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POSSIBLE ECONOMIC IMPACT OF THE CONFLICT IN THE HOLY LAND




Israel is the 28th largest economy in the world if we take into account the importance of its GDP (gross domestic product). In terms of GDP per capita, it occupies position 15. Israel's human development index is 22, which indicates a “very highly developed” country.

Its debt, compared to its GDP, is relatively low: over 70%.


It is a leading economy in high technology - it is the country that has the 3rd largest number of companies on the NASDAQ, after the US and China.

But its economic importance, more than the brilliant figures of its economy, is given by the possible consequences of the conflicts in which it is involved. The country does not suffer much from the consequences of these conflicts: its army depends on reservists, who form the bulk of its armed forces; As soon as hostilities end, they immediately return to civilian life. This system represents great economic savings for the country in terms of defense spending and represents minimal damage to the country's economy, which is only directly affected by a conflict for the time it lasts. In the last 20 years, Israel has been involved in at least 5 conflicts that have required the mobilization of its armed forces.


The Gaza Strip and the West Bank, on the other hand, represent much more modest figures at all levels.


The consequences that these conflicts can have for the world economy are another matter. To give an example, in the latter, the possibility has been considered that Iran may have collaborated with Hamas in the preparation of the attack, providing weapons and logistical support. Let's imagine for a moment that the conflict spread and reached Iran. The short-term consequences could be:

  1. Combats in the Strait of Hormuz and the Persian Gulf, through which 20% of the world's crude oil circulates. Iran could cut the strait with relative ease.

  2. Iran sponsors Hezbollah, a militia that controls southern Lebanon and has heavy weapons. Fighting Hezbollah could imply the destabilization of Lebanon, a country that is already in a very complicated situation, both economically and institutionally.

  3. Iran and Hamas are allies of the Houthi militias in Yemen. These control a wide strip of coastal territory, close to the Strait of Bab el-Mandeb, which could hinder or close access to the Red Sea, that is, to the Suez Canal, through which 7% of world maritime trade circulates. .

  4. The Syrian regime is a close ally of Iran. He would intervene in his defense in case he was attacked. At this time, the country, after a prolonged civil war, is very weakened; but it has a military force that is not inconsiderable.


In the medium and long term, the situation becomes even more complicated: Iran has very close ties with Russia, and is forging an alliance with China. And, most importantly: any conflict in which Israel is involved rekindles the flame of the Arab-Israeli conflict, which includes not only the discussion about the status of Jerusalem and the occupied territories, or Israel's right to exist, but the primacy in the Middle East, which Saudi Arabia and Iran dispute. While Saudi Arabia seems to be betting on an agreement with Israel, which displeases most Arabs, but which would improve Saudi Arabia's relations with the West and the United States, and reduce tensions in the area, Iran opts for a diametrically opposite policy, which enjoys the sympathies of a large part of the local population.

The Middle East is a very politically unstable area. Although the markets, in the short term, tend to ignore everything that is not of a purely economic nature, it must be remembered that the crisis of the summer of 1914 began in an area that was then defined as a powder keg - the Balkans -, with a event not related to the economy - an attack - and led to the First World War. Although, fortunately, the situation does not seem comparable today, the risk always exists.

As long as the conflict remains localized in the Gaza Strip, even if there are skirmishes in South Lebanon, the world economy will not suffer seriously from the situation. But if the conflict spreads, it could cause global GDP to fall, according to some analysts, between 0.4 and 0.8%; and this calculation does not include the most catastrophic possibilities - such as the closure of the Strait of Hormuz.


The H&B team.


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