The fall of the Ottoman Empire in World War I led to Britain being entrusted with the mandate to govern Palestine, which had a mix of Jewish and Arab communities. The British Mandate for Palestine, which began in 1920, was aimed to establish a national home for the Jewish people, but tensions between the two communities grew, leading to the Arab Revolt of 1936-1939. In1947, the United Nations proposed a partition plan under which Palestine was to be divided into separate Arab and Jewish states while Jerusalem was proposed to be put under international administration. However this plan was rejected by Arab leaders, sparking tensions and ultimately, its non-implementation.

In 1948, Israel's first prime minister, David Ben-Gurion, declared the establishment of the State of Israel, leading to a full-scale war and Arab intervention. The 1948 Arab-Israeli War saw Israeli forces capture Jerusalem and significant portions of the West Bank, leading to the displacement of hundreds of thousands of Palestinians. This was known as "Al Nakba."

The region has experienced numerous conflicts, both major and minor, resulting in significant casualties, sparking Palestinian uprisings and resistance against the Israeli occupation of Palestinian territories. In 1987, Hamas was founded as a counterforce to the Palestine Liberation Organization (PLO), seeking to establish an Islamic state. Today, Hamas continues to play a pivotal role in the Palestinian territories, and the ongoing conflict remains a source of tension between Israelis and Palestinians in East Jerusalem, Gaza, and the West Bank

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What will be the likely impact of the ongoing crisis on the global economy?

1. Increase in oil prices: A more drastic increase in the ongoing conflict may put Israel in direct confrontation with Iran, which supplies money and weapons to Hamas, an organization that has been labeled as terrorist by the US and the EU. According to Bloomberg Economics, in that case, oil prices may rise to $150 a barrel and global growth would only reach 1.7%,resulting in a recession that would wipe out almost $1 trillion in global output. A direct confrontation between Iran and Israel as well as an Iranian blockade of the Strait of Hormuz, according to Bloomberg, may drive up the price of crude oil above $150 per barrel. As a result, worldwide economy may decrease by nearly two percentage points and global inflation may increase to roughly 6.7% in the upcoming year.

2. Fall in growth rates: Global growth is expected to decline by 1 percentage point, to 1.7% in 2024, according to Bloomberg Economics' forecast. Global recessions are difficult to characterize since they are uncommon due to economies like China's explosive growth. But 1.7% would meet the criteria. It would also be the weakest growth since 1982, excluding the Covid and global financial crisis shocks. During that time, the Fed raised interest rates to rein in inflation brought on by the oil shock of the 1970s.
3. Increase in inflation: This severity of an oil shock would also undermine global efforts to control prices, resulting in 6.7% global inflation the following year. In the US, the Federal Reserve's 2%target would remain unattainable, and the expense of gasoline would pose a challenge to President Joe Biden's reelection bid.

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What will be the Likely Implications of Israel Palestine Conflict on India?

The current Israel palestine conflict poses several threats to the Indian economy.

1. Defense Deals with Israel: India and Israel have a strong defense alliance that includes technical collaboration and defense acquisition. This relationship might be impacted by the conflict because Israel might become more preoccupied with its security requirements. India purchases the majority of its military hardware from Israel; the two nations' combined military trade is valued at over USD 2.1 billion.
2. Energy Security: India's economy is reliant on oil supplies from the Middle East, thus any escalation in the region might have an impact on energy prices. Given the interconnectedness of the world's economies, involvement in the current Israel-Palestine conflict by nations like Saudi Arabia and Iran would undoubtedly have an impact on India's energy supply, economy, and investment.
3. Impact on India-Middle East-Europe Economic Corridor: India places strategic importance on the Middle East, and the conflict may have an impact on its stability .An escalation of hostilities may affect India's regional engagements and interests. An enormous infrastructure project, the India-Middle East-Europe Economic Corridor(IMEC) was recently signed by India. Its goal is to connect the Middle East, Europe, and India through a variety of transportation modes, such as rail and ships. The region's instability may pose a threat to security and interfere with the IMEC's capacity to function properly.
4. Increase in costs for indian exporters: Concerns about increasing insurance premiums and shipping costs, among other expenditures, have been brought up by the Israel-Hamas war for Indian exporters. These costs result from the increased risk involved in exporting goods to areas where there is geopolitical upheaval. India's top exports to Israel include diesel, electronics, photovoltaic cells and integrated circuits as well as cut and unpolished diamonds. On the other hand, the primary items that India imports from Israel are herbicides, fertilizers, and rough diamonds. This dynamic trading connection covers electronic machinery, high-tech goods, communication systems, and medical equipment in addition to more conventional industries.

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How will the suez canal be affected amidst the conflict?

The Suez Canal, opened in 1869, was a significant international trade route that separated Egypt from the Sinai Peninsula and Africa from Asia. The canal's nationalisation by Egyptian president Gamal Abdel Nasser in 1965 led to the Suez Crisis, which saw the British and French governments, along with the Israelis, plan to take back the canal from Egyptian control. The Israeli army attacked on October 29, 1956, and the British and French forces joined suit later. Although Egypt lost control of the canal area, Nasser rallied his army and fought on. The crisis marked the first use of a United Nations peacekeeping force, the United Nations Emergency Force (UNEF), to supervise the end of hostilities and the withdrawal of the three occupying forces. Israel was granted rights to ship goods along the Straits of Tiran, but no definite peace settlement was reached between Egypt and Israel, resulting in the Six-Day war of 1967.The closure of the Suez Canal disrupted global trade, affecting the movement of goods and commodities between Europe and Asia. This event highlighted the vulnerability of major maritime trade routes and prompted discussions about alternative transportation methods and the need for diversification in trade routes to reduce dependence on a single canal.

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Recent conflict

The Israel-Palestine conflict has caused significant disruptions in the shipping and maritime industry, prompting international companies to issue cautionary advisories and adapt their operations in the region. The security of transporting goods through the port of Haifa has become uncertain due to the outbreak of war in Israel and its vulnerability to missile attacks and militia incursions. Major players like Maersk and MSC have reassured stakeholders by announcing that their port operations across Israel's key terminals are functioning without disruption. However, the maritime industry remains vigilant, pledging to monitor the situation closely and heed government guidance.

Global companies with a presence in Israel have been forced to adjust their operations, such as Chevron shutting down the Tamar natural gas field off Israel's northern coast and Adani Ports ensuring operational readiness while monitoring the situation. The conflict may disrupt trade flows, particularly concerning Israel's high-tech exports, potentially hindering access to China's vast market.

The United States, a critical trade partner for Israel, is also affected by the conflict, potentially impacting Israeli exports to the U.S., Germany, and India. The conflict could strain diplomatic relations between the two countries, potentially impacting Israeli exports to the U.S., Germany, and India. The conflict could also have an impact on bilateral trade, potentially leading to disruptions in Israel's exports to these countries.
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Uncertainties regarding substantial trade projects

Ambitious trade initiatives like the India-Middle East-Europe Economic Corridor (IMEC), which seeks to raise $600 billion by 2027 for international infrastructure projects, are made more unclear by the Israel-Palestinian conflict. The real potential of the corridor is in enhancing trade relations between India and Europe. Normalizing diplomatic relations between Saudi Crown Prince Mohammed bin Salman and Israeli Prime Minister Benjamin Netanyahu is riskier, though, because of the ongoing regional complications. The war highlights the ongoing difficulties of reconfiguring international commercial and financial networks. The Suez Canal is still the principal conduit for products from India to Europe. Global health problems and geopolitical conflicts frequently have unforeseen implications that increase revenues in particular industries.

These dynamics affect the marine sector as well, with shipowners benefiting inadvertently from both kinds of crises. Beyond Israel's boundaries, hostilities might spread and endanger the Suez Canal and the Strait of Hormuz, two vital waterways used by commercial shipping, notably container ships. The length and scope of the battle will determine how much of these impacts there are. With only 0.4% of the world's throughput passing through its main ports, Ashdod and Haifa, Israel has a small market for container shipping, reducing the likelihood of disruptions to the flow of container trade across the Mediterranean.

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Way forward

The Israel-Palestine conflict requires a peaceful resolution, but the Israeli government's reluctance has exacerbated the issue. A balanced approach is needed to maintain favorable relations with Arab countries and Israel. The Abraham Accords, normalization agreements between Israel and the UAE, Bahrain, Sudan, and Morocco, are steps in the right direction. Regional powers should envision peace in line with these agreements. India's role in multilateral organizations requires cooperation with related parties to achieve security and stability in the Middle East and West Asia. As a non-permanent member of the United Nations Security Council and Human Rights Council, India should use these forums to act as a mediator.

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Conclusion

The ongoing Israel-Palestine conflict is expected to have a significant impact on the global economy, including an increase in oil prices, a decline in global growth, and potential disruptions in the India-Middle East-Europe Economic Corridor (IMEC). A direct confrontation between Israel and Iran, which supplies money and weapons to Hamas, could lead to a recession that would wipe out almost $1 trillion in global output. This could result in a global economy decrease of nearly two percentage points and an increase in global inflation to around 6.7% in the upcoming year.

The conflict also poses threats to India's economy, as it could affect its defense alliance with Israel, which is heavily reliant on oil supplies from the Middle East. The country's energy supply, economy, and investment are all affected by the conflict. The instability of the region may also pose a threat to the IMEC's capacity to function properly.

India's top exports to Israel include diesel, electronics, photovoltaic cells, integrated circuits, cut and unpolished diamonds, while India imports from Israel include herbicides, fertilizers, and rough diamonds. The closure of the Suez Canal has disrupted global trade, affecting the movement of goods and commodities between Europe and Asia. The conflict has caused significant disruptions in the shipping and maritime industry, prompting international companies to issue cautionary advisories and adapt their operations in the region.

The conflict could also strain diplomatic relations between Saudi Crown Prince Mohammed bin Salman and Israeli Prime Minister Benjamin Netanyahu, potentially impacting Israeli exports to the U.S., Germany, and India. The India-Middle East-Europe Economic Corridor (IMEC)'s potential to raise $600 billion by 2027 for international infrastructure projects is made more unclear due to the ongoing regional complications.