According to an article by Bloomberg, the global economy would enter into a recession as oil prices skyrocket if Iran were to involve itself in the ongoing Israel-Palestine conflict. Bloomberg Economics analysts have examined the impact on global growth and inflation under three potential scenarios: the conflict remaining largely confined to Israel and the Palestinian territories, the conflict spreading to Lebanon and Syria, and a direct confrontation between Israel and Iran. While all three scenarios would result in a surge in oil prices, higher inflation, and slower global economic growth, a full-scale war between Iran and Israel would cause the greatest damage.
The analysts stated, “The wider the conflict spreads, the more its impact becomes global rather than regional… Conflict in the Middle East can send tremors through the world because the region is a crucial supplier of energy and a key shipping passageway.” In the event of a full-scale war, oil prices could reach $150 per barrel. Global inflation would likely surge to 6.7% from the IMF’s forecast of 5.8% for 2024. Global growth would also be expected to decline by 1% from the current projections, reaching 1.7%. These figures would represent the worst economic performance since 1982 and result in a loss of approximately $1 trillion for the global economy.
Furthermore, the analysts warned that even the spare production capacity in Saudi Arabia and the UAE may not be sufficient to mitigate the impact if Iran decided to close the Strait of Hormuz, a crucial passageway through which one-fifth of the world’s daily oil supplies flow. They also noted that there would likely be a significant risk-off shift in financial markets.
The effects of such a conflict would be felt rapidly, particularly because many countries are still dealing with inflation caused by the West’s sanctions on Russia related to the situation in Ukraine. These sanctions have led to a reorientation of global trade, including oil and gas flows. Another war in an energy-producing region could potentially push the global economy into a recession.
However, Bloomberg noted that a direct conflict between Iran and Israel is still considered a low probability scenario. The recent hostilities between Palestinian militant group Hamas and the Israeli Defense Forces have already caused a surge in global oil prices. Brent crude futures for December delivery closed at $90.8 per barrel, up from around $84 per barrel just a week earlier.
In conclusion, a full-scale war between Iran and Israel in the context of the Israel-Palestine conflict would have severe consequences for the global economy. With oil prices soaring, inflation rising, and global economic growth slowing, a recession would be likely. The importance of the Middle East as an energy supplier and shipping route amplifies the global impact of any conflict in the region. Although the probability of a direct conflict between Iran and Israel is currently considered low, the recent increase in oil prices due to hostilities between Hamas and Israeli forces highlights the potential economic repercussions of continued conflict.