The ongoing war that started between Israel and Hamas on October 7th. 2023 will have noticable economic impact on the world.

Short Term Forecast (1 Month +):

The short-term forecasts around the world politics are as below:

1. Iran and U.S. relationship will sour and Iran’s oil export will decline. However, it will be tricky business for the U.S. as the more the U.S. pushes Iran to a corner, Iran will cozy up with Russia. Therefore, this whole ordeal will take place behind the curtain of diplomacy. 
2.  The U.S. (and NATO) will project power in the Middle East to ensure no country (or group) dares to join the war with the hope that this war comes to a quick end. However, here the challenge will be to convince Israel to stop the war when the U.S. think that Hamas paid enough price. This will be another diplomatic challenge.  
3.  The U.S. (and NATO) will try to keep supporting Ukraine in the meantime. This will also be a tricky business as NATO’s own arsenal is getting depleted and they will not be willing to put their own country in a vulnerable state. This is why, it will be a key target for the U.S. is to stop this war as quickly as possible.

As a result, for the short term (1 month to 3 months), the economic forecasts are as follows:

1. Oil prices will jump up. It is not likely that the U.S. can pursue OPEC to increase production to offset higher demand and Iran’s potential retreat from the global oil market. 
2.  NATO countries will smell the coffee that they need to be action-ready while supplying the world with more and more ammunition. So, the defense sector will be doing good in the short term.
3. The world economy will suffer from higher energy costs. The worst impact will be on the Europe. 
4. Semiconductor industry will be under pressure about possible escalation of tension between China and Taiwan.

Long Term Forecast (6 months +):

Considering that the US federal election is around the corner (i.e. 2024), the U.S. will not be able to sit on the fence and will need to spare its resources to the active conflict zone in the Middle East. We can see that one aircraft carrier is already en route. This means, in simplest terms, although the US military is mighty and can fight many wars at the same time, support for Ukraine may dwindle. After all, the US also has a finite number of resources that need to be carefully deployed. Therefore, unless this war is coming to an end quickly, the chance for Ukraine’s success will be questionable this winter and beyond. If Ukraine is lost, it will have an impact on world politics and the economy. However, the outcome of the Ukraine war is still uncertain as the war between Israel and Hamas may come to a quick end.

It is yet to be seen what China and Saudi Arabia do. While it is expected Saudi Arabia will publicly condemn Israel, it is yet to be seen how much the US can persuade them to stay uninvolved. Depending on Saudi Arabia’s action, oil price will see flactuations accordingly.

Also, no one knows yet if China will see this development as an opportunity to ramp up its aggression against Taiwan.