The risk of a wider Middle East war threatens the fragile global economy

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The risk of a wider Middle East war threatens the fragile global economy
A natural gas pipeline terminal in Ashkelon, Israel (Tamir Khalifa/The New York Times)

Fear of Israel’s continued military operations in the Gaza Strip can be Regional conflict This clouded the global economic outlook, slowing growth and threatening to raise food and energy prices again.

Countries both rich and poor are beginning to recover from a three-year economic crisis caused by the COVID-19 pandemic and Russia’s invasion of Ukraine. Hyperinflation is collapsing, oil prices have stabilized, and predicted recessions have been averted.

Now, some private investors and major financial institutions are warning that the weak recovery could worsen.

This is the first time that two energy crises have been experienced at the same time“The impact of the wars in Ukraine and the Middle East on oil and gas prices,” noted World Bank Chief Economist Intermed Gill.

Crude oil storage tanks (REUTERS)

These price increases not only weaken the purchasing power of households and businesses, but also raise the cost of food production, increasing food insecurity, especially in developing countries such as Egypt, Pakistan and Sri Lanka.

So things, Countries are already struggling with unusually high debt levels, few private investments and the slowest business recovery in five decades, making it difficult to emerge from the crisis. High interest rates, a result of central banks’ efforts to control inflation, make it difficult for governments and private companies to access credit and avoid debt.

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“It’s all happening at the same time,” Gill said. “We are in one of the most delicate situations for the world economy.”

Gill’s assessment echoes that of other analysts. Jamie Dimon, chief executive of JPMorgan Chase, said last month that “this may be the most dangerous time the world has seen in decades” and that the conflict in Gaza was “a very important and critical matter for the Western world”.

More recent economic problems are fueled by deep geopolitical conflicts that cross continents. Tensions between the U.S. and China over technology and defense exchanges complicate efforts to work together to address other issues, such as climate change, debt relief or violent regional conflicts.

Overriding policy concerns mean that traditional budgetary and monetary tools such as interest rate adjustments or government spending will be less effective.

Explosions and smoke after Israeli airstrikes in the Tal al Hawa neighborhood of the Palestinian city of Gaza (EFE/EPA/MOHAMMED SABER)

The brutal fighting between Israel and Hamas has already claimed thousands of civilian lives and caused heartbreaking suffering on both sides. But most analysts agree that if the conflict is contained, the impact on the global economy will be minimal.

On Wednesday, Federal Reserve Chairman Jerome Powell noted that “we don’t know at this point whether the conflict in the Middle East is on track to have significant economic consequences for the United States,” but added: “That doesn’t mean it will. It won’t be very serious.”

Middle Eastern oil producers no longer dominate the market as they did in the 1970s, when Arab countries sharply cut production and imposed a blockade on the United States and some countries that would attack Israel after a coalition led by Egypt and Syria.

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At the moment, the United States is the world’s largest producer and renewable and alternative energy sources already make up a slightly larger portion of the global energy basket.

“It’s a very volatile, uncertain and scary situation,” said Jason Bordoff, director of Columbia University’s Global Energy Policy Center. But “all parties in the United States, Europe, Iran and other Gulf states recognize that no one wants this conflict to expand beyond Israel and Gaza,” he continued, referring to the Persian Gulf.

However, Bordoff added that mistakes, miscommunication and misunderstandings can push countries to escalate conflict even when they don’t want to.

Furthermore, a significant and sustained decline in global oil supplies – regardless of the causes – could reduce growth and At the same time worsening inflation, this is a very harmful combination known as stagflation.

Gregory Dago, chief economist at EY-Parthenon, noted that in the worst-case scenario of war escalating, this could push a barrel of oil. 150 dollars85 from now costs. “The consequences of this situation for the world economy are very serious,” he warned and spoke of a mild recession, a fall in stock prices and a loss of $2 trillion to the world economy.

The prevailing sentiment these days is one of uncertainty, which weighs on investment decisions and may prevent companies from expanding into emerging markets. Borrowing costs have soared, and corporations in countries from Brazil to China are believed to be having trouble refinancing their debt.

At the same time, emerging markets such as Egypt, Nigeria and Hungary have been hit hard by the pandemic, resulting in lower-than-expected growth, according to Oxford Economics, a consultancy.

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Both conflict and economic tensions in the Middle East could increase the flow of migrants from that region and North Africa to Europe. The European Union, on the brink of recession, is negotiating with Egypt to increase financial aid and curb immigration.

China gets half of its oil imports from the Persian Gulf. The housing market is facing a slump and its weakest growth in nearly three decades.

In contrast, the US has confounded analysts with its robust growth. From July to September, the economy grew at an annualized rate of less than five percent, driven by lower inflation, accumulated savings and steady hiring.

India is on track to perform well with 6.3 percent growth, supported by buoyant consumers.

The region with the bleak outlook is sub-Saharan Africa, where total yields are estimated to decline by 3.3 percent this year, even before the outbreak of conflict in Israel and Gaza. Incomes in the region have not increased since the collapse of oil prices in 2014, said M, who prepares the World Bank’s annual Global Economic Prospects report. Ayhan Ghose said.

© The New York Times 2023

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