Investors worried about the alarming state of global affairs could do worse than to channel the perpetual unflappability of Federal Reserve Chair Jay Powell.
That sentiment can be hard to square with what seems to be a wave of chaos sweeping the globe. Israel, reeling from Hamas’s massacres, is pounding Gaza. Iran, which supports Hamas, continues to warn darkly that it will expand the conflict. The Houthi movement, which controls Yemen’s capital, Sanaa, is launching missile and drone attacks at Israel. Meanwhile, Russia’s war in Ukraine grinds on, and China still holds designs on Taiwan. Plenty of risk out there, indeed.
But those are hypotheticals. More interesting is the set of mitigating factors that the Bank’s economists say make a full-on repeat of the energy crisis of the 1970s unlikely. Among them are the fact that the global economy is overall less dependent on oil than it was: “The amount of oil needed to generate $1 of GDP has fallen by more than half since 1970,” the Bank notes, meaning a new oil shock would simply hurt less.
That’s an unsettling development. But there is another way to look at it, even if you assume that the Houthi attacks in the war are really a thinly disguised assault by Iran. The Houthis would represent a low-cost way for Iran to respond to Israel’s Gaza operation while keeping the chances of regional escalation relatively small, says Michael Horowitz, head of intelligence at the LeBeck Institute, a risk consultancy.
To be sure, what happens next isn’t solely in the hands of Israel, the U.S., or anyone else who wants to keep the chaos contained. “Iran’s threats to open fronts beyond Palestine appear credible,” writes Mohammad Ayatollahi Tabaar, an Iran scholar, in Foreign Affairs. The Houthis, Hezbollah, and other proxies could join Hamas’s fight. But more likely than an acute acceleration of the conflict is a continuing, midlevel crisis.
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