Noha Makram – Mubasher – A new report by Reuters stated that the escalation of the war between Israel into a broader conflict could deal another blow to global growth and hinder efforts to reduce inflation.
Market reaction has been modest so far, but this may change.
Hamza Medib, director of the Political Economy Program at the Malcolm H. Kerr Carnegie Center for the Middle East, said that whether the conflict remains confined to Israel and Hamas or escalates into a broader regional conflict will have enormous repercussions.
He added that the escalation of the conflict could lead to higher oil prices, black gold supply concerns, and the possibility of a slowdown in the global economy.
Here are some of the repercussions of the escalation of the Israel-Gaza war into a regional conflict, according to a Reuters report:
1- Iran and oil
All eyes are on the possibility of Iran becoming directly involved in the conflict and the US response, which could include tightening sanctions on Iranian oil.
Brent Bilott, founder of Kyler Capital, said that the crackdown on Iranian exports could lead to a decrease in supply in the oil market by between one and two million barrels per day immediately.
In the event that the United States sends forces to the Middle East, which is unlikely, Bilott expects oil prices to jump by about $20, if not more, which recorded $92 today, Wednesday, and rose by 7.5% last week.
Nadia Martin Wigen, director of commodity investment firm Sveland Capital, said that the regional conflict would lead to the disruption of oil tanker routes in the Mediterranean, the Black Sea and around Turkey.
2- Inflation jump
The report indicated that the rise in inflation has subsided and the end of the cycle of raising global interest rates is approaching, but the jump in oil prices, which briefly recorded $139 after Russia’s invasion of Ukraine last year, would halt the declining trend in inflation.
It is worth noting that gas prices jumped by 45% last week, which is another worrying sign.
Alicia Berad, head of emerging markets macroeconomics at Amundi, said that Iran’s involvement in the conflict would mean higher commodity prices and greater external shocks, reducing expectations of lower inflation.
Long-term market indicators in the United States and the Eurozone indicate that inflation will remain above its target of 2%.
Bond investors are also likely to suffer further losses, as the S&P Bond Index, which measures the performance of Treasuries and corporate bonds, has declined by about 14% to its peak in January.
3- The strength of the dollar
The dollar was boosted by demand for safe-haven assets, rising towards 150 against the yen and Swiss franc.
Berardi said at Amundi that the dollar may not be a good bet if high oil prices and inflation trigger a recession in the United States.
Trevor Greetham, head of the multi-asset department at Royal London, believes that any risk aversion would strengthen the Japanese yen.
4- Emerging markets
Bond and stock markets were affected by the turmoil in the Middle East, as happened in Egypt, Jordan and Iraq, and to a lesser extent in Saudi Arabia, Qatar and Bahrain.
Omutunde Lawal, head of emerging markets corporate debt at Barings, said that after two difficult years, the war between Israel and Gaza has weakened emerging market sentiment.
Lawal takes a cautiously optimistic view that most other emerging markets are ignoring the tensions for now. Morgan Stanley rules out the spread of market turmoil.
But Jeff Grills, at Aegon Asset Management, warned that regional escalation could easily lead to a 20% rise in oil prices, harming dozens of poor oil-importing countries.
5- The collapse of technology stocks
What’s good for oil stocks can be bad for tech giant stocks; The Morgan Stanley index of global technology stocks moved inversely with oil and gas stocks in 2022 after the war in Ukraine pushed oil prices higher, which reinforced inflation fears and benefited bond yields.
Greetham said at Royal London that the same scenario may be repeated if the United States raises interest rates again to curb the repercussions of inflation resulting from the conflict.
Potential disruption of infrastructure is another risk. Deutsche Bank indicated that Egypt is one of the locations where many intercontinental cables cross, as no less than 17% of global Internet traffic flows through the Suez Canal.
2023-10-18 11:23:58
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