Israel's air strikes on Gaza strip
The world fears that the Israel-Hamas conflict may prolong and extend to multiple countries. This concern is understandable, given the increasing interdependence of nations and the deeper ties in their interests.
Undoubtedly, war results in destruction, which is antithetical to development. Thus, as the conflict persists, global efforts towards development face heightened challenges. While the full extent of this challenge remains to be seen, its repercussions are already evident in sectors like the economy.
Global markets are becoming increasingly unsettled due to concerns about a potential world war. With the ongoing global mobilization and uncertainty about the conflict’s swift resolution, market cash flows have become erratic. Capital investments are actively seeking stability and peace, leading to unforeseen disruptions in global markets.
Will the global economy become a casualty of war? The World Bank has issued a warning about the potential onset of a severe recession. This looming threat is already manifesting in global markets, spanning from the U.S. and the European Union to the Middle East and Asia. Despite its solid foundation, the U.S. stock market experienced a 2% drop within just the first 20 days of October. On a positive note for the U.S., there is heightened confidence in its bonds, but the global scene is riddled with intense volatility. In response to this economic turbulence, China, the world’s second-largest economy, has introduced a $137 billion loan package for its domestic market. With this move, amid the current Israel-Hamas conflict, China signals to the world the importance of bracing for potential economic challenges.
The financial toll of war is staggering. Israel reports that the daily cost of its offensive on Gaza is $246 million. In merely 21 days, this has escalated to an approximate $5.166 billion. And this figure only reflects Israel’s expenditure; the financial strain on countries like Palestine and Lebanon remains uncalculated.
Investment, a crucial facet of any economy, is also at risk. The IMF warns of significant detrimental impacts resulting from the conflict. Middle Eastern economies, such as those of Egypt, Lebanon, and Jordan, stand to be particularly affected.
In 2022, Palestine’s economic growth rate was pegged at 3.9% annually. Adjusted for inflation, this brings it back to levels seen in 1994. Should the conflict persist, global economic progress risks regressing to figures reminiscent of three decades prior.
According to the 2021 Economic Value of Peace Report, wars or violent conflicts lead to an annual global economic loss of $14.4 trillion. Specifically, in 2019, the GDP of over ten countries was reduced by 20 to 60 percent due to violence. The countries most impacted were:
* Syria – 59.1%
* Afghanistan – 50.3%
* South Sudan – 46.3%
* Central African Republic – 37.5%
* Somalia – 35.3%
* North Korea – 30.6%
* Cyprus – 30.6%
* Iraq – 26.3%
* Venezuela – 24.1%
* Sudan – 23.5%
The data underscores that war disproportionately impacts impoverished nations, with ordinary citizens bearing the majority of the consequences. The ongoing Russia-Ukraine conflict has already destabilized many economies. In this context, the Israel-Hamas conflict could further threaten the stability of the global economy.
The Fortune, referencing the European Union, has cautioned that a prolonged conflict might push the global economy into recession and result in stock market declines of up to 20 percent. Crude oil prices might surge to $150 per barrel. The IMF has projected that a 10 percent increase in crude oil prices can shave off 0.15 percent from global growth and lead to a 0.4 percent inflation spike in the subsequent year.
To comprehend the direct ramifications of the Israel-Hamas conflict on the global economic landscape, consider the following:
* A protracted Israel-Hamas conflict could drive up energy prices worldwide.
* The price of crude oil may soar, accompanied by potential supply instability.
* Disrupted sea routes could harm global trade. Some estimates suggest this could slash up to $500 billion from the global GDP, with potential prospects of a 0.3 percent GDP growth decline by 2024’s end.
* Shipping costs worldwide might increase.
* Insurance premiums are also likely to rise.
* The global economy, already reeling from the aftermath of the Ukraine conflict, could experience further deterioration.
Not just the economy—the global equilibrium faces escalating threats of disruption.
– The world appears to be polarizing once again. One side is aligned with Western nations, while the other comprises Russia, China, and Iran.
– The steadily improving relations between Israel and Arab nations are now at risk of unraveling.
– The longstanding Israel-Palestine conflict, which might have been resolved through the two-state solution, now remains uncertain.
– Both Iran and Israel possess nuclear capabilities. Thus, the potential for a nuclear conflict looms, which would have devastating implications for the global economy and humanity at large.
The escalating tensions pose significant concerns for India. An immediate consequence has been the accelerated withdrawal of foreign capital from the nation’s stock market. As of October 6, the Sensex in India stood at 65,996 points, which dropped by over 2,500 points to 63,705 in 21 days, marking a 3.47% decline. The Nifty also witnessed a 3.98% drop by October 26. Given the declining sentiment anticipated in upcoming days, foreign portfolio investors (FPIs) are looking to relocate their capital to safer havens.
Furthermore, Indian exports are set to face challenges in the current global climate. Increased insurance costs will complicate trade for nations like India, potentially reducing the competitiveness of Indian goods in international markets. Indian businesses worth $10.7 billion may experience severe setbacks. On the import side, India maintains significant defense relationships with Israel. Consequently, India might encounter challenges obtaining its shipments, possibly facing delays. It’s worth noting that a defense deal worth Rs 74,000 crore with Israel is currently underway.
If the conflict between Hamas and Israel intensifies and involves Arab nations, maritime trade could also be compromised. Any disruption to the Suez Canal route would impede India’s accessibility to the European Union, greatly impacting trade. In essence, India stands to face multifaceted repercussions should this conflict persist.
