"Israel-Hamas War Increases Likelihood of US Recession"

Analysis suggests that the conflict between Israel and the Palestinian armed faction Hamas could become a prolonged war, increasing the likelihood of a recession in the United States. The conflict may turn into a proxy war, and the resulting long-term instability in the Middle East could drive up international oil prices, potentially triggering a global economic downturn.

[Image source=AP Yonhap News]

Prospect of Proxy War Escalation in a Prolonged Conflict

Market research firm Yadeni Research stated in an investor memo on the 10th (local time) that "the prospect of a prolonged war in the Middle East is increasing the likelihood of a recession in the U.S.," raising the probability of a recession before the end of next year from 25% to 30%. Hamas invaded Israel in the early hours of the 7th, the Jewish Sabbath, and Israel retaliated, with the conflict now entering its fourth day.

Yadeni Research particularly noted that the conflict has the characteristics of a proxy war, which could lead to a prolonged confrontation. On the 9th, The Wall Street Journal (WSJ) reported suspicions that Iran, one of the major oil-producing countries, supported Hamas's attack, while the U.S. has declared its intention to support Israel. Yadeni Research analyzed, "For Israel, this is a matter of existence," adding, "Israel's current objective is to eliminate Hamas, Iran's proxy, in the Gaza Strip."

Growing Uncertainty in the Global Economy

Yadeni Research expects that if the conflict becomes prolonged, it could escalate due to increased U.S. export sanctions against Iran and the involvement of Hezbollah, the Lebanese armed group supported by Iran, which would negatively impact the global economy. The firm forecasts that "strengthened sanctions on Iranian crude oil could push oil prices above $100 per barrel, potentially triggering a global recession." Besides the escalating Middle East risks, concerns also include the potential U.S. debt crisis and the recent sharp rise in long-term Treasury yields. Although neither Israel nor Palestine are oil-producing countries, the emerging suspicions of Iran's backing of Hamas caused the price of November West Texas Intermediate (WTI) crude oil to rise more than 4.3% on the 9th.

The International Monetary Fund (IMF) also analyzed that the conflict could adversely affect the global economy. Pierre-Olivier Gourinchas, IMF Chief Economist, stated on the day, "(It is) too early to make an economic assessment, but (this conflict) risks causing an energy supply shock. This could drive up oil prices, fuel inflation, and reduce growth." Furthermore, the IMF's World Economic Outlook (WEO) update projected global economic growth to slow from 3.5% last year to 3.0% this year and 2.9% next year. The growth forecast for next year was revised down by 0.1 percentage points from the 3.0% predicted in July.

The expansion of economic uncertainty could introduce new variables into the U.S. Federal Reserve's (Fed) monetary policy direction. Raphael Bostic, President of the Federal Reserve Bank of Atlanta and considered a dove (favoring monetary easing) within the Fed, expressed concern about the uncertainty caused by the Israel-Hamas war during a speech, emphasizing the importance of the Fed's response. He said, "This is an unexpected new event," adding, "It makes everyone rethink where markets and partners are headed." This statement is interpreted as a call for caution in interest rate decisions to avoid triggering an unnecessary recession through excessive tightening. However, he did not directly comment on the conflict's impact on international oil prices.

Markets are showing a strong preference for safe-haven assets. Following the previous day, Treasury yields continued to decline. In the New York bond market, the benchmark 10-year yield fell to around 4.65%. International gold prices are showing a firm upward trend.

International oil prices, which had surged until the previous day, slightly declined. On the New York Mercantile Exchange, November delivery West Texas Intermediate (WTI) crude oil closed at $85.97 per barrel, down 41 cents (0.47%) from the previous session. This is interpreted as the market taking a wait-and-see approach while assessing the supply disruption risks caused by the Israel-Hamas war.

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