This week in Economics #1 – Israel VS. Hezbollah
Did anyone know what a pitcher was until a couple of weeks ago? Neither did I, but Hezbollah most certainly didn’t realize that the ones they had were packed with several grams of explosive components. In the last few weeks, Hezbollah has suffered major losses, losing much of its leadership, including its leader, Hassan Nasrallah, to Israeli airstrikes. Their communication infrastructure was also destroyed as a prelude to the conflict, with Mossad (Israel’s defence service) detonating explosives hidden in communication devices used by Hezbollah members, from pitchers to walkie-talkies. This was all a prelude to a ground invasion launched by Israel last week, on September 30th.
To clarify why this has happened, Hezbollah is an anti-Israel terrorist organization tied to Lebanon and funded by Iran. Thanks to this, they have access to hundreds of missiles that they can fire into Israel, which is a notable security threat. Although these missiles can be intercepted thanks to Israel’s Iron Dome system, the same can’t be said for Hezbollah members, who can hide amongst Lebanese civilians. While they are technically part of the government, the Lebanese government is not fully responsible for them. However complicated it may be, a war with Hezbollah is essentially a ground invasion of Lebanon (in the name of capturing Hezbollah members, not to topple the Lebanese government).
So what does this mean for the global economy?
Undoubtedly, oil prices will go up because of this conflict. While Lebanon is not an oil producer, the effect that the additional war in the Middle East will have on the shipment of oil through the Suez Canal will be undeniable. Perhaps the war may spark increased activity from the infamous Houthi rebels, who, just a couple of days after the pitcher explosions, fired a ‘new hypersonic ballistic missile’ at Israel. Although the Houthi rebels and Hezbollah are in no way allied factions, they may very well take their shots at Israel and their allies during this conflict. This has been further demonstrated by Hamas firing an explosive drone into a British Tanker this week, on the 1st of October. Therefore, the war will impact international trade, taking place very close to the Suez Canal, and serving perhaps as a trigger for other bad actors.
On the topic of Israel itself, while the country has kept going after 11 months of gruelling war with Hamas, that isn’t to say that the economy hasn’t suffered a lot of damage. The increased military spending and a reduction in Israel’s credit rating have heavily strained public finances. Furthermore, if it hadn’t already been with the first war, the prospect of the nation fighting two different wars simultaneously may prove to be a daunting prospect to those looking to invest in Israel’s economy. Above all, Israel’s tourist industry will take the biggest hit. The idea of another scary war circulating in the minds of the global population, not even a year after October 7th last year, means Israel will suffer yet another drought in tourists.
Lebanon, however, makes Israel’s situation seem highly optimistic. The country, about to be impacted by a ground assault and numerous targeted airstrikes by Israeli forces against critical infrastructure, will see catastrophic damage to its economy. Their already fragile GDP will collapse under the weight of their economic activity screeching to a halt. The tourist industry, a vital sector for Lebanon, would evaporate, and the humanitarian crisis would be severe due to the destruction of infrastructure, including roads, buildings, and utilities. However, Israel has claimed that the ground invasion will be “limited,” more specifically, to the 25 villages that have received evacuation orders in southern Lebanon.
Furthermore, while Hezbollah is similar to Hamas in that they are both militant political entities, Hezbollah does not rule over Lebanon in the way that Hamas has done since 2006. Hezbollah does not control the Lebanese government; therefore, Israel only has to go after specific Hezbollah strongholds located near the border between Israel and Lebanon. Either way, it is needless to say there will be severe damage to Lebanon’s critical infrastructure structure, and the war will induce mass migration as well as a severe humanitarian crisis in the south. Ultimately, both economies will suffer detrimentally from this war.
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