Our Notes on the Israel Hamas WarOctober 13, 2023
We hope this message finds you and your loved ones safe and well. At Acumen, we understand that recent world events, such as the ongoing conflict between Hamas and Israel, can have a profound impact on many lives. We want to express our deep concern for all those affected by this situation, and our thoughts are with those who are enduring its consequences.
On Saturday October 7th, Israel was attacked by “Hamas”. Hamas is an acronym for Harakat al-Muqawana al-Islamiya, or Islamic Resistance Movement. The group rejects Israel’s right to exist. Hamas has received support and weapons from Iran in the past. Iran’s involvement in the attacks on Israel has not been confirmed, but the Wall Street Journal reports Iran helped to plot the attacks. Israel has declared war against Hamas and launched a counter offensive in Gaza, which is a strip of land governed by Hamas since 2007. Israel has ordered a complete siege of the strip which is home to more than two million people. Currently, the death toll is approximately 2,600 total with nearly equal loss of life on both sides.
These developments are another example of the heightened geo-political risk world we live in today. The war in Ukraine is still ongoing. China and United States tensions have risen over the last several months. And it appears Iran could have at least somewhat been involved with the attacks on Israel.
It is surprising to us many news articles do not mention these attacks were launched one day after the 50-year anniversary of the 1973 Yom Kippur War and represent the largest attacks on Israel since that time. The 1973 attack on Israel by Egypt and Syria prompted the United States and Soviet Union into indirect confrontation in defense of their respective allies. (The United States supported Israel and the Soviet Union supported Egypt and Syria.) Additionally, in response to the United States (and other countries) supporting Israel in the Yom Kippur War, OPEC imposed an oil embargo that stopped shipments of oil to the United States and other countries. That was a primary cause of the first of the double-digit inflation spikes in the 1970’s. The inflation concerns are eerily similar now 50 years later.
Now, the United States and many European Union countries have expressed their support for Israel. The United States has ordered American military ships, including an aircraft carrier and additional aircraft, to move closer to the eastern Mediterranean, likely an effort to stop further escalation. Many countries in the Middle East have shown their support for Hamas. Also, like today, in 1973 the United States was already facing some inflationary pressures, which left it susceptible to inflationary shocks.
Given the strong response by Israel and actions by Hamas, it seems very likely the fighting will get worse before it gets better. Additionally, there is risk of escalation outside of the region if Israel directly attacks Iran, or sanctions/embargoes occur between opposing countries which make up for larger amounts of global trade.
Currently, markets are not responding much to these developments. Since the attack, Brent crude oil is only up ~3%, the S&P 500 is up ~1.5%, and defense stocks have moved upwards by about 5%.
We plan to monitor risks involving potential escalation of the war to include more countries. We note that oil price spikes are not as large of a worry today as they were in the early 1970s. Iran primarily exports to China, Syria, and Venezuela. Also, OPEC only makes up ~1/8th of United States oil imports (and the United States is now a net exporter of oil). With that being said, there is still risk the countries around the world pledge their support in various ways which could lead to sanctions, embargoes, etc. Importantly, Iran has close ties with China and Russia through the trade of oil and other goods. If the United States were to confirm that Iran did help in a major way to plan these attacks, it could add fuel to the geopolitical tensions already occurring between the United States and China, which does have some major trade implications.
We appreciate the trust you have placed in Acumen. If you have any questions or concerns, please do not hesitate to reach out.
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