Israel-Iran conflict reignites concerns in global economy

ISTANBUL

The 12-day Israel-Iran armed conflict fueled concerns in the global economy, while its potential impact on commodity prices and the possibility of triggering a new crisis have raised new questions.

Risk perception in the global economy increased with the armed conflict between Israel and Iran, when the former launched missile strikes on June 13 at Iran’s key infrastructure, while Tehran’s retaliation sent shockwaves through the energy markets.

Attacks on Iran’s oil infrastructure disrupted global oil supplies and rumors of the Strait of Hormuz’ closure pushed oil prices upwards.

The narrow waterway connects the Persian Gulf to the Sea of Oman and allows oil and liquefied natural gas (LNG) produced in the Middle East to be transported to world markets.

Analysts say that Brent crude oil may rise to $110-130 per barrel if the Strait of Hormuz is closed, while its closure can also lead to a regional conflict, making price estimates all the more difficult.

The possible closure of the Strait of Hormuz due to such a conflict in the region, may cause a decline in the global gross domestic product (GDP) with 0.8%.

These developments not only affect energy prices but also maritime transport, as heightened military and political tensions around the route drive up insurance costs and freight rates, which add up to additional costs for international trade.

The US economy in particular is expected to be hit with more negative consequences than any country, with a debt of $37 trillion, inflationary pressures, and trade tensions with China and other countries.

Washington’s tariffs and protectionist trade, as well as the rising tensions in the Middle East, pushed up energy prices and reignited fears of inflation and recession. This war could spell stagnation for the US, according to analysts.

Each $10 increase in oil prices is expected to bring up consumer inflation by 0.5%. If Brent crude oil reaches $110-130 per barrel, US inflation could jump to 5.5%, forcing the Fed’s hand to raise interest rates, thereby derailing the country’s fragile economic recovery.

Conflict costs Israel $200M per day

Israel had to face devastating financial and economic costs due to this conflict, which could lead to a collapse in its economy.

It is estimated to spend around $200 million per day and the continuation of the Israel-Iran conflict poses a great threat to the US, Israeli, and global economies -- rising inflation and oil prices, as well as supply disruptions, are just the tip of the iceberg.

Analysts say that Israel’s tensions with Iran cost far more than its brutal war in Gaza, and the costliest burden to the country is the anti-missile systems designed to intercept Iranian airstrikes.

Israel reportedly deployed David’s Sling and Arrow 3 -- systems that run on $700,000 to $4 million each to intercept missiles. Israel also deployed F-35s to strike targets in Iran at 1,000 miles, which costs approximately $10,000 per hour and per aircraft, in addition to munitions like JDAM and MK84.

Israel is estimated to pay around $12 billion in total if the tensions persist for a month.

Reconstruction costs in Israel due to missile attacks are expected to go over $400 million.

*Contributions by Gokhan Ergocun