How Do the Conflicts in the Middle East Affect Investors?

By: Patricia Soberano
israel vs palestine

The Middle East has long been a geopolitically complex region due to its repeated border crossings and conflicts. Hence, investors interested in purchasing property for sale in the Middle East must be aware of the complex implications of regional conflicts.

This particular article explores the ways in which the Middle East’s ongoing wars affect the economy for investors, as well as with a particular emphasis on implications for prospective investors of real estate in the area.

About the Israel-Palestine War

The Israeli-Palestinian conflict began toward the close of the 1800s. Resolution 181, also referred to as the Partition Plan, was enacted by the United Nations (UN) in 1947 with the goal of dividing the British Mandate of Palestine into Arab and Jewish states. With the establishment of the State of Israel on May 14, 1948, the first Arab-Israeli War began. Furthermore, following Israel’s victory in the 1949 war, 750,000 Palestinians were compelled to flee their homes, and the region was split into the Gaza Strip, the West Bank (which is situated across the Jordan River), and the State of Israel.

Tensions in the area, however, increased during the years that followed, especially between Israel and Jordan, Syria, and Egypt. After a series of maneuvers by Egyptian President Abdel Gamal Nasser, Israel launched an aggressive strike on the air forces of Egypt and Syria in June 1967, sparking the Six-Day War. Following the war, Israel obtained sovereignty over the Sinai Peninsula and Gaza Strip from Egypt, in the West Bank and East Jerusalem from Jordan, and the region known as the Golan Heights from Syria.

Early in October 2023, conflicts between Israel and Hamas, the militant Islamist party that has controlled Gaza since 2006, erupted, causing the Palestinian-Israeli conflict to reach its worst point in several years. More than 1,300 Israelis were killed, 3,300 were injured, and hundreds of hostages were taken captive as Hamas fighters crossed the Gaza Strip to invade southern Israeli cities and villages and launch rockets into Israel. Israel then was unprepared for the attack, but it promptly launched a lethal counteroffensive. The Israeli cabinet officially declared war on Hamas shortly after the attack on October 7. The defense minister then ordered the Israel Defense Forces (IDF) to impose a “complete siege” on Gaza.

Since then, there have been regular rocket attacks between both nations, and on October 28, Israel gave the order for over a million Palestinian people living in northern Gaza to evacuate in preparation for a land invasion. Israeli forces have surrounded Gaza City and cut it off from the southern portion of Gaza, putting pressure on Hamas. However, there are still hundreds of thousands of residents in the city. Ten thousand Palestinians have died in the war, including almost four thousand children, according to the Gaza health officials. Due to Israel’s rejection of humanitarian pauses and restrictions on the quantity of aid that can enter, the territory is also severely short on fuel, water, and supplies.

The Complexities of a Global Economy

Understanding the potential repercussions from the Middle East conflicts requires a grasp of how the modern global economy is interconnected. For example, the stock market, which is a gauge of the state of the economy, is affected by a number of variables, such as company profits, economic information, and—above all—the sentiment of investors. Stock market movements can be attributed to geopolitical developments that have a substantial impact on investor sentiment. Such changes could also result from a wider conflict in the Middle East in a number of ways.

Firstly, the energy markets are highly prone to instability in the Middle East. Given that the Middle East is a major oil supplier, any disruption in that supply might cause oil prices to soar. This might then have a ripple effect on the global economy. Rising oil prices have increased production costs for businesses, which has resulted in lower profitability and possibly job losses.

Second, there is a direct correlation between investor confidence and geopolitical stability. When news reports of a wider crisis in the Middle East appear, investors usually express cautiousness. If there is uncertainty about the political climate in the world, investors may decide to move their money out of the stock market and into safer assets like bonds and gold. This shift in asset allocation could result in a decrease in the stock price.

Third, Middle Eastern issues could have an immediate impact on international companies. Many foreign companies have operations there, have partnerships with regional companies, or have substantial investments. Any interruption brought on by the dispute, such as strained diplomatic relations or infrastructural damage, may have an effect on the bottom lines of major businesses. Such news triggers a negative response from investors, which lowers the stock values of the affected companies.

Moreover, a more extensive Middle East conflict may also give rise to concerns about international stability. Investors might worry that if the conflict continues and involves more nations, it could turn into a more significant global disaster. This concern could lead to a general slump in stocks as investors look for safer alternatives. In short, amid global crises, market volatility is frequently brought on by the fear of a domino effect.

The Effects of War on Economy

The State of the Economy from the effects of the Conflict

The economic effects of war on the Middle East are profound, with repercussions felt both locally and globally. The region is a vital player in the world economy because of its contribution, especially in the energy sector. As mentioned earlier, disruptions to oil production and supply systems caused by conflicts have global implications. The economic effects of the conflict extend beyond its direct expenses; they also include its indirect effects, which include displaced populations, damaged infrastructure, and reduced investor confidence.

In addition, government funds that may be used for economic growth are instead directed on security and defense during times of conflict. This diversion frequently leads to lower public spending on social services and important infrastructure projects, which may slow economic growth. Furthermore, the ambiguity surrounding the conflict may discourage capital flight and foreign direct investment (FDI), which could worsen economic difficulties.

Economic Uncertainty and Market Volatility

Uncertainty in the economy and market volatility are frequently caused by geopolitical events in the Middle East. As geopolitical events develop, investors in property for sale may see instability in real estate prices and rental returns. Investor confidence can also be impacted by uncertainty about the region’s stability, which may have an impact on people’s and organizations’ desire to make long-term real estate investments.

Real Estate Investments

Even though real estate is frequently seen as a safe haven during economic uncertainty, the Middle East’s crises nonetheless have an impact on it. Property markets are subject to notable variations contingent on the perceived level of risk attributed to the geopolitical environment. Foreign investment in real estate development projects may be discouraged by the economic repercussions of conflict on the area, which could slow down building and lower property values.

During times of conflict, property for sale may have trouble finding clients since investor mood is dominated by uncertainty and risk aversion. But in other cases, where astute investors spot openings within the mayhem, the durability of the real estate market is also apparent. If an investor has the ability to withstand short-term market swings and has a long-term view, distressed homes and undervalued assets may become appealing investments.

A Decline in the Tourism Sector

Graphs is going down. Young businessman in formal clothes is in office with multiple screens.

The tourism sector, which is vital to the economies of many Middle Eastern countries, can be negatively impacted by wars as well. Real estate investments are also frequently significantly influenced by tourism, as developers build to meet the growing demand for resorts, hotels, and holiday properties. On the other hand, if wars worsen, fewer tourists arrive, which hurts the real estate market. Declining visitor numbers can lead to empty houses, lower rental income, and an overall decline in real estate values.

Bottom Line

Investors are certainly impacted by Middle East conflicts, which cause market volatility, lower demand, and hinder foreign investment. Therefore, investors need to weigh the risks of making investments in conflict-affected areas against any opportunities that might present themselves in these difficult conditions. To successfully manage the complicated dynamics in the Middle East market, investors need to have a thorough awareness of the geopolitical context, a sharp eye for emerging markets, and rigorous risk analysis.

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