INTRODUCTION OF THE CONFLICT
At the beginning of October 2023, the conflict between Israel-Hamas, which ruled Gaza since 2006, escalated into the most serious confrontation between the two countries in decades. Initially rockets were fired into Israel by Hamas fighters which hit on some Israeli cities across the border of the Gaza strip. It resulted in deaths of around 1300 Israelis and injured more than 3000 people, and took control of hundreds of hostages. After that, Israel mounted a deadly response. On the day following 7 October attack, the Israeli Cabinet officially declared war on Hamas, following the Defence Minister’s directive to the Israeli Defence Forces (IDF) to implement a ‘total siege’ to Gaza.
There has been a deadly conflict thereafter and more than 10,000 people in Palestine have died. Out of the hostilities, around 40% are children. Israeli forces have imposed a siege on the city of Gaza, isolating it from the rest of Southern Gaza. The city is still populated by thousands of civilians.
IMPACT ON FINANCIAL MARKETS
OIL PRICES
The Israel-Hamas conflict has a major impact on world oil prices. Though both Israel and Palestine are not major oil producers, still their location in the middle East have an impact on the regional players of oil producers. There are other problems that arise in a conflict like this. For instance, the conflict has escalated the risk of choking of crucial points like Strait of Hormuz and Suez Canal which are the essential points for global transportation of oil. Oil prices have surged more than 5% after the conflict. The European gas prices has seen a surge of near 40%.
FOREX – EXAMPLE OF ISRAEL
The Israel-Hamas conflict have an impact on other areas too. During the time of geopolitical tensions, the currencies that are inextricably linked to a region show the highest volatility. During the time of political and economic crisis the investors tend build up on safe-haven assets to secure their interests, which include, gold, Japanese yen and US Treasury bonds. The spark in the price of gold is a suitable example of it. The price of the gold shot up after the escalation of the conflict. On 13 October, it registered a hit to $2,000 levels and closed at 2,006 ounces per level.
The Bank of Israel also announced that to maintain the stability of its currency, Shekel, it put up to sell $30bn of foreign currency in the open market transaction. The last time the Central Bank intervened was in 2022. Since 2008, Israel had collected together a large quantity of forex reserves of more than $200bn, mostly by buying foreign exchange.
The announcement was made by the bank after Shekel weakens to 8 Years low. It had weakened by more than 2% to 8 years low of 3.92 per dollar. Before that due to internal issues in Israel, particularly due to judiciary overhaul, in 2023, the Shekel had already been down by 10% against the dollar. After it put up the currency on sale, the market appeared to become calm.
The central bank said that it will intervene in the market operations to moderate volatility in the Shekel exchange rate and to provide adequate liquidity to prevent market failure.
After the move, the Dollar index, measure of currency of US against six others, rose 0.047%, while the Euro fell 0.35% to $1.0549. Another traditional safe haven currency, the Japanese Yen edged 0.28% while Sterling fell to 0.19%.
It is a good move to hold US dollar if a war breaks out anywhere in the world, commented by Leuchtmann, Head of FX and Commodity Research at Commerzbank.
