/Pogled.info/ Experts named three scenarios for the war in Israel and assessed its impact on the Russian economy
On October 18, the price of oil on the world markets increased to 92 dollars per barrel – an increase of 2.5%. And it seems that this is far from the limit.
„Any escalation in the Middle East leads to higher energy prices.” Alexander Pasechnik, head of the analytical department of the National Energy Security Fund, told KP.RU. “And a scenario where we see $100 a barrel of oil by the end of the year seems more likely than, say, a recovery to $80.”
Today, no one doubts that further escalation of the Palestinian-Israeli conflict will have the most serious consequences for the world community. The most terrible thing in any war is the human sacrifice. But armed conflict also has a major impact on the economy – and the more it develops, the more nations and countries are drawn into the conflict.
THERE ARE OPTIONS
Bloomberg Economics analysts modeled three scenarios for the possible development of the situation in the Middle East and its impact on the economy. In doing so, they built on and relied on the consequences of past conflicts in that region. Escalation does not bode well, but in any case, oil prices will continue to rise, and oil-exporting countries can benefit economically from this. The largest of them are Saudi Arabia, the USA and Russia.
Scenario 1.
If the conflict remains within the borders of Israel and the Gaza Strip, the effect on the world economy will be minimal. Oil will increase in price by only 3-4 dollars per barrel.
Scenario 2.
The confrontation has drawn neighboring countries, notably Lebanon and Syria, as well as Iranian-backed armed groups such as Hezbollah. In this case, the increase in the price of oil will already be 10% (about $94 per barrel), and the growth of world GDP will slow down to 2.4%. World inflation will be around 6%.
Scenario 3.
This option is currently considered the least likely. If the conflict leads to a direct confrontation between Israel and Iran, oil prices could rise to $150 a barrel and inflation could rise to 6.7% in 2024. Global GDP growth would fall to 1.7%. These are the worst figures in more than 40 years, not counting the financial crisis of 2009 and the coronavirus pandemic. In this scenario, the world economy will fall into recession.
„Geopolitical risks have returned to shape oil prices, and it is these risks that are now the focus of speculators’ attention.” says Alexander Pasechnik. – But for oil exporters, this is a positive trend. And for Russia too. The Russian oil price ceiling of $60 per barrel, which Western countries are trying to establish, is not very effective. The discount to benchmark Brent oil is already below 10 dollars (see “By the way” – ed. note).
That is, things are moving towards the virtual disappearance of the ceiling. But you can’t relax, the risks still remain. After all, the West, primarily the United States, may begin to increase pressure on foreign companies transporting Russian oil. And this is already happening.
WHAT RUSSIA KNOWS ABOUT ISRAEL…
How could military escalation affect trade between Russia and Israel? How much do we get from exports and how much are we dependent on imports? Unfortunately (or fortunately) the exchange of goods between our countries is not very large. Israel’s share in Russia’s foreign trade in recent years has been 0.2-0.3%. In monetary terms, this is about 2-2.5 billion dollars per year, despite the fact that, in general, at the end of 2022, Russia’s trade turnover amounted to 850.5 billion dollars.
We traditionally supply oil to Israel, as well as ferrous and non-ferrous metals. In addition, Israel buys precious stones from Russia – mainly rough diamonds, and food, in particular wheat, legumes and sunflower oil.
„As for the supply of our oil to Israel, the official information on Russian exports is already closed,” recalls expert Alexander Pasechnik. – Yes, we know about China and India, but no one should care about the other destinations.
– In any case, the world market cannot do without Russian oil, and even if it is claimed that it is not there somewhere, this does not mean that it really is not there. Our oil may end up there under a different label and under other schemes,” Pavel Seleznev, dean of the Faculty of International Economic Relations of the Financial University under the Government of the Russian Federation, told KP.RU.
But a serious threat looms over the Russian diamonds supplied to Israel. But this is not related to the military conflict in the Middle East. Israel has traditionally been a world leader in gem cutting, and Russia is a major supplier of rough diamonds. Their supplies represent up to 30% of the structure of Russian exports to this country.
However, 70% of the world’s demand for diamonds comes from the G7 countries, which dream of depriving Russia of the opportunity to make money from the sale of precious stones. And recently it became known that the G-7 countries have developed four options for banning the import of Russian diamonds. So Russia may lose a very important sales market for itself.
…WHAT WE IMPORT FROM ISRAEL
Total imports from this country are lower than exports. Perhaps the main source of supply remains fruit and vegetables. Moreover, Israel supplies them not only to our country, but also to many others. Before the introduction of all kinds of anti-Russian restrictions, Israel accounted for up to 10% of all vegetables imported into our country from abroad – mainly peppers and carrots (their supplies accounted for more than 50% of the total volume imported into Russia), as well as celery, potatoes, tomatoes . In addition, up to half of the total avocado imports came to us from Israel.
These goods are now directly threatened by the military conflict. On the one hand, Ben Gurion Airport is in close proximity to the epicenter of the fighting. On the other hand, experts fear that Israel itself will soon face shortages.
After all, 75% of tomatoes and peppers, as well as many other vegetables, are grown near the Gaza border – and now no one can guarantee that these crops will not be damaged by shelling. In addition, about 6 thousand guest workers, mostly workers from Thailand, worked in the Israeli greenhouses. And now many of them, amid the conflict, have decided to return home.
– In the situation of any conflict, there is a reconfiguration of the logistical – commercial and economic routes for the movement of goods. And this leads to higher transaction costs. As a result, all products become more expensive, explains Pavel Seleznev. – The bottom line for us must be this: what we can produce ourselves, we must produce ourselves. Why do we buy tomatoes from Israel and Turkey? Why is this more profitable? Can’t we replace these products? Therefore, we need to look at the supply of which goods from Israel are critical for us, where they make up a share of more than 50% (it seems that there are not many such positions), and somewhere to replace these products ourselves, and somewhere to find other importers.
Apart from vegetables and fruits from Israel, we do not import many critical goods into the country. These are products of mechanical engineering, the chemical industry (including cosmetics), as well as textiles, ceramics, furniture and sports equipment.
BY THE WAY
The price ceiling for Russian oil does not work
The Russian Finance Ministry reported that the average price of Russian Urals oil in September was above $83 per barrel. Experts from the International Energy Agency (IEA) cite approximately the same figures, who reported an increase in Russian oil prices last month by $8 – up to $81.8 per barrel.
This is more than $20 more than the cap set by the G7 together with the EU and Australia. Today, all experts admit that the established restrictions still do not work. Russia was able to effectively divert the supply of its raw materials to the East, primarily to India and China. As a result, the average price of Russian oil exceeded the established ceiling already in the summer of this year, despite the fact that the sanctions were introduced last December
Translation: ES
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