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Different economic calculations according to the Hamas-Israel conflict… We must respond differently from the oil shock of the 1970s.

On October 7, Hamas’ large-scale attack on Israel shocked the world. Not only was Hamas’ surprise attack itself something that no one expected, but the scale of the simultaneous attacks and the resulting casualties were at a different level than before. Israel, which was in a state of severe division due to political conflict over the judiciary, declared all-out war. The situation is developing complexly, with countries around the world either supporting Israel or Hamas or urging restraint from both sides depending on their interests.

Black smoke is rising from the Gaza Strip due to an Israeli airstrike on October 9 (local time), the third day of fighting between the Palestinian armed faction Hamas and Israel. ⓒYonhap News

Crude oil prices rise 5% due to conflict in the Middle East

Crude oil prices are currently on the rise due to large-scale conflicts occurring in the Middle East. The price of crude oil, which had fallen to $81.5 per barrel before the outbreak of the conflict, has risen more than 5% in the futures market, and this trend is also affecting related products such as natural gas and refined oil. As geopolitical uncertainty spreads, the preference for safe assets expands, the dollar is strengthening, and gold prices are also moving from a downward trend to an upward trend. The world economy has once again fallen into recession and fears of inflation. As tensions in the Middle East increase, energy prices, including crude oil, may rise, which may weaken the central bank’s efforts to control inflation. If additional interest rates are raised to control inflation, it is highly likely that the economies of many regions, including Europe, which are already in a recession, will worsen further, resulting in a global economic downturn.

The economic fallout from Hamas’ attacks will likely depend on whether the conflict spreads to other parts of the Middle East. Looking back at past geopolitical crises in the Middle East, the occurrence of a crisis generally led to a rise in oil prices and a decline in stock prices in major countries. The economic impact of this crisis will depend on future developments. If it ends with Israel’s retaliation for the Hamas attack, it may end up having a short-term impact. As long as the scope of the problem is limited to Palestine and Israel, the impact on the world economy and international financial markets will not be particularly negative.

The biggest concern in the short term is crude oil prices. Due to Saudi Arabia’s supply reduction, the depletion of the United States’ strategic oil reserves, and stronger-than-expected U.S. indicators, oil prices are in a precarious situation that could exceed $100 per barrel at any time. If sanctions against Iran, which is accused of being behind Hamas, are strengthened, oil prices could surge. As sanctions have been eased, production has been increased by 500,000 barrels per day, but if this is stopped, oil prices will rise by at least $5. According to Goldman Sachs estimates, oil prices will rise by more than $1 for every 100,000 barrels per day that Iran’s production decreases.

However, while the surge in crude oil prices has a positive effect on oil-producing countries, including Saudi Arabia, in the short term, it also has a disadvantage on oil-producing countries in the mid- to long-term because the continued economic slowdown and recession leads to a decrease in crude oil demand and a subsequent decline in crude oil prices. Considering the current economic cycle and already slowing global demand, even if crude oil prices rise in the short term, it is unlikely to continue in the long term. If necessary, Saudi Arabia is expected to increase production and supply more crude oil to the market to stabilize prices and maintain dominance. As a result, unless the conflict between Israel and Hamas expands to other countries, it is unlikely that a third oil shock and global economic recession will occur.

The biggest variable in these predictions is Iran. Many media outlets around the world, including the Wall Street Journal (WSJ), are continuing to report that Iran is behind this attack and has been carefully planning the attack in cooperation with Hamas for several months. If this turns out to be true and Israel takes direct retaliation against Iran, the situation in the Middle East will enter an uncontrollable phase, and the price of crude oil is likely to skyrocket due to anxiety surrounding the supply of crude oil. A surge in crude oil prices may act as a factor in increasing crude oil production in the United States and other non-Middle Eastern regions. However, since related investments have declined due to negative perceptions of fossil fuels, the possibility that it will take a long time to actually expand supply cannot be ruled out.

Above all, the armed conflict between Iran and Israel is not only a large-scale event that shakes the order of the entire Middle East, but can also have a significant impact on the world economy through the blockade of the Strait of Hormuz, which is controlled by Iran. Considering that recent talks are underway to normalize relations between Saudi Arabia and Israel, including the establishment of diplomatic relations, one cannot shake the impression that the timing of this dispute was cleverly planned.

Hamas’ surprise attack on Israel caused international oil prices to surge by about 5%. The photo shows a gas station in downtown Seoul ⓒYonhap News

Oil prices are likely to change depending on the truth of the Iran conspiracy theory.

In the case of the stock market, this situation is bound to have a negative impact in terms of rebalancing the prices of risky assets. There is a possibility that weakening investor sentiment will continue for longer, which is bound to have a negative impact on the stock market. The interest in the asset market is focused on bonds and exchange rates. If the tension continues, the preference for safe assets is bound to increase. In this process, there is also the prospect that the weakening preference for long-term US bonds will recover, which will have the effect of stabilizing overall interest rates. In the case of exchange rates, as preference for the dollar increases, there is a possibility that the dollar’s strength and emerging market currencies’ weakness will repeat similar to the end of last year. In this case, rapid exchange rate fluctuations may occur, and in order to control this, interest rates may rise strongly, especially in emerging countries.

When a large-scale geopolitical event occurred, most individual investors chose to reduce their investments. However, it is also necessary to keep in mind that there are attractive investment targets such as oil stocks, defense stocks, and government bonds that can be expected to increase and gain. This is because the investment market operates according to its own logic, independent of macro economic changes. A slowdown in the U.S. economy due to an interest rate hike may eventually lead to a decrease in demand for oil, so if you effectively control your investment in oil and government bonds with this in mind, you may be able to expect unexpected results.

Two oil shocks in the 1970s dealt a major blow to the global economy, and the resulting nightmare of stagflation continues to this day. However, looking back after 50 years, we can see that the central bank’s incorrect response at the time, along with the simple decline in oil supply, prolonged the problem. In this respect, it can be said that now is a time when we need to observe the situation and respond calmly, rather than a reflexive response that predicts that the past will repeat itself.

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2023-10-15 01:05:00
#economy #shaken #Hamas #attacks.. #Oil #defense #stocks #pay #attention #government #bond #market #최준영의 #경제 #바로읽기