When Hamas attacked Israel on October 7 and it was clear that Israel would respond with full force, it immediately triggered a reaction in the world market.
– Then you could see a reaction primarily to the energy markets. Oil became more expensive, natural gas became more expensive and you could see local effects on Israel’s currency. But prices then fell back, and now it’s part of a general concern.
If countries like Iran were to become directly involved, the world economy could end up in yet another wave of inflation, says SEB’s chief economist Jens Magnusson.
Energy prices
– If Iran is directly involved, you can expect a direct loss of oil production and it is above all the energy prices that would have the immediate effect. The price of oil would go up, but since energy prices are linked, you would see an effect on natural gas and, by extension, electricity prices, says SEB’s chief economist Jens Magnusson.
Inflation
– In the next turn, people would start to worry about what these increased energy prices could lead to. Then there could be downward pressure on the economy, the stock markets and household finances, just like last year when energy prices rose.
– You get direct effects on inflation with rising energy prices for companies and private individuals, and indirect effects when the cost situation for companies rises and they then have to raise prices to the end consumer.
The interest rates
– And if inflation rises, the central banks, the Riksbank in Sweden’s case, need to raise interest rates in order to slow down the economy and reduce corporate and private demand. That is the idea and that is why the central banks have raised interest rates so much.
– So if it were to happen that this Middle Eastern conflict escalates, you get an upward pressure on fuel prices, you risk entering such a process again with rising inflation and interest rates, says Jens Magnusson, and continues:
– But having said that, an escalating Middle Eastern conflict is not our main scenario.
The stock market
Stock markets usually react negatively to uncertainty. Even if there is no major effect on the economy due to the war between Hamas and Israel, it puts a damper on an already tense geopolitical situation.
– Given that we were already in a difficult situation with the war in Ukraine which does not seem to have an end anytime soon, there are tensions between China and the US, there are tensions between North Korea and South Korea and there are a number of parts of the world where it is difficult already. So it’s clear that a flare-up of conflict in the Middle East is not what the world needed.
– But the anxiety is still not at the same level as it was after the attacks of September 11 or when Russia attacked Ukraine but it is definitely much higher than normal levels.