The human cost of the conflict between Palestinians
and Israel are already high,
with thousands of casualties since Hamas's deadly attack
and hostage-taking.
The horrifying scenes raise an alarming prospect:
the possibility of a wider conflict that takes even more lives.
A sharper escalation could rattle a world already struggling
with the war in Ukraine and the emergence from the pandemic.
Higher oil prices,
accelerating inflation and slowing growth will be felt most keenly
in the Middle East, but it will spill over to the rest of the world.
And the possibility of a global recession would disproportionately affect
the most vulnerable.
The October 7th attack
was particularly a shock for Israel because it involved a ground attack.
Hamas attackers entered communities near the border
and more than a thousand people were killed.
It was the worst single day attack in Israel's history.
As Hamas crossed back into Gaza with hostages,
Israel responded with an airstrike that inflicted a heavy death toll.
Now three main scenarios could stem from the turmoil.
The least likely is also the worst case:
a full-scale war between regional powers.
We could imagine a direct conflict between Iran and Israel.
If this escalates into a direct conflict between the two countries,
the implications will be big for the region.
It will be big in terms of human costs,
and it will be huge for the global economy as well.
Iran is believed to fund and support Hamas,
which is designated a terrorist organization by the EU
and the US.
Iran has denied direct involvement,
but it's clear that there has been support for the group in the past.
If there is direct evidence of Iranian involvement in this attack
and it was about to happen, if Israel or other countries
can come up with that direct link,
then it really does tip this conflict into a more dangerous phase
because that would open the possibility of a direct Israel Iran war.
A fifth of the global oil supply comes from this region, in case of a war
there is some buffer that Saudi Arabia and the UAE have in terms
of excess capacity.
But in the case of a direct war between Iran and Israel,
this excess capacity
may not be able to leave the region
because it has to go through the Strait of Hormuz.
So the Strait of Hormuz is a very narrow shipping point
between the Arabian Peninsula and Iran.
Iran effectively has threatened in the past to block shipments
and block the strait, which would completely upend global shipping.
Bloomberg Economics estimates show just how severe an impact
the loss of this vital conduit could have on oil and global trade.
In the case of a direct conflict between Iran and Israel,
oil prices could rise to about $150 per barrel.
That would lift global inflation
to about 6.7% next year.
That will have a significant
impact on global growth.
That would slow it down
by one percentage point
to 1.7%,
the slowest in nearly four decades.
And that will take off about $1 trillion
of global output next year.
That could tip the global economy into recession.
Obviously, the impact of that will be higher inflation
eroding normal people's spending power.
It could mean people being laid off their jobs.
It will mean a real economic crunch
that could ripple through the global economy.
Secondary economic effects are not top of mind
But they risk exacerbating the human toll.
Another possibility is a more limited conflict: a proxy war.
The second scenario would see the conflict widening,
but not too wide, it will see an expansion of the conflict
from just between Israel and Gaza Strip to the wider region, perhaps involving
militant groups in Lebanon and Syria.
Iran has several groups, which is close to in the region.
Hezbollah in Lebanon, the militant group, is already being drawn
into the conflict between Israel and Hamas.
There are also militia in Iraq and Iran backed groups
in Syria, which could be drawn in gradually.
And there's also the Houthi group in Yemen, which is backed by Iran.
So a proxy war would lift oil prices.
The question is by how much?
So we looked at historical experience.
We looked at what happened
during the 2006 Lebanon war,
and oil prices did rise by
about $5 during that conflict.
Oil prices would rise maybe to the mid-nineties.
That, again, would lift inflation
higher next year.
And that will impact global growth.
That would slow global growth by 0.3 percentage points.
And that would take it to the lowest
growth rate since the early 1990s,
excluding the global financial crisis and the pandemic year.
So the final scenario, which is probably
the most likely one, is a conflict that is confined to the Gaza Strip
and Israel, where we’re already having a large human toll.
Scenario would be similar, but a larger scale to what happened in 2014
when there was a war in the Gaza Strip.
2000 people died then.
But the impact on the global economy was limited.
Obviously, the impact on the regional economies in Gaza was devastating,
but the global economy barely noticed that
despite the high human toll.
I think the economic spillover
and the human impacts are quite closely linked
because the more that this spreads and the more casualties
that come from the conflict, the bigger also the economic impact.
So the global economy is already coming out of many recent shocks
from the pandemic to the war in Ukraine,
to rising interest rates to high inflation to slowing Chinese growth.
The global economy is already slowing and inflation
is just coming down right now.
Interest rate is already high.
You add the conflict in the Middle East on top of this
and that will exacerbate all these problems.
Here in Tel Aviv, hopes of a more stable Middle East are in tatters.
And as a human catastrophe morphs
into a geopolitical crisis,
the shockwaves will reverberate globally.