How big the price tag of another war could be

The week ended with positive notes from an IMF team that made the central bank optimistic about getting the lender's second tranche of $681 million in hand in December. Concluding their two-week visit in Dhaka to review the progress of implementation of the reforms agreed for the $4.7 billion loan package, the IMF mission seemed to have been convinced by the ground reality that targets of reserve holdings and revenue collections are far from being met.

They agreed to lower both the thresholds for reserves and revenue incomes set for accessing the next loan instalment, relieving the authorities of uncertainties and giving them a longer time to meet those obligations.

At the same time, a new storm is brewing in the distance; fears are growing that the Israel-Hamas crisis could spill over into a full-blown war in the Middle East as hopes for an immediate pause in the conflict are fading.

The US president's trip to Tel Aviv signalled full American backing for Israel but miserably failed to win over even their allies in Arab, who are now worried about their own security. The day before his visit, a deadly strike on a Gaza hospital left hundreds, including children, dead. Instead of calming the tension, Joe Biden rather risked inflaming the situation further as he openly sided with the Israeli version that a Palestinian group was responsible for the Gaza hospital strike.

With two US aircraft carriers sent, Biden promised continued support for Israel, which is gearing up for a ground invasion to wipe out Hamas in revenge for its 7 October attacks killing 1,400 Israelis. Meanwhile, the death toll from Israeli air strikes reached almost 4,100 in Palestine's Gaza and West Bank areas.

Instead of keeping Israel away from "going too far", the Biden administration seemed more concerned about humanitarian aid flow to Gaza through Egyptian territory and Iran's possible involvement in the conflict if it spills over.

Biden's visit was quickly followed by his closest European ally, UK premier Rishi Sunak, who was in Tel Aviv on Thursday to reiterate his country's support for Israel.

High-profile US trips, which seemed to aim at finding a diplomatic way to avert further escalations, proved futile to bring any immediate peace in the region as Arab leaders cold-shouldered both the visits of Biden and his secretary of state Antony Blinken.

Earlier, Blinken's extensive Middle East tour met with cold response from American allies Qatar, Saudi Arabia, Egypt and the United Arab Emirates.

The same happened to Biden as Jordanian King Abdullah II, Palestinian leader Mahmud Abbas and Egyptian President Abdel Fattah al-Sisi cancelled a meeting with the US president after the Gaza hospital strike.

The blame game over the hospital explosion is not going to help convince Arab leaders whose hopes for a calming effect from Biden's visit evaporated, nor is it going to cool public outrages in Arabian cities from Tunis to Sanaa to Istanbul.

As protests erupted in Arab countries as well as in the rest of the world against the humanitarian crisis in Palestine, the UN Security Council also failed to agree to a resolution to stop the conflict spinning out of control.

As anticipated, Iran has emerged in the scene with a call for an oil embargo against Israel. At a summit of the Organisation of Islamic Cooperation, called in Saudi Arabia to discuss the crisis, the Iranian foreign minister also urged Muslim countries to expel Israeli ambassadors.

Though seemingly limited to Israel, the call gives a reminder of a similar oil embargo issued by the OIC half century ago, cutting oil output and stopping shipments to the US and some other countries in retaliation for support for Israel in the fourth Arab war, which broke out in this month of October in 1973. This was the first oil crisis that caused major price increases and worldwide energy crisis, leading to far-reaching economic and political shocks.

Oil prices rose four times by 1974, forcing the US government to impose fuel rationing and lower speed limits to save gasoline. The embargo was lifted for the US in the next year, but remained in force for many west European countries, whose oil shocks prolonged.

The shocks were bigger for the US and western Europe, whose post-World War-II rapid development and growth made them more dependent upon Middle Eastern oil than the rest of the world.

But any such situation now would invite a much bigger crisis as the world today requires much more oil than 50 years ago and much more dependent on Middle Eastern oil supplies.

Similar embargo will harm the rest of the world more than Israel, which in fact does not depend on the Middle East for its oil supplies.

Such an oil embargo, if it becomes inevitable, will more likely be collective punishment for the world rather than being a problem for Israel. And the world is paying the price of such an embargo on Russian oil, while the Russian war on Ukraine shows no sign of ending even in 20 months since it broke out.  

The world, reeling under the impact of an ongoing war on one front, cannot afford another war. The US, which has already poured in $44 billion in military assistance to Ukraine, started weighing how big the price tag would be if another front opens in the Middle East.

Fears of an all-out war are running high, pushing oil prices up and causing jitters in the global stock market.

Crude market reacted immediately to the Hamas-Israel escalations, gaining 4% to 6% to cross $90 a barrel.

US Treasury Secretary Janet Yellen said on Monday it was too early to speculate on the economic consequences of the Israeli-Palestinian conflict, and that the impact would depend on whether the conflict spread to the wider region.

Bangladesh sources its crude oil from the Middle East and the persisting dollar crisis has made the country struggle to pay fuel import bills. A fresh supply disruption and price hike of oils will simply be unbearable.

Even a bigger worry looms as the Middle East is the largest source of Bangladeshi expatriate workforce. Previous conflicts put the lives of thousands of Bangladeshi workers in danger in countries like Iraq, Kuwait, Libya and Lebanon and sent thousands back home in recent decades.

In the early '70s, there were a few Bangladeshis working in the Middle East. Today the region has become the largest destination of Bangladeshi workers as a single region by employing more than 5 million workers.

They sent home $11.13billion in the last fiscal year while the total remittance earnings stood at $21.61b.

"If the Israel-Palestine conflict prolongs, it will have spillover impact on the whole region. If Palestinians are forced to leave their homes and take refuge in neighbouring countries, there will be new pressure on the job market there," said Asif Munier, an ILO consultant and migration expert, sharing his worries with The Business Standard.

"Then the migrant workers who are on regular jobs in neighbouring countries like Lebanon, Jordan will be under pressure. Lot of Bangladeshi women are working in Jordan, and they may face job loss," he added.

If the conflict spreads to neighbouring countries, many of our workers may be forced to return due to security reasons, Munier said, urging the government to remain vigil over the developments in the region and act accordingly.

However, Ali Haider Chowdhury, Secretary General, Bangladesh Association of International Recruiting Agencies (BAIRA), did not see any immediate reason to worry about job loss or decline in remittance inflow from the Middle East.

"Rather the Middle East economies become more vibrant if oil price rises. Then more scopes open for jobs. We don't want to ring any alarm bells right now," Chowdhury added.

Earlier on 12 October, International Monetary Fund managing director Kristalina Georgieva warned that the Israel-Hamas conflict threatened to darken the already tepid global economic outlook.

At the annual meetings of the IMF and World Bank in Marrakech, Morocco, the two global lenders warn of rising oil prices and inflationary pressure. 

Pierre-Olivier Gourinchas, the IMF's chief economist, said it's "too early" to assess the impact on global economic growth from the conflict, though oil prices were on the rise. 

World Bank President Ajay Banga said that the Israel-Hamas conflict will make it harder for central banks to achieve soft landings – a slowdown that avoids a recession – in many economies if it spreads.

There will always be some conflicts somewhere in the world. After Russia, now it is Israel. You cannot use these as excuses

Birupaksha Paul

In that situation the task will be even harsher for Bangladesh's central bank, which is finding its tools – interest and exchange rates – not working in taming inflation and building a safe foreign exchange reserve, for which inward remittance is a solid source.

Monthly remittance tumbled to its lowest in recent months as exchange rate volatility encourages more remittance through informal channels than banks, as hundi operators offer much higher rates than banks and exchange houses.

Former chief economist at Bangladesh Bank, Birupaksha Paul believes allowing the market to determine exchange rate would have been far more rewarding for Bangladeshi expatriates than the cash incentives being given on the remittance sent through banks.

"Why are you giving them a cash incentive? Give them just the price of the dollar, or else they will go for hundi or other apps for higher rate and faster service," Paul tells The Business Standard in an interview on Wednesday.

"There will always be some conflicts somewhere in the world. After Russia, now it is Israel. You cannot use these as excuses," says Paul, who now teaches economics at the State University of New York, feeling the need for efficient institutional leadership to take prudent steps in time.