Mohamed El -Erian, the chief economic advisor at Elianz and head of Queens College at Cambridge University, pointed out in an expanded analytical article published in the British Financial Times newspaper that the recent Israeli strikes on Iran came at a very sensitive time of the global economy, exacerbating the threats related to inflationary stagnation, and weakening the ability of markets to absorb shocks.
Al -Aryan explained that these developments “increase the risks to growth and inflation”, at a time when the ability of monetary and financial policy makers diminished due to high interest rates and budget deficit.
He stressed that “the seriousness of the negative effects will depend on the extent of the Israeli strike and the Iranian reaction.”
High oil prices and market decline
Financial markets witnessed a clear negative reaction, as oil prices increased by more than 7% over $ 74 a barrel, although this level remains without the peak last January, which approximately $ 82.
Al -Arian added that “the markets are awaiting how OPEC Plus will be,” noting that the gradual prices in prices in recent weeks contribute to pushing the winds of inflationary stagnation through the global economy.
The decrease in stock indicators reflected a state of increased anxiety among investors over economic activity, in light of the possibility of declining appetite for consumption and production.
Warnings from the World Bank
The World Bank reduced earlier this month its expectations for global growth in 2025 to 2.3%, less than half a percentage of previous estimates at the beginning of the year.
Although he did not expect a global recession, he warned that if these expectations are fulfilled, the first decade of this century will be the slower growth since the 1960s.
These estimates were built on the hypothesis that the average oil price will be $ 66 a barrel in 2025 and $ 61 the following year, which may change radically in light of the escalation of tensions.
Additional pressure on policy makers
Al -Arian pointed out that the central banks will have to tighten their monitoring of inflationary pressures, which weakens the possibility of reducing interest rates soon, and that governments will be restricted to stimulating growth through fiscal policy due to the continued high interest rates and the sensitivity of investors for deficit and public debt.
Al -Arian singled out the United Kingdom as an example of countries that may face double difficulties, as the recent spending has shed light on the risks that may threaten British families with more taxes in the October budget, which may erase the impact of any potential reduction in interest by the Bank of England.
Employment of the American economic system
Al -Arian drew attention to an indirectly deeper effect of the crisis, related to the erosion of the global economic system based on American domination.
“Over time, this new chaos in the Middle East may be an additional factor in eroding the global economic system led by America,” he said, adding that this may lead countries to reduce their dependence on collective mechanisms of control and stability, and enhance their own capabilities, which weakens the general efficiency of the global economy.
Shying indicators from the financial markets
Al -Arian also noted the “relatively weak” reaction in the US bond markets and dollars after the attack, as traditional gains that are usually achieved by safe assets in crises were not achieved.
“This matter raises the long -term concern,” he commented, noting that “the countries that tend to excessive possession of the US dollar and origins may reconsider this strategy if American influence continues to decline.”
Al -Arian concluded his article with an explicit warning “in any way we look at the economic and financial influences of this new escalation in the Middle East, the result is clear: it is a very bad news in a very bad time,” adding that the markets have become obliged to deal with an increasing group of unstable geopolitical factors, which encourages the fragmentation of the current economic system and increases the possibilities of financial instability.