Israel-Hamas conflict threatens to reignite rise in food and fuel prices

New Delhi, Nov 4

Fears that Israel’s expanding military operations in Gaza could escalate into a regional conflict are clouding the global economy’s outlook, threatening to dampen growth and reignite a rise in energy and food prices.

Rich and poor nations were just beginning to catch their breath after a three-year string of economic shocks that included the Covid-19 pandemic and Russia’s invasion of Ukraine, The New York Times reported.

Stinging inflation has been dropping, oil prices have stabilized and predicted recessions have been avoided.

Now, some leading international financial institutions and private investors warn that the fragile recovery could turn bad, The New York Times reported.

“This is the first time that we’ve had two energy shocks at the same time,” said Indermit Gill, chief economist at the World Bank, referring to the impact of the wars in Ukraine and the Middle East on oil and gas prices.

Those price increases not only chip away at the buying power of families and companies but also push up the cost of food production, adding to high levels of food insecurity, particularly in developing countries like Egypt, Pakistan and Sri Lanka, The New York Times reported.

As it is, nations are already struggling with unusually high levels of debt, limp private investment and the slowest recovery in trade in five decades, making it tougher for them to grow their way out of the crisis.

Higher interest rates, the result of central bank efforts to tame inflation, have made it more difficult for governments and private companies to get access to credit and stave off default, the report said.

“All of these things are happening all at the same time,” Gill said. “We are in one of the most fragile junctures for the world economy.”

Gill’s assessment echoes those of other analysts. Jamie Dimon, the chief executive of JPMorgan Chase, said last month that “this may be the most dangerous time the world has seen in decades”, and described the conflict in Gaza as “the highest and most important thing for the Western world”, The New York Times reported.

Gregory Daco, chief economist at EY-Parthenon, said a worst-case scenario in which the war broadened could cause oil prices to spike to $150 a barrel, from about $85 currently.

“The global economic consequences of this scenario are severe,” he warned, citing a mild recession, a plunge in stock prices and a loss of $2 trillion for the global economy.

The prevailing mood now is uncertainty, which is weighing on investment decisions and could discourage businesses from expanding into emerging markets. Borrowing costs have soared, and companies in several countries, from Brazil to China, are expected to have trouble refinancing their debt, The New York Times reported.

At the same time, emerging markets like Egypt, Nigeria and Hungary have experienced some of the worst scarring from the pandemic, according to Oxford Economics, a consulting firm, resulting in lower growth than had been projected.

Since the October 7 Hamas attack, all sectors in Israel, including construction, tech, agriculture and textiles, have been affected by labour shortages, Le Monde reported.

On Tel Aviv's waterfront, the luxury Mandarin Oriental hotel's construction site is at a standstill. Cranes and scaffolding are deserted. Nearly 80 percent of all projects under construction in Israel seem to have been frozen, the report said.

With the Hamas-led terrorist attacks dragging down the consumer activity of a traumatised society, a third of restaurants in major cities have not reopened, due to a lack of employees and sometimes even customers.

Thousands of volunteers are now arriving from towns in the countryside to make up for the lack of workers to pick up the fruit that is now in season. WhatsApp groups have sprung up to send volunteers to hospitals and supermarkets, but it's hard to tell if this surge of solidarity will last, Le Monde reported.

Above all, the high-tech companies of which the country is so proud have seen their workforce of "geeks" and skilled executives melt by 10-15 per cent, with nearly 360,000 reservists being mobilised by the army, equivalent to 10 per cent of the working population.

#