Risks of the Israel-Palestine War Shaking the Global Economy... Fed and Others Closely Monitoring the Situation

International Oil Prices Surge 4% on the 9th... European and Other Stock Markets Weaken
Oil Price Rise and Economic Growth Slowdown Influence Interest Rate Decisions
Impact Scale Determined by War Duration and Escalation Possibility

The geopolitical uncertainty has expanded due to the attack on Israel by the Palestinian armed faction Hamas, leading to assessments that the global economy is facing new risks. The global economy, which had been struggling amid high inflation and the aftermath of Russia's invasion of Ukraine, is now confronted with another war risk, deepening the concerns of major central banks such as the U.S. Federal Reserve (Fed) that lead the world economy.

On the 8th (local time), a missile that fell in the Gaza Strip during an Israeli airstrike exploded violently.
[Image source=AFP Yonhap News]

Middle East Stock Markets Also Weak...Safe-Haven Assets Like Dollar and Gold Strengthen

Following the weekend conflict between Israel and Hamas, major global markets are shaking as of the 9th.

First, the prices of international crude oil futures, West Texas Intermediate (WTI) and Brent crude, rose by 4% in a single day. Both oils had surged sharply the previous day and then slightly reduced their gains, but still remain at levels higher than before Hamas's attack on Israel.

With the stock markets in South Korea and Japan closed due to Hangul Day and Sports Day holidays respectively, major countries' stock markets are generally showing weakness.

The Euro Stoxx 600 index was trading at 443.35, down 0.36% from the previous trading day as of 4:15 p.m. Korean time. The UK FTSE index fell 0.07% to 7489.51, the French CAC index dropped 0.77% to 7005.78, and the German DAX index declined 0.74% to 15,117.26 compared to the previous trading day.

[Image source=Reuters Yonhap News]

After the ten-day National Day holiday including the weekend, the Shanghai Composite Index in China closed down 0.44%. U.S. S&P 500 futures and Nasdaq 100 futures also showed downward trends.

Middle East stock markets are similarly declining. The Tel Aviv Stock Exchange, the benchmark for the Israeli market, plunged 6.47% the previous day and started with a 1% rebound on the day, but then lost all gains and was down 0.5%. Dubai, Kuwait, and Qatar also recorded early losses of 1-2%, according to The Guardian.

As geopolitical uncertainty grows, safe-haven assets such as the dollar, U.S. long-term Treasury bonds, and gold are strengthening. The Bloomberg Dollar Spot Index rose 0.2%, and the yield on 10-year U.S. Treasury bonds increased. Spot gold also rose 1% to $1850.52 per ounce. Although gold prices had recently declined to their lowest since March, they appear to have rebounded due to the current situation.

"Investors Are Becoming More Nervous...Risks to Both Inflation and Growth"

Experts analyze that this war will act as a risk factor for both inflation and growth prospects. Especially for the Fed, which is using all policy tools to curb inflation caused by the COVID-19 pandemic and the Ukraine war, the dilemma is expected to deepen.

[Image source=Reuters Yonhap News]

Central banks around the world are closely monitoring the possibility that the war could cause a sharp rise in international oil prices, creating new inflationary pressures. Although neither Israel nor Palestine are oil-producing regions, the Suez Canal, a major shipping route, is nearby. Moreover, with major oil-producing countries like Iran and Saudi Arabia clustered in the region, there is a possibility of further oil price increases if the war escalates.

Susanna Streeter, Head of Funds and Markets at UK investment firm Hargreaves Lansdown, expressed concern to The Guardian that Hamas's attack on Israel could affect the energy market's flow, stating, "Investors, who had begun to breathe a sigh of relief thinking the U.S. was starting a soft landing despite high interest rates, are showing signs of becoming nervous again."

Typically, when oil prices rise and inflation increases, it is necessary to raise benchmark interest rates. The problem is that the war also poses a risk of slowing economic growth. If economic growth slows due to the war's impact, lowering benchmark interest rates would be appropriate. This creates a dilemma.

Karim Basta, Chief Economist at Triple A Asset Management, said, "The war is a risk to both inflation and growth prospects," adding that it leaves the Fed with the task of determining which is the bigger problem: rising prices or slowing growth. Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, warned, "The escalation and prolongation of tensions in the Middle East could be the decisive blow that pushes the world to the brink of a recession."

However, some experts predict that it will take some time to assess how much impact the war will actually have on the global economy. The ripple effects will vary depending on the duration and escalation of the conflict. Agustin Carstens, General Manager of the Bank for International Settlements (BIS), said, "Oil and stock markets may see immediate effects, but it is too early to speak of the full impact."

This war is also expected to become a major topic at the Morocco Marrakech meetings where global economic leaders gather. The G20 Finance Ministers and Central Bank Governors Meeting, as well as the joint annual meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG), will be held in Marrakech until the 15th.

This content was produced with the assistance of AI translation services.