main economic concerns after attack on Israel

The next steps in the intensification of the conflict in the Middle East will be decisive in terms of its impact on the global economic scenario.

Analysts interviewed by People’s Gazette They highlight, firstly, the humanitarian catastrophe triggered by the attacks carried out by the terrorist group Hamas on Israel, on Saturday (7), and the country’s consequent reaction.

The assessment is that the clash occurs amid an unfavorable scenario for the world economy. There are inflationary pressures in some of the main global economies, such as the United States, the United Kingdom and the Euro Zone, which is requiring interest rates to be maintained at high levels.

“The fear of higher prices is worrying,” says partner and variable income specialist at Davos Investimentos, Marcelo Boragini.

Two issues to be assessed, according to experts, are the duration of the conflict and whether it will spread to the Middle East. “If it’s restricted to the region, that’s one thing. If other countries are involved, such as Iran, the situation changes completely and becomes more dangerous and complex for the world”, adds the chief strategist at brokerage Avenue, William Castro Alves.

Oil is the main source of concern at the moment

One of the biggest concerns at the moment is the price of oil. The expansion of the conflict could take it to a level close to US$100. At 4 pm on Monday, a Brent barrel was traded at US$88.17, an increase of 4.24% compared to the previous session.

This scenario includes an eventual participation of Iran in the conflict. The country is a traditional ally and financier of Hamas, which seeks the destruction of Israel, and an important oil producer.

According to the North American newspaper “Wall Street Journal”, Iran would have helped in planning the terrorist operation and authorized the attack at a meeting in Beirut, capital of Lebanon, on Friday (6).

The escalation of the conflict could lead to sanctions and less oil supply in the world, which is already affected by the partial embargo on Russia and the problems faced by Venezuela, which has one of the world’s largest reserves, but has difficulties in increasing its production. The war between Hamas and Israel also coincides with the 50th anniversary of the 1973 oil crisis.

“We are talking about a region that traditionally has a warlike profile and, to make matters worse, there is the Strait of Hormuz, which separates the United Arab Emirates from Iran, through which a fifth of global oil passes. If the situation worsens, we could experience great stress in the oil market, with implications for the global economy”, says Órama’s chief economist, Alexandre Espírito Santo.

Another important issue will be the positioning of Arab countries in relation to the conflict. Israel was at a time of rapprochement with this group, establishing diplomatic relations with Bahrain and the United Arab Emirates. Negotiations to improve relations with Saudi Arabia were ongoing.

More uncertainties for the Brazilian economy

The international geopolitical issue adds more uncertainty in relation to the Brazilian economy. Despite the expectation of growth close to 3% and inflation of around 5% in 2023, there are many concerns about meeting the fiscal targets for 2024.

One of the possible impacts for Brazil if the crisis worsens, according to the chief economist at Suno Research, Gustavo Sung, would be a reduction in the flow of capital to Brazil.

“In times of stress, like this, there is a flight by investors towards more reliable assets, such as gold and US Treasury bonds”, he says. A possible capital flight would push up the value of the dollar, with the likely effect of increasing inflation here.

Another aggravating factor, according to Castro Alves, from Avenue, is that a stronger rise in oil prices tends to take away traction from the world economy – which would affect, for example, commodity sales.

“This is bad for producing countries, like Brazil”, he says. Lower growth in the world economy means that the demand for basic inputs and raw materials is lower.

The Brazilian government’s reaction

The Minister of Finance, Fernando Haddad, said this Monday that the government will not take immediate measures in relation to a spike in the price of oil on the international market. “The worst thing that can happen is that you make hasty decisions that could put a policy at risk. Let’s see how he [o conflito] unfolds.”

The president of Petrobras, Jean Paul Prates, stated that the state-owned company will use “Brazilian factors” to keep fuel prices “more or less stable”. The statements were made during a meeting of the Norway-Brazil Chamber of Commerce, in Rio de Janeiro.