How does the Israeli-Palestinian conflict affect the global economy? Foreign media deduced "3 scenarios", the most serious consequences exposed]
The Palestinian-Israeli conflict could disrupt the global economy, and if more countries were involved, it could even tip the global economy into recession. Bloomberg Economics simulates three scenarios that outline the likely impact of different scenarios on global economic growth and inflation.
Scenario one: The conflict is limited to the Gaza corridor
The kidnapping and murder of three Israelis by Hamas in 2014 and subsequent Israeli fighting with the group left more than 2,000 dead. The conflict has not spilled over into the Palestinian territory and has had little impact on oil prices and the global economy.
The death toll over the past week has been higher. But one possible trajectory of the current conflict is essentially a repeat of 2014, with the imposition of tougher U.S. sanctions on Iranian oil.
As relations with the United States improve, Iran has increased its oil production by as much as 700,000 barrels per day this year. If that oil disappears from the market under U.S. pressure, Bloomberg Economic Research estimates that oil prices will rise by $3 to $4 per barrel.
The impact on the global economy will be negligible, especially as Saudi Arabia and the UAE could use spare capacity to offset Iran's production losses.
Scenario 2: Proxy wars
If the conflict spills over into Lebanon and Syria, it would effectively become a proxy war between Iran and Israel, with a higher economic cost.
This increases the likelihood of a direct conflict between Israel and Iran, pushing up oil prices. In the 2006 Israeli-Allah war, the price of crude oil rose by $5 per barrel. Today, the same scenario would raise oil prices by 10% to around $94 a barrel.
Tensions could also rise across the Middle East. Egypt, Lebanon and Tunisia have all fallen into economic and political stagnation. Israel's response to the Hamas attack has sparked protests from neighboring countries. In the Arab world, there is only a thin line between anti-Israel and anti-government upheaval.
The ensuing global economic impact is twofold: a 10% rise in oil prices per barrel, and safe-haven behavior in financial markets. Bloomberg believes that the VIX volatility index, known as the fear index, will rise by 8 percentage points.
Overall, a 0.3 percentage point drag on next year's global economic growth, equivalent to a reduction of about $300 billion in output, would slow growth to 2.4 percent, the smallest increase in three decades, excluding the 2020 coronavirus crisis and the 2009 financial turmoil.
Higher oil prices would also raise global inflation by about 0.2 percentage points, hovering around 6 percent, putting pressure on central bankers to maintain monetary policy tightening.
Scenario three: Iran-Israel war
The likelihood of a direct conflict between Iran and Israel is low, but dangerous.
Crude oil prices may not soar as they did in 1973. At that time, Arab countries imposed an embargo in retaliation for the United States supporting Israel in that year's war. But if Israel and Iran fired missiles at each other, oil prices could rise as they did after Iraq's invasion of Kuwait in 1990. Given that today's base is much higher, a surge of this magnitude could push oil prices up to $150 a barrel.
If Iran decides to close the Strait of Homoz, Saudi Arabia and the UAE's spare capacity may not save the situation, as one-fifth of the world's daily oil supply passes through the strait. There will also be a more extreme risk-off shift in financial markets, likely comparable to the 16 percentage point surge in the VIX Volatility Index in 1990.
Putting those numbers into the boxes, Bloomberg Economics' model predicts that global economic growth will slip by 1 percentage point and fall to 1.7% in 2024. The rapid growth of economies such as Chinese mainland means that the world is not prone to a direct recession. Excluding the coronavirus pandemic and the global financial tsunami, this would also be the slowest growth rate since 1982, when the Fed raised interest rates aggressively to curb inflation caused by the oil shock of the 1970s.
Such a severe oil shock would also undermine global efforts to curb inflation, keeping the global inflation rate at 6.7% next year. In the United States, the 2% inflation target will be out of reach, and expensive gasoline prices will be an obstacle to Biden's re-election campaign.
To be sure, hopes for stability in the Middle East have been dashed. In recent years, Saudi Arabia and Iran have reconciled, Israel has signed peace treaties with several Arab countries, and the prospect that Saudi Arabia may soon follow suit, raising expectations that decades of strife in the region could end. However, contrary to expectations, a new conflict has now been encountered.
The Russia-Ukraine war, the US-China trade war, and rising tensions in the Taiwan Strait are all signs that geopolitics has become a driving force for the economy and markets. In the Middle East, geopolitical factors never really go far. #How to view this round of Palestinian-Israeli conflict# #巴以冲突加沙成鬼城 People have nowhere to run#Headline hot list
