The Israel-Palestine conflict has been a longstanding and deeply rooted dispute with far-reaching consequences, not only for the people living in the region but also for the global market. While the conflict primarily revolves around territorial and political issues, its repercussions have had a significant impact on various aspects of the global economy.
As of 9 October, equity benchmarks Nifty 50 and Sensex have both dropped by a per cent each. Nifty 50 opened at 19,539.45 against the previous close of 19,653.50. It fluctuated throughout the day and finally closed at 19,512.35, down 141 points or 0.72 per cent. As for the Sensex, it opened at 65,560.07 against the previous close of 65,995.63 and ended the day with a loss of 483 points or 0.73 per cent, at 65,512.39.
Firms listed on the BSE dropped to nearly ₹315.9 lakh crore from ₹319.9 lakh crore in overall market capitalisation, which made investors lose ₹4 lakh crore in a single session.
Manoranjan Sharma, Chief Economist at Infomerics Ratings, said that there will be temporary volatility in the bond and equity market. He predicts that bond yields will harden and that the cost of credit may go up for companies.
Although the overarching and long-lasting implications of the war may be hard to predict at this stage, there are sectors that have taken a direct hit already.
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1. Jump in crude oil prices
One of the most direct impacts of the Israel-Palestine conflict on the global market is the fluctuation of oil prices. The Middle East is home to some of the world’s largest oil-producing countries, and any instability in the region can lead to disruptions in the oil supply chain. Investors and traders closely monitor the situation, as tensions in the region often lead to increased oil prices. This can have a cascading effect on the global economy, as higher oil prices drive up energy costs and inflation rates worldwide. Oil prices jumped 4 per cent over the weekend, and may stay high if Iran gets actively involved in the crisis.
High oil prices will affect India’s current trade deficit and the current account deficit, which already stands at $9.2 billion.
2. The arms trade
Additionally, the conflict has implications for the arms trade. Both Israel and Palestine receive military support from various countries, which means that any escalation in the conflict can lead to an increase in arms sales. Major arms-producing nations like the United States and Russia benefit from such sales, bolstering their defence industries and contributing to their economic growth.
3. Interest rates and a global economic slowdown
The US Fed has indicated one more hike in interest rates and that they may stay elevated for longer, which will adversely affect global economic growth. Last week, the Reserve Bank of India decided to keep the repo rate unchanged and at 6.5 per cent.
Moreover, the Israel-Palestine conflict has a broader impact on investor sentiment and global financial markets. When tensions rise, investors become more risk-averse, leading to stock market volatility and fluctuations in currency exchange rates. Uncertainty in the region can prompt investors to seek safer assets, such as gold or government bonds, which can affect the prices of these assets globally. Manoranjan Sharma, while outlining his concerns, had also noted that ‘gold may become a safe haven’.
Tourism is another sector that experiences the ripple effects of the conflict. Israel, in particular, is a popular tourist destination with a rich cultural and historical heritage. However, during periods of heightened conflict, tourism numbers tend to decline significantly. Tourists are often deterred by concerns over safety and stability, which can lead to revenue losses for the tourism industry in the region and beyond.
5. Disruptions in Trade
Trade disruptions are also a consequence of the Israel-Palestine conflict. Israel’s blockade of Gaza and restrictions on the movement of goods has hampered economic development in the Palestinian territories. Not only does this impact local businesses, but it also affects international trade partners who engage with the region. Delays in the movement of goods can lead to supply chain disruptions, which can have a domino effect on businesses worldwide.
In recent years, there has been a growing movement advocating for corporate social responsibility and ethical investment practices. Some investors and consumers choose to boycott companies that they perceive as contributing to or benefiting from the Israel-Palestine conflict. This can have a direct impact on the stock prices and revenues of these companies, prompting them to reconsider their involvement in the region.
6. Humanitarian and financial aid
Furthermore, international aid and humanitarian efforts play a crucial role in mitigating the human suffering caused by the conflict. Large sums of aid are sent to the region to provide humanitarian assistance and support for infrastructure development. These funds often come from international organizations and governments, diverting resources from other global initiatives and projects.
In conclusion, the Israel-Palestine conflict has wide-ranging consequences that extend far beyond the borders of the region itself. Its impact on the global market is felt through fluctuations in oil prices, arms sales, investor sentiment, tourism, trade disruptions, corporate practices, and the allocation of international aid. As long as the conflict persists, the world will continue to grapple with its economic and financial ramifications, underscoring the need for a peaceful resolution in the region.