The recent Israel-Palestine conflict has raised stern in the global economy as it had major implications, particularly geopolitical tensions. The current war tensions coming in line with that of the Russia-Ukraine crisis played a vital role in reminding investors about the intricacy of global interdependencies.
Understanding the potential ramifications of such events, this perspective tries to delve into both the immediate and long-term effects globally faced by various countries.
Oil Price Fluctuations
Middle East accounts for major oil production, more than any other region in the world. Countries in the ME Region possess 39% of the world’s oil reserves (roughly a third of the world’s oil production) leading to a speculative price hike and oil supply disruption.
Global oil prices have increased since the fighting began. Brent Crude, a global benchmark, rose 4.2% to $88.15 a barrel and could sour to a record high of $150 if the war escalates further.
Outlook on Safe Haven Assets
The rising geopolitical risk witnessed a surge in hedging conservative assets like gold, and the dollar, potentially boosting the demand for US Treasuries.
The international turmoil resulted in the strengthening of the bond yield prices as the US interest rates tend to remain on the higher side for a much longer period than expected.
“It seems Wall Street has a new geopolitical risk after Israel declared war with Hamas,” said Edward Moya, senior market analyst at Oanda in New York, although he said the immediate impact for financial markets appeared to be limited to safe-haven flows.
Equity Market Sentiments
The international equity market has been in turmoil in the past couple of months, where major global indices saw significant tailwinds in prices.
The Israel-Hamas war has spooked equity markets all over with investors shifting towards safe-haven assets. Investors remain cautious and watchful of the global events with risk-off sentiment grappling the market.
Additionally, as crude oil prices surge, the threat of high inflation grasps the global economy again. The United States, India, China, and other major economies are big importers of oil and can see high import inflation if the oil prices remain elevated.
However, in terms of broader moves, analysts think markets have already digested the implications of the conflict. It can seem jarring that markets are recovering just as freshly, as the Russian-Ukraine conflict only had a muted effect on the US and other global economies.