The Israel-Hamas War and Economic Consequences in the Region

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Oil prices rise amidst the ongoing Israeli–Palestinian conflict (Image credit: Global Finance Magazine).

Hamas’ attack on October the seventh set the region aflame, sparking various views of condemnation and support for parties in the conflict. Israel’s response to the attack has led to over 7500 civilian causalties, with over 40 percent of them being children in Gaza. This has had inevitable consequences for Israel’s reputation, especially in the region. Local powers such as Saudi Arabia, Qatar, and Iran have condemned Israel for their violent response, as well as the UN, who labeled the response as ‘attacks on civilians’. However, this inter-state conflict has also led to economic consequences in the Middle East, as uncertainty and a lack of confidence continues to grow for countries in the region.

This is most significant for the prices of energy resources, such as natural gas and oil. Although countries such as those in the Gulf region have made significant efforts to diversify from their sale of natural resources; it is still not enough as oil production accounts for 46 percent of Saudi Arabia’s GDP, as well as a significant amount of other countries such as the UAE, Iran, and Qatar. Since the beginning of the conflict, natural gas prices have risen by thirty-five percent as well as an increase of seven percent in oil prices. This is due to concerns regarding the conflict potentially spreading over to other nations in the region that supply a mass amount of this good. This is evident as the statistical review of World Energy states that 48 percent of all energy exports are from the Middle East.

Increases in oil and natural gas prices also have historical precedence to increase further, as the Iraq invasion of Kuwait in 1990 raised oil prices by over a hundred percent. Other conflicts such as the Iranian revolution, as well as the Arab oil embargo, also raised oil prices by over forty-five percent. However, it is important to note that the current price is near its mean price in real terms. This may indicate that the international community has yet to be alarmed regarding the ongoing conflict.

The likelihood of the conflict progressing to other nations in the region is also quite low. Israel geographically surrounds Gaza, as Israel announced a full-scale invasion of the strip days ago. Furthermore, the role of the reportedly Iranian-backed militant group Hezbollah, which is based in Lebanon, entering the conflict is also improbable as they have been deterred significantly by the United States.

Although the possibility of it spreading is uncertain, it is not impossible. This would have devastating consequences for countries in the region, such as the economic effects of more government spending on resources to participate in war. Civil unrest in the region regarding the death of Palestinian civilians may also cause policymakers and government officials to attempt to involve their nations and militaries in the conflict. Attempts of involvement from other nations into the reignited, over seventy-year conflict, are not unheard of. Hamas is also reportedly funded by the Iranian regime, which may prolong this conflict as the militant group has access to more resources in their war with Israel. 

Written by Arash Moaref

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