Israeli tanks are seen after a mass infiltration by Hamas gunmen from the Gaza Strip at Kibbutz Beeri in southern Israel, October 14, 2023. Portal/Violeta Santos Moura acquire license rights
WASHINGTON, Oct 15 (Portal) – Economists and market strategists expect further global impacts from the Middle East conflict and are watching to see whether the situation extends to other countries that have the potential to drive oil prices increasingly higher and capital to move to safe havens flow.
Israel prepared for a ground attack in the Hamas-controlled Gaza Strip on Saturday after telling Palestinians living there to flee south. Israel’s national security adviser, meanwhile, warned Lebanese militant group Hezbollah against starting a war on a second front.
“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.”
Over the past week, worries about the conflict have weighed on asset prices, contributing to weakness in stocks on Friday, as the S&P 500 (.SPX) fell 0.5%. Safe-haven assets saw buying, with gold rising more than 3% on Friday and the U.S. dollar hitting a one-week high. Oil prices rose nearly 6% on Friday as investors assessed what the conflict could mean for supplies from neighboring countries in the world’s largest oil-producing region.
“If it looks like a widening conflict, oil prices will continue to rise,” said Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado.
A widening conflict would also likely lead to inflation and, as a byproduct, a rise in interest rates around the world, said Bernard Baumohl, chief global economist at The Economic Outlook Group in Princeton, New Jersey.
But while inflation and interest rates in other countries are likely to rise in this worst-case scenario, the U.S. could be the exception as foreign investors pour capital into what they see as a safe haven during a global conflict, Baumohl noted.
“Interest rates could go down,” he said. “Expect the dollar to get stronger.”
Other fuels could also be affected, as seen in recent developments such as Chevron (CVX.N) stopping natural gas exports via a major undersea pipeline between Israel and Egypt.
“The bigger risk to the oil market is that this conflict involves neighboring countries,” said CSIS’s Cahill.
Analysts noted that rising oil prices are unlikely to have a significant impact on U.S. gas prices or consumer spending.
“It is unlikely that consumers will feel any significant impact on gas prices any time soon,” Englund said.
Reporting by Matt Tracy; Edited by Megan Davies and Muralikumar Anantharaman
Our standards: The Trust Principles.
Acquire license rights, opens new tab