With the Russian invasion of ukraine starting in february 2022, the world economy is still struggling, and now the Israel-Hamas conflict has added another layer of difficulty. After a surprise attack on key Israeli population centers on october 7, Hamas, the militant nationalist group in charge of Gaza, began retaliatory attacks. Up to this point, the fighting has killed almost 6,000 lives. israel intends to intensify its attack by invading the Gaza Strip on foot, which would inevitably result in more deaths, devastation, and global problems.
There was no denying the tangible effects of the Russia-Ukraine war on a world economy already reeling from the COVID-19 pandemic's devastation. A global food crisis, inflation, and high energy costs have resulted from the conflict, which involves russia, a key energy producer, and ukraine, a significant agricultural producer. The economies of the developed and emerging worlds are both expanding significantly more slowly than anticipated.
The international Monetary Fund (IMF) predicts that, far below the historical average of 3.8 percent, global growth will decrease from 3.5 percent in 2022 to 3 percent in 2023 and 2.9 percent in 2024. "Economic activity has slowed but not stalled despite war-damaged energy and food markets and unprecedented monetary tightening to combat decades-high inflation," the IMF study stated. Nevertheless, divergences are growing wider and development is still unequal and sluggish.
However, the impact of the Israel-Hamas war was not included in the assessment, which was released in early October. After the Russian invasion of ukraine, global inflation spiked to 9.2%, but in 2023 it dropped to 5.9% as interest rates were hiked by central banks worldwide to curb excessive prices. The IMF predicted that inflation would be 4.8% in 2024, but given the tensions in West Asia, that might alter. Additionally, india may suffer greatly as a result.
The Global Repercussion
According to analyst Ajit Ranade, "geopolitics is becoming a significant factor affecting the outlook for the economy and financial markets for the past four to five years," citing the Israeli-Hamas conflict, the Brexit disturbances, the US-China spat, and the Russian invasion of Ukraine. According to him, "the war increases the uncertainty and anxiety across the globe." Analysts believe there might be significant interruptions and a slowdown if the battle grows to the point where other nations, particularly iran, become involved.
Three scenarios are examined in a Bloomberg economics report to determine the likely effects on inflation and global growth. First, there won't be much of an impact on growth, inflation, or oil prices if the conflict is mostly contained to israel and the Palestinian areas of Gaza and the West Bank. (On october 21, Brent crude prices were trading at $92.16, or about Rs 7,650, a barrel.)
Second, oil prices may increase by $8 (about Rs. 665) per barrel, inflation by 0.2 percentage points, and growth would decrease by 0.3 points in the event of a multi-front conflict in Gaza, the West Bank, Syria, and Lebanon, as well as turmoil in larger West Asia.
Third, a direct conflict between iran and israel as well as instability in West Asia may cause oil prices to increase by an extra $64 (about Rs 5,315) per barrel, to over $150 (about Rs 12,460) per barrel. Meanwhile, GDP growth may decline by one point and inflation may increase by 1.2 percent. professor Biswajit Dhar of jawaharlal nehru University in delhi claims that the timing of the conflict couldn't have been worse for the world economy. The global economy is already slowing down, and in the next months, the US economy may begin to collapse. There may be a big effect.
Crude oil Prices: According to Dhar, there are several connections between the indian and global economies. The administration may attempt to shield itself from the rising oil costs in the near future due to the approaching elections. However, it will negatively impact government expenditure, he clarifies. india has managed the problem of rising oil prices after russia invaded ukraine very well by looking for cheaper Russian crude. Although neither israel nor Gaza are big oil producers in this case, the conflict may have an impact on West Asia, which is home to saudi arabia and Iran.
In 2022, iran produced 3.7 million barrels per day, while saudi arabia produced 12.4 million, making it the third-largest crude oil exporter to india, behind only russia and Iraq. Furthermore, one of the world's most strategically important "choke points" is the Strait of Hormuz, which connects the gulf of oman with the Persian Gulf. Through it, a third of the world's liquefied natural gas and a quarter of the world's oil for consumption are sent. The availability and pricing of oil and gas will be directly impacted by any obstruction to traffic over the strait.