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The escalating conflict between Israel and Iran looks set to have a major economic impact globally, affecting everything from flight route cancellations to shipping costs in the short term. Potential longer-term impact to global oil supply and inflation are also being priced in by analysts.
Following Iran’s counter strike on Israel over the weekend, many airline passengers are facing cancellations or disruption to flights to Israel and surrounding countries.
EasyJet has suspended flights to and from Tel Aviv. Wizz Air said it would resume journeys to Israel on Tuesday,16 April after stopping flights to Tel Aviv on Sunday and Monday, according to the BBC.
Other airlines which have reportedly been affected are as follows:
Lufthansa said that it had suspended flights to and from Tel Aviv, Erbil and Amman up to and including Monday.
KLM cancelled all flights to and from Tel Aviv until Tuesday.
Qantas said its planes were changing course to avoid Iran's airspace.
Virgin Atlantic is not currently overflying Iraq, Iran, or Israel, but would continue to monitor the situation for any potential impact on our operations.
British Airways said there would be a flight to Tel Aviv on Monday, but added it was keeping the situation under review.
Iberia Express cancelled flights to Tel Aviv on Sunday and Monday.
Finnair said that it had suspended operations over Iranian airspace until further notice.
The European Union Aviation Safety Agency (EASA) reiterated its previous guidance to airlines to use caution in Israeli and Iranian airspace. "The European Commission and EASA will continue to closely monitor the situation to assess any potential safety risks for EU aircraft operators and be ready to act as appropriate," it said.
The longer-term economic impacts of the conflict could result in increased shipping costs. From a geopolitical connected risk perspective, the conflict inflames risks across key sectors, driving up freight and insurance costs. Ships may be forced to take longer, alternative routes to avoid conflict zones, further increasing shipping expenses.
Potential oil supply disruption is a longer-term problem that may affect the aviation sector, among others, driving up fuel costs. The Strait of Hormuz, a critical passage for about one-third (33%) of the world's oil production, could be blocked due to the conflict. There is also a risk of the Suez Canal being targeted, which would further impact global trade routes. This could trigger a rise in global inflation, just when many policymakers have brought inflation under control.
The impact on Israeli exports could be severe. Israel has a strong electronics sector, which is important to global supply chains. If Israel experiences disruptions in production and logistics, it could lead to shortages in global markets.
The scope of the conflict is currently unclear, but there is a risk it could involve other Middle-Eastern nations, including Lebanon, Iraq, Syria, Yemen, Jordan, Saudi Arabia, UAE, and Egypt.
This conflict is an example of asymmetric warfare across different zones of influence, with the potential to ripple across continents and bring in major players such as the US, China, Russia and other key global actors.
Iran supports various paramilitary groups across Yemen, Iraq, Lebanon, and Syria, such as the Houthis, Al Hashd al Shaab, Hezbollah, and the Syrian army. These groups form the so-called "axis of resistance," establishing a strategic corridor from Iran to Syria and Lebanon, pivotal for Iran’s strategic and economic goals.
Israel, meanwhile, is supported by a coalition of allies led by the United States. The US has military bases in Iraq and Saudi Arabia.
The complex and volatile nature of these dynamics underscores the significant risk of escalation across the Middle East. The economic and geopolitical ramifications of this conflict could reverberate globally, impacting international trade and economic stability in a perfect storm of connected risk.
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