Early Saturday, On October 7, Israel suffered an unexpected heavy military attack from Hamas, a Palestine-based Islamist militant group, triggering a wave of retaliatory Israeli airstrikes on the Gaza Strip. The battle- intricately intertwined with geopolitical, economic and religious connotations- recorded the loss of hundreds of lives on both sides while blocking economic activities in the two warring economies.
Much like the Russo-Ukrainian War, this conflict in the Middle East is having a slow and steady impact on the global economy, invariably threatening the economic growth of developing countries in sub-Saharan Africa. A crucial example is the impact this has had on global oil prices.
Global crude oil prices jumped nearly 5% on Monday in the wake of the Middle East conflict, reversing some of the significant declines of recent weeks. From Friday, October 6, Oil prices fell about 9%, trading at $84.08 per barrel (Brent) and $82.40 per barrel (WTI), respectively. This is the fastest weekly decline in the last seven months, driven by global factors including a strong dollar, Russia’s decision to ease its diesel export ban, the resumption of Iraq-Turkey crude oil pipeline, etc.
But between October 7 and 10, oil prices rose to $87.86 (Brent) and $86.19 (WTI), an increase of 4% due to fears that the war between Israel and Hamas weakens the oil-producing Gulf region and threatens global production. Reuters reported that up to 3% of the world’s oil supply would be at risk if conflict envelops Iran. Even more, Pierre Andurand, French businessman and hedge fund manager tweeted on “As Iran is also behind Hamas attacks against Israel, it is highly likely that the US administration will begin to more strictly enforce sanctions on Iranian oil exports. This would further tighten the oil market,” he wrote.
These events could trigger an increase in the global price of petroleum products, a considerable threat to the standard of living of African populations. Most of these economies rely heavily on petroleum products for transportation and electricity that powers generators in homes, factories, and other official uses. As the war drags on and gains support from the rest of the Middle East – a region responsible for nearly a third of the world’s oil supply – emerging markets could soon begin to experience supply reductions in energy. This would invariably lead to a high cost of living.