This article has been written by Trupti Kokane, pursuing a course on Startup Generalist & Virtual Assistant Training Program from LawSikho and edited by Shashwat Kaushik.
It has been published by Rachit Garg.
Table of Contents
On October 7, 2023, the Hamas group launched approximately 5000 missiles on particular regions of Israel. In response, Israeli forces also launched a counterattack on the Hamas. Many Israelis, along with Palestinian citizens, lost their lives in this attack. The Prime Minister of Israel, Benjamin Netanyahu, declared official war with Hamas. This is another market uncertainty or conflict that has created an impact on the world in terms of the economy and the interrelationships of countries. This article will focus on identifying the impact of the Israel-Palestine War on the global economy. In this article, the global energy market, along with international trade, as well as the financial market and tourism sector, will be considered for analysing the influence of the Israel Palestine War.
The global energy market
In order to understand the impact of the Israel-Palestine war on oil prices, knowledge of the geographical location is essential. Israel is an important country in the Middle East. According to available information, Israel’s relationship with other Middle Eastern countries, including Gulf countries, is continually changing. Gulf countries are the largest producers of oil and petroleum products, upon which the global energy market heavily depends. There is a prediction that Iran and other Gulf countries could become involved in the Israel-Palestine conflict shortly. This situation could have a significant impact on the global energy market. However, neither Israel nor Palestine is a major producer of oil and petroleum products. The recent crisis or war is occurring in the region where the largest oil-producing nations are situated. As a result, investors are closely monitoring the potential conflict that may affect the overall supply chain network of the oil industry.
The Israel-Palestine War could be responsible for a decrease in the monetary value of currencies (except the American Dollar) and market indicators. On the 9th of October, market indicators in various countries decreased due to fear of future uncertainties related to the global financial market. According to The Guardian on October 16, 2023, share prices of the popular oil and gas company Shell increased by 1.5%. Prices of Brent crude also rose by more than 7% because of this sudden conflict.
If, in the future, OPEC countries take an active role in the Israel-Palestine War, it could affect the oil industry. As we know, after the pandemic, the demand for oil and petroleum products has increased. Increasing demand and decreasing supply of oil products could influence prices. Nowadays, people are facing various difficulties due to economic breakdown, inflation, and other economic issues. This conflict could present various challenges to governments in maintaining economic balance.
Impact on international trade
International trade plays a significant role in the economic development of the respective country. Israel Palestine War has created a fear of spreading the conflict across the region, which may negatively affect international trade. For example, in the case of India, Israel is one of the important trade partners of the nation. During the financial year 2022-23, India exported petroleum products worth $5.5 billion to Israel, which is more than 3.5 times compared to the previous financial year. Apart from that, the country also exports metals, precious stones, chemical products and textiles to Israel. India’s largest technology companies also have active operations in Israel. Due to this uncertain conflict, the operations of technology companies can be influenced. During the G20 Summit, India proposed a MoU (Memorandum of Understanding) to develop an economic corridor between India and the US, as well as European countries and Middle East regions. Developing an economic corridor between all these nations would promote international trade and transactions in the future. However, because of internal conflicts between Middle Eastern countries, these projects can be postponed or cancelled. According to the WTO chief, “Currently, the world is already going through weak international trade flows. The opposition to Israel, Hamas, has total control of the Gaza Strip. The chances of spreading the conflict further to other parts of Gaza may have a negative impact on economic growth. It is expected that, in 2024, trade growth will increase by 3.3%. This uncertain situation can create barriers to achieving the forecasted figure.”
Performance of the global financial market
This uncertain event also affected the global financial market. After getting the news of a surprise attack by Hamas on Israel, performance indicators of stock markets decreased on October 9. For example, in the case of India, Nifty50 fell by 0.90% compared to the previous closer rate. Another indicator of the Indian stock market, Sensex, also declined by 0.80 % because of this uncertain event. On the 9th of October, investors lost approximately 4 lakh crores. Investors are now very conscious about developing investment portfolios.
(Source: msn.com, 2023)
From the analysis of the above global stock indices, it can be seen that on the 9th of October, the share prices declined. Israel Hamas war could be the major reason behind this fall. This conflict could create a fear of loss in the market in the future. It is expected that interest rates will increase in the upcoming period, which may influence economic growth. The US Federal Reserve also provides hints regarding increasing interest rates in the future. Foreign institutional investors prefer to sell bonds and other investments in Indian equities because of the Israel Hamas conflict and other market factors. In the current situation, governments of countries, along with central banks and other authorities, are working collaboratively to support the economic situation and reduce the impact of the Israel Hamas conflict in the upcoming period.
Impact on tourism
Conflict between two countries or war creates a huge impact on the tourism sector of that respective region or country. Due to such incidents, the hospitality sector could face lots of challenges. In the case of Israel, the total number of tourists increased after the COVID era. In the current situation, approximately 9000 licenced tour guides are currently present in Israel. Before the war, Israel had more than 2.5 million tourists interested in different regions. Generally, the tourism sector supports the country or region in resolving economic issues and developing the economy. Most people from the USA, France, Germany and the UK prefer to visit Israel. Sightseeing, pilgrimage, solo trips, and group tours are the major purposes for which people are visiting Israel. As per recent statistics, approximately more than 56,000 tourist hotel rooms are available across the nation. Apart from that, popular hospitality companies such as Airbnb have also established guest houses, pod hotels and rental apartments across Israel. Not only the hospitality sector but also the airline sector in Israel is affected by the Israel Hamas conflict. Most countries across the world have issued restrictions to their citizens on visiting Israel. Citizens of Israel would also not be able to visit another country because of this uncertain conflict. Multinational hospitality and tourism companies that are restricted in Israel can face huge losses in the future. This war has also had a negative impact on the neighbouring countries of Israel and the Gulf countries.
Tel Aviv is a popular city where a large number of visitors prefer to visit. However, because of the Israel and Palestine conflict, hotels in the city have been emptied, and six of the largest transportation companies have stopped their services to Tel Aviv. easyJet has started cancelling all transportation packages to Tel Aviv until October 22, 2023. Virgin Atlantic Holidays has also postponed its tourism plans until October 18th or provided a refund to its clients. As per Elias al-Arja, approximately 90% of hotels in the area of the West Bank are currently empty. Dan Hotels is offering 50% discounts to locals. Intrepid Travel, which is an Australian tour operator, has cancelled tours until the end of 2023. Odysseys Unlimited has postponed its Israel trips as well as provided suggestions to its clients to visit Middle Eastern countries such as Egypt and Jordan later. This is how the Israel-Hamas conflict has affected tourism and the hospitality sector.
From the study of the above factors, it can be concluded that the Israel Palestine War could have an impact on the global economy in the upcoming period. World leader countries need to take the initiative to resolve this conflict as soon as possible. The participation of Gulf countries in the war could disrupt the oil supply chain network. This war can also create a negative impact on international trade. Due to this conflict, the establishment of the IMEEC (India-Middle East-Europe Economic Corridor) project may be delayed. The global economy is already facing various challenges, such as inflation, climate change, the impact of the Russia Ukraine war, and other internal conflicts. Israel Palestine conflict can create more challenges for the global economy. The tourism sector is another area that gets infected because of this market uncertainty. Not only Israel’s tourism and hospitality sectors but also global companies that offer tourism services to Israel are affected. The resolution of the Israel Palestine conflict is essential to reducing the loss of the global economy.
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