If the Mideast war is prolonged or becomes regional, the world’s food and fuel costs could rise once again, extinguishing the global post-COVID recovery and halting economic expansion, several major economists have warned.
“This is the first time we’ve had two energy shocks at the same time,” World Bank chief economist Indermit Gill said to The Wall Street Journal, pointing to wars in Ukraine and Gaza.
The risk is especially acute for emerging nations including Egypt, Pakistan, and Sri Lanka, the WSJ noted.
Many are crippled by massive debt that piled up during the COVID War, which was followed by relentless inflation, higher interest rates, and a sluggish global economy that needed much less from economies dependent on exporting raw materials.
Sub-Saharan Africa’s GDP already was projected to pucker by 3.3 percent this year even before the Israel-Hamas war broke out, according to the World Bank’s latest Global Economic Prospects report. Incomes in the region have not grown meaningfully since 2014’s oil price crash.
Geopolitical tensions between the U.S. and China and those resulting from Russia’s war in Ukraine also have damaged trade and cut prospects for not only growth, but also economic stability.
“All of these things are happening at the same time,” Gill added. “We are in one of the most fragile junctures for the world economy.”
Not all nations will suffer equally, the WSJ noted.
“It isn’t clear at this point that the conflict in the Middle East is on track to have significant economic effects” on the U.S., Federal Reserve chair Jerome Powell told a 1 November press briefing.
Mideast countries supply about 31 percent of the world’s oil, a smaller share than in the 1970s when twin oil embargoes imposed by the region paralyzed the global economy. However, Gulf countries provide China with about half of that country’s oil.
The U.S. is currently the world’s largest energy producer and renewable energies make up the fastest-growing portion of the energy sector in industrialized and post-industrial economies.
Still, “it’s a highly volatile, uncertain, scary situation,” Jason Bordoff, director of Columbia University’s Center on Global Energy Policy, said in a WSJ interview. However, “there is a recognition among most of the parties—the U.S., Europe, Iran, the other [Persian] gulf countries—that it’s in no one’s interest for this conflict to expand beyond Israel and Gaza.”
If the war does grow across the region, oil prices could zoom to $150 a barrel, more than a 60-percent increase from their current levels, and cause a global recession, costing the world’s economy as much as $2 trillion, Gregory Daco, EY-Parthenon’s chief economist, has projected.
The climate of uncertainty already is halting businesses from expanding in emerging nations, where many companies are finding it hard to refinance their existing debt at today’s much higher interest rates, the WSJ reported.
At the same time, Egypt, Hungary, Nigeria, and other nations are showing growth rates lower than had been projected before the new Mideast conflict.
The combined pressures of economic hardship and the Mideast war also could send more migrants north to Europe, where a recession looms and immigration has been a political flashpoint for years. The migrant influx was a key factor in right-wing prime minister Giorgia Meloni’s recent election victory in Italy.
“What happens in the Middle East will not stay in the Middle East,” World Bank official Ayhan Kose said in comments quoted by the WSJ. “It will have global implications.”
TREND FORECAST: Please see the ECONOMIC UPDATE in this issue for our trend forecast. Again, WWIII has begun and the Israel War has greatly escalated it. Should it continue to spread, the world will be on the cusp of nuclear annihilation.