Global Market Reaction to Escalating Tensions Between Hamas and Israel

Image commercially licensed from: DepositPhotos

Oil Prices Surge Amid Middle East Conflict

The global financial markets experienced significant fluctuations at the beginning of the week as tensions between Hamas and Israel escalated. This turmoil had a profound impact on various aspects of the market, including oil prices, stock markets, and the Israeli shekel.

Oil Prices React to Middle East Uncertainty

While Israel is not a major oil producer, the unrest in the oil-rich Middle East sent shockwaves through the investment landscape. Investors who had been shedding oil assets in recent weeks found themselves reconsidering their positions. Factors such as inflation, concerns about a potential global economic downturn, and a correction in oil prices that had been surging over the past months contributed to a decline in US oil prices from approximately $95 per barrel in late September to just above $80 per barrel the previous week.

However, on Monday, US oil prices rebounded, surging by 4% to surpass the $86 per barrel mark. Simultaneously, Brent crude, the global benchmark, saw a similar increase of almost 4%, trading at nearly $88 per barrel.

Israel’s Response to the Crisis

Israel formally declared war on Hamas after the militant group launched a deadly surprise assault. The conflict has already claimed the lives of more than 700 people in Israel and over 400 Palestinians, according to official reports. Concerns are mounting that the ongoing retaliatory strikes on Gaza could potentially draw Iran into the conflict, raising questions about the stability of energy flow in the region. Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, expressed these concerns in a note.

Israeli Shekel’s Decline and Central Bank’s Actions

The Israeli shekel faced a significant decline, reaching its weakest level against the US dollar since 2016, with an exchange rate of 3.92 to the dollar. In response, Israel’s central bank announced plans to sell up to $30 billion worth of foreign currencies to stabilize the shekel. Additionally, the bank stated its readiness to provide an additional $15 billion if necessary, all to ensure the proper functioning of the markets during this challenging period.

Impact on Equity Markets and Global Investors

Equity markets, which had initially surged following a strong American job market report, experienced a sharp decline late on Sunday. The Dow futures dropped by 175 points or 0.52%, while S&P 500 and Nasdaq futures were down by 0.7% and 0.8%, respectively. Global investors are apprehensive that the Israel-Hamas conflict could have broader regional implications, potentially disrupting the fragile global economic recovery.

European and Asian Markets React

European stocks also reacted to the news of the conflict, with France’s CAC 40 index down 0.6% and Germany’s DAX index dipping 0.8%. However, London’s FTSE 100 showed resilience, edging up by 0.1% thanks to gains in the shares of oil companies.

In Asia, the initial response among investors was mixed. China’s Shanghai Composite slipped 0.4%, Australia’s S&P/ASX 200 ended 0.2% higher, and Hong Kong’s Hang Seng index ticked up 0.2% after a morning suspension due to a typhoon. Notably, markets in Japan and South Korea were closed for holidays.

Uncertainty Looms Over Markets

As the situation unfolds, market analysts are closely monitoring whether the conflict remains contained or expands to involve other regions, particularly Saudi Arabia. While initial assumptions suggest limited scope, duration, and oil price consequences, higher volatility is expected to persist.