• Current conflict has the potential to disrupt world economy and, in a worst-case scenario, push it into recession

Robert Bociaga

TUNIS: The escalation of violence between Israel and Hamas has sparked concerns about its potential impact on the world economy. As the international community watches this tragic spectacle unfold, the question arises: Could this be the pivotal moment when the “Global South” asserts itself as a formidable geo-economic force?

The UN General Assembly vote on Oct. 26 showed a divided international community. The US found itself in a small minority, aligning with Israel against the motion. The EU, often seen as a staunch US ally, exhibited a scattered stance. Meanwhile, most developing countries favored a ceasefire, except India, which leaned toward Israel with an abstention.

History suggests that even when the US faces criticism for its foreign policy decisions, it does not necessarily hinder its ability to engage in global trade or negotiations. The aftermath of George W. Bush’s Iraq war in 2003 saw a decline in global opinion of the US, yet it did not isolate the country economically.

Moreover, the US has displayed resilience in launching and participating in major trade agreements despite geopolitical controversies. The Trans-Pacific Partnership in 2008, which included nations leaning economically toward China, and the ongoing negotiations in the Indo-Pacific Economic Framework this week underscore the US commitment to its trade engagements.

The global economy is still recovering from the pandemic’s economic shock, and the true costs are only now becoming evident.

Ryan O’Grady, CEO of KI Africa

Nevertheless, experts warn that the current conflict has the potential to disrupt the world economy and, in a worst-case scenario, push it into recession. If Israel’s army were to engage with militias in Lebanon and Syria that support Hamas, the conflict could spill over into a regional war.

Such an escalation could lead to a spike in oil prices, with estimates suggesting they could soar to $150 a barrel, significantly impacting global growth. The interconnectedness of the global economy means that disruptions in the Middle East can send shockwaves throughout the world, affecting inflation, economic stability, and even geopolitical relationships.

In the midst of the ongoing conflict in Gaza, the international community faces an uncertain economic future. As the situation unfolds, the world anxiously awaits a resolution that could potentially bring stability and prosperity to the region and beyond.

The recent annual meetings of the International Monetary Fund and the World Bank in Marrakech occurred against the grim backdrop of escalating conflict between Israel and Hamas in Gaza. Originally convened to address critical challenges in development finance, the persistent war in the Middle East has cast a pervasive shadow of uncertainty over the global economic landscape.

IMF Managing Director Kristalina Georgieva warned that the war was “darkening the horizon” for an already weakened global economy. Concerns about potential disruptions in oil supply and their impact on the global economy were raised, particularly as the International Energy Agency closely monitors the situation.

Against the backdrop of the IMF’s cautious growth projections, which maintain a 3 percent forecast for the current year but signal a dip to 2.9 percent in 2024, indicating the fragile state of the global economy, the realm of global oil prices witnessed significant turbulence.

Initially responding to the conflict with a surge, these prices reflected the heightened uncertainties introduced by geopolitical tensions. However, subsequent stabilization brought relief, as limited disruptions in oil supply alleviated concerns.

Adding a nuanced layer to the economic landscape, Said Skounti, a Morocco-based researcher at the IMAL Initiative for Climate and Development, shared his insights on the aftermath of the IMF meetings. Despite the initial optimism and aspirations for transformative changes in international finance throughout the year, Skounti’s observations highlight that the meetings concluded without conclusively addressing key challenges.

This perspective from Skounti provides a critical lens through which to understand the gaps between expectations and outcomes in the realm of global financial deliberations.

Our focus should pivot away from allocating funds to projects of marginal impact on both the population and the environment.

Abderrahim Ksiri, Moroccan policy expert

“Member states of the IMF agreed to increase contributions and grant Africa a third seat on the executive board, a move seen as a step toward better governance. However, the distribution of quotas determining voting power saw no change, underscoring the persistent challenges in achieving equitable representation,” Skounti told Arab News. Also, away from the concluded Zambia debt restructuring agreement, “calls for larger-scale debt cancellation, advocated by NGOs and African leaders, received limited attention,” he added.

In regions like the Middle East and Africa, where abundant investment opportunities beckon across various sectors, building resilient partnerships becomes imperative for businesses to thrive amid global uncertainties. However, against the backdrop of these challenges, the intended focus of the IMF and World Bank Meetings in Marrakech aimed to address critical challenges in development finance.

The Gaza conflict casts a pall over these economic discussions. As the world witnesses the ongoing violence in the Middle East, the global economy remains on edge, shrouded in uncertainty about the future. The implications for businesses, the looming potential for wider regional conflict, and the overarching economic consequences all hang delicately in the balance.

“The global economy is still recovering from the pandemic’s economic shock, and the true costs are only now becoming evident. Simultaneously, multiple wars are unfolding, impacting crucial aspects such as the cost of food and fuel,” remarked Ryan O’Grady, the CEO of KI Africa, an investment firm, to Arab News. In advocating for a focus on supporting the stability of supply chains, ensuring long-term and affordable loans, and fostering collaboration on regional integration, O’Grady emphasizes the necessity of navigating these challenges to foster a resilient global economic environment.

Amid these complexities, the IMF and World Bank actively seek to enhance collaboration with the private sector. They offer investment guarantees and mechanisms to mitigate risks associated with investments in African markets. This proactive approach is anticipated to reduce the cost of capital, rendering projects more competitive and cost-effective in the pursuit of economic stability.

Fears have also grown that oil prices may influence the willingness of richer countries to assist climate-ravaged nations, potentially slowing down the transition away from hydrocarbon production. At the same time, the ongoing Gaza crisis, marked by the devastating impacts on water infrastructure, mass displacement, and the heightened susceptibility of Palestinians to climate change, provides an avenue for amplifying voices emphasizing the imperative of safeguarding vulnerable communities across the world, particularly in the context of environmental ramifications.

“Our focus should pivot away from allocating funds to projects of marginal impact on both the population and the environment,” Abderrahim Ksiri, a Moroccan policy expert, told Arab News.

“Comprehensive consideration of climate-related factors in the financing of development projects across various industries is essential for addressing the challenges posed by climate change and ensuring a sustainable future,” he added.