Israel-Hamas war- Oct 2023
The global economy’s descent will likely accelerate in light of the new conflict between Israel and Hamas.
Over the past year, the global economy has been subject to immense inflationary pressures, having increased 8.6% over the past year. Stemming from oil supply shocks driven by the Russia-Ukraine war, this may be reinforced by the new Israel-Palestine conflict. Primarily, as the region is a crucial energy supplier, this could cause a rebound in oil prices, potentially reaching $150 per barrel according to estimates. Furthermore, as the region is also a crucial shipping passageway, this may rekindle the logistical supply chain constraints experienced over the past two years, once again, inflating oil prices. Evidently, this has manifested across history, whereupon the Arab-Israeli war of 1973 was responsible for stagflation (simultaneous rise in unemployment and inflation) spreading throughout industrial economies. Thus, should this warrant even tighter monetary policy conditions, global economic growth will definitely be threatened.
Therefore, although a low probability scenario, should a war erupt between Iran and Israel, estimates predict global economic growth to slow to 1.7% over 2024. This is in conjunction with a 1% increase in inflation, this would leave global inflation at 6.7% next year. Moreover, this would be accompanied by various political implications in the United States, as gasoline prices remain a key influence on voter sentiment.