Israeli military drive on a road in southern Israel as rockets are fired from the Gaza Strip outside Sderot, October 7, 2023. Portal/Ammar Awad LICENSE
LONDON, Oct 9 (Portal Breakingviews) – Another geopolitical flashpoint is starting to flash red. With companies and investors already keeping a close eye on the war in Ukraine and growing tensions between the United States and China, an outbreak of deadly violence in Israel raises the risk of contagion across the Middle East. And it is breaking out at a time when the global economy is in a fragile situation.
Saturday’s attacks by Hamas militants, which killed at least 700 Israelis, are on a different scale than the various flashpoints between the Israeli military and the Hamas-controlled Gaza Strip in recent decades. They are also deeply destabilizing. Israel’s missile and land defense facilities were considered impregnable; Proving that they are not can embolden his enemies. Meanwhile, Israeli Prime Minister Benjamin Netanyahu’s coalition government is under pressure to launch a comprehensive response. Over 400 people were killed in retaliatory strikes in Gaza.
Geopolitical risk observers can outline how an escalation could occur. Massive retaliation or even an invasion of Gaza by Israeli forces could lead to further action by Hamas or the Lebanese Hezbollah. Both groups are backed by Iran, meaning that in a worst-case scenario, Jerusalem and Tehran would go head-to-head. A conflict would undermine stability in the Gulf, which accounts for 32% of the world’s annual crude oil supply. That could boost inflation at a time when central bankers have already raised interest rates and bond yields are rising rapidly.
An important player is Saudi Arabia. The kingdom’s rulers have historically supported Palestinian rights and opposed Israel while waging proxy wars against Iran. US President Joe Biden had hoped to bring about a normalization of relations between Netanyahu and Saudi Crown Prince Mohammed bin Salman, which could have led to a strengthened security agreement between Saudi Arabia and the United States.
In fact, one motivation for the Hamas attacks may have been to provoke an Israeli response that would derail these negotiations. However, Biden could also respond to Iran’s support for Hamas by tightening sanctions against Tehran’s oil exports. Saudi Arabia could then play a stabilizing role in the global oil market. It has 3 million barrels of spare daily capacity – roughly the same as Iran’s total production.
Still, investors have reason to remain nervous. The Middle East is far from the only region that has the potential for recovery. At a time when the global economy relies on inflationary geopolitical risks to subside, further risks are emerging.
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CONTEXT NEWS
On October 7, gunmen from the Palestinian group Hamas entered Israeli cities, killing at least 700 Israelis and escaping with dozens of hostages in what was by far the deadliest day of violence in Israel since the Yom Kippur War 50 years ago.
In response, Israeli airstrikes hit apartment blocks, tunnels, a mosque and homes of Hamas officials in Gaza, killing more than 400 people, Portal reported.
President Joe Biden said Saturday that Israel has the right to defend itself and warned Iran and other countries hostile to Israel not to exploit the attacks.
Israeli Prime Minister Benjamin Netanyahu spoke on Sunday with the leaders of Germany, Ukraine, Italy and Britain, all of whom expressed support for Israel’s right to defend itself “as much as necessary,” a statement said his office.
Hamas’ attack was praised by Iran and Hezbollah, Iran’s Lebanese ally.
Hezbollah said on Sunday it fired guided missiles and artillery at three posts in Shebaa Farms “in solidarity” with the Palestinian people.
The Saudi Arabian Foreign Ministry on Saturday called for “an immediate halt to the escalation between the two sides.” It also said it “recalls its repeated warnings about the risk of aggravation of the situation as a result of the ongoing occupation, the deprivation of the Palestinian people of their legitimate rights and the repetition of systematic provocations against His Holiness.”
Brent crude traded at $86 a barrel, up 2%, as oil markets reopened.
Edited by Peter Thal Larsen and Thomas Shum
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