The Israel-Hamas war has a severe impact on the global economy, the impact may not be immediate and can be resolved but it would become more difficult to control if the conflict spread to the rest of the Middle East, especially to Iran which is a supporter of Hamas and also a major oil producer.
Image Source – The Economic time
Impact on Global Economy and Oil Prices
The global economy is already facing huge inflation, now the political crisis in the Middle East has also affected it more, The Impact will be more on the oil prices which will be rising near $90
Middle East nations are the key oil producers and the crisis in this area poses a bigger threat and need for a very close watch given that the global economy is currently facing higher for longer interest rate scenarios.
Crude oil prices sharply increased on Monday as the tensions increased in the middle East, the oil prices Rose 3.44% to $87.49 a barrel
Image Source – Mint
However, currently, it is unlikely that this crisis poses a major threat to the immediate oil supply but serious consequences can be seen if the conflict spreads to other regions of the Middle East and if it develops into a proxy devastating war including Iran.
According to the reports if the war continues for long even a fortnight onwards the oil dynamics could change. The Indian economist states that India can be affected if the prices remain high due to further supplied disruptions
If Iran joins the fray, then it can affect the sea routes and push up transport and insurance cost, higher crude will disrupt the balance of trade.
Image Source – India times
If the oil prices remain elevated then it can lead to inflation in the global economy. The United States, India, China and other major developed countries or economies of the world, the biggest importer of oil, can see high inflation. It will increase the cost of production in various industries and energies.
If the prices continue to stay high for prolonged Period, then it would be difficult for the central banks to bring inflation under control, we can see higher interest rates as well it can be seen as a death blow to investors
Impact On India- Israel Trade
Currently there is no immediate impact which can be seen on India’s trade with Israel but if the conflicts escalate into a war, then obviously it would have a severe impact.
Our exports to Israel account for 1.8% of India’s total merchandise exports led by petroleum products. Israel buys around $5.5 to $6 billion of refined petroleum products from India, In FY 23 India’s total exports to Israel was 8.4 billion. If this conflict continues then there are possibilities of rupee depreciation