The Strategist

Tensions in the Middle East

The recent attack on Israel by Hamas and the subsequent retaliation have significant economic and financial implications for the region. The conflict could have far-reaching consequences, particularly in the context of economic relations and global financial markets.

Sebastian Petric, LGT Senior FX Strategist
Tempo di lettura
10 minuto
Strategist Middle East

The escalation of the Palestinian-Israeli conflict threatens the recent efforts to normalise relations between Israel and Arab countries. Recent improvements in ties between Israel and Saudi Arabia, for example, could be jeopardised by this conflict. Thus, instability in the fragil region could hamper economic and political cooperation.

Potential escalation causes risks to global inflation and economic outlook

Israel's response to the Hamas attack, especially if it involves a ground assault, raises concerns particularly for energy markets. The potential involvement of Iran in supporting Hamas could lead to disruptions in oil exports from the region. Any disruption in supply could lead to a spike in oil prices, affecting not only the energy sector but also accelerating inflationary pressure, causing ripple effects throughout the global economy.

The uncertainty surrounding the conflict is also likely to have an impact on financial markets. We have already seen signs of a risk-off move, with higher oil prices, lower yields on safe-haven assets such as US Treasuries and a rise in the price of gold. These reactions reflect investor concerns about geopolitical instability and its potential economic impact.

If Israel decides to proceed with a ground offensive, it will face significant challenges. Urban warfare in densely populated areas, dealing with prepared Hamas defences, and ensuring the protection of civilians will be complex tasks - not to mention, the problematic dealing with the hostages taken by Hamas In addition, the scrutiny of the international community, driven by real-time communications and media coverage, could further complicate the situation. These challenges increase the potential for continued capital market volatility.

A key factor for stability

In conclusion, the likelihood of an Israeli ground offensive in Gaza presents a number of challenges with far-reaching implications. The outcome of this operation will not only affect the region but also could have repercussions on global financial markets. It is therefore crucial to monitor this situation closely, as it remains a key factor influencing not only stability in the Middle East, but as well with a view to the global economy and the financial world.