On October 6th, the day before Hamas militants went berserk even by their medieval standards, the Middle East was making largely successful first steps to normalization of relations with tetchy rivals and diversifying their economies. Not only were they building swank sports stadiums and shopping malls, with that oil money, but some were building out manufacturing sectors. Now these governments are focused on containment of a war, rather than economic expansion.
Fifty years ago, OPEC brought the West to its knees with a six-month oil embargo over the Israel Palestine issue. That’s probably not likely this time. For one, Rich (read: oil producing) Arab states are looking to diversify and integrate their economies with the West. Secondly, while the Palestine is a cause célèbre with the Arab “street”, its leaders are sick of the whole thing. Free markets will get you further than crusades.
Egypt is loath get involved in Gaza’s southern border, and the Jordanians are bracing against the Mayhem Israeli settlers are spreading in neighboring West Bank. That no real power wants to lay hands directly on the conflict will help. To the north, Lebanon is a failed state, and Hezbollah is itching to join the fight, and the smart money is that both Iran and Russia will assist, the rub is how badly either wants to be involved.
Probably not much: Russia is stretched pretty thin, its Wagner group has pledged weapons to Hezbollah – but hasn’t got much to spare. Iran can keep both Hamas and Hezbollah supplied, but with a US Navy carrier group heading to the Persian Gulf, they may not be as gung-ho as advertised. If they are, then oil prices will go nuts – the World Bank estimates prices could hit $157 p/b. The Arab states have a very compelling reasons to work to keep that from happening.
The energy markets are much more flexible now, the largest new oil producer to come on line, Guyana, is expected to be producing 1mm b/p by 2028. Together with non-OPEC nations like Brazil, the US and Venezuela (if it behaves itself) this adds 5.1mm b/p to global output, undercutting OPEC+’s ability to set the market price on crude.
Most likely the costs to the US Economy will be muted, mostly taking the form of hard to define opportunity costs for a country looking to limit its ultimate exposure to Chinese manufacturing as Arab economies worked to diversify. That is absolutely no reason to relax, though.