 12 Oct, 2023

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