ISRAEL-PALESTINE WAR AND GLOBAL ECONOMY
WHY IN NEWS ?
- Recent Israel’s declaration of war following its bombardment by the militant Gaza-based group Hamas is jolting global markets.
MORE ABOUT THE NEWS :
- Higher prices for oil and gold, a stronger U.S. dollar and the decline of airline stocks have been some of the immediate financial effects of this conflict.
- A major channel of impact on the global economy would be via oil prices which have already risen near to $90 level.
- Further escalation of the conflict towards other Middle Eastern nations which are key oil producers poses a bigger threat.
IMPACT ON OIL MARKET:
- Brent crude rose 3.44% to $87.49 a barrel, while US West Texas Intermediate crude rallied 3.85% to $85.98 a barrel.
- However, the crisis is unlikely to pose any major immediate threat to the oil supply unless it further spreads to other countries in the region which could develop into a more devastating proxy war, embroiling the US and Iran.
- Iran joining the fray can affect the sea routes and push up transport and insurance costs.
- Higher crude will distort our balance of trade and CAD thus putting pressure on the rupee.
IMPACT ON EQUITY MARKETS:
- Stock markets, especially in countries with close ties to the warring nations or those heavily dependent on oil imports, can experience volatility.
- For instance, the Indian stock market showed resilience post the recent tensions, but specific sectors with exposure to the Middle East faced pressure.
- Investors remain cautious and watchful of the global events with risk-off sentiment grappling the market.
- The US stock futures declined while the Asian markets traded lower on Monday. Safe-haven gold prices rose over 1%.
- Spot gold jumped 1.2% to $1,853.79 per ounce, while the US gold futures climbed 1.2% to $1,867.80.
IMPACT ON INDIA ISRAEL TRADE:
- As India’s exports to Israel, primarily petroleum products, account for 1.8% of India’s total merchandise exports.
- If the conflict escalates, it could create supply-side problems.
- The conflict could lead to rupee depreciation, necessitating action from the Reserve Bank of India (RBI).
- On the other hand, India imports machinery, pearls, diamonds and other precious and semi-precious stones from Israel.
- In FY23, India’s imports from Israel were at $2.3 billion.
SYLLABUS: PRELIMS, ECONOMY
