What does conflict in the Middle East mean for our economy?
by Ed Reid
It’ll come as little surprise what I’ve decided to cover this week. You can’t watch the news or check your phone without seeing an update about what’s happening in the Middle East right now. And rightly so.
Thousands are dead. Thousands more have been injured or taken hostage – and unfortunately – it doesn’t look like it will be stopping any time soon.
When the Palestinian militant group Hamas first attacked Israel on October 7th, no one knew what to expect. Now – roughly a month on – we’re not really any clearer.
In the immediate, oil prices are on the up. A barrel of crude oil has gone up by 7.5% in a week, and it won’t be long before this drips through to the petrol pumps down the road. Energy bills and food prices will be next – we saw it with Putin’s invasion of Ukraine – so there’s little doubt this latest conflict won’t follow the same battle card… pardon the pun.
But then, what about the economy?
To understand this on a global level, we need to rewind the clock about 50 years. Coincidence or not – no prizes for guessing what I’m thinking – Hamas decided to launch their attack almost to the day of the 50th anniversary of the Yom Kippur War.
As former President Jimmy Carter put it: "The Yom Kippur War was a turning point in the global oil market. It led to the Arab oil embargo, which caused a major energy crisis in the West. It also showed the importance of the Middle East to the global economy.”
The war opened the floodgates. Higher oil prices led to a hike in business and consumer costs, the cost of living – a phrase we’re all now far too familiar with – increased and employment rates subsequently dropped.
Fast-forward fifty years, and you might like to think our economy is in a much more comfortable and secure state than it was back then. And pigs might fly…
Unfortunately, whilst the Internet has come a long way, cars are considerably more comfortable, and I can order a pizza and a beer without leaving the sofa, the economy – on the grand scale of things – hasn’t changed too much.
In fact, for the Bank of England, Hamas couldn’t have picked a worse time to attack. The cost of borrowing has increased a staggering fourteen times over the last two years in an effort to control inflation, with high mortgage rates, energy bills, and food prices now commonplace in our daily lives.
There had been a recent expectation amongst analysts that interest rate rises would begin to slow in order to help our economy avoid a recession, but if conflict continues in the Middle East, these cuts might be forced to be delayed.
Now, this is all interesting background, but for us – right now at least – it’s all very ‘big picture’. Looking at local UK businesses, it’s not time to panic yet. The FTSE 350 index is down, but it’s not reached the lows seen earlier this year in July or August.
Essentially, the conflict won’t be affecting our day-to-day bookkeeping for the time being. But that doesn’t mean we shouldn’t be future-proofing.
Luckily, within the TAB, we have a wealth of resources at our fingertips to start doing this. Our advisory boards are there not only for you to bounce your ideas off but also for your worries and concerns. One of the greatest assets we have is the people themselves – you’re not going to be alone in what you’re thinking or feeling – someone within our network will have the words you’ve been searching for.
Plus, if nothing else, it’s several more pairs of eyes to keep an eye on the conflict and raise the red flag when the effects do start moving a little closer to home.
Keep a watch on any new contracts you’re entering into. Be cautious of any potential supply chain issues that could be affected. But for now, try not to panic.
As I always return to, there’s little point staying up at night and wondering what if…
What if I’m making the wrong decision? What if we can’t afford it? What if it doesn’t work?
These are questions every one of us will have, but since becoming part of TAB and having my own Board to sound these late-night musings off, they no longer force me out of bed at three in the morning. No, I can leave that solely up to my bladder now…
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