RIYADH: In a worrying report released on October 30, the World Bank warned that the war in Gaza between Israel and Hamas could trigger an economic “shock” that would see oil prices rise to as much as $150 per barrel and millions of people around the world suffering from hunger. due to rising food prices.
As the global economy emerges from the disruptions caused by the pandemic and shockwaves from the war in Ukraine, economists and risk analysts are mindful of how an escalation of the conflict between Israel and Hamas would turn into a wider regional war involving Lebanon, Syria, Iraq and even Iraq. Iran could have an impact on the global economic recovery and on the price of raw materials for both rich and poor countries.
In its latest Commodity Markets Outlook, the World Bank stresses that although the global economy is in a much better position than in the 1970s to “cope” with a major oil price shock, it nevertheless said that “an escalation of the latest conflict in the Middle East – which comes on top of the disruption caused by the Russian invasion of Ukraine – could push global commodity markets into uncharted waters.
In 1973, members of the Organization of Arab Petroleum Exporting Countries, led by King Faisal of Saudi Arabia, proclaimed an oil embargo against countries that had supported Israel during the Yom Kippur War. At the time, the embargo was straining the U.S. economy, which had become increasingly dependent on foreign oil under the Nixon administration.
“At the moment the situation is fluid,” Dr. Nasser Saidi, former Lebanese Minister of Economy and Trade and founder of Nasser Saidi & Associates, an economic and business consultancy, told Arab News, adding: “ The impact of the Israeli crisis The Hamas war will depend on the duration and depth of the conflict as well as its extension to the wider region, thereby attracting other parties, leading to international ramifications which would then have an effect on the global supply chains.
In his presentation “The Middle East in a Fragmented and Multipolar World” at the 19th Korea-Middle East Cooperation Forum in Doha from November 5 to 8 this year, Saidi said that “the dynamics of global growth have already significantly slowed down this year; war has the potential to further slow growth rates and drive the already record public debt into crisis.
According to the bank’s report, the effects of the conflict on global commodity markets have been limited so far. Overall, oil prices have increased by about 6 percent since the start of the conflict. Prices of agricultural commodities, most metals and other raw materials barely moved.
“The global economic impacts of the war between Israel and Hamas have remained relatively muted,” Robert Mogielnicki, a senior fellow at the Arab Institute for the Gulf States in Washington, told Arab News.
The impact of the war between Israel and Hamas will depend on the duration and depth of the conflict as well as its extension to the wider region, thereby attracting other parties, leading to international ramifications which would then have an effect on the global supply chains. .
Dr. Nasser Saidi, former Lebanese Minister of Economy and Trade and founder of Nasser Saidi & Associates
“Unless this conflict inflames the region, there is unlikely to be a major shock to global markets,” he added. “This war of course raises geopolitical issues in the region, but in many cases the impact of geopolitical developments on markets tends to be limited and short-lived. »
However, some analysts take a different view and warn that the ongoing fighting between Israel and Hamas could seriously threaten the already fragile global economic outlook.
The war in Gaza, now in its sixth week, has resulted in the displacement of around 1.5 million Palestinians, 21 hospitals out of service and dozens more severely damaged, more than 11,000 dead and tens of thousands injured, according to the Ministry of Health in the Hamas-ruled Gaza Strip.
“We are meeting at a very dangerous time for our part of the world,” Saidi said during his presentation in Doha. “The timing of this conference is very timely on a personal level, and I think it reflects the image of many of us. I have only known war during my life as a professional, minister, civil servant, academic. My message is that this must stop and perhaps what is happening today in Gaza and Palestine more generally could be a moment of change. We do not know yet. We are still living in the fog war.
As Saidi pointed out, the Middle East is home to 60 percent of the world’s refugees – the highest number in the world.
Palestinian refugees will not only stay in neighboring countries, they will be pushed to move to other regions, notably Europe, he added.
“The impact of the war on oil and gas prices could be enormous,” Saidi said, further pointing out that if oil prices reach a record high of $150 per barrel, as the World Bank warns, “This would affect global economic growth, which has already been slowing in 2023. The more inflation affects commodity prices, the lower economic growth and debt crises increase in many countries, as we also go through a period of high interest rates.
“Destruction and violence breed violence,” Saidi added in his presentation. “There are no military solutions in Gaza. »
The most vulnerable countries in the Middle East are Lebanon, Egypt, Jordan and Iran. These countries are already facing a decline in growth, current and budget deficits and a decline in their international reserves. According to Saidi, the sectors that will be most affected in these countries are tourism, hospitality, construction and real estate, as well as capital outflows and lower foreign direct investment inflows.
“Neighboring Middle Eastern states facing their own significant economic challenges, such as Egypt and Lebanon, are particularly vulnerable here,” Mogielnicki said. “Any spillover of violence or refugees will have an immediate impact on these neighboring states, which do not necessarily have the absorption capacity. »
A lot of things clearly depend on oil.
“Any escalation of violence or major attacks in the Gulf oil and gas producing countries would significantly affect energy markets,” Mogielnicki said. “So far, key Gulf players have demonstrated their strong commitment to preventing this war from escalating into a broader regional conflict. »
On November 11, Saudi Arabia convened an emergency Arab-Islamic summit to address concerns about the humanitarian crisis in Gaza. All leaders agreed on the need for a ceasefire. The joint summit concluded by calling for an Israeli arms embargo.
“The world is becoming more and more fragmented,” Saidi said.
It has also experienced profound economic upheaval in recent years – upheavals that see the global economy turning eastward rather than westward.
In 1993, the G7 countries produced almost 50 percent of the world’s gross domestic product. Today, this group accounts for 30 percent, while Asia, particularly China, produces almost 20 percent.
“The implications for this part of the world are very clear,” Saidi said. “Our economic, political, defense and other relationships have always been with the West, but economic geography requires us to shift these relationships to Asia. »
Saidi argued in his presentation that one way to resolve some of the dire economic prospects facing the Middle East, particularly with the war in Gaza, is the creation of a regional development bank. The focus must now be on “post-war stabilization, reconstruction, recovery and return to the pre-war economic heritage”.
“The GCC (Gulf Cooperation Council) must be the main driver of economic stability in the Middle East because it is capable of doing so,” Saidi said. “To achieve this, we need to reinvigorate the GCC Common Market and the GCC Customs Union. We need trade deals that are a bloc for the GCC countries. Second, we must create an Arab bank for reconstruction and development. We are the only region in the world.
When asked why the Middle East is the only region without a development bank, Saidi responds: “Because many of our countries have been destroyed.
“We need to help rebuild them.” The cost is easily $1.4 trillion to $1.6 trillion, and the list of countries is growing. To this are now added Gaza and Palestine.
He said this could be an area of cooperation between the Middle East and Asia.
“The great tectonic shift is heading towards Asia,” Saidi added. “All our trade agreements are with Europe and the United States. This must change. We must change.