The outbreak of war between Israel and Hamas on 7 October 2023, following Hamas’s devastating attack on southern Israel that killed approximately 1,200 people and took 240 hostages, triggered a conflict that has fundamentally destabilised the Middle East and sent waves of economic uncertainty through global markets. Over a year into the conflict, the death toll in Gaza has exceeded 40,000 and the humanitarian situation has been described by international organisations as catastrophic. The business and economic consequences of the war continue to reverberate worldwide.
Immediate Market Reaction to the October 7 Attacks
Global financial markets reacted swiftly to the outbreak of the Israel-Hamas conflict. Oil prices jumped approximately 4% in the immediate aftermath of the October 7 attacks, driven by fears that the conflict could escalate to involve Iran — a major oil producer — or disrupt shipping through the Persian Gulf and the Strait of Hormuz, one of the world’s most critical oil chokepoints. Gold, the traditional safe-haven asset, surged towards $2,000 per ounce as investors sought protection against geopolitical risk. Global stock markets declined in the days following the attack, though they recovered relatively quickly once it became apparent that the conflict was initially contained within Israel and Gaza.
Oil Market Impact: Iran, Saudi Arabia and the Price Question
The oil market impact of the Israel-Hamas war has been substantial but less severe than feared, primarily because the conflict has not directly disrupted oil production or transit in major producing regions. Iran, which is widely acknowledged to provide financial and logistical support to Hamas, has been careful to avoid direct military confrontation with Israel that would trigger American intervention or sanctions enforcement. Saudi Arabia, which was in the final stages of a US-brokered normalisation deal with Israel at the time of the October 7 attacks, put those negotiations on hold indefinitely.
The potential for escalation involving Iran — which controls the Strait of Hormuz through which approximately 21% of the world’s oil supply passes — remains the single biggest tail risk for global energy markets. Any Iranian decision to close or threaten the Strait of Hormuz would trigger an oil price spike that could plunge the global economy into recession. So far, that escalation has been avoided, but the risk premium it adds to oil markets has kept prices elevated relative to where they would otherwise be.
Red Sea Shipping Crisis
The most direct economic consequence of the Israel-Hamas war on global business has been the Houthi rebel attacks on commercial shipping in the Red Sea, launched as an expression of solidarity with Palestinians in Gaza. The Houthis — a Yemen-based group backed by Iran — have launched dozens of missile and drone attacks on commercial vessels transiting the Red Sea, forcing major shipping lines to divert their vessels around the Cape of Good Hope rather than through the Suez Canal.
This diversion adds approximately 7,000 nautical miles and 10-14 days of sailing time to journeys between Asia and Europe, dramatically increasing shipping costs and delivery times. Container shipping rates from Asia to Europe surged by over 200% from their pre-crisis levels in late 2023 and early 2024. The disruption has affected supply chains across multiple industries, including automotive, electronics, retail and manufacturing, and has contributed to inflationary pressures in Europe and beyond.
Israeli Economy: Tech Sector and Investment Impact
Israel’s own economy has been significantly affected by the war. Israel is one of the world’s leading technology and cybersecurity hubs, and the conflict has created real challenges for the country’s technology sector, which employs a substantial proportion of the country’s skilled workforce. Many technology workers have been called up for military service, creating staffing challenges for start-ups and established companies alike. Foreign direct investment into Israel fell sharply in the first year of the conflict, as multinational companies reassessed the operational and reputational risks of Israeli operations.
Tourism to Israel collapsed entirely, hotels and restaurants in Tel Aviv and other cities were largely empty of foreign visitors, and the aviation industry faced significant disruptions as airlines suspended routes. The Israeli shekel lost considerable value against major currencies in the early phase of the conflict. The Israeli government has committed enormous financial resources to the military campaign, with defence spending as a proportion of GDP reaching levels not seen since the early years of the state.
Humanitarian Aid and Reconstruction Costs
The destruction of Gaza has been on a scale that is almost difficult to comprehend. International estimates suggest that rebuilding Gaza will cost between $50 billion and $80 billion, an extraordinary sum for a territory of approximately 2.3 million people. The question of who will fund and oversee this reconstruction — and under what political conditions — is one that the international community has not yet resolved. Arab states in the Gulf region have been approached to contribute, as has the European Union, but the political conditions for any such contribution remain deeply contested.
Impact on India
India has significant economic and strategic interests in the Middle East. The region is home to approximately eight million Indian workers whose remittances are a critical source of foreign exchange earnings. India imports approximately 85% of its oil needs, with a significant proportion coming from Middle Eastern producers. Any sustained escalation of the Israel-Hamas conflict into a broader regional war involving Saudi Arabia, Iran, or the Gulf states would have direct and severe consequences for India’s economy through higher oil prices, disrupted remittances and increased shipping costs.
India has also been developing its relationships with both Israel — a major defence partner — and the Gulf Arab states — crucial economic partners — making the conflict particularly challenging to navigate diplomatically. The IMEC corridor (India-Middle East-Europe Economic Corridor), announced with great fanfare at the G20 summit in New Delhi in September 2023, has effectively been put on hold by the conflict, representing a significant setback for India’s infrastructure and trade connectivity ambitions.