The world economy was first affected by the Covid-19 pandemic, and just when things were getting back to normal, Russia invaded Ukraine, a move that caught everyone by surprise and had a devastating effect on global financial markets. As the world struggles to cope with this unwelcome conflict, the assault on Israel by the powerful Palestinian group, Hamas, has sent the world’s oil markets into a frenzy.
Russia’s invasion of Ukraine is an unmitigated disaster for global peace, especially peace in Europe, but it has also significantly exacerbated a number of already-existing global economic problems such as rising inflation, extreme poverty, food insecurity, and environmental degradation.
According to the World Bank, the number of people living in extreme poverty rose by roughly 100 million to nearly 700 million due to the Russia-Ukraine conflict. A significant share of this population lives in conflict regions.
If this was not a strong enough blow for the world, the latest flare-up on the Israel borders is just going to exacerbate the situation. According to reports, Stock markets in Israel and the Middle-East opened deep in the red, as repercussions of the unexpected assault on Israel by the Palestinian group Hamas on Saturday had a ripple effect. The declining stock values are now setting the stage for a potentially unstable week.
Now, all eyes are on the oil prices. If the conflict drags on and Iran gets sucked into the conflict in a major way, considering that it is backing the anti-Israel militias Hamas and Hezbollah, the oil prices could just skyrocket, which already got inflated due to the Russia-Ukraine conflict.
The US and other big powers have to find ways to stop this war. Already, there is a mass exodus of people due to the Armenia-Azerbaijan conflict. As many as 230,000 Armenians from Azerbaijan and 800,000 Azerbaijanis from Armenia and Karabakh have been displaced as a result of the conflict. The risk of the ongoing Azerbaijan-Armenia conflict spilling over to affect Azeri oil and gas exports is certainly on the horizon.
There is a likelihood of the US squeezing Iran with more sanctions. If Israel goes full throttle behind the attackers and responds by striking any Iranian infrastructure, crude prices will immediately spike.
In a more extreme scenario, Iran could respond to any direct provocation by blocking the Strait of Hormuz, a nautical choke-point just north of the Arabian Sea. More than 16 million barrels of crude oil is carried by the oil tankers through this water channel. Tehran threatened to close the strait, when sanctions were imposed on the country in 2011, but ultimately backed off.
If this happens, the global oil supply chain will be severely affected. This will escalate the fuel prices and in turn the food prices. We are at a very sensitive point today. The world, especially the third world countries, won’t be able to take another shock of inflation caused by this conflict.
This will also have an impact on the ongoing Russia-Ukraine war. Any prolonged Israel-Hamas war could divert more US and Western military equipment needed by Kyiv to Tel Aviv. Russian President Vladimir Putin will seize the opportunity and go for an all-out attack on a weakened Ukraine and it will spell doom for the latter. This will worsen the Ukraine’s security situation as there would be relentless attacks from Russia and greater destruction.
This will also have an impact on the ongoing Russia-Ukraine war. Any prolonged Israel-Hamas war could divert more US and Western military equipment needed by Kyiv to Tel Aviv. Russian President Vladimir Putin will seize the opportunity and go for an all-out attack on a weakened Ukraine and it will spell doom for the latter. This will also make the proposed Saudi-Israeli normalisation deal impossible. This will further complicate the geo-political situation
And if it turns out that Iran encouraged the Hamas attack to negate that Israeli-Saudi deal, it could raise tensions between Israel and Iran and also between Saudi Arabia and Iran. This is an incredibly dangerous moment on multiple fronts.
This war seems much worse for Israel, than the Yom Kippur surprise attack from Egypt and Syria, which happened 50 years ago. Israel, which boasts of one of the finest intelligence agencies in the world – Mossad, failed to detect movement of men and lethal weapons towards its borders.
In 1973, Israel was attacked by the biggest Arab army. But it managed to beat them all. This time it was invaded from 22 locations outside the Gaza Strip, including communities as far as 15 miles inside Israel, by a military force less than half its size. Israeli hostages were sent back to Gaza across the border, which is a blow to Israel’s deterrent capabilities.
Israel will certainly not take things lying down. Which means there will be more death and destruction, apart from the economic implications cited earlier. The global powers must step in to salvage the situation, rather than escalating it, because a lot is at stake.
