On October 1, when Iran fired more than 180 ballistic missiles toward Israel, there were intense speculations about how Tel Aviv would respond and what would be its likely political and economic impact on the world. Tensions have only risen since then, with Israel now launching airstrikes on key Iranian military installations raising the possibility of a potential full-scale war. Equipped with formidable arsenals, both nations are capable of striking each other and have allies that could quickly transform a bilateral conflict into a regional crisis and in the worst-case scenario – a full-scale war. The Israeli attack on Iran has fuelled widespread concerns as the global community weighs all options and readies itself for the potential consequences of further escalation in the Middle East.

Impact On The Middle East

The latest escalation between Israel and Iran has reignited regional rivalries, evoking strong responses from key players across the Middle East. Syria, a close ally of Iran, reported Israeli strikes in its capital, Damascus, prompting a show of defence from its air systems. Iraq also closed its airspace, citing security measures to protect its civilians and prevent further incursions into its territory.

Many regional powers, including Saudi Arabia, have condemned Israel’s actions, cautioning that further escalation could severely destabilise the entire Middle East. If the situation worsens and the conflict drags on, it could strain fragile diplomatic ties in the region and lead to heightened security measures across several Middle Eastern nations. Additionally, as each country aligns with its respective allies, the chances of proxy wars become ever more likely, with neighbouring states such as Lebanon and Syria eager to be drawn into the conflict.

Economic Fallout And Crude Oil Prices

The economic consequences of the Israel-Iran-Hamas-Hezbollah conflict have begun to create ripples across global markets, most notably affecting crude oil prices. Since Iran’s missile attack on Israel, global oil prices have surged to USD 75.90 per barrel. This upward trend, worsened by fears of disruptions in oil exports, could impact the global oil supply chain.

As far as Iran is concerned, its oil production centres are located along its Gulf Coast, with critical facilities such as the Kharg Island terminal and the Abadan and Bandar Abbas refineries playing a big role in its oil exports. Any strike on these facilities would not only devastate Iran’s economy but could also trigger an immediate spike in global oil prices. However, Israel has so far refrained from attacking the Iranian oil facilities fearing backlash from global powers like the United States, the UK, France and especially China, which has vested interests in the Middle East region.

While Israel has not targeted Iran’s oil export facilities, any sustained conflict is likely to disrupt supply chains and place upward pressure on prices. Also, any cyber or military strike on energy companies like Abadan refinery, which produces a significant portion of Iran’s gasoline for domestic use, could still impact regional markets without severely impacting crude oil exports.

Diplomatic Implications

Israel has been cautious in its response to Iran and its move to strike military sites in Tehran and leaving the oil and nuclear facilities points to its strategy of balancing retaliation with restraint, thus avoiding a full-blown conflict that could draw in the United States and other Western allies. While the Joe Biden Administration has advised Israel against strikes on Iran’s nuclear facilities and oil production sites, its delivery of the Terminal High Altitude Area Defense (THAAD) missile system to Tel Aviv also points to its strong ties with the Jewish state.

Whatever one says, the stakes are high, and the Israeli action has indeed sent a strong message to both Iran and the global community. However, as past conflicts have shown, a show of strength does not always guarantee an immediate end to hostilities. Even at the slightest provocations, both sides have been eager to retaliate, warning each other of a “strong response”.

Global Response

The current situation has left the international community extremely worried, especially those with significant energy interests in the Middle East. Amid concerns over the potential disruption of oil supplies and with limited options available, diplomatic efforts appear to be the only viable solution to prevent a prolonged crisis. This holds significance since the United States, the United Nations and several players in the Middle East have offered to mediate between the two warring nations in order to stop further aggression.

In the days to come, both Israel and Iran are likely to use military posturing and diplomatic rhetoric to achieve their strategic goals. For Israel, a show of force is paramount, but in doing so, Tel Aviv has to ensure that it does not alienate its allies or spark a full-scale regional conflict. For Iran, which wants to establish itself as a regional superpower, retaliating to any Israeli act of aggression is extremely crucial to its standing at the domestic and international fronts.

At the moment, the Middle East stands at a crossroads, where diplomacy and ceasefire are desperately needed to prevent a full-scale war. The future of the Middle East depends on whether Israel and Iran choose aggression or restraint in the coming days, and whether the international community remains a passive observer or steps in as a mediator.