Soheir El Sherbiny‏‏

On the evening of 13 April 2024, Iran launched a wide-scale attack on Israel, using a barrage of drones and missiles, in response to an Israeli airstrike on the Iranian consulate in Syria that killed several Iranian leaders. This is the first time that Iran has directly targeted Israel. This escalation follows six months of near daily exchanges of fire between Israeli and Hezbollah forces in Lebanon. Other Iranian proxies in Iraq, Syria, and Yemen have launched missiles and drones against Israel amid Israel’s war in Gaza. In this vein, questions abound regarding the economic cost of the escalation between Israel and Iran.Direct RepercussionsIran’s attack on Israel has resulted in a number of direct economic repercussions, clearly affecting several regional economies, and has had broad implications for the global economy, including the following:1.&nbsp;Decline in global markets following Iranian attack on Israel: Global financial markets experienced pressure in the wake of the Iranian attack on Israel. While the Israeli stock market recorded modest losses following the Iranian attack, the TA-35 index, which tracks the 35 largest stocks on the Tel Aviv Stock Exchange, fell 0.5%. Meanwhile, on 12 April, the Dow Jones index recorded its largest weekly loss since March of 2023, due to fears of an impending Iranian retaliation. Over the course of a week, the Dow Jones index went down 2.4%, the S&amp;P 500 lost 1.6%, and the NASDAQ fell 0.5%.US stock futures in Asia rose on Monday, 15 April, after the S&amp;P 500 suffered its worst session since January this past Friday. While Asian stocks declined on 15 April, stock indices in Japan, South Korea, and Australia also fell, along with stock futures in Hong Kong, due to the tensions in the Middle East. 2.&nbsp;Temporary rise in Brent crude futures: Amid the backdrop of Iranian threats over its intention to attack Israel, Brent crude futures rose 71 cents, to USD 90.45 per barrel, on 12 April, with prices in the previous week nearing their highest level in six months. This drove up the price of West Texas Intermediate crude to USD 87.67, its highest level on the same day, before it fell, ending the week with a loss of 1.4%.On Monday, 15 April, the price of oil dropped significantly when the Asian markets opened. Brent crude futures dropped 24 cents, to USD 90.21 per barrel, while West Texas Intermediate crude futures fell to USD 85.28 per barrel, indicating a temporary rise in futures prices for both Brent and West Texas Intermediate crude as a result of Iran’s attack on Israel.3.&nbsp;Some major airlines suspend their flights: Following Iran’s attack on Israel, major airlines throughout the Middle East announced the suspension of some of their flights, and they were also forced to change the path of some flights when some countries, including Lebanon, Iraq, and Jordan, temporarily closed their airspace. The German airline Lufthansa suspended its flights to and from Tel Aviv, Amman in Jordan, and Irbil in Iraqi Kurdistan, until Monday, 15 April, while on Sunday, 14 April, Austrian Airlines also suspended its flights to Jordan, Israel, and northern Iraq until 15 April, along with Swiss International Air Lines, which announced this past Sunday that it was suspending its flights to and from Tel Aviv until further notice.4.&nbsp;Rise in gold prices: As a result of the mounting anxiety hanging over investors as the weekend approached, last Friday 12 April, investors flocked to gold, driven by the urgent demand for a safe haven, until the price hit over USD 2,400 per ounce, a new record high.5.&nbsp;Cryptocurrency price stability after major sell-off: Cryptocurrency made some gains on 14 April, the day after a sell-off following the Iranian attacks on Israel. Bitcoin stabilized at USD 64,771, after falling by 7% to just over USD 61,000 on 13 April. Nevertheless, prices remain much lower than the USD 71,000 they were at on 12 April.Possible RepercussionsIf tensions between Israel and Iran enter new cycles of escalation—for example, if the Iranian attack on Israel results in an even tougher Israeli counter-reaction, or if Iran raises the levels of escalation against Israel—then several potential economic repercussions can be expected, such as:1.&nbsp;Potential disruption of flights in a number of regional countries: If the severity of tensions between Iran and Israel escalates, such that it threatens the airspace of Arab countries, this may prompt new disruption in flights to and from those countries, which are likely to resort to closing their airspace, as Iraq and Syria did following the attack. This may result in huge losses for major airlines in several Arab countries if flights to those countries are stopped for longer periods.2.&nbsp;Expectations of further increases in oil prices: Negative investor sentiment may worsen, which could push the price of crude oil to over USD 100 per barrel. According to some analysts, oil prices are expected to rise on 15 April, against the backdrop of Iran’s attack on Israel. Moreover, intensifying American pressure and sanctions against Iran will result in a decrease in Iranian oil exports, meaning a further rise in oil prices. 3.&nbsp;Potential implications for maritime shipping: Among the other repercussions that must be monitored in this regard is maritime shipping, which is expected to be severely impacted if tensions between Israel and Iran escalate further. Any effect on shipping through the Strait of Hormuz, through which about a fifth of the total volume of global oil consumption passes daily, may disrupt maritime shipping, with repercussions not only for regional economies, but possibly extending to include global economies due to the damage to global shipping.4.&nbsp;Worsening of Israel’s economic crises: An exacerbation of the conflict between Iran and Israel may result in several negative consequences for the Israeli economy. Any disruption of shipping is likely to have a greater impact on Israel because the Iranian Revolutionary Guard may detain more Israeli ships, just as it seized an Israeli-affiliated container ship in the Strait of Hormuz, headed toward Iranian waters, on 13 April.5.&nbsp;Possible increases in precious metal prices: If Israel further escalates or Iran launches another round of attacks, markets are likely to become risk averse, thus pushing up the value of precious metals, safe-haven currencies, and crude oil, while risky assets will see heavy sell-offs.6.&nbsp;Expected fluctuations in global financial markets: The escalating tensions between Iran and Israel are expected to create fluctuations in global markets. Investors are closely monitoring the situation amid growing fears of a full-blown war. The state of uncertainty surrounding the complex geopolitical landscape is likely to increase traders’ risk aversion, as investors seek to reduce their exposure to various geopolitical risks.All in all, the Iranian attack on Israel has led to a number of direct economic repercussions that have affected not only the economies of the Middle East but have also threatened global maritime shipping and, thus, global commerce. The Iranian escalation has prompted declining stock-market performance in the Middle East and an increase in crude oil and gold prices. Given that traders prefer safe havens at times of geopolitical tensions and that several airlines have suspended their flights, the renewed conflict between Iran and Israel and the entrance into a cycle of violence could result in further disruption in maritime shipping and, thus, harm the stability of the global economy. Furthermore, major airline flights in the region may be halted, which may result in huge economic losses for the airlines and many other economic repercussions with regional and global impact.

What Are the Repercussions of Iran’s Attacks Against Israel on the Global Economy?