Keith Kellogg, former national security adviser to Vice President Pence, discusses how Israel can carry out an effective ground invasion in The Bottom Line.
Tensions in the Middle East are preparing global markets for fallout as investors eye geopolitical risks that could drive oil prices higher if other countries become embroiled in Israel’s war against Hamas.
Israel said on Sunday that it would continue to allow residents of the Hamas-controlled Gaza Strip to evacuate to the south as the Israeli Defense Forces prepare for a ground attack in response to last weekend’s unprecedented Hamas terror attack that killed over 1,300 Israelis were killed.
Oil prices rose nearly 6% on Friday as investors priced in the risk associated with a wider Middle East conflict, while the S&P 500 index lost 0.5% in intraday trading. European natural gas prices also rose to their highest since March as an Israeli gas field supplying Egypt and Jordan was temporarily closed, raising concerns about supplies.
“It looks like we are headed for a massive ground invasion of Gaza and a major loss of life,” said Ben Cahill, senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS). . “Any time there is a conflict of this magnitude, there will be a market reaction.”
The deadline for Palestinians to flee Gaza is expiring as Israeli troops gather at the border
The war between Israel and the Hamas terror group is sparking concerns in markets about the possibility of a larger war in the Middle East. (Rina Castelnuovo/Bloomberg via / Getty Images)
Investors flocked to safe havens, pushing gold prices up more than 3%, while the U.S. dollar rose to a one-week high and Treasury bond prices rose.
Market reaction has been relatively muted in the first week of the war, although the Israeli shekel is trading at a seven-year low of 3.87 against the dollar. Israel’s central bank sold up to $30 billion in foreign reserves last week to help stabilize its currency.
STRATEGIC OIL RESERVES NEAR HISTORIC LOWS AS WAR BREAKS IN THE MIDDLE EAST
Oil and gas prices rose last week as the war between Israel and Hamas raised supply concerns. (Mario Tama/Getty Images)
If the conflict widens, it would likely lead to a rise in inflation, prompting central banks to accelerate interest rate hikes to control price rises, according to Bernard Baumohl, chief economist at the Economic Outlook Group.
He noted that other countries would likely see rising interest rates in this scenario, but the U.S. could be an exception if investors pumped capital into government bonds, leading to falling interest rates and a strengthening dollar.
GET FOX BUSINESS ON THE GO by CLICKING HERE
“I have no idea whether markets will behave relatively well,” said Erik Nielsen, group chief economics adviser at UniCredit. “It almost certainly depends on whether this latest conflict remains localized or whether it escalates into a larger war in the Middle East.”
Portal contributed to this report.