Iran-Israel war puts global economy at risk

From the beginning of creation to the present day, the history of the world has been soaked in the blood of Adam’s descendants. Thousands of innocent people have been sacrificed in the name of asserting one's greatness. Throughout the ages, the ruling class has been desperate to assert power or establish dominance over others. As a result, the soil of earth has been soaked with the blood of millions of innocents. Although wars are initiated by the ruling class, it is the ordinary people who lose their lives. The current history of the world is no exception. The global population has already witnessed the devastation of two world wars.

But not just in those devastations—every day thousands of people across the globe fall victim to the dirty claws of imperialism. Currently, the most talked-about issues in the world are the ongoing Ukraine-Russia and Israel-Palestine crises. As an extension of these, a new Iran-Israel conflict has emerged. The tragic result of global superpowers' imperialist mentality is the war-torn suffering of thousands of ordinary civilians. A new dimension has been added to the Middle East conflicts and battles. Until now, Iran remained relatively passive, but this time it did not hold back. The country directly attacked Israeli territory. Analysts believe the political implications of this attack will be far-reaching and its economic impact will be significant. On 7 October 2023, following a Hamas attack on Israel, the latter responded with widespread massacres in Palestine. In protest, Yemen’s Houthi rebels began attacking commercial ships in the Red Sea. This led to a renewed supply chain crisis in the global economy. Even under the current circumstances, there are concerns that the cost of shipping goods may rise. It is inevitable that this will affect Bangladesh’s trade and commerce.

The Israel-Iran war-like situation has arisen at a time when the global market is already plagued by various uncertainties. The biggest uncertainty centres on US President Donald Trump's tariff policies. His threats to impose high tariffs on US imports have already disrupted global trade. Investors are losing confidence. As consumer spending and business costs rise, global economic growth is slowing. If the Israel-Iran conflict drags on, the pressure will increase further. According to a 2019 analysis by FX Street, if oil prices rise by 10 percent, consumer price inflation increases by up to 0.4 percent in the following year. If groups aligned with Iran, such as Lebanon’s Hezbollah or Yemen’s Houthis, become involved in the conflict, the situation will worsen. International shipping and the tourism sector may become virtually paralysed. The economic impact of Israel’s attacks on Iran’s nuclear and ballistic missile installations has already been immediately felt.

Following the attack, oil prices surged, and investors withdrew money from stock markets to invest in safer assets like government bonds and gold. The price of crude oil jumped by as much as 13 percent. The price of Brent crude, a key oil benchmark, rose by more than 10 percent to $75.15 per barrel—the highest in five months. Many traders believe that Israel’s attack may not end in a single phase. Therefore, there is a fear that the situation may deteriorate further. According to Deutsche Welle, the verbal confrontation between Israel and Iran is also complicating the situation.

Meanwhile, Iran’s supreme leader Ayatollah Ali Khamenei has warned that Israel will face severe punishment for this attack. Naturally, downward trends have been observed in the stock markets of Asia and Europe. Germany’s DAX index was hit the hardest. On Friday, both the S&P 500 and Nasdaq indexes in the U.S. also fell. Investors continued to move their money away from risky stocks into safer assets, causing gold prices to climb steadily. Europe’s travel and entertainment sectors were the most affected, although energy and defence companies saw their share prices rise. Shares in defence industries such as Rheinmetall and BAE increased by 2-3 percent.

Analysts at Deutsche Bank commented in a research report that the impact of this attack has spread across global markets. Investors are avoiding risk and shifting investments into safer options. They also stated that fears of this attack escalating into a larger conflict are now more pronounced. Both Israel and Iran have closed their airspace. Iraq and Jordan have taken the same measure. Several airlines have cancelled flights to the region. With the risk of aircraft being shot down in a war scenario, a decline in air traffic in the region is only natural. Aviation security consulting firm Osprey Flight Solutions reports that since 2001, six commercial aircraft have been accidentally shot down worldwide. Around the same period, three commercial planes narrowly avoided disaster. However, rerouting flights is costly. It increases journey time and requires additional fuel.

According to flight tracking data, several planes departed from Tel Aviv. Some of them flew to Cyprus and various European countries without passengers. By the time Israel declared a state of special emergency, its currency, the shekel, had already depreciated by nearly 2 percent. Panic started to spread among the general public. People rushed to supermarkets, even clearing the shelves. Images circulated on social media show that food and essential item shelves have become empty in many places.

Israeli media outlet Ynet reported that the number of customers at Carrefour supermarket chain increased by 300 percent in one day. Deutsche Welle spoke to analysts about this. They stated that if a full-scale war breaks out between Israel and Iran, the Middle East’s energy markets and trade could be severely disrupted. The shockwaves would be felt worldwide. The Middle East is one of the world’s major energy-producing regions. It holds the largest oil reserves globally. After Saudi Arabia and Iraq, Iran is the third-largest oil producer in the region. Despite international sanctions, the country still supplies large quantities of crude oil to China and India. Barclays Bank analyst Amarpreet Singh warned in a study that in the worst-case scenario, this conflict could spread to other important oil and gas production and shipping networks in the region. Attention is now focused on the Strait of Hormuz. This narrow waterway, located between Iran, the United Arab Emirates, and Oman, is crucial to global oil trade.

Iran has repeatedly threatened to close the strait. If this happens, many oil tankers will be stranded and oil prices will skyrocket. According to the US Energy Information Administration (EIA), about one-fifth of the world’s daily oil consumption—18 to 19 million barrels—is transported through this strait. The price of everything is linked to oil prices. So, if oil prices rise, global inflation will surge again. In late 2023, the Houthi rebels began attacking commercial ships in the Red Sea. As a result, shipping costs increased; major shipping companies rerouted via the Cape of Good Hope—this led to longer travel times and higher costs.

Peter Sand, chief analyst at Copenhagen-based research firm Xeneta, said that if rerouting becomes necessary again, transport costs will rise further. Shipping companies may demand additional payments under the guise of security surcharges. Following recent tensions, Greece and the UK have asked commercial vessels to register each journey through the Strait of Hormuz. Additionally, if gas exports from Israel’s Tamar gas field or liquefied natural gas (LNG) exports from the Gulf region are halted, pressure will mount on the energy markets of Europe and Asia. Due to the Gaza war, Israel is already facing economic strain. Now, if a full-scale war with Iran begins, the cost could rise to 120 billion dollars—equivalent to 20 percent of the country’s GDP—warns Israeli economist Yaakov Sheinin. On the other hand, Iran has long been in economic distress due to international sanctions over its nuclear programme.

On 2 April, Donald Trump imposed retaliatory tariffs on almost all goods from across the world, increasing fears of a global recession. Later, when Trump suspended the tariffs for 90 days, analysts revised down the recession risk. But it is feared that if war in the Middle East becomes prolonged and Trump’s retaliatory tariffs take effect simultaneously, the risk of a global recession will increase significantly. The Iran-Israel conflict will most strongly impact oil and gas. Experts believe the ultimate consequence of this conflict could be a rise in oil prices. As a result, overall inflation may rise again. Analysts say that if Iran’s oil fields are attacked, Brent crude oil prices may hit $100 per barrel, and if the Strait of Hormuz is closed, prices could rise to $120–130. Gold prices are already on the rise.

It is expected that if uncertainty in the global economy increases, the demand for gold will rise even more. Because in times of crisis, people are drawn to gold as a safe investment—it’s an eternal truth. The above theoretical discussion shows that the current crisis is not limited to just two countries. Their conflict has now turned into a global crisis. Its adverse effects are spreading across borders, rendering millions of peace-loving people helpless. No conflict in human history has ever brought peace. This unwanted crisis has only created a bloodied, sorrowful, and grief-stricken saga. Therefore, we must learn from history and come forward to avoid conflict and establish equality to achieve peace.

Rayhan Ahmed Tapader: Researcher and columnist