As the new round of the Israeli-Palestinian conflict continues to escalate, its derivative impact on the economy is gradually becoming apparent. There have been significant fluctuations in international oil prices recently, with the price of gold as a safe haven asset rising. The Middle East stock market has plummeted at one point, while US energy and military stocks have surged. The future trend of the Israeli-Palestinian conflict will directly determine its impact on global asset prices and the US economy.
How does the Israeli-Palestinian conflict affect global asset prices?
The impact of the Israeli-Palestinian conflict on international commodity prices, especially oil prices, should be said to have received a relatively clear response in the market. At present, the conflict between Palestine and Israel should continue for a period of time, which may drive fluctuations in energy prices throughout the international market. As for whether this fluctuation is persistent, it is necessary to observe the future development of the Israeli-Palestinian conflict. If the scope of the conflict is controlled, the impact is relatively limited.
If the conflict between Palestine and Israel expands, it may affect major oil producing countries in the Middle East such as Saudi Arabia, which will bring upward pressure to international oil prices. As oil prices rise, natural gas prices are bound to rise as well. If the situation is well controlled, this impact will not be sustainable.
In addition to having an impact on international energy prices, the turbulence caused by conflicts can also affect the international financial market and increase risk aversion in the market. In this situation, the global prices of risky assets will fall, especially in the stock market. On the contrary, it is clearly advantageous for currencies or assets with hedging attributes, including international safe haven currencies such as the US dollar and gold. The longer the conflict lasts, the longer and greater the impact on energy and international asset prices.
What is the impact on the US economy?
After the outbreak of the conflict, domestic investment banks in the United States are very concerned that it will increase inflationary pressure in the United States and even bring about the risk of recession. We can see that although inflation in the United States has eased somewhat, it is still high. The latest data released by the US Department of Labor shows that the US Consumer Price Index (CPI) rose 3.7% year-on-year in September, unchanged from August and higher than the expected 3.6%; The month on month increase was 0.4%, lower than the previous month's 0.6%, but higher than the expected 0.3%. After excluding volatile food and energy prices, the core CPI in September increased by 4.1% year-on-year, lower than the previous 4.3%; The month on month increase was 0.3%, unchanged from the previous value.
From it, it can be seen that the core inflation rate in the United States is higher than the inflation rate, indicating that the easing of inflation is mainly caused by the decline in crude oil and food prices. If energy prices such as oil prices rise, the inflationary pressure in the United States will increase, and the probability of further interest rate hikes in the United States will increase.
As is well known, in response to the pressure of high inflation, the United States has initiated a radical interest rate hike of 525 basis points since 2022. If interest rates are raised on the basis of current rates, it will be under pressure on both the US and global financial markets. Previously, the US financial market had experienced a bank explosion due to interest rate hikes. If interest rate hikes continue, there may be some new explosive events. The global foreign exchange market may also experience turbulence as a result, and some emerging economies may experience capital outflows due to risk aversion. The turbulence in financial markets is clearly not conducive to the recovery of the world economy.
In short, although the Palestinian-Israeli conflict is a localized conflict, it still has an impact on the global economy because it occurs in major energy producing regions around the world. If the conflict is well controlled and the time is short, the relative risk is relatively low. The reverse is also true.
Of course, we need to believe that the resilience of the global economy is still relatively strong. After the outbreak of the Ukrainian crisis that year, international energy prices also experienced a period of sharp rise. After Europe cut off from Russia and found new energy alternative suppliers, energy prices have been somewhat alleviated, including a significant decrease in European natural gas prices. But the problem this time is that the Ukrainian crisis has not yet been resolved. If there are any more problems in the Middle East, the difficulty of energy substitution in Europe will significantly increase, and the combination of the two sides may lead to a new energy crisis. However, in terms of local conflicts alone, the impact of the Israeli-Palestinian conflict on the world economy should be weaker than that of the Ukrainian crisis.