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President Herzog, Mrs. Herzog, Ambassador Nides and Virginia,and Taylor, and Taylor's boyfriend,Senator Rick Scott,Speaker of the Knesset,Mayor of Jerusalem,and so many dear friends, Tom, you started your words by remembering an evocative moment, when you were 14 years old in Ein haShofet. Well, somewhat younger than that, I had an evocative moment right here, on this hill top. It was barren. There was no Israel Museum. There was the Monastery of the Cross, olive trees. A barren hilltop except one tree, a balut tree. And we, the Jerusalem kids, would band in the valley and we would try to reach, undetected, to the top, to the tree. Reach the target. I say that because right now, well, last night, Israeli soldiers tried to reach, undetected, the most legitimate target on the planet: people who would annihilate our country. And because this Fourth of July in this extraordinary place falls on an extraordinary moment, Ladies and gentlemen, on behalf of the Government and citizens of Israel, I wish to send my warmest greetings to President Biden and the American people as we join in celebrating their Independence Day. And as Prime Minister, I wish to express my deep appreciation and gratitude for America's enduring support for Israel. For 75 years, the United States has been our irreplaceable and indispensable ally. Irreplaceable. Indispensable. Eleven minutes after our birth, and at vital junctures throughout our history, America has provided Israel with moral and political backing against those committed to wiping us out, to wiping out the one and only Jewish state. No less important, for nearly half a century, America has given generous military assistance to Israel, helping provide us with the tools, the tools we need to defend ourselves by ourselves. Decade after decade, our two countries have moved closer together. I'm proud to say that today, security cooperation has never been better, intelligence sharing has never been deeper and our alliance has never been stronger. I have long said that Israel has no better ally than America, and I say to you, America has no better ally than Israel. I'm confident that Israel's importance to the United States will become even clearer in the years ahead, as we work together not only to protect our common security, but also to develop the most advanced technologies that will reshape the 21st century. They will decide who leads the world. And Israel is America's vital partner in that effort. Ladies and Gentlemen, on July Fourth, all democratic countries should remember that the decisive event that ensured the rise of freedom in modern times, has been the rise of the United States of America. Time and again, America defeated the forces of totalitarianism and terror. Yet we should also remember a basic truth: Freedom is precious, and it's never free. It often requires firm and decisive action against those seeking to spread terror and imperil free societies. I remember that truth every Fourth of July, because that is the day my brother Yoni fell, commanding the rescue force at Entebbe. Today, on the eve of another Fourth of July, Israel's soldiers, once again, find themselves fighting forces of terror. Late last night, the IDF launched a comprehensive action against terrorist strongholds in Jenin. In recent months, Jenin has become a safe haven for terrorists. From that safe haven, terrorists perpetrated savage attacks, murdering Israeli civilians, men, women and children, as many children as they could find. As I speak, our troops our battling the terrorists with unyielding resolve and fortitude, while doing everything, everything, to avoid civilian casualties. I have no doubt that as Israel exercises its inherent right of self-defense, the United States will stand firmly by our side. And I also believe that in the months ahead, Israel and America will work closely together to thwart the danger posed by Iran and seize the opportunity to expand the circle of peace. Ladies and gentlemen, tonight is also an opportunity to thank outgoing US Ambassador Tom Nides for his service and for his friendship towards Israel. Thank you Tom. During your tenure here, you've demonstrated that your support for Israel comes both from the head and from the heart. On a personal level, I will say I'll miss your candor, your wit, your humour and your friendship. No matter what you do, what you decide to do in the next chapter of your life, know that Israel will always be your home away from home. And as you've said many times, quoting President Biden, we are mishpuche. So on behalf of your Israeli family, let me wish you a happy Independence Day. Happy Independence Day America.  God bless America and God bless our valued and unshakable alliance. 

The attacks on shipping in the Red Sea is a test for the US’ Indo-Pacific strategy to deal with China In a House Armed Services Committee hearing in March 2023 on the US posture and security challenges in the Middle East and Africa, it was acknowledged that “…President Biden’s decision to unilaterally and unconditionally withdraw all US forces from Afghanistan has undermined our national security.” The developments of the past few weeks in the Red Sea have made this assertion seem prophetic. Yemen’s Houthi rebels have strategically positioned themselves to exploit less monitored zones in the Red Sea and the broader Arabian Sea. With numerous naval vessels navigating this critical route linking the Mediterranean and the Arabian Sea, countering the Houthi rebels and their assaults on global shipping has become exceedingly challenging for the US. The Houthi rebels have connected these attacks to the ongoing conflict in Gaza, tying the halt in hostilities along shipping lanes to a ceasefire negotiation between Israel and Hamas in Gaza. Their strategy involves increasing attacks on ships and holding them as leverage to prompt the US to pressure Israel for a ceasefire. The timing of the Houthi actions aligns with Israel’s focused operations in southern Gaza and a waning Congressional backing in the US for continuous financial support for overseas conflicts. Tactically, the Houthis see an opportunity to open a third front in the maritime domain, even as the Israeli air defence systems are overwhelmed by combined rocket attacks of Hamas and Hezbollah in the north and south. In an offensive barrage last week, the Hezbollah carried out six attacks in eight hours. In the maritime domain, the Houthis have carried out multiple UAV, rocket and missile attacks targeting a dozen merchant ships in the larger Indian Ocean. Iran has conducted attacks on US and Israeli vessels in the region as well. A recent attack on an Israeli vessel off the west cost of India near Veraval is a red flag for safety and security of the Sea Lines of Communication (SLOC) in the Indo-Pacific. With unmanned aerial vehicles and use of other technological capabilities, the attacks on ships could be rapid, discreet, damaging and, most of all, with little or no accountability. Often, the vulnerabilities associated with international strategic choke points have always been assessed from the perspective of State complicity, resting States’ conviction on limited capacities of non-State actors to exact huge costs. If anything, the Red Sea crisis shows that even with little but calculated external support, non-State actors could indeed significantly disturb the predictability of global supply chains and bring merchandise flow to a halt. The economic impact of increased attacks in the Red Sea is already being felt, as many ships have begun to avoid the route through the Red Sea and prefer the longer route around the Cape of Good Hope in Africa. This has caused worries of delay in the global freight markets and pricing concerns in energy dependent countries beside the security concerns for shipping companies such as Maersk. Since the Israel-Hamas war began, the US Central Command has been active in preventing a slew of UAV attacks by the Houthi rebels. For the US, the situation developing in the Red Sea presents a combination of political, economic and strategic challenges. The ongoing Israeli operation in Gaza has politically isolated the US at the global level as the only country to oppose a UNSC ceasefire resolution. The political heat from the Israel-Hamas war is being felt at home with dwindling youth support for President Biden as presidential elections near. The economic costs of the two wars – one in the Middle East and the other in Ukraine – is already tearing the US Congress apart. At the strategic level, coordinated attacks on international shipping threatens to force a rebalancing of the US force posture in the Indo-Pacific. The US currently has two aircraft carriers positioned in the Middle East since the Israel-Hamas war began. While a strong US military presence in the region may have prevented the war from spreading through the region, any additional and long-time concentration of force posture in the Gulf may be detrimental to Washington’s Indo-Pacific intent. Indeed, America’s Indo-Pacific strategy is being tested in the Middle East through five core ideas. Firstly, the recentring of US forces in the Middle East contradicts the intended pivot towards Asia. Secondly, the attacks orchestrated by the Houthis and Iran highlight the unpredictable threats that can disrupt supply chains in the region. Thirdly, the US faces challenges in executing counterterrorism and counterpiracy efforts in the Indo-Pacific, especially while collaborating with allies. Moreover, integrating the Middle East into an Indo-Pacific connectivity project appears increasingly challenging. Lastly, China’s refusal to join the US in protecting the Red Sea shipping lanes reveals Beijing’s divergent strategy for engaging with the Middle East from that of the US.

Watch on YouTube A drone attack that killed three American troops and wounded at least 34 more at a base in Jordan has increased fears of a widening conflict in the Middle East – and the possibility that the U.S. may be further drawn into the fighting. President Joe Biden vowed to respond to the assault, blaming Iran-backed militias for the first U.S. military casualties in months of such strikes in the region. But to what extent was Iran involved? And what happens next? The Conversation turned to Sara Harmouch, an expert on asymmetric warfare and militant groups in the Middle East, to answer these and other questions. What do we know about the group that claimed responsibility? Al-Muqawama al-Islamiyah fi al-Iraq, which translates as the Islamic Resistance in Iraq, has claimed responsibility for the drone attack. However, the Islamic Resistance in Iraq is not a single group per se. Rather, it is a term used to describe an umbrella organization, which, since around 2020, has included various Iran-backed militias in the region. Initially, the Islamic Resistance in Iraq emerged as a response to foreign military presence and political interventions, especially after the 2003 U.S.-led invasion of Iraq. The Islamic Resistance in Iraq acted as a collective term for pro-Tehran Iraqi militias, allowing them to launch attacks under a single banner. Over time, it evolved to become a front for Iran-backed militias operating beyond Iraq, including those in Syria and Lebanon. Today, the Islamic Resistance in Iraq operates as a cohesive force rather than as a singular entity – that is to say, as a network its objectives often align with Iran’s goal of preserving its influence across the region, but on a national level the groups have their distinct agendas. The collective is notorious for its staunch anti-U.S. posture and dynamic military campaigns, such as a recent two-day drone operation targeting American forces at an Iraqi airbase. Operating under this one banner of Islamic Resistance, these militias effectively conceal the identities of the actual perpetrators in their operations. This was seen in the deadly Jan. 28, 2024, attack on Tower 22, a U.S. military base in Jordan. Although it is evident that an Iranian-supported militia orchestrated the drone assault, pinpointing the specific faction within this broad coalition remains elusive. This deliberate strategy hinders direct attribution and poses challenges for countries attempting to identify and retaliate against the precise culprits. What do they hope to achieve in attacking a US target? Iranian-backed militias have been intensifying attacks on U.S. forces in recent months in response to American support for Israel in the Israel-Hamas conflict, and also to assert regional influence. Since the beginning of the conflict in October 2023, Iranian-backed militias have repeatedly struck American military bases in Iraq and Syria, recently expanding their attacks to include northeastern Jordan near the Syrian border. The deadly assault on Jan. 28 marks a significant escalation, though – it is the first instance during the Israel-Hamas war that American troops have been killed. Where is Tower 22 – the US base hit in drone attack? Three American troops were killed at a camp in Jordan near the Syrian border.   The attack in Jordan forms part of a strategy by Iranian-backed militias to counter Washington’s support for Israel in the Gaza conflict. But it is also aimed at advancing a wider goal of pushing U.S. forces out of the Middle East entirely. By coordinating attacks under the Islamic Resistance in Iraq, these groups are trying to display a unified stance against U.S. interests and policy, showcasing their collective strength and strategic alignment across the region. What role did Iran have in the attack? Iran has officially denied any involvement in the drone strike. But the Islamic Resistance in Iraq is known to be part of the networks of militia groups that Tehran supports. Iran, through the Islamic Revolutionary Guard Corps’ Quds Force, has provided such militias with money, weapons and training. However, the extent of Iran’s command and coordination in specific incidents like the Jordan attack remains unclear. At this stage, more concrete evidence is necessary to firmly implicate Iran. As Iran expert Nakissa Jahanbani and I recently explained in an article for The Conversation, Iran’s strategy in the region involves supporting and funding militia groups while granting them a degree of autonomy. By doing so, Iran maintains plausible deniability when it comes to attacks carried out by its proxies. So while Iran’s direct involvement in the attack has not been definitively established, Tehran’s long-standing support of groups like the Islamic Resistance in Iraq is well documented, playing a significant role in the regional conflict dynamics and geopolitical strategies. What options does the US have to respond? It isn’t clear how the U.S. intends to respond to the attack. The Biden administration faces complex dynamics when it comes to responding to attacks linked to Iranian-backed militias. While a forceful military strike is an option that the Biden administration appears to be looking at, targeting Iran directly on its own soil is fraught with risks and may be seen as a step too far. Even when targeting Iranian interests or personnel, such as the assassination of Quds Force General Qassem Soleimani, the U.S has conducted these actions outside Iranian territory. Iran’s denial of direct involvement in the attack further complicates the situation and makes it less likely that the U.S. attacks Iran in retaliatory strikes. But adopting a targeted approach, such as striking militia leaders outside of Iran, raises questions about the effectiveness of U.S. tactics in deterring Iran and its proxies. This strategy has been employed in the past, yet it has not significantly curbed Iran’s or its proxies’ aggressive actions. The concern is that while such strikes are precise, they may not be enough to deter ongoing or future attacks. The key to the strategy’s success may rest in identifying the most influential factors, or “centers of gravity,” that can effectively influence Iran’s behavior. This means determining key leaders, critical infrastructure or economic assets, which, if killed, destroyed or seized, could substantially alter Iran’s decision-making or operational capabilities. The Biden administration’s need to balance a strong response with the geopolitical consequences highlights the difficulties of navigating a tense and evolving situation. How might the attack affect the wider Middle East conflict? How the U.S. responds could reshape the Middle East’s geopolitical landscape and influence the dynamics of proxy warfare in the region. A strong military response from Washington might deter Iranian-backed militias from future attacks, but it could also provoke them into taking more aggressive actions. In the short term, any U.S. retaliation – especially if it targets Iranian interests directly – could escalate tensions in the region. It could also exacerbate the cycle of tit-for-tat strikes between the U.S. and Iranian-backed forces, increasing the risk of a broader regional conflict. And given that the attack’s pretext involves the Israel-Hamas war, any U.S. response could indirectly affect the course of that conflict, impacting future diplomatic efforts and the regional balance of power.

한국어로 읽기Leer en españolIn Deutsch lesen Gap اقرأ بالعربيةLire en françaisЧитать на русском Iran’s leadership crisis may have come at an important time for the US, amid an ongoing political slugfest at home in an election cycle and a litmus test for US relations with Israel. In the wake of the helicopter crash that tragically claimed the lives of President Ebrahim Raisi and Foreign Minister Hossein Amir-Abdollahian, Iran finds itself at a critical juncture, grappling with both internal and external challenges. Foremost among them is its relationship with the US. Iran is in the middle of a tense regional competition with Israel over the latter’s war in Gaza with Hamas. Washington is invariably drawn into what constitutes a historically contested triad shaping stability and instability in broader West Asia. Iran’s leadership crisis may have come at an important time for the US, amid an ongoing political slugfest at home in an election cycle and a litmus test for US relations with Israel. Two factors, however, are likely to dampen any US expectations from Iran. Iran’s topmost leadership remains intact under the aegis of the supreme leader, Ayatollah Ali Khamenei, and the next president will be expected to meet the benchmarks set by previous leaders. For the US, the Iran challenge is likely to remain complex, both due to the leadership transition inside Iran and the growing regional power and influence projected by Tehran. If the Biden administration, despite its initial will, couldn’t bind Iran within the constraints of the Joint Comprehensive Plan of Action (JCPOA), a possible Trump presidency would be even less likely to succeed. Regional anti-American sentiments in West Asia, especially among Iran and its proxy groups, seem further entrenched. However, the Biden administration has an opportunity to mitigate regional hostilities by fostering a Saudi-US détente, which remains on the table but is heavily dependent on how much influence Washington can wield with Israel’s highly conservative cabinet in restraining its behaviour in Gaza. Iran’s regional outlook and relations with the US may not be poised for significant shifts, given the predictability associated with the regime, yet the challenge of nurturing inter-generational leaders looms large for Iran. Leadership succession in Iran’s internal politics has always been meticulously planned and nurtured over the years, undergoing a rigorous process to ensure continuity. Internally, Iran faces a crucial test of its leadership amid a situation it has not encountered in decades. However, there is solace in the fact that Supreme Leader Ayatollah Khamenei remains alive, poised to select the most suitable candidate. Internally, the vacuum left by the untimely demise of two top leaders presents a crisis as well as an opportunity. However, the socio-cultural divergence with the West, exemplified by the Iranian leadership’s lingering reluctance to embrace any change, may continue to strain the relationship. The crisis in leadership compounds this internal struggle, as no state wishes to appear leaderless during times of uncertainty. Externally, the challenges for Iran are manifold, particularly in filling the leadership void that has been growing since the death of General Qasem Soleimani in 2020 after a US-targeted strike. The new leadership in Iran will be tested in how it continues to project its regional influence and maintain the momentum of clandestine efforts it has propagated across its axis. Internationally, the Iranian leadership’s challenge will primarily be in its tussle with the West on the one hand and maintaining poise in its relationships with varied actors such as China, Russia, and India, all while avoiding Western sanctions. Iran, which has been persistently characteristic in its distinct political stance even in the face of sanctions and regional tensions, has found an alternative axis of support, most notably through partnerships with China and Russia. Besides, Iran has fostered a network of regional support through proxy groups such as Hezbollah, Kataib Hezbollah, the Houthis, Hamas, and others. This solidarity axis is now bolstered by a shared commitment to the Palestinian cause. However, the post-October 7, 2023, landscape has seen a nuanced shift in perceptions, including those of regional Arab leaders. As such, the current period is particularly tumultuous in West Asiawith the unabating Israel-Hamas conflict. The loss of key figures in Iran’s leadership couldn’t have come at a worse time, especially as Iran finds itself at a crossroads, balancing unfinished conflicts and shifting regional loyalties. According to the International Atomic Energy Agency, Iran is now enriching uranium to as much as 60% purity and possesses enough of this material that, if further enriched, could be sufficient for two nuclear weapons. Now that the ‘breakout’ time is close to zero, there are strong incentives for keeping Tehran engaged through the IAEA, if not bilaterally. Despite the seeming belligerence of Iran’s leadership, avoiding war and efforts towards regional peace and stability lie at the core of Tehran’s long-term regional vision. Just a week before the fatal crash, Iran’s foreign minister met with the IAEA chief, and Iran engaged with US officials through intermediaries in Oman on how to avoid the risks of a wider regional war. If anything, these efforts show that both the Biden administration and the Iranian leadership are still willing to sit at the table. That may not be bad inspiration for the next generation of leaders in Tehran to pick up from. This commentary originally appeared in Deccan Herald. The views expressed above belong to the author(s).

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Donald Trump’s return to the White House in January 2025, combined with a Republican-led US Senate, was widely feared among international allies and will be cheered by some of America’s foes. While the former put on a brave face, the latter are finding it hard to hide their glee.  On the war in Ukraine, Trump is likely to try to force Kyiv and Moscow into at least a ceasefire along the current front lines. This could possibly involve a permanent settlement that would acknowledge Russia’s territorial gains, including the annexation of Crimea in 2014 and the territories occupied since the full-scale invasion of Ukraine in February 2022.  It is also likely that Trump would accept demands by the Russian president, Vladimir Putin, to prevent a future Ukrainian Nato membership. Given Trump’s well-known animosity to Nato, this would also be an important pressure on Kyiv’s European allies. Trump could, once again, threaten to abandon the alliance in order to get Europeans to sign up to a deal with Putin over Ukraine.  When it comes to the Middle East, Trump has been a staunch supporter of Israel and Saudi Arabia in the past. He is likely to double down on this, including by taking an even tougher line on Iran. This aligns well with Israeli prime minister Benjamin Netanyahu’s current priorities.  Netanyahu seems determined to destroy Iran’s proxies Hamas, Hezbollah and the Houthis in Yemen and severely degrade Iranian capabilities. By dismissing his defence minister, Yoav Gallant, a critic of his conduct of the offensive in Gaza, Netanyahu has laid the ground for a continuation of the conflict there.  It also prepares for a widening of the offensive in Lebanon and a potentially devastating strike against Iran in response to any further Iranian attack on Israel.  Trump’s election will embolden Netanyahu to act. And this in turn would also strengthen Trump’s position towards Putin, who has come to depend on Iranian support for his war in Ukraine. Trump could offer to restrain Netanyahu in the future as a bargaining chip with Putin in his gamble to secure a deal on Ukraine.  Pivot to China  While Ukraine and the Middle East are two areas in which change looms, relations with China will most likely be characterised more by continuity than by change. With Chinese relations being perhaps the key strategic foreign policy challenge for the US, the Biden administration continued many of the policies Trump adopted in his first term – and Trump is likely to double down on them in a second term.  A Trump White House is likely to increase import tariffs, and he has talked a great deal about using them to target China. But Trump is also just as likely to be open to pragmatic, transactional deals with Chinese president Xi Jinping. Just like in relations with his European allies in Nato, a serious question mark hangs over Trump’s commitment to the defence of Taiwan and other treaty allies in Asia, including the Philippines, South Korea, and potentially Japan. Trump is at best lukewarm on US security guarantees.  But as his on-and-off relationship with North Korea in his first term demonstrated, Trump is, at times, willing to push the envelope dangerously close to war. This happened in 2017 in response to a North Korean test of intercontinental ballistic missiles.  The unpredictability of the regime in Pyongyang makes another close brush of this kind as likely as Trump’s unpredictability makes it conceivable that he would accept a nuclear-armed North Korea as part of a broader deal with Russia, which has developed increasingly close relations with Kim Jong-un’s regime.  Doing so would give Trump additional leverage over China, which has been worried over growing ties between Russia and North Korea.  Preparing for a Trump White House  Friends and foes alike are going to use the remaining months before Trump returns to the White House to try to improve their positions and get things done that would be more difficult to do once he is in office.  An expectation of a Trump push for an end to the wars in Ukraine and the Middle East is likely to lead to an intensification of the fighting there to create what the different parties think might be a more acceptable status quo for them. This does not bode well for the humanitarian crises already brewing in both regions.  Increasing tensions in and around the Korean peninsula are also conceivable. Pyongyang is likely to want to boost its credentials with yet more missile – and potentially nuclear – tests.  A ratcheting-up of the fighting in Europe and the Middle East and of tensions in Asia is also likely to strain relations between the US and its allies in all three regions. In Europe, the fear is that Trump may make deals with Russia over the head of its EU and Nato allies and threaten them with abandonment.  This would undermine the longevity of any Ukrainian (or broader European) deal with Moscow. The relatively dismal state of European defence capabilities and the diminishing credibility of the US nuclear umbrella would not but help to encourage Putin to push his imperial ambitions further once he has secured a deal with Trump.  In the Middle East, Netanyahu would be completely unrestrained. And yet while some Arab regimes might cheer Israel striking Iran and Iranian proxies, they will worry about backlash over the plight of Palestinians. Without resolving this perennial issue, stability in the region, let alone peace, will be all but impossible.  In Asia, the challenges are different. Here the problem is less US withdrawal and more an unpredictable and potentially unmanageable escalation. Under Trump, it is much more likely that the US and China will find it hard to escape the so-called Thucydides trap – the inevitability of war between a dominant but declining power and its rising challenger.  This then raises the question of whether US alliances in the region are safe in the long term or whether some of its partners, like Indonesia or India, will consider realigning themselves with China.  At best, all of this spells greater uncertainty and instability – not only after Trump’s inauguration but also in the months until then.  At worst, it will prove the undoing of Trump’s self-proclaimed infallibility. But by the time he and his team come to realise that geopolitics is a more complicated affair than real estate, they may have ushered in the very chaos that they have accused Biden and Harris of. 

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском The world economy is underperforming as a result of tight monetary policies, weaker global trade, a slowing Chinese economy and uncertainty around the US election. An escalation of conflict in the Middle East could increase uncertainties, harming inflation reduction efforts and hurting growth. It has been over a year since the Hamas-led attack on Israel. Israel’s response in Gaza has resulted in widespread destruction and significant loss of life. The conflict has since expanded beyond Gaza, involving the Houthis in Yemen, Hezbollah in Lebanon and Iranian strikes targeting Israel. In addition to the awful humanitarian cost of the conflicts, the war and the possibility of its further expansion pose significant repercussions for the global economy. This article discusses three potential ways in which the current conflict and a wider conflict in the Middle East could affect the global economy. Increased geopolitical uncertainties First and foremost, an escalation of the Middle East conflict could lead to greater geopolitical uncertainties. Figure 1 shows the evolution of the geopolitical risk (GPR) and geopolitical acts (GPRA) indices (Caldara and Iacoviello, 2022) – these are text-based measures of heightened uncertainties due to adverse geopolitical events such as wars, terrorism and international tensions. (See this article for more discussion about these measures.) Following the Hamas-led attack on 7 October 2023, both the overall GPR index and its ‘war and terror acts’ component spiked strongly, to a level higher than that seen during the ISIS attack in Paris in November 2015. Both indices eased significantly in the months following October 2023 despite the continuation of the conflict. But they jumped again following Israel’s attack on southern Lebanon in September 2024. As of mid-October 2024, the GPR and GPRA remain, respectively, 21% and 35% higher than their historical averages.   What might be the consequences of such elevated levels of risk? Research tells us that higher geopolitical risk raises oil prices (Mignon and Saadaoui, 2024). It also reduces global investment and increases inflation (Caldara et al, 2022). Greater geopolitical risk has a significantly negative impact on business and consumer confidence in several advanced economies (de Wet, 2023). This is because consumers typically cut non-essential spending and businesses postpone investment decisions during turbulent times. This reduces firm-level investment, particularly for businesses with higher initial investment costs and greater market power (Wang et al, 2023). Higher geopolitical risks also reduce global trade and financial flows, causing greater volatility in capital flows in emerging markets (Kaya and Erden, 2023). Oil production cuts and higher energy prices The second way in which the Middle East conflict could affect the global economy is its impact on energy prices, both directly through production cuts and indirectly through greater uncertainties. In response to Israel’s actions against its neighbours, the Organization of the Petroleum Exporting Countries (OPEC) could reduce oil production to penalise countries supporting Israel. A similar action in the 1970s led to a significant jump in oil prices, which contributed to years of stagflation, with higher global inflation and recessions in major economies. Before Israel's attack on Lebanon at the end of September, oil prices had been declining due to falling demand, particularly from China. On the supply side, oil production had increased in Canada and the United States, countering the production cuts by OPEC, and Saudi Arabia was expected to increase oil production from December. But the situation quickly reversed following Israel’s attack on Lebanon. Oil prices jumped by nearly $10 per barrel within a week, before easing by around $5 per barrel. While the immediate oil price impact of Israel’s attack has mostly faded, the potential for higher oil (and other energy) prices still poses a risk to global inflation and economic activity (Liadze et al, 2022). To provide further context for the potential scale of this impact, we can show what would happen if oil and gas prices were to remain $10 higher for two years than the baseline levels projected in the Summer Global Economic Outlook from the National Institute of Economic and Social Research (NIESR), using NIESR’s Global Macroeconometric Model (NiGEM). The results demonstrate that the $10 rise in oil and gas prices increases inflation by around 0.7 percentage points in major economies in the first year (see Figure 2). The impact is higher in China, where the economy relies relatively more on oil imports for its strong manufacturing industries. The inflationary pressures persist for two years despite central banks’ efforts to curb inflation by increasing interest rates.   The effect of higher oil and gas prices on real GDP is shown in Figure 3. In the scenario described above, GDP would fall by 0.1-0.2% in major economies immediately. Partly due to higher interest rates, real GDP would continue to weaken for three years following the shock. After this, economic activity would start to return to base levels as oil and gas prices revert to their levels in the baseline forecast.   Increased shipping costs and supply chain disruptions A wider conflict in the Middle East could also affect the economy through higher shipping costs and supply chain disruptions. Houthi attacks on commercial ships in the Red Sea in late 2023 showed that such disruptions can have a huge impact on global trade through shipping, which comprises 80% of world trade volume. Following the rocket attacks by the Houthi rebels, some commercial shipping re-routed from the Red Sea to the Cape of Good Hope, leading to significant delays in travel times and increased freight costs. As a result, the Shanghai Containerized Freight Index – a measure of sea freight rates – rose by around 260% in the second quarter of 2024 with additional disruptions to supply chains. Our analysis shows that an increase of 10 percentage points in shipping cost inflation can lead to import prices rising by up to around 1% and consumer inflation increasing by around 0.5% in OECD countries. As Figure 4 shows, the impact of shipping costs on inflation shows its full effects over six quarters. This means that inflationary concerns could be with us for the next year and a half as a result of higher shipping costs that may emerge from any possible escalation of the Middle East conflict.   Wider economic implications and policy responses While rising geopolitical risk and increased oil and shipping costs can each individually exert upward pressure on inflation and may slow down economic activity in the global economy, the combined impacts are likely to be greater. Countries with stronger trade and financial ties to the Middle East and those that rely heavily on oil imports as an input for domestic production would be most affected. On the monetary policy front, central banks may have to take a more hawkish stance in response to rising inflationary pressures from the Middle East conflict. This could lead to higher interest rates, which would further dampen economic activity, particularly in an environment where there are already recessionary concerns in some major economies. Beyond its immediate economic implications, an escalation of the Middle East conflict could trigger large-scale displacement of people, which would increase economic and social pressures on neighbouring countries. Many countries may also have to increase their military spending in response to growing regional tensions. Given that public debt levels are already elevated in many countries due to successive shocks to the global economy over the past decade, any additional defence spending could come at the expense of public infrastructure investments that would otherwise boost productivity growth. Overall, the global economy is already underperforming as a result of the lagged effects of tight monetary policies, weaker global trade, a slowing Chinese economy and uncertainties surrounding the upcoming US election and possible changes to US trade policy. A potential escalation of conflict in the Middle East could exacerbate the situation by increasing uncertainties, harming efforts to bring down inflation and reducing global GDP growth. Over the medium and long term, it could further damage the global economy, with the possibility of refugee crises as well as increased defence spending, making the effects more complex and longer lasting. This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Israel and the Lebanese militant group Hezbollah entered a 60-day ceasefire on Nov. 26, 2024, a move aimed at reducing tensions in the region more than a year into a multifront conflict.Under the terms of the deal, Israel would gradually withdraw its forces from Lebanon, and Hezbollah would fully withdraw north of the Litani River. Meanwhile, the Lebanese Army would “deploy and take control over their own territory,” U.S. President Joe Biden said, adding that the United States, France and other allies have pledged to support the deal.But what does the deal mean for the parties involved and future prospects for a more permanent cessation of hostilities? The Conversation U.S. turned to Asher Kaufman, an expert of Lebanon and border conflicts in the Middle East, to explain why they reached a ceasefire now and what it means going forward. Why is the ceasefire deal happening now? The timing of this ceasefire is the result of a convergence of interests among the government in Israel, Hezbollah itself and that of its chief sponsor, Iran – but all for different reasons. For the Israeli government, domestic issues are at play. First off, the Israel Defense Forces (IDF) are exhausted after more than a year of war. This is particularly true for Israeli reservists, a growing number of whom are not turning up for duty. The Israeli general public, too, is tired of conflict, and a majority favors a ceasefire with Hezbollah. Israeli Prime Minister Benjamin Netanyahu also has internal issues in his government to contend with. He is facing pressure from the ruling coalition’s ultra-Orthodox partners to draw up laws exempting ultra-Orthodox Jews from the military draft. Reducing the need for active personnel by quieting the front with Lebanon will help in that regard. The secular and national-religious sectors of the society who do serve in the IDF and who are upset with the possibility of a formal draft-exemption law for ultra-Orthodox men may be more inclined to swallow this pill if the war with Hezbollah is over. From the Israeli army’s perspective, the war in Lebanon is coming to a point of diminishing returns. It has succeeded in weakening Hezbollah’s military standing but has been unable to wipe the militant group out entirely. This also factors into Hezbollah’s thinking. The group has been seriously debilitated in Lebanon; the war has eroded its military capabilities. Unlike its previous position – reiterated time and again over the past year by its now-dead leader, Hassan Nasrallah – that a ceasefire would only be possible if first it is reached between Hamas and Israel in Gaza, Hezbollah and, by extension, Iran are now willing to delink the two fronts. This leaves Hamas in a far weaker position as they are now left without the support of Iran’s main proxy “axis of resistance” group. Drawing Hezbollah, and other aligned groups in the region, into direct confrontation with Israel had been Hamas’ hope when it launched its attack on Israel on Oct. 7, 2023. Hezbollah and Lebanon’s other political factions also have strong domestic pressures to contend with. Lebanon has more than 1 million refugees as a result of the conflict – the vast majority of them Shia, the branch of Islam that Hezbollah is drawn from. The conditions in Lebanon have increased the risk of sectarian fighting between Shia and others factions in the country. For Hezbollah leaders, the time may seem right to cut their losses and prepare to regroup as a political and military body. Iran, too, is seeking to rehabilitate Hezbollah’s standing in Lebanon as soon as possible. The deal comes as Tehran is bracing for a U.S. administration that could have a more hawkish position on Iran and its proxies in the region, of which Hezbollah is the most significant. With a new Iranian president, and a new U.S. administration, a ceasefire between Iran’s main proxy and Israel may be a first step to Tehran building a constructive dialogue with a Trump White House. What is the role of the US in the ceasefire? What is interesting for me is that despite the very clear position of the U.S. in favoring Israel during the past year of conflict, it still functions as an effective mediator. It is thanks to the U.S. that there is a ceasefire – and it comes despite the fact that Washington is far from neutral in this conflict, being a chief ally of Israel and its main provider of weapons. But the Lebanese government and Hezbollah see a U.S. role, too. And this is not new. The United States was the mediator in the 2022 landmark agreement that, for the first time, set out the maritime boundaries between Israel and Lebanon. The ceasefire deal benefits both the outgoing and incoming U.S. administrations. For President Joe Biden, it would represent a diplomatic success after a year in which the U.S. has failed to mediate any breakthrough in the conflict in Gaza, and it is an opportunity for Biden to finish his presidency on a positive foreign policy note. From the perspective of Trump, the ceasefire in Lebanon will represent one less problem for him to face. What might be the consequences for Lebanon and Israel? Lebanon has the most at stake in this ceasefire holding. The country was already in a perilous economic situation before the war, and months of fighting has only worsened the structural, economic and political crises in the country. It is as dire as it can get. Further, the war has reignited sectarian tension in Lebanon – talk of a return to civil war in the country is not far-fetched. Lebanon-Israel border: A zone of continued conflict The lower reaches of the Litani River, outlined in blue, are the northern edge of a U.N.-proposed buffer zone between Israel and Lebanon. The Golan Heights, which neighbors Syria, is also disputed territory in the region. The Gaza Strip and the West Bank, Palestinian territories that are governed by Hamas and the Palestinian Authority respectively, are also often areas of violent conflict.   But there is uncertainty over how the ceasefire will affect the various rival factions in Lebanese society. Hezbollah has been weakened and may well now look for a way to reassert its strength in Lebanon’s politics. The main question is how the other factions and parties respond to that. With a weak Hezbollah, other factions may challenge the militant organization in ways they haven’t before. Before being decimated by Israel, there were no rival groups in a position to challenge Hezbollah in Lebanon. But that has all changed: Hezbollah’s military power has been degraded and Nasrallah, the group’s leader, killed. And Nasrallah was not just the face and brains of Hezbollah, he was also the group’s most important link to Iran. There is concern among some Lebanon experts that the gap left by a weakened Hezbollah may see a struggle for power and further strife in the country. And I believe there should be no illusions that Hezbollah will try to reassert itself as a domestic force. Complicating matters is the fact that any realignment of political forces in Lebanon comes amid a political vacuum. There has been a caretaker government – and no president – for two years now since Hezbollah conditioned the appointment of a new president with the candidate being an ally of the group. Now, Lebanese politicians would need to agree on a new president who in turn would appoint a new prime minister and government. It remains to be seen how this will unfold with a weakened Hezbollah. For Israel, the ceasefire will provide an opportunity to reconstruct parts of the north that have been devastated by Hezbollah missiles and a possible return of the 60,000 Israelis who fled northern areas close to the Lebanon border. It will also allow the Israel Defense Forces to regroup, refresh and focus their resources in Gaza, rather than fighting on two fronts. Could the ceasefire lead to a permanent peace deal? I don’t see any permanent peace deal on the horizon, given the fact that the fundamental political goals of Israel, Hezbollah and Iran have not changed and that the Israel-Palestine conflict continues to fester. But I am hopeful that the ceasefire could lead to calm and stability between Israel and Lebanon for the foreseeable future. The details of the ceasefire agreement are not very different from U.N. Resolution 1701 that ended the last major war between Israel and Hezbollah in 2006. That agreement brought relative calm to the region for 18 years, even if Hezbollah, supported by Iran, used these years to build up its military capability and prepare for a potential ground invasion of northern Israel. In my view, there is a possibility for greater stability this time around given the fact that the ceasefire agreement also stipulates that, if and when it becomes permanent, the deal would serve as a basis for negotiations over the demarcation of the Israel-Lebanon territorial boundary. This would not be an easy task, particularly in the area of Shebaa Farms and the village of Ghajar. But with goodwill and good intentions, even difficult border disputes could be resolved.