Impacts of the Israel-Gaza War on the Global Economy
Oil prices have surged 4% in fear of what the conflict in Gaza may amount to. (McGill Business Review)
By: Anika Rahman
A surprise attack from Hamas on Israel shocked the world and led Israel to declare war on October 7. International attention to this conflict has been captured not only because of the immense civilian casualties but also the widespread economic impact due to the region’s role as a prime global exporter of oil.
Upon the initiation of the conflict in Gaza, oil prices surged four percent through fear of what the conflict could become. This panic notably stems from the Middle East as a region of oil exports, specifically, Iran’s geopolitical position as a prime exporter of oil and supporter of Hamas. At this time, Iran has denied any involvement in Hamas’s attacks, but if any evidence emerges, there is no doubt that the United States will be the first to tighten existing sanctions on their exports, driving up the price of oil significantly.
The conflict could restrict the flow of oil through the Strait of Hormuz, a crucial choke point for trade and transportation that sees more than 37 percent of the world’s oil, which would significantly change global oil prices. Bloomberg Economics estimates that these results would send the global economy into a recession by decreasing the global growth rate from the currently forecasted 3.6 percent to 1.7 percent.
Furthermore, Egypt, a direct neighbor to this war, is highly likely to face economic stressors, particularly in terms of humanitarian aid costs. Considering their already volatile economic situation, this could widen the scale of the conflict’s impacts.
At the beginning of the hostilities, President Joe Biden made it clear that the United States supports Israel. He recently made a request for a $14.3 billion aid package for the Israeli Military, which allotted $9.15 billion for humanitarian needs in Israel, Gaza, and Ukraine in light of the ongoing Russo-Ukrainian War. While all parties are in critical need of aid, the risk of the United States falling into further government deficit has sparked hesitancy to commit these funds.
The Abraham accords, signed in 2020 by Bahrain, the United Arab Emirates, and Israel, called for peace and social and economic growth in the Middle East. The conflict in Gaza, however, not only delays the resurgence of social and economic prosperity, but also undermines the goal of these accords. This could pose long term economic consequences for the inhabitants of the region.
At the beginning of the month, just after the conflict surfaced, the International Monetary Fund and the World Bank held their annual meeting in Morocco. Janet Yellen, the U.S. Treasury Secretary, stated that she does not view the Israel-Gaza events as a “major driver of the global economic outlook.”
Key factors contributing to her statement would be the rise in stocks despite the potential for rising gas prices and continued tightening of U.S. sanctions on Iranian exports of oil. Yellen’s conclusion was that the already stressed oil market from the ongoing Ukraine-Russia War and cuts on Saudi and Russian oil will face a minimal impact from the war in Gaza.
The war in Gaza will undoubtedly have substantial economic impacts—but it is difficult to predict how global markets will react to such a conflict where the preservation of human life, the basis of all economic activity, is perpetually threatened.