Strangely, economic commentators have missed the most obvious impact of the tragic Gaza War on the global economy: Oil prices are going to rise, and will go sharply higher if the war widens into a regional conflict. So too will precious metal prices. Perhaps this perception will change now that a serious ground offensive has started.
Higher oil prices will be the death knell for the recent modest rally in global stock markets and the impact of higher energy costs on a weakened world economy would be nasty. This is back to 1973 and the oil embargo years, and the horrendous stock market slump of 1974.
Some might argue that with the S&P down 38 per cent last year, stocks have seen their annus horribilis. But sadly stocks are still over-valued in historic terms and not near to the level required for a stock market bottom. On the Q-formula they still have a 55 per cent downside.
Oil price shock
Rising oil prices are just the kind of shock the global economy and stock markets could do without now as they struggle to rally. There does not seem the political will among Arab leaders for an oil boycott like in 1973 but the popular feeling against Israel’s disproportionate response to rockets fired from Gaza is mounting.
Dubai, Jordan, Syria and Egypt cancelled their New Year’s celebrations as a mark of solidarity with the people of Gaza, although political support for Hamas is another matter.
Regional war threat
The more likely threat to oil prices comes from a widening of the Israeli offensive to include another incursion in to Lebanon to fight a re-armed Hezbollah, although their last attempt in 2006 is widely perceived as having failed in its objectives.
On the other hand, what began as a series of air raids with hundreds of civilian deaths is clearly developing into something more on the lines of the Lebanon War of 2006, and the implications for the oil price this week are obvious.
Gold, silver and the US dollar are likely to gain in value in a flight to safety but this is negative for most other asset classes.