The current global economic landscape is riddled with uncertainties due to two major conflicts, the ongoing hostilities between Hamas and Israel in the Middle East and the Russia-Ukraine war. These conflicts are not limited to their respective regions; they have the potential to disrupt the delicate economic interconnections that exist among the world’s largest economies. If these conflicts persist without resolution, there is a looming risk of significant disintegration in the Middle East and possible repercussions for major global economic players.
The United States, a long-standing ally of Israel, is directly affected by the Middle East conflict. On the other hand, countries like China have chosen not to take a firm stance, and this neutrality has the potential to strain trade relationships. Such a scenario could contribute to deglobalization, leading to a less competitive global economic environment. This, in turn, might lead to a gradual increase in commodity prices, ultimately resulting in inflation within the country.
If geopolitical factors continue to exert downward pressure on the economy, inflation could emerge as a significant concern. Rising inflation tends to trigger increases in interest rates, and this impact extends beyond the Federal Reserve to major banks around the world. The consequence of such a scenario would likely be detrimental to global GDP growth and could hinder economic activities on a worldwide scale. To counter these economic challenges, restrictive monetary policies may be implemented, further intensifying their impact.
In the realm of oil markets, Rory Johnston, the founder of the online oil research firm Commodity Context, has been closely monitoring the situation. He notes that the ongoing conflicts have had an immediate impact on oil prices, resulting in an approximately $3 to $4 increase in global crude oil prices. What’s especially noteworthy is the substantial surge in the consumption of oil, particularly from Iran. This increase is remarkable given that there haven’t been any official changes in Washington’s authorization related to Iranian oil.
Johnston also raises a critical point regarding Iran’s potential involvement in the conflicts. If Iran were to assume a more significant role, it could further tighten the global oil supply. Moreover, he suggests that the conflicts might endanger the prospect of a deal between the United States and Iran and complicate efforts to normalize relations between Saudi Arabia and Israel. These factors underscore the intricate web of consequences resulting from these conflicts and their profound impact on the global economic landscape.
