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Iran-Israel conflict to affect global economy anew

Published : Sunday, 21 April, 2024 at 12:00 AM  Count : 904

Iran-Israel conflict to affect global economy anew

Iran-Israel conflict to affect global economy anew

Not long ago, the world faced the pandemic and the Russia-Ukraine crisis. Now, the tension between Iran and Israel has escalated without a resolution in sight. The ongoing conflict between these two nuclear-powered countries in the Middle East has reached a critical point. Recently, Iran launched an attack on Israel in response to an assault on the Iranian consulate in Syria. In retaliation, Israel struck back in Iran, sparking further uncertainty. Neither Iran nor Israel has provided clear information about the perpetrators of these attacks.

The pressing question arises: if this cycle of attack and retaliation escalates into a sustained conflict, what will be the repercussions on the world economy? Particularly concerning are the economies of Third World nations heavily reliant on exports to European countries and with significant GDP contributions from Middle Eastern labourers.

Primarily, the conflict between Iran and Israel threatens to exacerbate global inflation. The energy sector, in particular, stands vulnerable, with oil prices poised to skyrocket. The parallels with the Russia-Ukraine conflict are stark. Russias aggression in Ukraine led to a slight but noticeable increase in global oil prices, triggering a ripple effect across the energy market, indicating how fragile the situation could become.

Even within the context of the Gaza conflict, the situation in the Middle East has seen further complications. Iran-backed Yemeni Houthi rebels initiated attacks on commercial vessels in the Suez Canal late last year, causing a significant decline in shipping activity through this crucial waterway. According to the United Nations Conference on Trade and Development (UNCTAD), transit through the Suez Canal plummeted by 42 percent within just two months, as ships diverted their routes around South Africas Cape of Good Hope instead of risking the Red Sea passage.

Iran-Israel conflict to affect global economy anew

Iran-Israel conflict to affect global economy anew

The crux of the matter lies in the potential for escalation. If the conflict persist or intensify, Tehran may resort to using the Strait of Hormuz as a strategic tool for retaliation. Approximately one-fourth of global maritime oil trade passes through this narrow passage. Any disruption in the Strait of Hormuz would effectively strangle the global oil market. While alternative routes for oil supply do exist, they are both time-consuming and costly. Furthermore, Western nations have limited options for bypassing the Strait of Hormuz. Should supply through this critical route be disrupted, the price of oil per barrel could surge to as high as $120 to $130.

In times of crisis, people often seek to safeguard their assets, gravitating towards tangible investments like land and gold. Consequently, if the Iran-Israel conflict escalates, its anticipated that the allure of gold as a safe haven may see a surge, reflecting the heightened uncertainty in the global economy.

However, the aftermath of the conflict could also bring economic challenges, particularly for countries like Bangladesh, heavily reliant on exports to the United States and other European nations. Given the close alliance between these Western countries and Israel, any direct involvement by the United States or its allies in the Iran-Israel conflict could pose a significant threat to the economies of nations like Bangladesh.

Although the US has stated a reluctance to directly engage with Israel in the event of an attack on Iran, historical precedents suggest otherwise. In past conflicts in the Middle East involving Israel, the United States has provided staunch support. Even in the ongoing Palestinian conflict, the US has been a vocal supporter of Israel.

If the United States or other Western nations become entangled in the Iran-Israel crisis, it would cast a shadow of uncertainty over international trade dynamics. Consequently, countries dependent on exports to these nations may face reluctance from importers, exacerbating economic instability and hindering trade flows. This uncertainty could dampen economic growth and disrupt supply chains, posing significant challenges for nations like Bangladesh and others reliant on exports to Western markets.

Export dependence extends beyond Western countries and can be exemplified by Bangladeshs efforts to diversify its garment sector exports to Middle Eastern markets, particularly the UAE, with subsequent re-exportation to Russian Federation countries. However, the prolonged Israel-Iran conflict could jeopardize this burgeoning market in the Middle East.

The impact of the conflict aren confined to trade alone but extend to the travel and tourism sector as well. For instance, in the wake of Iranian attacks on Israel, several Middle Eastern countries, including Jordan, Lebanon, Iran, and Israel, temporarily closed their airspace. Although the airspace was eventually reopened with certain restrictions, the conflict threatens to disrupt air traffic in the region. Many airlines are contemplating alternative routes to avoid conflict zones, necessitating higher fuel costs and potentially increasing air travel expenses for passengers.

Moreover, similar disruptions could be observed in maritime shipping routes. The conflict may lead to heightened security measures and navigational restrictions in key waterways, impacting shipping operations and potentially driving up costs. These disruptions across both air and sea transport could have far-reaching consequences for global trade and commerce, exacerbating economic uncertainties in an already volatile geopolitical landscape.

Ultimately, if this conflict continues and draws in other developing countries, its uncertain how the world economy will respond. Doubts persist about whether the global economy can endure another major war. However, its clear that the economies of third-world countries will be significantly weakened.

The writer is a student, Department of Peace and Conflict Studies, University of Dhaka

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