The Sword of Damocles
An economic worst-case scenario for the Israeli-Palestine war (Free)
On Tuesday, I published a post on X (Twitter), which summarized an economic worst-case scenario for the Israeli-Palestine war. It included 10 points:
- The conflict escalates into a regional war with the U.S. becoming directly involved.
- OPEC responds with an oil embargo.
- Iran closes the strait of Hormuz.
- The price of oil reaches $300/barrel.
- Europe succumbs into a full-blown energy crisis due to LNG shortage.
- Massive spike in energy prices reinvigorates inflation with central banks responding accordingly.
- Financial markets and the global banking sector collapse.
- Debt crisis engulfs the U.S. forcing the Federal Reserve to enact yet another financial market bailout.
- Petrodollar trade collapses.
- Hyperinflation emerges.
In this entry, I go through each step.
In October 1973, Israel fought the Yom Kippur War against a coalition of Arab States led by Egypt and Syria. As a result of this, the Organization of Arab Petroleum Exporting Countries proclaimed an oil embargo against western countries supporting Israel. In six months, the price of oil rose by nearly 300%, globally, and even more in the U.S., which at that time had become dependent on the Middle-Eastern oil.
In the current time, in the worst-case, Israel launches a major counter-offensive against Palestine leading to a declaration of war, to Israel, from Iran and Syria (others may join too). In this situation, the U.S. would be almost surely forced to respond and take part in the defense of Israel. The Ford carrier strike group (which includes world’s largest warship, USS Gerald R. Ford) has been dispatched to eastern Mediterranean and the Biden administration has been reported of considering sending another carrier strike group to eastern Mediterranean. There are also rumors of U.S. military cargo planes making routine trips to Israel.
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