I hope that world powers are looking at what the prospect of war in the Middle East is doing to stock market responses, the price of oil, and the rise of interest rates within the framework of a persistent inflation challenge globally.
At the present time, stock markets are taking a fall, from USA to Europe to Japan and China, and bond rates are much higher than expected across USA and Europe.
The Ukraine invasion by Russia raised the prospect of natural gas and related product shortages, threatened a rise in the price of oil, and increased the prospect of a wider war in Europe and raised, frighteningly, the spectre of nuclear escalation by Russia. But, in the long run, the global economic and financial system has not been threatened by this war.
The Hamas’ surprise attack on Israel, which rallied world sentiment to Israel’s side, caused a stir in the world because an Israeli response was inevitable. The comprehensive Israeli response, for a while, raised the prospect of higher energy prices, which never really never materialised.
But the indiscriminate bombing by Israel and consequent widespread suffering of the people of Gaza, created a very divided world and unleashed passionate intensity.
When the Houthis, on the heels of Hezbollah, entered the fray, this brought the UK and US into military conflict with the Houthis, and made the prospect of military alliance between the UK, USA, Europe, and Israel real. The thinking is that terrorists are not just enemies of Israel, they remain a potent threat to the West and to the world system.
Israel’s attack on some of Iran’s high command in Syria, drew out Iran, who is backing Hamas, Hezbollah and the Houthis. Iran’s attack on Israel elicited a coordinated response from Israel, UK, USA and Europe.
The world is waiting now for a retaliatory response from Israel, and worried speculation is in the air about a wider war in the Middle East involving Israel and Iran, two sworn enemies vowed to eliminate each other from existence.
Iran’s attack on Israel was important first, because of the number of locations in the Middle East from which missiles and drones of various types were launched by Iran, but also for the coordinated response from the West which Iran’s attack met. Iran is everywhere, but Israel is not alone.
Now, the world waits for Israel’s next move amidst calls for restraint.
Meanwhile, the price of oil has hit US$90, and equities have begun to sag, commodities are poised to rise and interest rates are moving up.
The temperature of geopolitical tensions, in the midst of the potential for a wider war propelled by Middle Eastern conflict, has been rising as well.
China has been active in the Taiwan Straits and the South China Sea, as they have been in their air space and also ramped up shipbuilding and increased military spending by 14 per cent over 2022 to 2024.
The US has also increased its ocean and airplane presence in the region, and have strengthened military partnerships with Japan, Australia and South Korea, and are flying B52s across the world. China remains aligned with Iran, North Korea and Russia, but is known to be troubled by the Russia/Ukraine war, and very disturbed by the prospect of a Middle East conflagration that can draw the big powers into war. But leader-to-leader talks between China and USA have recently begun, and the bottom line request of Xi Jinping to Joseph Biden is an agreement on “no confrontation, no conflict” until the end of 2024 between China and the USA.
But in general, the prospect of a globe-threatening, wider war, makes the economic and financial system more unstable and volatile. China itself has been living through a real estate crash, and is under serious economic stress as agitation and restlessness grow in that country. A China with low consumer demand, low investments, slower growth and reduced exports, and diminished FDI abroad, could not be good for the world economy.
Of course, when the big countries sneeze, we in Trinidad and Tobago catch a cold. With an economy structured like ours, there is no way that we can be insulated from contagion. On the other hand, war is a hindrance to growing prosperity and, inevitably, for the quality of life for people everywhere. The multi-laterals should take due note in Washington DC this week. The big powers should pause.