- By Navneeth Ch
Like the Israel-Palestine War, every war has an effect on the world economy. Global events, particularly the escalating geopolitical tensions, are significantly influencing the financial markets. Additionally, there is a historical reference for the Israel-Palestine dispute, which has been going on between these two nations for decades. Oil prices have had a range of responses to the Israel-Palestine conflict because the Middle East is a major producer of the world's oil. Due to probable supply problems, it caused the prices to increase. There will be an increase in oil prices if there are any crises in the Middle East. There will be interest in safe-Haven assets as a result of these hostilities.
Safe-Haven asset: In the times of economic adversity, it is a financial instrument that is anticipated to maintain or even increase in value like Gold, Government Bond, US dollar, Japanese Yen. We can observe this in the historical trends during past middle eastern conflicts. There will be impact on equity markets also especially in countries with close ties to the nations who are in war, those heavily dependent on oil imports can experience volatility.
Reference points from the Historical Trends:
Let’s see the historical instances where Israel-Palestine escalations had affected the Indian market:
1. Second Intifada: It started on 28 September 2000 and ended on 8 February 2005. During this period the global markets experienced the volatility because of uncertainty in the middle east. The Indian stock market is still in its nascent stage of opening up to FII’s, saw reduced inflows. The sectors which had started establishing connections with Israel firms, faced disruptions.
2. Lebanon War: In this war there is a clash between Israel and Hezbollah, Oil prices globally surged due to fear of middle eastern conflict. India is heavily reliant on oil imports saw its stock market react negatively to the rising oil prices. Companies which are dependent on the oil like aviation has faced challenges due to increase in the operational costs.
3.Gaza War: The global economy was already grabbling with the financial crisis during this war. This added geopolitical tension and further dampened the spirits of FII’s
Impacts of the present Israel-Palestine War:
Oil Prices: one-third of the global oil supply is from the middle east. This conflict has led to surge the oil prices with brent crude and US West Texas. If the conflict spreads to other oil-producing nations like Iran then the global economy could face severely.
Inflation: The rise in the crude oil prices lead to inflation globally. Major economies which are significant oil importers, could experience inflation, if the oil prices remain elevated. This can affect the cost of production across the industries and increase costs for business and households.
Interest Rates: Central banks will struggle to control the inflation by elevating the interest rates and this can hamper the global economic growth.
2.Impact on India-Israel Trade:
Exports: The exports of primary petroleum products, account for 1.8% of India’s total exports, there would be supply-side problems if the conflicts increase.
Imports: The imports like pearls, diamonds, semi-precious stones, machinery and other materials of India from Israel will be affected.
Currency Impact: Necessary action should be taken by the Reserve Bank of India(RBI) to prevent the depreciation of Rupee due to this conflicts.
3. Impact on Financial Markets:
Equity Markets: The equity markets have been affected globally with US stock futures and Asian markets trading lower. This conflict made investors wary, leading to a shift towards safe-haven assets.
Safe-Haven Assets: The dollar, Japanese Yen, gold prices has edged higher. Spot gold and US gold futures witnessing hikes.
Indian Stock Market: May be there would be no immediate effect on the Indian stock market, but the situation needs close monitoring especially if Iran get involved.
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