Examining the economic consequences of the war between Hamas and Israel shows that if the war escalates to include other actors, it can very well cause economic chaos in the world.
The war between Israel and Hamas that is going on in Gaza since October 7and seems to have involved a very small geographical area, can quickly and easily turn into an international war. Some experts even compare it with the First World War, which at the beginning was only a confined conflict between Austria and Siberia, but eventually turned into a global war and paved the way for the Second World War.
The World Bank recently warned in an alarming report published on October 30 that the conflict between Israel and Hamas could cause a global economic “shock”, including pushing oil prices up to $150 per barrel, which in turn can create a food crisis and starvation for millions of people around the world due to the increase in food prices.
This situation is in many ways similar to the crisis of 1973, when the Arab members of OPEC, led by Saudi Arabia, embargoed the sale of oil to the United States in retaliation for Washington’s decision to militarily support the Israeli army in its war with the Arabs.
According to a report by the US State Department at the time, “this oil embargo caused an unprecedented increase in oil prices and created global consequences. The price per barrel of oil first doubled in that year, then it quadrupled, and then transportation and food costs also went through the same course, and the overall stability in the national economies of most countries in the world faced structural challenges.” The new report of the World Bank also warns of the same worrying consequences now after half a century.
Indermit Gill, economist and senior vice president of development economics at the World Bank, said in a statement this Wednesday that “the latest conflict in the Middle East follows the biggest shock to commodity markets since the 1970s, Russia’s war with Ukraine. Politicians and World leaders should be vigilant. If the conflict between Hamas and Israel escalates, the global economy will face a dual energy shock from both Russia and the Middle East for the first time in decades, an unprecedented issue that could also have unprecedented consequences as well.”
Of course, it should be added to Gill’s concerns that before the crisis in Ukraine, the world economy was already grappling with the economic consequences of the Coronavirus pandemic, some of which still remain.
Oil and gas prices hinged on the fate of the war
It should be noted that only after the Israeli attack on Al-Ahli Arab Hospital in Gaza on October 17, which resulted in the death of more than 500 Palestinians, the price of Brent oil increased by $3 or more than 2% in less than a few hours and reached 92.90 dollars per barrel. The price of West Texas Intermediate (WTI) crude oil also increased by $3 (2.1%) to $89.66 per barrel, the highest levels for both in the last two months.
Of course, the statistics of mid-November 2023 show that the impact of the war on the price of oil has not been so alarming, but this is due to two reasons. Firstly, it is because the war has been put in a state of stagnation and is being followed in a kind of erosion war only between Israel and Hamas. For this reason, any new event, especially the entry of new actors into the war, can greatly increase the price of oil. The second reason is that, unlike previous decades, the strategic importance of oil has decreased, and its production market has also been removed from the monopoly of a certain region.
Therefore, following international political crises, the price of oil undergoes less drastic changes than before. However, oil still remains a vital fuel, especially for transportation. Liquid natural gas from the Persian Gulf is also an important part of the global supply of natural gas. For these reasons, the occurrence of any major disruption in these supplies in the Middle East region can have a significant impact on global energy prices, global production and the overall level of prices, especially in food.
The impact of the war in Gaza on the price of gas has been much more noticeable than the price of oil. According to a report from the Financial Times, the price of gas in the world market has increased by more than 30% since the battle between Israel and Hamas until the end of October.