Hardly had the world economy started looking up following the Covid pandemic and the war of attrition between Moscow and Kiev losing its tempo than the Hamas-Israel war broke out. While many are more interested in the day-to-day development of the conflict, they are failing to notice the economic implications of this destructive war. Kristalina Georgieva, head of the International Monetary Fund, has issued warning about the possible ramifications of the Hamas-Israel war while speaking at the Future Investment Initiative (FII), often called the 'Davos in the Desert', held at the Saudi capital Riyadh on October 25. She said, 'What is happening in the Middle East is happening at a time when the growth is slow and interest rates are high and cost of servicing debts has gone up because of Covid and war'. Now, if the war in Gaza prolongs, it has the risk of drawing into it the neighbouring countries, especially the Gulf countries, which include the world's leading oil exporters. Most of these countries are sympathetic to the helpless victims of the war, the Palestinians in Gaza, who are dying in thousands every day without food, water, fuel, electricity, medical treatment amid the relentless bombing campaign being carried out by the Israeli airforce. Though the possibility of a repeat of the global oil embargo that 1973's Arab Israeli war witnessed is slim, a spike in the oil price is still possible. However, the economies of the regional countries like Egypt, Jordan and Lebanon have already taken a hit due to the war as their incomes basically come from tourism. As war makes people cautious about spending, investors in the region will wait to see the turn of events before making any fresh commitment. Similarly, sightseers will shelve their plans to travel there until the war shows signs of abating. There is also the fear of a fresh refugee crisis in the neighbouring countries. But unfortunately for the Gazans in particular, so far, they are denied entry to the neighbouring countries that make matters worse. It means immeasurable humanitarian crisis the responsibility for which no country in the region can avoid. Neither can the global community.
However, as about one third of the world's oil supply originates from this region and as there is still no serious efforts from the Western big powers to end the war, the risk of an oil shock remains. This is more so because they (Western powers) are too biased to one side in the war, Israel, to be specific, to act as a potential peace broker. All this can create market uncertainties driven by the fear of any disruption to the oil supply. It is showing up by way of the risk premiums in the oil markets. This is because oil is traded in the futures before any risk of volatility emerges. Speculators expect to use such possibilities to increase their profits. Similarly, businesses dealing in oil try to hedge their bets against any turmoil in the energy market in the future. So, how the energy market will behave depends a lot on the role of the big powers in the conflict and its (the conflict's) potential to suck the entire region into its maw. The consequential rise in energy price will force central banks of different economies to increase interest rates to tame inflation.
In this connection, a recent poll conducted by the international news agency, Reuters, among more than 500 economists has come up with findings that are hardly optimistic for the world economy. Going by the views expressed by the economists so interviewed, the global economic growth will decline and inflation rates will rise in 48 economies of the world.
Meanwhile, the European Central Bank's president, Christine Lagarde has said that even having a discussion on (interest) cut is totally, totally premature. Most economists, according to the survey, believe that the US Federal Reserve is less likely to go for an interest rate cut by mid-year. Many other leading central banks of the world including those of New Zealand, Australia, Indonesia, India and even Japan, for instance, are not interested in lowering interest rates any time soon.
In fact, the recessionary trend in the major global economies still persists. Since energy price is the prime mover of modern-day economies across the globe, the optimism that was being evinced recently by major economies had to do with the relative stability of the energy market. Though some are willing to downplay the possible impact of Hamas-Israel on the global energy market, the reality could be quite different.
In that case, the developing economies like Bangladesh should rather be circumspect in their energy policies with an eye to the situation evolving in the Middle East centring around the war in Gaza.
Bangladesh's economy, at the moment, is precariously positioned with the inflation rate reaching 9.92 per cent and food inflation at 12.54 per cent last August according the Bangladesh Bureau of Statistics. Worse yet, the foreign exchange reserve is constantly depleting (on 25 October, 2023 it was US$20.89 billion). Against this backdrop, any further rise in the prices of Middle Eastern oil and natural gas, on which the country is dependent, can be disastrous for the economy.
The consequences of any war is damaging not only for the economies that are involved in it (the war), but also other nations maintaining business transactions with them. In an interconnected world, the entire globe is impacted by any war anywhere. Bangladesh needs to adopt appropriate policies to tide over any emerging crisis attributable to the ongoing war in the Middle East.
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