The ongoing conflict between Iran and Israel has significant implications for global trade and the economy. Here are some key developments and potential consequences:
Conflict Escalation
- The conflict began with Israeli drone strikes on private residential buildings and public offices in Tehran, resulting in the assassination of top Iranian military commanders and nuclear scientists.
- Iran retaliated with drone and missile strikes against targets in Israel, exposing vulnerabilities in Israel's missile defense systems.
- Both nations have gradually escalated their attacks, targeting civilian and economic infrastructure ¹.
Global Trade Impact
- *Oil Prices*: Expect elevated and volatile prices due to persistent geopolitical risk premium and concerns about potential supply disruptions.
- *Inflation*: Sustained upward pressure on global inflation, complicating central bank efforts to control prices.
- *Supply Chains*: Increased shipping insurance premiums and minor rerouting of commercial vessels due to perceived risks in certain waterways ².
Strait of Hormuz
- The strait is a critical waterway for global oil shipments, with roughly 20 million barrels per day of oil and oil products passing through it.
- Iran has threatened to close the strait, which could lead to a significant spike in oil prices and disrupt global trade.
- However, experts believe that Iran is unlikely to block the strait completely, as it would impact their own economy and invite international pressure ³ ⁴.
Economic Consequences
- *India's Exports*: India's exports to Europe and countries like Russia may be impacted due to increased freight rates and uncertainties.
- *Global Recession*: A prolonged conflict could lead to a severe global recession or even a depression, driven by soaring energy prices, rampant inflation, and collapsing supply chains ⁵ ².
Current Situation
- The conflict is ongoing, with both sides engaging in tit-for-tat attacks.
- Diplomatic efforts are underway to prevent further escalation, but the situation remains volatile ¹.
