Money Spent On Defense Industry Has Potential To Disrupt Macro Balances In Possible Iran-Israel War

(MENAFN- AzerNews)
Money Spent On Defense Industry Has Potential To Disrupt Macro Balances In Possible Iran-Israel War Image
Qabil Ashirov Read more

Tension in the Middle East is increasing day by day. FollowingIran's missile and drone attacks on Israel, Tel Aviv struck back atthe facilities in Iran. As usual, Israel did not comment on theissue, some foreign media outlets claimed that similar attackscould be in Iraq and Syria. In other words, the region looks like akeg of powder that could explode at any moment. However, takinginto account that the Middle East is the main source of fossilfuels in the world, needless to say, any possible war will impactthe economy not only the countries in the region but the wholeworld.

Regarding this issue, a correspondent of Azernews learned the opinion of the MUSIAD boardmember and former banker, Ünsal Sözbir. The expert noted that it isobserved that geopolitical risks are increasing day by day with anew agenda. He said that certain parameters are examined tounderstand how financial markets perceive these risks and how theyreact.

"Before the possible negativities that may arise from theIran-Israel conflict, it would be useful to look at the one-monthdevelopment of the VIX index, which shows the volatility in the UScommodity markets, one of the most important indicators showing therisk perception in the USA in general and China in particular.

There has been an increase of up to 50% in risk perception sinceApril 1, 2024, when Israel's attack on its military elements inSyria began. When we look at this indicator, also called the fearindex, in the long term, it cannot be said that there is a seriousincrease in risk perception yet," Ünsal Sözbir said.

He pointed out that another indicator is the development in Goldprices. He noted that after a long time, we have entered a periodin which records were broken in Gold Ounce prices. He said thatwhen we look at gold prices, especially in major centers around theworld. The fact that banks are constantly buying gold and that thecountry's reserves are directed to actual gold reserves instead ofpolitically risky reserves such as the US Dollar indicates anincreased risk perception.

"The warming of the region will primarily affect countries thathave trade relations with the entire region, such as Turkiye. Themoney spent on the defense industry has the potential to disruptmacro balances in the long term, first in warring countries andthen in all countries in the region. Deteriorating relations anduncertainties give signs that will reduce the macroeconomic growthof the region.

Of course it will have an impact on inflation. Although theupward trend in oil prices seems to be in favor of oil-exportingcountries, it is a factor that will increase costs in general. Themost concrete example of this is the decrease in the use of theSuez Canal, which shows that freight prices and the general levelof prices will continue to increase, in other words, inflation inthe region will continue to increase. While increasing costs incountries like Türkiye will trigger inflation, they will alsoaffect the growth of the economy. On the other hand, it will alsohave consequences such as the postponement of projects such as theDevelopment Path, which are developed together by the countries ofthe region and which may be in favor of each country as a whole,"the Former Banker emphasized.

As for fossil fuels, he noted that even though there is anupward trend in oil prices, the embargo. The increase in supply incountries such as Russia, Iran and Saudi Arabia, one of the mostimportant producing countries, will balance these priceincreases.

"This balance will be an important holding element for countriesthat will be negatively affected by the increase in oil prices.

A similar balance exists in natural gas. Although the recentdecrease in LNG shipments through the Suez Canal has affectedprices, there are no strong signals yet that this will be a radicalincrease," the former banker Ünsal Sözbir concluded.



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