Israel War Adds to Global Turmoil

Israel War Adds to Global Turmoil

Israel War Adds to Global Turmoil

The surprise terrorist attack on Israel by Hamas has created a new geopolitical crisis with many unexpected implications.

We cannot forget the hundreds of people that have been killed in this attack—a terrible loss of innocent lives. In markets, the Key Tel Aviv share indices declined around 7% and sovereign bonds slumped by 3% after the bloodiest attack on Israel in many years.

Investors should not worry because this war has very significant ramifications. Iran has supported Hamas in their attack, and this could lead to new tensions with the United States. Furthermore, this war against Israel may create an even larger division between the two largest military and economic powers, the U.S. and China. It is very difficult to think that China will support Hamas and Iran, but it is also hard to see them supporting Israel.

The impact on the oil market is likely to be strong but maybe short-lived. Any geopolitical tension that may lead to further supply cuts in a tight market is likely to create a strong reaction on the front end of commodity prices. However, we must remember that oil prices have fallen to $82.79 per barrel after signs of weak demand in the United States became evident in the past week. The weak demand situation may be offset by rising geopolitical risk and keep prices elevated for longer.

This war may keep the geopolitical premium on oil prices for a prolonged period. It may also accelerate the global economic slowdown as the tailwind of low import costs stops working for developed economies.

The war has more than just energy implications. Ignoring the macroeconomic impact of this war would be irresponsible. It has significant financial implications, as it is likely to trigger more sanctions and financial restrictions for those countries supporting Iran and Hamas. This should not be a surprise. Furthermore, the war may be a good reason for many developed nations to increase protectionist and surveillance measures. Security risks are going to soar, and we must acknowledge that governments are always keen on imposing protectionist measures on other economies.

If we look at this attack as something distant and irrelevant, we are going to be very wrong. This will have strong implications for security, global commerce, and economic growth. In fact, this attack arrives when the world is suffering a serious slowdown after the inexistent multiplier effect of multibillion-dollar stimulus plans. Therefore, lower growth and more burdens on commerce will mean higher debt and persistent inflationary pressures.

I hope that this disaster ends soon and that Hamas frees the hostages, but we need to acknowledge the economic implications. All the ingredients of a significant global slowdown are already in place, including weak PMIs and weakening consumer confidence. The geopolitical implications of this horrific attack, even if it ends soon, will last for many years.

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Daniel Lacalle

Global Economy Expert

Daniel Lacalle is one the most influential economists in the world. He is Chief Economist at Tressis SV, Fund Manager at Adriza International Opportunities, Member of the advisory board of the Rafael del Pino foundation, Commissioner of the Community of Madrid in London, President of Instituto Mises Hispano and Professor at IE Business School, London School of Economics, IEB and UNED. Mr. Lacalle has presented and given keynote speeches at the most prestigious forums globally including the Federal Reserve in Houston, the Heritage Foundation in Washington, London School of EconomicsFunds Society Forum in Miami, World Economic ForumForecast Summit in Peru, Mining Show in Dubai, Our Crowd in Jerusalem, Nordea Investor Summit in Oslo, and many others. Mr Lacalle has more than 24 years of experience in the energy and finance sectors, including experience in North Africa, Latin America and the Middle East. He is currently a fund manager overseeing equities, bonds and commodities. He was voted Top 3 Generalist and Number 1 Pan-European Buyside Individual in Oil & Gas in Thomson Reuters’ Extel Survey in 2011, the leading survey among companies and financial institutions. He is also author of the best-selling books: “Life In The Financial Markets” (Wiley, 2014), translated to Portuguese and Spanish ; The Energy World Is Flat” (Wiley, 2014, with Diego Parrilla), translated to Portuguese and Chinese ; “Escape from the Central Bank Trap” (2017, BEP), translated to Spanish. Mr Lacalle also contributes at CNBCWorld Economic ForumEpoch TimesMises InstituteHedgeyeZero HedgeFocus Economics, Seeking Alpha, El EspañolThe Commentator, and The Wall Street Journal. He holds a PhD in Economics, CIIA financial analyst title, with a post graduate degree in IESE and a master’s degree in economic investigation (UCV).

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