Good morning, Peter Vanham here in Geneva.
The Israel-Hamas war has deeply divided societies around the world, including many companies and institutions. But as the Israeli offensive in Gaza intensifies, companies will have to shift gears from talking about the conflict and its impact on employees to dealing with its economic ramifications.
Those could be so severe that they could plunge the world back into a recession, cause oil prices to surge to $150, and depress stock prices by some 20%, EY-Parthenon’s chief economist Gregory Daco told me. Even companies that have no business in the Middle East would then be caught in its economic fallout.
“If your market is 90% U.S.-based, in the Midwest, why should you care about the [conflict]? Well, you will have to care because it will have consequences that will affect your business,” Daco said. “Depending on how diffuse the situation becomes, the consequences could go from very marginal to significant.”
The hypothetical situation outlined above, which Daco dubbed the “uncontained” scenario, includes a widening of the front to Lebanon and Syria, direct involvement of the U.S. and Iran, and wider social unrest in the Middle East. That outcome isn't more likely than a more contained scenario, which would limit the war to a ground offensive in Gaza and have almost no long-term global economic consequences. Still, CEOs better take all possibilities into account as they plan ahead.
The prospect of long-term economic consequences also points to a definitive end to the days in which multinational companies could simply forecast economic growth, trade, and manufacturing costs for their global markets. They must also factor in the constant threat of disruptive forces like political and social turmoil and war.
“Reshoring” and “nearshoring” can provide relief from possible trade disruptions resulting from the Middle East conflict in the Strait of Hormuz or the Suez Canal, but no one can run away from rising oil prices, inflation, a recession, or a drop in the stock market. “Resilience” and “geostrategy” are my nominees for the buzzwords of 2023.
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Peter Vanham
peter.vanham@fortune.com
@petervanham
