— This is the script of CNBC's news report for China's CCTV on May 13, 2021, Thursday.
With the most severe outbreak of violence between Israel and the Palestinians since 2014, global investors are turning risk-averse. The U.S. Dollar Index rose and Brent Crude Oil closed more than 1% higher during the overnight trading session. We have yet to see a significant move in the gold price, but major safe-haven assets will be focal points in the coming few days. A truce is unlikely to happen any time soon; instead, tensions are expected to rise.
Martin Indyk
Former U.S. ambassador to Israel
"I do think there's got to be an escalation. And the Prime Minister's words indicate that the Israelis are seeking now to try to reestablish the deterrence that they had that lasted for about six years, and prevented these rocket attacks for the most part, from landing on Israeli cities. And they want the content to pull this off, until they've inflicted enough pain on Hamas, to get them to stop that rocket fire. Hamas, on the other hand, is going to respond by attacking Israeli cities indiscriminately with these rockets, to try to show that they will not be deterred by Israel, and to champion the Palestinian cause, including the cause of Jerusalem this time because of the tensions there. So I think it's set on both sides, unfortunately, to escalate in the coming days."
The tension could slow down economic recovery amid the ongoing pandemic. According to the United Nations, the economy of Palestine contracted between 10% and 12% in 2020 due to the pandemic, the worst performance since 1994. The Palestinian economy is projected to grow by only 3.7% annually between now and 2025, says a new UNCTAD study released late March. Israel performed better than most OECD countries in 2020, but its GDP shrank by 2.4%. Goldman Sachs forecasts Israel to grow by 7.5% this year. That number will have to be revised if the conflict escalates.
As the confrontation is still ongoing, it's hard to estimate the damage at this stage. As a reference, Palestinian officials provided an assessment in September of 2014 that the Israeli–Palestinian conflict or Gaza War that happened earlier that year had cost $7.8 billion. In addition to the loss of lives, damage to critical infrastructure is another aspect worth noting. There are already reports saying that some oil tanks owned by Israel were hit.
As the military conflict further escalates, economic relations could suffer too, impacting global trade. According to Reuters, Israel announced in February that it would bar Palestinian agricultural exports, including olive oil and dates, from leaving through Jordan. In 2019, Palestine exported roughly $147 million worth of agricultural goods.
The situation would become even more complicated if more countries get involved. The military confrontation could worsen the economic difficulties and poverty issue in the Gaza Strip, which means more financial resources are needed in terms of international aid and refugee resettlement. How the conflict plays out will determine the severity of these issues.