Economists warn that the further escalation of the Israeli-Palestinian conflict will pose significant risks to the global economy, driving up energy prices and disrupting key trade routes.
The recent developments have deepened economists' biggest concern that conflicts will engulf the entire Middle East region and begin to pose a long-term threat to global energy and trade infrastructure.
US Secretary of State Antony Blinken warned on Tuesday that Washington would respond "quickly and decisively" if Iran or its proxy forces attacked US personnel. Media reports suggest that as the Israeli-Palestinian conflict intensifies and may spread in the Middle East, the Biden administration is preparing for the possibility of evacuating hundreds of thousands of American citizens from the Middle East when the conflict cannot be controlled.
Pat Thaker, Director of the Middle East and Africa region at the Economist Intelligence Unit, believes that any Middle East conflict can shake the world economy because the region is a very important energy supply center and a key shipping channel for global trade.
Thaker pointed out that this war occurred during a period of "enormous economic uncertainty", as the Russia Ukraine war continued and the monetary tightening cycles of central banks reached a critical point& Quot; For economies that have already fallen into or are heading towards recession, further interest rate hikes by the Federal Reserve and the European Central Bank may worsen their economic situation& Quot;
Thaker predicts that in the "extreme situation" of escalating regional conflicts, the market will have to deal with Brent crude oil prices above $100 per barrel for a period of time, which means rising global inflation and slowing economic growth.
J. Safra Sarasin's strategists stated in a research report last Friday that if the situation escalates, Iran, the world's eighth largest crude oil producer, will face risks in its oil production, especially if the United States increases sanctions against Iran, which they estimate will reduce global oil production by up to 1 million barrels per day.
J. Safra Sarasin stock strategist Wolf von Rotberg believes that the most important thing is that the uncertainty of Saudi supply will also increase, and it may be easy to see oil prices soaring to March 2022 levels, when oil prices exceeded $130 per barrel.
Key trade channels
The Middle East also has the busiest shipping routes in the world, including the Suez Canal, the Red Sea, the Persian Gulf, and the Strait of Hormuz, which exacerbates the economic risks associated with escalating conflicts.
Thaker explained, "If the war expands to the Sinai Peninsula and the Suez region, it will increase the risk of attacks on energy and non energy trade passing through the Suez Canal. The goods transported through the Suez Canal each year account for about 15% of world sea trade, nearly 45% of crude oil, nearly 9% of refined oil, and 8% of liquefied natural gas transport ships
If these trade nodes are cut off, it will not only cause significant damage to oil prices, but also cause significant damage to the entire supply chain of global energy and other commodities.
Elijah Oliveros Rosen, Chief Emerging Markets Economist at S&P Global Ratings, stated that any potential long-term increase in energy prices will cause concern for emerging market economies, as energy often accounts for a larger proportion of inflation pressure in emerging market countries compared to developed markets.
The worsening conflict between Palestine and Israel is another dark cloud on the global economic outlook, "International Monetary Fund (IMF) President Georgieva said on Wednesday.
Georgieva stated that the economic consequences of this war, which has entered its third week, will be "terrifying" for both sides and have a significant impact on the entire region, including negative impacts on trade and tourism.