https://www.ft.com/content/53f64b6b-3151-46b3-ad83-3a4732c35d41?segmentId=b385c2ad-87ed-d8ff-aaec-0f8435cd42d9 APRIL 19 2024
Noted economist Mohamed El-Erian hints that the markets ignoring escalating Middle East tensions may be missing potentially dire consequences.
"recent escalation of tensions between Iran and Israel...significant consequences not only for an already unstable Middle East but also for the wellbeing of the global economy and the stability of its financial system."
"the global economy ... is already too fragile to handle a large new economic shock. Specifically, a further round of military escalation between Iran and Israel would undermine already low and fragile global growth, push up goods inflation at a time when services inflation is still too high, and impose demands on fiscal and monetary authorities that have already used up much of their policy flexibility and have limited operating space."
...
"First, two of the potential engines of global growth — the already-stressed Chinese and European economies — would be hit relatively hard given their high dependence on imported energy.
Second, US inflation would prove even more stubborn at a time when progress in reducing price pressures has already disappointed this year, thereby acting as a bigger counter to early rate cuts by the Federal Reserve.
Third, the strong dollar would get a further appreciation boost, undermining trade and financial intermediation.
And finally, with worsening economic and geopolitical situations, risk premia would increase. This would lead to higher borrowing costs than might have prevailed otherwise. "
...
"There is no doubt that the latest round of Iran-Israel hostilities has crossed many lines and durably raised the geopolitical temperature in the region. Yet markets seem keen to brush this aside, comforted by the fact that we are yet to reach the boiling point of significant human casualties and physical damage in these retaliation rounds — a point that would cause significant economic and financial dislocations. Given that this is a region that is vulnerable to errors of judgment, insufficient understanding of adversaries, and implementation accidents, that could well prove too complacent a reaction."
--------------------------
I would add this war conducted by the Houthis is already having an effect.
https://www.datacenterdynamics.com/en/analysis/the-houthis-and-the-red-sea-a-new-risk-to-subsea-cables/Are ships that once passed through the Suez canal really going all the way around the Horn of Africa? And Biden, NATO et al have no answer for it?
We live in a troubled world. [Invest accordingly.]
