Last week Israel was attacked by Hamas, shocking the world. But stock markets and the price of crude oil have demonstrated remarkable complacency after this momentous event.
Is this just another skirmish in an area that has been in conflict for decades or will there be serious repercussions?
The classic event that the world did not realize would lead to a greater conflict was the 1914 assassination of Archduke Franz Ferdinand of Austria, the heir presumptive of the Austria-Hungarian empire.
On a trip to Vienna a few years ago I was struck by the fact that an empire that had lasted from the 1400s was headquartered there and had governed from Italy to the western border of Russia in the mid-1800s. But it ceased to exist after that assassination and the war that followed.
Major changes can happen at some junctures in history, but it is not obvious at the time.
The possibility that this conflict could spread is low, but not zero. Iran is involved in backing Hamas in Gaza and Hezbollah in Lebanon. Turkey is geographically close, with longstanding interests in the region. Russia is already involved in Syria. Saudi Arabia is a friend of the Palestinians but was speaking to the U.S. about a peace deal with Israel during President Biden’s recent trip. China is talking to the U.S. and Saudi Arabia about a rapprochement with Iran. Egypt borders Gaza on the south. The West Bank in Israel used to be part of Jordan.
As soon as reports of the Saturday attack surfaced traders expected crude oil to soar, but the commodity gained only a few dollars, from US$82 to $86 and has since settled back. Gold, another commodity considered by some to be a safe haven, did make some modest gains.
The small surge in oil can be seen on this chart, but the overall trend did not change.
The U.S. stock market, as measured by the S&P 500 declined a bit on the first day of trading after the attack and then rebounded over the next few days to levels higher than before the attack.
It’s like police at the scene of the accident saying to the onlookers, “Nothing to see here folks, just move along”.
But this horrific event could have bigger impacts on the world.
Israel must respond with force to the attack. The internal politics of Israel, especially after authorities failed to prevent the attack, demand that there be a brutal response.
While the 2 million people in Gaza hunker down, the Israel Defense Force is planning to wipe out Hamas. But Hamas has many hostages and at least 40 percent of the population is under the age of 15. How does the Israeli army accomplish their goal without causing serious harm to non-combatants?
While the non-reaction of markets suggests that this conflict will have no lasting impact, unpredictable events during the next few weeks will determine if this attack escalates into a broader conflict.
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