The ongoing Israel-Hamas conflict in the Middle East has sent shockwaves through global trade, oil markets, and high-tech industries. With the region being a significant player in the global oil market, the conflict’s impact on energy supplies has sent oil prices surging, while the technology sector in Israel faces disruptions. Moreover, the ramifications are being closely monitored by the international communities including the World Trade Organisation (WTO).
Conflict’s Impact on Global Trade
The Israel-Hamas conflict has raised concerns about its potential to disrupt global trade. The WTO’s chief, Ngozi Okonjo-Iweala, expressed her hope for a swift resolution, warning that a wider conflict in the region could have a profound impact on already fragile global trade flows.
The conflict in the Middle East adds to the list of factors throttling global trade growth, including higher interest rates, challenges in the Chinese property market, and Russia’s ongoing war in Ukraine. Okonjo-Iweala noted that the uncertainty surrounding the conflict could hinder global economic growth, as it creates significant uncertainty in the international trade landscape.
The World Trade Organisation recently revised its growth forecast for global goods trade this year. Merchandise trade volumes are now expected to increase by just 0.8% in 2023, down from the April estimate of 1.7%. For 2024, the forecast remains relatively unchanged at 3.3%, indicating the potential for recovery in the coming years.
The organisation remains cautious about signs of trade fragmentation related to global tensions but does not see evidence of broader de-globalisation that could threaten its 2024 forecast.
Maersk, a Danish shipping and logistics company said, “At this time, Israel’s major ports continue to function normally, including our key terminals in Ashdod and Haifa. Likewise, inland services – both road and rail – are fully operational in and around the country. Bookings will therefore continue to be accepted to and from Israel, and cargo already booked to and from the country will be facilitated.”
The company said that Tel Aviv Airport remains open and operational, and a number of their partner airlines are continuing to use the hub. Some carriers have cancelled flights to and from Tel Aviv in the wake of the ongoing situation, and they will reach out to affected air freight customers directly to discuss options for their cargo.
Oil Markets on Edge
The Middle East has long been a pivotal region in global energy markets, with substantial oil reserves and production capacity. Any instability in the region has the potential to disrupt energy supplies, leading to price fluctuations in worldwide energy markets.
As a result, the Israel-Hamas conflict has led to a surge in global oil prices. Brent futures rose USD 2.88 to USD 88.88 per barrel as of 1050 GMT. US West Texas Intermediate (WTI) crude gained $2.91 to USD 85.82 a barrel. Both benchmarks had earlier risen more than USD 3.These price hikes are a direct response to concerns about the conflict’s impact on energy production in the Middle East.
OPEC’s Response and Key Considerations
The Organisation of Petroleum Exporting Countries (OPEC) is closely monitored for its response to the Israel-Hamas conflict. OPEC’s actions will depend on several factors, including the intensity and duration of the conflict, its effects on oil production and logistics, and global demand during this period.
The potential for a ground invasion by Israel into the Gaza Strip and an extended conflict presents varying scenarios. If the conflict remains localised without affecting major oil producers or transit routes, oil prices may see limited immediate changes, prompting OPEC to maintain current production levels.
However, if regional instability occurs without a direct impact on major oil sources or routes, speculative shifts in the oil market could lead OPEC to consider production increases for price stability. The situation would become even more complex if the conflict spreads to other countries or affects crucial passages like the Strait of Hormuz, requiring OPEC to increase production or cooperate with non-OPEC oil producers to maintain market stability.
The conflict’s involvement of Hezbollah or Iran could further complicate matters, potentially leading to stricter US sanctions on Iranian oil exports. Currently, Iran is the fourth largest oil exporter in the world. How these geopolitical developments unfold will have a profound impact on OPEC’s interventions and, consequently, global oil markets.
The Russia Factor
The response to the Israel-Hamas conflict differs from OPEC’s reaction to the Russia-Ukraine war. While OPEC aims for non-political oil strategies and collaboration with Russia, the Israel-Hamas conflict lacks the involvement of major oil-producing nations or critical routes, unlike the Russia-Ukraine war.
In contrast, the Russia-Ukraine war prompted OPEC to gradually increase oil production by 400,000 barrels per day for the month of April, reflecting Russia’s pivotal position in global oil markets. Whether the surge in oil prices will influence Saudi Arabia’s plans to unwind its production cuts remains uncertain. Talks between Saudi Arabia and Russia during the Russian Energy Week conference provided no clear statements regarding oil production.
India’s Response and Energy Security
India, heavily reliant on the Middle East for over 60% of its oil needs, has long recognised the associated energy security risks. To mitigate the risks, India has strategically diversified its oil imports by seeking alternatives from regions like Africa, Latin America, and North America.
During the Russia-Ukraine conflict, India seized the opportunity to secure substantial oil import discounts from Russia. Despite surging global crude oil prices, India remains committed to importing oil from Russia, which increased by 80% in the month of September. Import of Crude Oil to India from Saudi Arabia fell by 36%, whereas, Russia contributes 38% to the total crude import to India.
The impact of the Israel-Hamas conflict on India’s crude oil import plans hinges on several factors, including the conflict’s escalation to involve OPEC nations, especially Saudi Arabia. Such a scenario could lead to a severe crisis, characterised by higher oil prices, and inflation. To navigate these challenges, India must carefully monitor global market trends and geopolitical developments. Diversifying oil sources is a prudent strategy for India, driven by considerations such as global oil prices, geopolitical developments, and the nation’s economic stability.
Threat of Tech Firms’ Exodus from Israel
The high-tech sector has been a rapid growth engine for Israel’s economy. As the Israel-Hamas conflict intensifies, global technology companies based in Israel are contemplating relocating their business operations to India or other regions like the Middle East or Eastern Europe to ensure business continuity.
Israel hosts over 500 global companies, including tech giants like Microsoft, Intel, and Google. Indian firms, such as Wipro and TCS, also have a substantial presence in the country, employing over 100,000 people.
Tarun Pathak, Research Director, Counterpoint Technology said, “I think there is likely to be some kind of diversification in the near term. However, we don’t see a long term pull out of operations by tech companies as they have deep-rooted local talent over there, especially in the security and software sector. However, any company looking to expand globally will see India as a preferred destination that is growing fast and has an abundance of talent especially in the software space.”
The Israel-Hamas conflict has far-reaching implications, from its impact on global trade and oil markets to the potential exodus of high-tech firms from Israel. As the world watches closely, India’s strategic response to energy security and diversification remains a crucial consideration in the face of evolving geopolitical dynamics.