The geopolitical tensions in the Middle East between major and regional powers have reflected negatively on the economic and financial conditions of the whole world, especially on stocks, oil, gold and currency prices. This has resulted in traders and investors getting lost in a maze of ill-informed decisions due to the tense political and conflict heavy atmosphere that foreshadows grave developments and even wars.
Indeed, this happens spontaneously, and in such cases, the search for safe havens for capital is the top priority. S, o we have seen sharp declines, some of which have exceeded 3 per cent on many exchanges around the world, including Wall Street. This comes as a result of proactive attempts by investors to anticipate events and preserve their wealth by liquidating stocks and moving towards some of the more stable assets in times of war, such as gold.
Oil prices also witnessed a significant rise, hitting $73 (Dh268) per barrel for the first time since December 2014. And a positive development for the oil producing countries and which would contribute to improving their economic conditions.
Currencies, however, have taken contradictory paths. While the demand for global currencies including the dollar, the euro and the pound has been stable and even strong, others — particularly those of regional countries directly related to the conflict zones such as Iran’s toman and Turkish lira — suffered serious deterioration.
The Iranian currency has almost collapsed, falling in just two days by 16 per cent despite the desperate attempts of the central bank, which had few options to intervene to protect the currency. What made things even worse was the currency exchange outlets that refused to change dollars, leading to further deterioration. The Turkish lira fell by 5 per cent during the same period.
This has coincided with sharp declines on the bourses in Arab states, which are at the centre of the escalating crisis between major powers in Syria due to the use of chemical weapons and the Iranian military concentration there. It is clear that the situation is likely to worsen, and economic indicators are thereby expected to witness further deterioration.
International trade
Military strikes or war in short means a deterioration in the global investment flows and trade, and further exacerbated by the undeclared trade war between the US and China. Plus, there is the continuous threat of the Iranian-backed Houthi militias on sea lanes near the Strait of Bab al-Mandab and the Red Sea, which the Arab coalition countries are working to keep open and safe for international trade.
All these developments will have excruciating repercussions on the living standards of many countries, especially Iran, where inflation has reached record levels due to the collapse of its currency and the renewal of some economic boycotts by the US and the European Union. This could lead to renewed divisions and demonstrations against the mullah regime.
At the same time, the Turkish economy will suffer more. Despite last year’s high growth rates, the continued deterioration of the lira and high inflation rates will diminish growth rates, especially as Turkey’s commitments in the region are costing its treasury dearly.
On the other side, Arab economies will suffer less damage, thanks to the possibility of rising oil prices as the situation worsens. But the stock markets will bear the biggest burden of repercussions, while currencies will remain at current “coherent and stable” levels.
In light of the instability in the Middle East and indications that the situation could escalate into conflict, investors’ choices will be limited. Making the right decisions will contribute to reducing losses, especially as speculators will benefit by reacting swiftly to achieve gains.
— Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.
