Cost of war in Gaza ultimately falls on Israel and Palestinians

Territory will require a massive emergency economic aid plan when the guns fall silent

- Jonathan Eyal

The war between Israel and Hamas is generating a humanitarian disaster in the Middle East, although its impact on the world economy remains modest.

Matters could change, however, if the war morphs into a broader regional confrontation.

Traditionally, oil prices are most directly affected by violence in the Middle East.

During the 1973 war between Israel and its neighbours, which led to an embargo on Arab oil sales to the West, prices for this energy commodity jumped by 55 per cent.

This time, however, the Hamas attack on Israel on Oct 7 and the subsequent Israeli military response had no concrete impact on oil production or prices.

Natural gas prices did rise after the Israeli government ordered the platform serving the offshore Tamar gas field in the Mediterranean Sea to suspend operations due to its proximity to Gaza.

But even then, the spike in gas prices was soon offset by the continued operation of the bigger Leviathan field, which is also in Israel's territorial waters.

A potential involvement in the war by Hezbollah, the Iranian-funded militia in Lebanon, changes the equation because it may beget a confrontation between the United States and Iran.

And this will spook energy markets, as well as add pressure on Muslim oil producers to punish Israel and its Western backers.

Iran's Supreme Leader, Ayatollah Ali Khamenei, has already urged Islamic states to stop exporting oil.