Monthly House View - November - Download here

Against the backdrop of the ongoing war in Ukraine, the attacks in Israel by Hamas on 7 October – 50 years after the start of the Yom Kippur War – came as a surprise to the Israeli government. In an increasingly divided world, this new war was the final nail in the coffin of the Oslo Accords, signed 30 years ago with the aim of ushering in a new era of peace between Israel and Palestine.  

This attack also occurred on President Vladimir Putin’s birthday, who will likely want to use this conflict to exert influence in the geopolitical arena. In fact, by strengthening the western front, this war is accelerating polarisation and putting the international community’s focus on Ukraine on the back burner.
This new conflict potentially puts the Abraham Accords in jeopardy, just as Israel and Saudi  Arabia were nearing a peace treaty signalling a new configuration of the Middle East. Furthermore, the Americans have always had trouble managing several external conflicts simultaneously. With next year’s presidential election ramping up in the United States, the situation in Congress has been complicated by the historic removal of Kevin McCarthy, the Republican speaker of the House of Representatives. Although a shutdown has been averted in the short term, aid for Ukraine has technically been suspended. In addition to the 43.9 billion dollars in US aid since the start of the conflict in Ukraine (i.e. 4% of the defence budget), the White House says 60 billion dollars is still needed to support the country. 

The most recent survey available shows the extent to which Americans are increasingly divided on aid to Ukraine. This reluctance is particularly salient among Republican voters, with more than 60% questioning the expenditures already made since the start of the conflict. In this context, Israel can now be expected to take priority. 
What will be the impact on the market? 

Historically, in times of geopolitical tension, investors tend to turn to safe havens such as gold, the yen, the Swiss franc and the highest-rated government bonds. Indeed, this trend became evident soon after the attack, most prominently with gold. Conflicts in the Middle East generally cause volatility and put pressure on energy prices because the region is not only a significant exporter of energy but also the site of strategic sea passages, including the Strait of Hormuz. The market is expected to stay focused on energy risk. Oil and gas prices could remain under pressure and show volatility as we enter the winter months. Risks to global growth could materialise if Israel enters into direct conflict with Iran, bringing the price of a barrel of oil to well above 100 dollars. Such an extension of the war is not our scenario.

To learn more about our analyses, I encourage you to read this issue which looks specifically at the impacts of this crisis on oil prices and at our economy’s reduced dependence on black gold.

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_{Monthly House View, 20/10/2023 - Excerpt of the Editorial}