Israel- Iran Conflict – A Global Threat for Economic Slowdown

The diplomatic and trade relations between Israel and Iran have been very complex and hostile. This relationship is becoming worse day by day with starting of Iran-Israel conflict. Amid the growing tension, Iran warned the world with confirmed retaliation. This poses a potential threat to the global oil supply.

In the international trade arena, both countries share a strategic location. Any small-scale conflict may escalate the tension. This may directly affect bilateral trade between Israel and Iran and indirectly affect the global supply chain. This blog gives you complete trade insight and its impact on the economy.

What is Iran’s Share in Global Trade?

Iran is among the nations with the largest share of oil reserves. Despite this massive natural source, the country’s share in the international market is not as much as it must be. This declining market is due to trade bitterness with Western countries. Let’s understand how Iran’s global market performs.

In the last five years, Iran’s total exports increased from $65 billion in 2019 to $91 billion in 2023. But, due to geopolitical challenges, and sanctions imposed by the US, exports declined by $7 billion in 2023, compared to last year. However, import value increased by $6 billion in the same year. Notably, despite these severe sanctions, Iran enjoys a surplus in trade with $26 billion in 2023. This highlights the strength of the economy and the opportunities for exports. Here’s a quick view of Iran’s trade

Value USD Billion

Israel: Export and Import to The World

Israel, the smallest and strategically important country in the Middle Eastern region, has established itself as a global economic and technological leader. However, due to some geopolitical challenges and geographical constraints. The overall trade performance indicates a negative direction.

Israel’s total exports and imports declined by $13.4 billion and $24.6 billion, respectively, in 2023, compared to the previous year. Analysing the last five years’ trend highlights the increase in import and decline in exports by Israel. Due to this, Israel faces a massive trade deficit of $24 billion in 2023, compared to last year. For a detailed analysis, check the table.

Value USD Billion

Iran-Israel Conflict: An Impact On Israel’s Economy

The escalation of war has already started affecting Israel’s economy with a decline in export value. Further, the domestic production of goods decreases, investors and manufacturers are looking for alternative sources for their supplies, etc. Here’s a quick survey of Israel’s exports to the top five countries –

Due to this conflict, the total trade value declined by $12.6 billion in 2023. This massive downfall is attributed to the Hamas conflict, the Iran conflict, abolishment of bilateral trade with Turkey. The USA, a strategic trade partner of Israel, also witnessed a downfall in trade of $2.2 billion, and with China, the value stood at $1.4 billion, in the year 2023.

Value USD Billion

It’s interesting to note that Israel’s total import value decreased by $24.6 billion in 2023, compared to the previous year. This has widened the trade deficit to $23.2 billion in the same year. China’s exports to Israel increased by $1.6 billion among the top partners in 2023.

Value USD Million

Iran-Israel Conflict: An Impact With Turkey’s Relations

Israel and Turkey, once close allies, enjoy the billion-dollar trade. But, since Israel and Hamas were involved in the conflict, Turkey became the first country to be among the top trading partners to distort the free trade agreement. This step will hurt the economy, manufacturers, investors, exporters and importers from both sides. let’s understand the impact on both economies –

Israel Exports to Turkey

Israel’s total exports to Turkey stood at $1.4 billion in 2023. Among the top products, binders for foundry moulds, ferrous waste and scrap, etc. exported with $165 and $30 in Q1 of 2024. Binders for foundry moulds, ferrous waste and scrap are among the top products exported to Turkey with $165 and $30 million in Q1 2024.

Value USD Million

Turkey Exports to Israel

The recent decision by the Turkish government to halt trade ties with Israel due to ongoing conflict will drastically affect longstanding economic relations between the two. Breaking bilateral trade ties has lasting implications for export-import businesses, manufacturers, and domestic markets. Understand the top commodities exported to Israel. 

This move will hurt the Turkish economy with billions of dollars, for instance, last year, exports to Israel stood at $4.7 billion. If the trade barrier continues, the suppliers of motor cars, cement, jewellery, cable wire, and Copper wire will suffer a lot. And, trade value stood at $109, $58, $54, $47, and $24 million, respectively in Q1 2024. For a closer look, check the table.

Value USD Million

How This Would Affect the Global Economy

There is no doubt that due to Iran-Israel conflict, the world economy is on the tip of the iceberg, and at any time this will start moving toward recession. This may further disrupt the supply chain across the regions. Let’s see the factors –

Global Oil Disruption –

The potential block of the Strait of Hormuz, will inflate the oil price, and increase the production cost across the industries. This will create a domino effect on the market from manufacturers to consumers.

Discourage Investors –

The uncertain region may discourage the investors from looking for safety for business, this inspires investors to withdraw funds from riskier assets to safer places. This will drastically affect the overall region’s development.

Trade Disputes –

Escalated tension may lead the nation to a new alliance and rivalries. In such scenarios, countries may impose economic sanctions, restricting trade and investment, for instance, the Israel and Hamas conflict, inspired Turkey to halt the free trade agreement.  

Understanding the geo-political challenges is the only key to success in this dynamic international market. Without analysing industry trends, sustaining the business may be challenging. It’s equally important for leaders to start negotiations and find solutions before conflict escalates to the highest peak.