The human cost of the war is already immense. Both Israelis and Palestinians are caught, and the situation will undoubtedly deteriorate before it improves.
There is also an impact on the workforce and on businesses that rely on workers in Israel and Gaza. Israeli businesses are now focused on the conflict, and Reuters reports that disruptions in operations are likely.
Companies in the travel industry, including airlines and cruise lines, anticipate difficult fourth quarters because of the war and tech companies already report “pauses in spending from a large number of primary brand-oriented advertising campaigns.”
That situation will worsen if the conflict continues or expands. Israel has already announced plans to call up 300,000 reservists, many of whom will come from US-based businesses, and the country is already seeing an influx of Israeli’s returning to help the war effort.
The Middle East is home to some of the busiest shipping routes in the world, including the Suez Canal, the Red Sea, the Persian Gulf and the Strait of Hormuz.
Approximately 1.27 billion tons of cargo go through the Suez Canal every year, and 90 percent of Iran’s oil exports go through the Strait of Hormuz.
Any disruption to shipping lanes in the Middle East would directly impact the United States. According to the US Trade Representative, the US imports $84.9 billion from the Middle East, and exports approximately $71.8 billion to the Middle East annually. The US exports $31.8 billion in services to the Middle East and imports $23.5 billion in services annually from the Middle East. Leading services exports from the U.S. to the Middle East were in the financial services, travel, and transportation sectors.
Probably the most obvious impact of conflict in the Middle East is the price of oil. Some pundits note that Washington’s decision to remove Venezuela from the sanctions list is also a move to diversify American reliance on Middle Eastern oil. However, the global economy currently has no way to replace all Middle Eastern oil, and an intensifying conflict will result in higher oil prices.
US Defense Secretary Lloyd Austin warned last week that the US is “concerned” the war between Israel and Hamas could expand to a broader conflict throughout the Middle East. Syria, Lebanon and Egypt have already experienced some skirmishes.
The biggest risk in terms of oil is an expansion that involves direct conflict between Israel and Iran. If that happens, the US has warned oil could reach $150 per barrel.
And oil is critical not only for making gasoline, but also for making a multitude of other products. Ranken Energy explains that while oil is important for making gasoline – and that increases in prices of gas will raise transportation and manufacturing costs – it is also used to make a large number of other products. Petroleum products are used in everything from cosmetics to pharmaceuticals, from golf balls to sports cars. It is even used to make clothing.
All of these, and more, will be impacted by higher oil prices.
The Israel-Hamas war will also impact global finance.
The stock market will face increased volatility because of uncertainty. Higher oil prices could cause a global economic downturn, triggering layoffs and higher consumer prices.
Analysts are warning that an expanded war could significantly undermine the global economy, and it could push the US into a true recession.
Interest rates will likely rise, putting more pressure on American consumers and on any businesses that depend on financing.
Geopolitics & Alliances
The other wild card as the conflict unfolds is how it will impact newly-warmed relations between Arab countries and Israel. Saudi Arabia started normalization talks in March, but halted them with the start of the conflict.
Any decision by Arab countries to side with Hamas would further erode the geopolitical situation and cause additional pressure on international businesses.
Outside of Israel and Gaza, there is also an increased threat of terrorist attacks and instability by supporters of both sides and by opportunists looking to make gains while the international community is distracted with the Middle Eastern tensions and the war in Ukraine.
The companies that come out of the crisis unscathed will likely be those nimble businesses already making contingency plans. Diversification of supply chains, customers, and transportation networks is critical to surviving even in crisis.
Companies that specialize in security and intelligence will have immediate opportunity, while those focused on reconstruction and development are poised to make gains after the end of the conflict.
The hardest hit companies will be those that are not prepared.
As Maya Angelou said, hope for the best, prepare for the worst, and you will be unsurprised by anything in between.