Escalation of Israel-Gaza war into a wider conflict can result in another shock to global growth. Even though market reaction has been modest so far, this can change in no time. Therefore, right now, investors are more concerned as to which country profited amidst Middle East tension and which are in loss. Whether such fight remains concentrated to confrontation between Hamas and Israel or it gets wider and escalates into a more significant regional conflict which will involve Iran’s proxy armed groups, notably Hezbollah, is expected to have numerous implications. Experts believe that this type of escalation can lead to higher oil prices, concerns regarding oil supply, and potential for a global slowdown. Inflation surge appears to be eased and global rate hikes might see an end soon.
Increase in oil prices, that hovered around ~$139 post Russia’s invasion of Ukraine in the previous year, might halt inflation’s downward move. Another sign of worry is that gas prices increased ~45% over last few days.
In case Iran is involved, that will mean that increased commodity prices and external shocks. This can act as a trigger for less disinflationary outlook. Long-term market gauges of the United States and euro area inflation anticipations exhibit that inflation might stay more than ~2% targets. Experts see that there can further pain for bond investors. S&P U.S. aggregate bond index, which measures how Treasuries and corporate debt perform, is ~14% below the peaks reached in January 2021.
Let us now quickly have a look at which country profited amidst Middle East tension and which are in loss?
Israel’s currency, bonds and stocks were significantly hit by Middle East tensions, as have those countries including Egypt, Jordan and Iraq and to the lesser degree Saudi Arabia, Qatar and Bahrain. After some tough years, Israel-Gaza war is another event which continues to dampen emerging market sentiment. Experts remain cautiously optimistic that several other emerging markets continue to shrug off tensions as of now. However, there are chiefs of global asset management firms suggesting that a regional escalation can see oil increasing by whopping ~20%. As a result of this, already-impoverished oil importing countries can see negative impacts in their respective economies.
After Hamas launched attack on Israel on 7th October, numerous observers anticipated that war will remain limited fight between Israel and Hamas. Israel, Iran, and the US all have their respective reasons to avoid escalated war. Israel’s hands are full with its military response in Gaza, with Iran wanting to avoid potential clash with the US. Finally, Washington is not at all interested in destabilizing regional conflict impacting oil markets, fuelling extremism, and drawing attention from conflict in Ukraine.
Iran’s significant regional ally, Hezbollah, continues to see its own challenges in Lebanon. There, new war with Israel might deepen country’s political and economic crises.
Wider neighbourhood has little or small interest in seeing escalation of this war. Arab states including Jordan and Egypt continue to face significant socio-economic problems, that might get exacerbated by arrival of refugees. Countries which are location in the Gulf can see an expanded-war disrupting their significant economic development projects. It can impede efforts to repair frayed regional relationships and conclude conflicts in Libya, Syria, and Yemen. Gaza is seeing severe humanitarian crisis as a result of unprecedented Israeli bombing and anticipations of ground incursion, and some of the parts of Israel are targets of regular missile attacks.
Recent increase in global conflicts, which includes Israel-Hamas conflict and Russia’s invasion of Ukraine resulted in a significant rise in international arms sales. This surge in demand helped American weapons manufacturers including Raytheon division of RTX Corp.
It has been announced that the US continues to supply Israel with smart bombs, ammunition, and interceptors for Iron Dome missile-defense system. Apart from this, military aid is being given to Ukraine and several other European allies such as Poland.
According to data released by Stockholm International Peace Research Institute, global military spending touched $2.2 trillion last year. As a result of higher demand, there has been increase in arms production from nations such as Turkey and South Korea, which can benefit these nations if the war escalates. Several buyers of these arms consist of NATO ally Poland, which was given the right to purchase Abrams tanks built by General Dynamics and Lockheed Martin’s HIMARS.
Middle Eastern nations, which include Israel and Saudi Arabia, continue to act as significant buyers of American weapons. Meanwhile, Indonesia has shifted its purchases from Russia to Western suppliers, consisting Blackhawk helicopters from Lockheed Martin. Significant increase in arms purchases resulted in concerns regarding escalation in global conflicts.
Despite such worries, higher demand bolstered profits for several big military contractors. The US government continues to leverage such demand to expand military linkages with new customers such as India and Indonesia while selling in higher quantities to existing allies. Poland added Turkey to its list of weapons suppliers as a result of buying Baykar’s armed drones.
For the US, this war can act as a significant setback in both diplomatic and military terms. After failures in Iraq, Afghanistan, Libya, and Syria, US had always been trying to extricate itself from rise in Middle East conflict as much as possible. This was goal of Washington’s Iran policy: to order that particular region in a way that render risky interventions unnecessary moving forward.
Apart from Iran, Russia is another significant beneficiary of Middle east tenion. If the US has to support Israel with more and more weapons and loans over upcoming months, its solidarity with Ukraine can come under stress. There are several limits as to how many artillery shells and missiles US has available to send overseas its global allies.
Now that you know which country profited amidst Middle East tension and which are in loss, it is of utmost important to understand that gold declined as investors believed that tightening financial conditions might have touched peak after dovish commentary from the US Fed officials.
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