Money spent on the defense industry has the potential to upset macro balances in a possible war between Iran and Israel

Kabil Ashirov

Tension in the Middle East is increasing day by day. After the Iranian missile and drone attacks on Israel, Tel Aviv hit back at its facilities in Iran. As usual, Israel made no comment on the matter; some foreign media claimed that similar attacks could take place in Iraq and Syria. In other words, the region looks like a barrel of powder that could explode at any moment. However, if we take into account that the Middle East is the most important source of fossil fuels in the world, it is needless to say that any possible war will have consequences not only for the economies of the countries in the region, but for the whole world.

About this issue, a correspondent from
Azernieuws heard the opinion of MUSIAD board member and former banker, Ünsal Sözbir. The expert noted that geopolitical risks are observed to be increasing day by day with new agenda. He said certain parameters are being examined to understand how financial markets perceive these risks and how they respond.

‘Before we look at the possible negativities that could arise from the conflict between Iran and Israel, it would be useful to look at the one-month development of the VIX index, which shows the volatility in the US commodity markets, a of the most important indicators of risk perception in the US in general and China in particular.

There has been an increase of up to 50% in risk perception since April 1, 2024, when Israel’s attack on its military elements in Syria began. If we look at this indicator, also called the fear index, in the long term, it cannot be said that there has already been a serious increase in risk perception,” said Ünsal Sözbir.

He pointed out that another indicator is the development of gold prices. He noted that after a long time, we have entered a period of record-breaking gold ounce prices. He said that if we look at gold prices, especially in the major centers around the world. The fact that banks are constantly buying gold and that the country’s reserves are being diverted to actual gold reserves rather than politically risky reserves such as the US dollar indicates an increased risk perception.

“The warming of the region will mainly affect countries that have trade ties with the entire region, such as Turkiye. The money spent on the defense industry has the potential to upset macro balances in the long run, first in warring countries and then in all countries.” Countries in the region’s deteriorating relations and uncertainties send signals that will slow down the region’s macroeconomic growth.

Obviously this will have an impact on inflation. Although the upward trend in oil prices appears to benefit oil-exporting countries, it is a factor that will increase costs overall. The most concrete example of this is the decline in the use of the Suez Canal, which shows that freight rates and the general price level will continue to rise, in other words, inflation in the region will continue to rise. Although rising costs in countries like Turkey will cause inflation, they will also affect the growth of the economy. On the other hand, it will also have consequences such as the postponement of projects such as the Development Path, which are jointly developed by the countries of the region and which could be to the benefit of each country as a whole,” the former banker pointed out. .

On fossil fuels, he noted that even though there is an upward trend in oil prices, there is an embargo. The increase in supply in countries such as Russia, Iran and Saudi Arabia, one of the main producing countries, will offset these price increases.

‘This balance will provide important guidance for countries that will be negatively affected by the increase in oil prices.

A similar equilibrium exists with natural gas. Although the recent decline in LNG shipments via the Suez Canal has affected prices, there are no strong signals yet that this will be a radical increase,” concludes former banker Ünsal Sözbir.

Qabil Ashirov is the resident journalist of AzerNews, follow him on Twitter: @g_Ashirov

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