Why is Israel-Palestine Conflict?4 Key Factors the war Affecting Global Economic

Why is Israel-Palestine Conflict _ 4 Key Factors the war Affecting Global Economy

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Israel-Palestine Conflict Reason

The outbreak of the Israel-Palestine conflict stemmed from a series of violent incidents a year ago. Due to continuous expansion of Israeli settlements, severe clashes erupted between Palestinians and Israelis at the Al-Aqsa Mosque and Jenin, resulting in the deaths of nearly 250 Palestinians and 32 Israelis. 

Hamas capitalized on this event as a pretext to attack Israel, calling for more people to join the fight to “expel the occupiers and dismantle the separation barrier.”

On October 7, 2023, during the Remembrance Festival in Israel’s border area, the Islamic extremist group Hamas in the Gaza Strip launched over 5,000 rockets at Israel within 20 minutes. They also sent troops to raid Israeli residential areas, resulting in the deaths of 1,400 Israelis and the kidnapping of at least 200 hostages. Israel termed this event as the “Israeli version of Pearl Harbor” or “Israel’s 9/11,” calling it the darkest day for the Jewish people since the Nazi Holocaust.

In an effort to rescue hostages, Israeli Prime Minister Benjamin Netanyahu responded by declaring war and vowed “strong retaliation” against “terrorism.” On the 8th, they launched Operation “Iron Sword,” airstrikes on the Gaza Strip, resulting in at least 3,000 casualties, and mobilized 400,000 troops to enter the Gaza Strip for war.

Israel-Palestine Conflict

Gaza Strip; Source: Ta Kung Pao

Israel-Palestine Relations

However, the grievances between the two countries can be traced back 3,000 years, when “Jerusalem” was a holy land contested by multiple religions: Islam, Christianity, and Judaism. At that time, Jews already lived in Jerusalem but were expelled due to defeat, leading to their diaspora around the world.

Due to long-term oppression and discrimination against Jews in Europe, there arose a desire to return to their original land. The place they wanted to return to establish a nation is the present-day Palestinian territory. From 1920 to 1948, Palestine was under British rule, and due to British support for Jewish statehood, a large number of Jews were allowed to immigrate and acquire Palestinian land. In 1948, when British mandate ended and they left Palestine, Jews immediately declared the establishment of the state of Israel.

Palestinians were dissatisfied with their land being occupied and, together with other Arab countries, attacked Israel. This Middle East war eventually ended with Israel’s victory, occupying 80% of the original Palestinian land, with the remaining 20% divided into the “West Bank” and “Gaza Strip.”

Later, Israel aimed to establish a state predominantly for Jews and resorted to many radical means to force Palestinians away. For example, they developed “Jewish settlements,” acquired large amounts of Palestinian land, restricting Palestinian economic activities further. They even built a 600-kilometer wall in the West Bank to prevent Palestinians from entering, gradually pushing Palestinians to lean more towards supporting radical organizations (such as Hamas) rather than Israel, thereby rupturing relations.
Israel-Palestine Conflict-Israel occupied 80% of the original Palestinian land.

▲Israel occupied 80% of the original Palestinian land. Source: Ta Kung Pao

Reference Article: Israeli-Palestinian Conflict | Global Conflict Tracker

Reference Video: The Israel-Palestine conflict: a brief, simple history

Impact of Israel-Palestine War on Economy

(1) Disruption of Middle East Trade

The Israel-Palestine region is a crucial hub for East-West trade, connecting Asia, Europe, and Africa via land and sea routes. Continued escalation of the Israel-Palestine conflict may lead to restrictions and delays in trade in the Middle East region. If the situation worsens, port closures and disruptions in cross-border trade may further impact global supply chains.

(2) Rise in Oil Prices

The Israel-Palestine region is one of the world’s vital energy transport routes, connected to numerous oil and gas-producing countries, supplying oil and natural gas worldwide through pipelines and shipping routes.

If geopolitical tensions escalate, it’s possible for oil prices to rise above $100 per barrel, but such levels may not be sustained for long due to the adverse effects on oil demand. Unless the conflict escalates into an Iran-Israel war, prompting Arab countries to impose an oil embargo, crude oil prices could soar to $150 per barrel. However, currently, oil pipelines are under the control of the United States and the United Nations, so a tragedy like the 1973 oil price surge is unlikely to occur.

Reference Video: Israel-Hamas war: Impact on oil prices

Reference Article: The Israel and Gaza war: Economic repercussions

(3) Inevitable Inflation

If oil prices continue to rise, there is a higher likelihood of the United States raising interest rates by the end of 2023. It may also lead to a significant amount of capital moving towards US Treasury bonds due to conflict, causing a drop in bond yields, reducing the probability of the US raising interest rates by the end of the year.

However, if, unfortunately, the United States cannot contain the Middle East situation, there is a high possibility that it will force the United States and Europe to withdraw support for Ukraine. This would necessitate an expansion of US fiscal spending, leading to price increases, further global demand downturn, and possibly resulting in stagflation in the global economy.

以巴戰爭通膨Israel-Palestine Conflict

(4) Financial Market Turmoil

Continued escalation of the Israel-Palestine conflict triggers concerns and panic among investors, leading to stock market declines and capital outflows. In recent days, there has been a surge in demand for safe-haven assets, with funds pouring into crude oil, gold, and the US dollar, with gold prices currently rising to $1940.

Due to the uncertainty in financial markets and risk aversion behavior, there will likely be fluctuations in global stock markets and reduced investment activities.

Impact of Israel-Palestine Conflict on Small Enterprises

Currently, the Israel-Palestine conflict is generally considered a regional conflict, unlike a full-scale Russia-Ukraine war. Although it involves Iran, Saudi Arabia, and other Arab countries, neither side is a major raw material-producing nation. Israel neither produces oil nor has major commodity exports, so the current impact is limited.

According to Tsai Meina, Director of the Department of Statistics at the Ministry of Finance: “Based on export data statistics, Taiwan’s exports to Israel amounted to approximately US$1.12 billion in 2022, accounting for 0.2% of Taiwan’s total exports. The main products are electronic components and ICT products; imports from Israel amounted to US$2.15 billion, accounting for 0.5% of total imports, mainly precision instruments and mineral products. Regarding Palestine, Taiwan’s exports to Palestine in 2022 were US$5.2 million, with zero imports.”

Minister of Economic Affairs Wang Meihua also pointed out: “Taiwan’s cooperation with Israel mostly involves investment by Taiwanese companies in Israeli companies, mainly in high-tech and biotech fields. Exports to Israel are mainly electronic products and semiconductors, with a small proportion, so the impact is limited.”

The Taiwan Machinery Association analysis also mentioned: “Taiwan’s exports of machinery equipment to Israel were only $129 million last year, ranking 29th in Taiwan’s machinery export market, accounting for only 0.4% of total machinery exports. The impact on Taiwan’s machinery exports is minimal.”


▲Taiwan’s export of machinery to Israel is not substantial.

Although the above reports seem to indicate minimal impact, it is still necessary to monitor whether the geopolitical conflict in the Middle East intensifies. Since the Middle East region is one of the important markets for Taiwan’s machinery equipment, especially Turkey, if the conflict continues to escalate, Taiwanese exports to Turkey will undoubtedly be affected.

Reference Articles: 

How can enterprises protect themselves in the Israel-Palestine Conflict?

It is believed that some Taiwanese companies cooperating with Israel and Palestine should already feel the instability of the Middle East market orders. To be on the safe side, regardless of exporting trade with Israel, Palestine, or other Arab countries, it is advisable to use T/T and EX-Works Taiwan as trading conditions. Also, it is essential for customers to insure the goods for another protection during sensitive periods

Small and medium-sized enterprises also need to maintain keen market insights, observe the situation, and consider the possible “new business opportunities” under the influence of war. It is crucial to advance the layout of other market opportunities, such as Europe, America, and ASEAN markets, so as not to lose a significant amount of business when Middle Eastern orders decrease in the future.

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