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There is a 60% chance that the Israel-Gaza conflict will remain contained, but if it escalates, the impact on the region, including many factors such as energy prices, will be “quite large”, Standard Chartered’s global head of research and chief strategist, Eric Robertsen, said.
Speaking at a media roundtable to give a macroeconomic outlook for 2024 Robertsen said next year will continue to be marked by geopolitical uncertainty, highlighting Israel-Gaza, the Russia-Ukraine conflict, and the elections during the year, starting with Taiwan in January continuing until the USA’s Presidential vote in November.
While the balance of probability is that the conflict will stay contained, there is a 40% chance that it does not, with 25% probability that it will remain within the Levant area, and a 15% that it escalates beyond specific hot spots.
“From there, I think the discussion is really uncomfortable,” he said. “Even if the 15% is a lower number, the impact on the region, the impact on energy supplies, all of these things, is quite large.”
“If we were to see a conflict driven surge in oil prices back to say $100 per barrel, I think most people’s growth forecasts, not only regionally, but globally would probably suffer,” he said.
If trade channels such as the Gulf, Suez Canal and the Straits of Malacca have been impaired, then oil prices could go well above that level, he said.
Volatility is likely to remain high in 2024, he said, as the decline in US interest rates and a slightly more dovish tone in the US bond market and Federal Reserve had been a more important factor than market sentiment in recent weeks.
No end in sight to Ukraine conflict
Regarding the Russia-Ukraine conflict, Robertsen said: “The Republicans, including Donald Trump, have all said that if they come back into the White House at the end of next year, one of the first things they will do is cut off financial support for Ukraine.”
This is likely to mean Russian President Vladimir Putin will not compromise on the conflict but will attempt to wait until aid is cut off, Robertsen continued, describing the likelihood that the conflict will be resolved in the short term as “pretty low”, with continued risk to oil and wheat prices, even if prices come down in the short term.
MENA and GCC
Carla Slim, the bank’s regional economist for the MENA region described oil importing and exporting countries’ relationship with oil prices as ‘asymmetric’ as the oil importers often do not benefit when prices are lower due to debt accumulation.
GCC countries have shown resilience in 2023, she said, adding that the region had been highlighted as a bright spot globally by Standard Chartered researchers, who noted that growth was above the global average and above that of other emerging markets despite a slowdown. She also added that oil prices of $90 per barrel are expected going into 2024.
“We see all the risks. But we think that the GCC growth story was underappreciated since the beginning of the year even now, and we think the market will get it wrong if it goes into 2024 much more bearish.”
She said Israel-Gaza conflict is being framed as the driver of the slowdown in the GCC, but some may argue that a slowdown has nothing to do with the conflict. While sentiment can be seen in local news coverage, with some reports of boycotts, there are stronger drivers that can offset that.
The bank’s forecasts have already been downgraded for Lebanon because it is fragile and driven by tourism.
Zawya reported last month that the UK’s Foreign and Commonwealth Office (FCO) told its citizens to leave Lebanon due to risks from the conflict.
The country has also not benefitted from multilateral support, receiving only $115 million from the International Monetary Fund (IMF) after the 2006 war.
Egypt had already been discussing augmentation of its IMF loan from $3 billion to $5-6 billion prior to the conflict and typically, it is supported by the USA, she said.
(Reporting by Imogen Lillywhite; editing by Seban Scaria)
