Geopolitical developments in the Middle East are expected to have a negative influence on market sentiment and the global economy if de-escalation efforts fail. Since Namibia is a part of the global village and trades with other countries; it is therefore not immune to economic catastrophe.
The global economy has been negatively impacted by event such as COVID-19, the wars between Russia and Ukraine, Israel and Palestine, Israel and Hamas, the start of the global tariff war, and Israel and Iran. These wars threaten the global economy and have the potential to erode globalization and interdependence.
Oil prices have risen by almost 10% during Israel’s attacks on Iran, which raised fears of a wider confrontation in the Middle East and caused major disruptions in oil supply routes including the Strait of Hormuz, according to Global Desk. Brent crude hit $72.80 per barrel while WTI was trading at $73.20. Global markets plummeted as tensions rose, with analysts predicting that crude could reach $100 if the crisis escalated. Although prices are currently substantially below $100, compared to Russia’s 2022 invasion of Ukraine, traders are now factoring in the potential of disruption to critical supply routes and oil infrastructure in the vicinity. The Middle East accounts for a substantial portion of global oil output, and any crisis that puts it at risk sends shockwaves across the market. As a result, the combination of Trump’s tariffs plus a protracted Middle East conflict would considerably increase the likelihood of a global recession.
Rising geopolitical tensions are the most significant threat to the world and if the confrontation between Israel and Iran continues, the situation will worsen further during this year. The rising geopolitical tensions between Israel and Iran endangers global supply chain security. As part of a larger hybrid warfare strategy, these strikes are more likely to progress from low-sophistication, disruption to sophisticated and destructive. War has both direct and indirect consequences on the global economy, harming it through a variaty of mechanisms. A major indirect effect of war is its political and economic radiation beyond its geographical boundaries, which shows up as a decline in regional investment and the disenfranchisement of pro-growth policies that would otherwise receive more focus.
Furthermore, it is vital to remember that Iran is the region’s third-largest oil producer, after Saudi Arabia and Iraq. Despite international sanctions on its oil exports, the Islamic Republic continues to supply considerable amounts of crude to China and India. The current situation could propagate to other key oil and gas producers in the region, as well as shipping. The magnitude of the regional impact is still unknown and will be determined by the time frame, severity, and spread of the conflict. A large-scale conflict would pose a significant economic challenge to the region. The effectiveness of global initiatives to stop further escalation to the wider region will determine its containment. The Middle East situation is still precarious. Oil prices may rise even further if the conflict worsens or if Iran strikes shipping lanes or oil facilities in retaliation.
Moreover, African countries must take the opportunity to increase regional cooperation and diversify their economies to mitigate the economic effects of the Iran-Israel conflict and beyond. Africa should reduce its dependence on external markets that are susceptible to international crises by continuing to invest in intra-Africa trade through structures such as the African Continental Free Trade Area (AfCFTA). Developing industries such as manufacturing, agriculture, and renewable energy will increase self-sufficiency and act as a buffer against supply chain disruptions and rising global commodity costs. With cooperation across Africa, it can boost economic resilience, ensuring that external crises have a limited influence on domestic economic stability.
Additional war spillover is especially likely to affect the Red Sea maritime corridor, which is an indispensable economic route. Africa’s political environment, security dynamics, economic prospects, and regional alliances will be impacted by the escalating conflict between these Iran and Israel. Africa may pay the price of this battle in the form of interrupted trade, and the need to adjust to a changing world.
In the context of Namibia, the Israel-Iran war will probably have an impact on the economy. For the time being, Namibians should brace themselves for potential rises in fuel costs. The escalating confrontation between Israel and Iran may have far-reaching economic ramifications for Namibia and Africa’s economies. Given the current geopolitical situation, rising global oil prices are one of the most pressing challenges to Namibia’s economy, potentially leading to increased inflation, reduced external funding and fiscal instability.
The Welwitschia Fund, also known as the Sovereign Wealth Fund, should intervene to support the economy if geopolitical circumstances trigger variations in global macroeconomic variables. Sovereign Wealth Funds play a crucial role in stabilizing economies, diversifying assets, and securing their countries’ financial future. The Sovereign Wealth Fund can protect the local economy against commodity or exchange rate fluctuations by investing in international assets.
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To preserve macroeconomic discipline and implement strategic buffers, all fundamental policy channels must remain anchored and flexible to these developments. These shocks may result in a decline in household earnings, limiting Namibia’s ability to grow and implement proactive measures. Geopolitical risks can cause financial instability by driving up inflation and prompting capital flows across borders.
The Bank of Namibia could influence its monetary policy to be compatible with global trends and reduce shocks. This means that the Bank of Namibia can raise the repo rate, and commercial banks will raise interest rates in response to rising oil prices, because if the unrest continues, the Organization of Petroleum Exporting Countries (OPEC) may halt supply as well as exchange rate adjustments and trade ties.
Iran’s significance in OPEC cannot be overlooked, since the country produces over 3.4 million barrels of oil per day and exports approximately 1.7 million barrels per day, accounting for 1.6% of total global oil demand.
In conclusion, an intensification of geopolitical tensions could potentially trigger significant de-globalisation of trade and the economic system. As a result, the global community, and particularly powerful countries, must endeavour to mitigate geopolitical tensions through international dialogue, to neutralize the raging geopolitical turmoil.