LD Capital: Analysis of the Logic Behind the Israel-Palestine Conflict and Its Current Impact on Global Financial Markets
On the morning of October 7, 2023, armed groups led by Hamas (*Islamic Resistance Movement) initiated an operation code-named “Al-Aqsa Flood.” Within a short period, they launched over 5,000 rockets into Israeli territory. Thousands of militants entered Israel from the Gaza Strip in a three-dimensional warfare strategy, clashing with the Israeli forces. That day, Israeli Prime Minister Netanyahu issued a public statement regarding the incident, declaring that the nation was in a state of war and had begun to retaliate. The conflict, which has continued for a week with trends indicating further escalation, has already resulted in more than 4,700 deaths. This confrontation has once again shifted the global focus of politics and economics back to the Middle East. This article will analyze the logic behind the conflict and its impact on financial markets.
I. The Genesis of the Century-Long Israel-Palestine Dispute
The history of Palestine and Israel in the current Palestinian territories dates back two to three thousand years. However, the true genesis of the grudges and conflicts formed after the 1917 Balfour Declaration and the “two-state solution” proposed by the United Nations in 1947. The conflict has persisted for approximately a century, during which five Middle Eastern wars and countless hostilities have occurred. The crux of these conflicts stems from the firm stances held by both sides regarding territorial sovereignty, compounded by the historical ambiguities left by the diplomatic engagements of countries like Britain and the United States in the Middle East.
From the perspective of Jewish Israelis, the present-day Palestinian region is considered the Promised Land bestowed upon the Jewish people by God, as recorded in their religious scriptures, the Tanakh. Before 1600 BCE, the Israelites lived in the region of Canaan (*modern-day Palestine). Following a famine in Canaan, they sought refuge in Egypt, where they were subsequently enslaved. Around 1250 BCE, Moses led the Israelites out of Egypt back to Canaan, an event historically known as the Exodus. By around 1000 BCE, the 12 tribes of Israel were unified, establishing the Kingdom of Israel. Later, the northern part of Israel was conquered by Assyria, leaving the southern Kingdom of Judah, whose inhabitants came to be known as Jews. The Jews were then successively conquered and ruled by the ancient Babylonians and the Romans. Around 70 CE, after waging war with the Romans, the Jews faced a devastating defeat. They were expelled en masse, marking the beginning of a two-thousand-year diaspora. A minority remained in regions near the Middle East, while most migrated towards Europe, spreading across various countries. Despite their dispersion, Jews have always regarded the region of Palestine as their ancestral homeland and the land promised to them by God.
From the perspective of the Arab Palestinians, around the year 337 AD, during an era when Palestine was still under ancient Roman rule, some Arabs began to settle in the region. After 630 AD, Islam emerged with the Quran as its holy scripture, and over the following century, the religion expanded rapidly. The Middle East, including Palestine, became an area predominantly inhabited by Arabs and where Islam was the mainstream religion.
Palestine subsequently came under the rule of various empires, including the Turks, the Franks, the Egyptian Mamluks, the Mongols, and the Ottoman Empire. Most of the successive rulers also embraced Islam, ensuring that the region maintained a majority Muslim demographic. Before 1882, Jewish inhabitants constituted only about 8% of the population in the Palestinian territories, making them a minority.
Around the 1800s, Zionism, also known as Jewish nationalist movement, emerged among Jews, calling for the return to Palestine as a homeland. Initially, Zionism did not gain massive traction since Jews had established lives elsewhere, and the slow spread of information made it difficult to form a consensus. However, in 1881, widespread anti-Jewish pogroms in southern Russia catalyzed the diffusion of Zionism, leading to two major waves of Jewish immigration. By 1914, Jews made up approximately 13.6% of the population in Palestine. Tensions and conflicts began to arise between the new Jewish arrivals and the existing Arab residents. In 1915, to overthrow Ottoman rule in the Middle East, the British government, represented by McMahon, entered into a military cooperation agreement with Husayn, who aspired to establish an independent Arab state. Britain pledged support for Arab ownership in Palestine. However, Britain subsequently struck a different agreement with France, sowing the seeds for future conflicts. In 1917, for lobbying efforts and interests in the Middle East, the British government issued the Balfour Declaration, publicly supporting the establishment of a Jewish homeland in Palestine. By 1939, the Jewish population in the area had grown to about 30%. Afterward, World War II broke out, and Nazi Germany initiated the genocide against the Jews. After the war, a significant number of Jewish survivors migrated to the United States and Palestine, pushing for an independent state. In 1947, the United Nations proposed a “two-state solution,” dividing Palestine into an independent Jewish state of Israel and an Arab state of Palestine, with Jerusalem as an international zone under UN jurisdiction.
In 1948, the Jewish community declared the establishment of the State of Israel. However, Arab nations contested this, believing that from the 7th century AD onwards, Palestine had been predominantly Arab territory. They were also aggrieved by Britain’s past promises on territorial sovereignty and the subsequent international agreements that deviated from those commitments. Resenting the establishment of a Jewish state in an Arab-majority area, neighboring Arab countries launched an attack on Israel the day after its foundation, triggering the first Arab-Israeli War. Israel emerged victorious, but localized wars, various skirmishes, and ongoing disputes over the ownership of the Palestinian territories have continued to this day.
II. Overview and Analysis of the Israel-Palestine Conflict
1. Fundamental Logic Behind the Israel-Palestine Conflict
Following the Fifth Middle East War, the first peace agreement between Israel and Palestine, known as the “Oslo Accords,” was signed in 1993. This accord permitted the establishment of a provisional Palestinian Authority, responsible for negotiating subsequent handovers of territories with Israel. In 1995, Oslo II was signed by Palestinian leader Yasser Arafat and Israeli Prime Minister Yitzhak Rabin, both of whom were later awarded the Nobel Peace Prize for their efforts. However, the implementation of these agreements encountered severe obstacles. Dissatisfaction with the specific terms was prevalent within both communities. After signing Oslo II, Rabin was assassinated by an Israeli right-wing extremist. The Palestinian faction itself split primarily into two major groups: Fatah, pursuing a path of peaceful negotiation, and Hamas, seeking to gain more rights through resistance. The Oslo peace process has since stagnated. Post-2000, large-scale conflicts re-emerged in Palestine, leading to a deterioration in bilateral relations. Subsequently, Hamas took control in the Gaza Strip, and Fatah dominated the West Bank.
Currently, Benjamin Netanyahu from the right-wing Likud party serves as Israel’s prime minister. Having held the position three times from 1996–1999, 2009–2021, and 2022-present, his tenure exceeds 15 years, making him the longest-serving prime minister in Israel’s history since its establishment in 1948. On December 29, 2022, Netanyahu embarked on his third term, forming the most right-leaning cabinet in Israeli history. His right-wing stance manifests in both domestic and foreign policies. Internationally, he has continually reduced the living space for Palestinians, intensifying hostility between Palestine and certain Arab nations. Domestically, amidst growing conflict between secular Israelis and extreme orthodox factions, his government pushed for a judicial reform in early 2023 aimed at curtailing the power of the Supreme Court to consolidate more authority for the prime minister. As the Supreme Court is the only body in Israel that can counterbalance the ruling party, this move has sparked fear among left-wing and secular citizens and dissatisfaction from the United States, which has recently shifted its strategic focus from the Middle East. This policy has led to 29 weeks of strikes and protests, with Netanyahu facing persistent governance pressure both domestically and internationally.
Regarding Palestine’s Hamas, there are likely two main reasons for initiating this round of conflict. First is the long-standing grievance over living space and resource accumulation. The current Gaza Strip, often described as “the world’s largest open-air prison,” spans 365 square kilometers, housing 3 million people, bounded by border walls with Israel and receiving limited resources like water and electricity. Beyond basic survival, there is no room for development. The West Bank also continues to lose land to Israeli settlements and is unable to achieve normal economic and industrial development due to various policies, leading to what could be described as a “slow death” for Palestine, with Gaza in even more dire conditions, acting as a powder keg ready to explode. Second, Hamas’s resistance in the small territory of Gaza relies on support from certain Arab interest groups. The motivations behind the conflict also consider directives and actual backing from these supporting entities. Since September, there have been reports that the United States and Saudi Arabia are advancing a joint defense mechanism. Within this agreement, Saudi Arabia is expected to acknowledge Israel’s legitimate status, normalize relations, and increase oil production by 2024 as per American demands, in exchange for U.S. military support. Instigating conflict to prevent this agreement from materializing could be a potential motive for the recent escalation.
2. Current Situation in the Conflict
Hamas has demonstrated an unprecedented level of preparedness and organizational skills in this conflict, evidently having made extensive preparations for an escalation and prolongation of hostilities. Recently, they have gained considerable support from various Arab nations and organizations. In addition to countries like Iran, Lebanon, Syria, Iraq, and Egypt, the Crown Prince of Saudi Arabia has assured the President of Palestine that the kingdom will continue to support Palestine. Some countries have started supplying materials to the Gaza region. Support from resistance organizations in various regions has been more direct and aggressive. The second-in-command of Hezbollah in Lebanon, Qasim, has stated that the group is closely monitoring the developments in the Israel-Palestine situation and is ready to intervene in fighting Israel. This stance is maintained even though other nations advise against involvement, but this has had no impact. Iraqi groups such as the “Badr Organization,” “Fatah Alliance,” and “Hezbollah Brigades,” along with Yemen’s Houthi rebels, have warned that “if the United States directly intervenes in the Israel-Palestine conflict, it could turn into a regional war.”
The ruling party in Israel is adopting an extreme right-wing stance, with intentions of eliminating Hamas. The Israeli Knesset has approved a proposal by Netanyahu to form an emergency interim government and initiated the “Basic Law” clause related to “declaring war or significant military operations,” thereby empowering a small emergency cabinet. This cabinet comprises Netanyahu, Defense Minister Yoav Gallant, and Benny Gantz. Recently, Netanyahu expressed a strong stance that Israel would “crush and destroy Hamas, and every member of Hamas will be a ‘dead man’.” At the same time, Israel has received widespread support from Western countries and major media outlets. The National Security Council indicated that the United States could support both Ukraine and Israel simultaneously and has started supplying military materials to Israel. The US aircraft carrier, USS Ford, has arrived in the eastern Mediterranean, and a second carrier is on its way to provide deterrence support. The US Secretary of State and Secretary of Defense have arrived in Israel to meet with Netanyahu. The United Kingdom announced the deployment of reconnaissance aircraft and two Royal Navy vessels to the eastern Mediterranean near Israel as a show of support.
The current conflict is extensive and poses the risk of further spillover. The death toll on both sides is potentially the highest in years due to the conflict. There has been actual exchange of fire between Israel’s northern border and Hezbollah in Lebanon, and the northeast with Syria, with air strikes targeting Aleppo and Damascus International Airport in Syria. Israel has recently cut off water and electricity supplies to the Gaza region, intending a total siege. Over 400,000 reserve soldiers have been mobilized, and Israeli tanks and ground forces have assembled at the Gaza border, ready to enter the region. In a conversation with Putin, Netanyahu stated that Israel would not cease its operations in the Gaza strip until Hamas is destroyed. Since the destruction of a hospital in Gaza on October 17, the conflict has shown signs of further escalation.
3. Future Conflict Projections
The future course of the conflict can veer in one of three possible directions:
Negotiations or Quick Resolution: The first scenario could see both parties expressing willingness for talks after weeks of ongoing conflict, or a rapid defeat of Hamas. The future may involve exploring new peace initiatives under the advocacy of major world powers. On October 10, senior Hamas official Musa Abu Marzouk, in a phone interview with Al Jazeera, was open to discussing a potential ceasefire. If Hamas aims to thwart the recent agreements advanced by the United States and Saudi Arabia through this conflict, they might have an incentive for negotiations. Israel, potentially gaining an upper hand by inflicting significant casualties on Hamas, might accept talks mediated by international parties to explore feasible peace agreements. Alternatively, if Hamas is rapidly vanquished, the Palestinian populace could face an Israel-led ceasefire arrangement.
Proxy War and Continued Conflict: The second scenario could transform the conflict into a proxy war, extending over several months. If the confrontation escalates, with various regional Arab entities providing armed support to Hamas to counterbalance a skew towards Israel, major powers might refrain from direct involvement, maintaining their regional interests. Instead, they could support different groups, pushing the situation towards either negotiations or further escalation.
Descent into Full-Scale Regional War: The third scenario is the most severe, where the conflict escalates to the point of a full-scale regional war. Following the second scenario, the risks of further escalation increase. The more forces and resources involved, the higher the likelihood of miscommunication leading to drastic decisions. Any involvement from major powers could intensely escalate the situation into regional warfare.
Given the substantial disparity between Hamas and Israeli military and negotiation resources, the key to whether the conflict escalates currently lies with Israel. If Israel gains an advantage and is willing to ease the living conditions for the Palestinian people, perhaps even accepting the 1947 Two-State Solution advocated by the UN and mainstream countries, a more favorable resolution could be achieved. Implementing the two-state solution could significantly improve the situation for Palestinians, with Israel making concessions to fundamentally solve regional issues. However, with the current extreme right-wing governance in Israel, the Netanyahu administration needs an external common enemy and more time to resolve domestic issues. Current statements and actions are highly aggressive. If Israel conducts a devastating strike on Hamas and the Gaza Strip, the conflict will likely intensify drastically. Presently, the second scenario seems most probable.
III. Historical Impact of Wars on Financial Markets
(1) Review of the Russo-Ukrainian Conflict
During the one month following the outbreak of the Russo-Ukrainian conflict in February 2022, prices of gold, crude oil, and Bitcoin rose to varying degrees. Brent crude reached a peak of $137 per barrel, gold escalated to a high of $2,068 per ounce, and Bitcoin surged to $47,888. Conversely, the Russian stock index significantly declined. The ruble suffered a substantial devaluation due to sanctions, including Russia’s expulsion from the SWIFT system and the freezing of its foreign exchange reserves by Western countries. On March 15, the Federal Reserve began raising interest rates, initiating a continuous decline in Bitcoin prices, highlighting its high sensitivity to interest rates and liquidity. Prices of crude oil and gold remained high for several months. The ruble experienced a dramatic V-shaped recovery following Russia’s issuance of a decree mandating that countries and regions deemed “unfriendly,” engaged in natural gas trade with Russia, must open ruble accounts in Russian banks for transaction purposes. Failure to comply would be considered a breach of contract by Russia, prompting a significant rebound in the ruble’s value after a substantial decline.
(2) The Iraq War
In October 2002, the U.S. Congress authorized then-President George W. Bush to use any means necessary for a military attack against Iraq. Bush issued a final ultimatum to Iraqi President Saddam Hussein, and the financial markets reacted to the escalating conflict, with oil and gold prices initially rising before falling. On March 20, 2003, the United States, along with the United Kingdom, Australia, and Poland, commenced bombing operations against Iraq, officially sparking the Iraq War. This conflict, lasting nearly a decade, propelled ongoing turmoil across the Middle East. Consequently, oil prices continued to surge in the subsequent period until the 2008 financial crisis.
(3) The Fourth Middle East War
In the six months following the outbreak of the Fourth Middle East War in 1973, oil and gold prices rose significantly. The war prompted oil-producing Middle Eastern nations, led by Saudi Arabia, to impose an oil embargo as a protest against U.S. support for Israel. In the subsequent three months, oil prices nearly quadrupled, maintaining a high level even after the conflict had subsided. While the U.S. stock market, distanced from the war, experienced some decline, the overall bearish impact was limited.
IV. Fluctuations in the International Oil Market Due to the Current Conflict
The Middle East, accounting for more than one-fifth of oil supply, stands as the most crucial area to monitor regarding the geopolitical risks to oil prices posed by the Palestinian-Israeli conflict. Since the Palestinian territories are not traditional oil-producing regions, the conflict’s escalation would not significantly impact oil prices unless the strife expands to OPEC member countries, potentially driving a notable increase in oil prices.
1. The Oil Market Situation Prior to the Palestinian-Israeli Conflict
On September 5, 2023, Saudi Arabia and Russia extended their previous oil production reduction agreement. Saudi Arabia will carry forward its voluntary extra cutback of 1 million barrels per day for three months until the fourth quarter of 2023, while Russia also decided to continue its reduction of 300,000 barrels per day in oil exports until the end of the year.
According to IEA data, the OPEC+ production cuts are still being enforced. In September 2023, the total crude oil production from the OPEC+ members under the reduction agreement was 36.38 million barrels per day, lower than the target of 36.92 million barrels per day. Non-OPEC countries supplied 14.94 million barrels per day in September, below the target of 13.54 million barrels per day. The demand growth forecast for 2023 has been revised upwards from 2.2 million barrels per day to 2.3 million barrels per day.
Overall, in September 2023, the global supply of crude oil stood at approximately 101.34 million barrels per day, while the global demand was around 101.63 million barrels per day. This scenario in September indicated that global crude oil supply was less than the demand. Looking ahead into the fourth quarter of 2023, it is projected that the global oil supply would be approximately 101.56 million barrels per day, with a global demand of roughly 101.62 million barrels per day, continuing the trend of supply lagging behind demand. The current inadequacy in supply could potentially intensify with the escalation of the Israel-Palestine conflict, thereby driving oil prices upwards.
2. Current Key Variables Affecting Crude Oil Prices
Suspension of the US-Saudi Joint Defense Agreement: Previously, Saudi Arabia had expressed to the White House its intention to increase oil production, indicating its willingness to boost output to facilitate a “US-Saudi Joint Defense Agreement.” Saudi officials stated that oil production decisions would be market-dependent. Should oil prices remain high, Saudi Arabia is prepared to act in early 2024. Both Saudi and US officials have indicated that this move aims to foster the normalization of relations between Saudi Arabia and Israel. Under the agreement, Saudi Arabia would recognize Israel, and in return, the United States would enter into a joint defense agreement with Saudi Arabia. For the US, this strategy could help alleviate soaring inflation by suppressing oil prices and aid President Biden’s re-election campaign. However, the unfolding Israel-Palestine conflict makes it improbable for Saudi Arabia to advance normalization efforts with Israel, consequently putting the joint agreement on hold.
Uncertainty surrounding Iranian oil production: Contrary to the production cuts by Saudi Arabia and Russia since the end of 2022, Iran’s crude oil output has been on the rise this year. It was previously projected that by 2023, Iran could potentially become the second-largest global source of crude oil, following the United States. However, with the Israel-Palestine conflict, Iran will undoubtedly stand with Palestine, possibly facing ensuing US sanctions on oil exports.
Potential cut in crude oil production by Gulf countries amid escalating situations: The Gulf oil-producing nations, predominantly Arab countries, are largely supportive of Palestine. If the conflict escalates to a third scenario involving these Gulf countries in warfare, it is inevitable that global crude oil prices will soar above 100 USD per barrel, though the probability of this eventuality is currently considered low.
3. Current Oil Price Situation
On October 7th, the day the conflict broke out, both Brent and WTI crude opened with a significant increase. In the following two days, the market sentiment was relatively optimistic, assuming that the conflict would not heavily impact other oil-producing countries, leading to a slight decline in oil prices. However, on October 13th, with the conflict showing signs of escalating, the market readjusted, resulting in a noticeable increase in oil prices, which offset the price drops earlier in October. Currently, the prices of both oils are approximately 90 USD and 86 USD, respectively.
V. The Consequences of the Israel-Palestine Conflict on Financial Markets
The recent escalation in the Israel-Palestine situation has had varying degrees of bearish effects on the stock markets of Israel and the Middle East. The currency exchange rate in Israel has been significantly impacted in a negative manner. However, markets in Europe and America have not been visibly affected, provided that the conflict does not escalate further.
1. Stock Market
Since the outbreak of the conflict on October 7, the Israeli TA35 index has experienced the most significant drop, declining by approximately 8% up to now. In contrast, the Egyptian EGX30 index initially fell but later rebounded to a value higher than before the conflict. Main indices in neighboring countries, such as Saudi Arabia, UAE, and Lebanon, have witnessed varying degrees of decline. Major indices in the United States and the European Union have not been significantly impacted. The current strife has primarily affected stock markets within Israel and certain Middle Eastern nations.
2. Foreign Exchange Market
The principal currency in Israel is the New Shekel. Palestine does not have its independent currency and commonly uses the Israeli New Shekel and the Jordanian Dinar. Since the onset of the conflict, there has been a noticeable depreciation in the Israeli New Shekel, with the rate falling by about 4%. The Central Bank of Israel recently indicated that it would not defend any particular exchange level for the New Shekel.
3. Other Impacts
Tel Aviv in Israel, known as the “Silicon Valley of the Middle East” and the “Capital of Innovation,” is recognized for its substantial aggregation of research talents and technology firms. However, following the outbreak of the Israel-Palestine conflict, many individuals have been drafted into the military, and numerous activities and operations of tech companies have encountered negative repercussions. Recently, Nvidia has canceled the offline meetings of its annual AI Summit, which was scheduled to take place in Tel Aviv from October 15 to 16. According to the initial plan, Nvidia was set to showcase its latest advancements in the field of artificial intelligence, with founder and CEO Jensen Huang slated to deliver a keynote speech at the summit.
In addition, data from S&P Global Market Intelligence on October 12 indicated that the 5-year credit default swap for Israel had risen to 103 basis points, the highest in nearly a decade
VI. Changes in Gold, Bitcoin, and the Cryptocurrency Market
1. Gold
As a traditional safe-haven asset, the price of gold rises during significant wars and conflicts. Since the outbreak of the recent Israel-Palestine conflict, gold prices have been continuously increasing. On October 13th, gold experienced its most substantial daily gain, closing 3.4% higher. Although there was a slight decline at the opening of this week, the cumulative increase has been 5.5%, marking the asset with the most significant price increase due to the conflict.
2. Cryptocurrency Market Overview:
Bitcoin (BTC) has previously been considered ‘digital gold,’ largely possessing properties of a safe haven. However, unlike gold, it has not shown a significant price increase during the Israel-Palestine conflict, even entering a continuous downtrend. After a temporary surge due to the fake news of a Bitcoin ETF’s approval earlier this week, the price fell, reflecting BTC’s characteristics more akin to risk assets in the interest-raising cycle.
3. Israeli and Islamic Cryptocurrency Projects:
Israel, with a mere 0.1% of the global population, boasts a high density of high-tech talents and companies. It is home to some of the world’s most successful startups, ranking seventh in unicorn companies. This advantage is not only in high-tech manufacturing and the internet but also in the Web3 domain. Leading academics such as Eli Ben Sasson, Shaffi Goldwasser, Yehuda Lindell, Aviv Zohar, and Eran Tromer, as well as revolutionary technologies like MPC and ZKP, are prominent in Israel. Notable cryptocurrency projects include Starkware, Fireblocks, Kaspa, Secret Network, Bancor, and SSV Network, among others.
Since the outbreak of the Israel-Palestine conflict, certain Israeli crypto projects have faced adverse impacts and price declines. For instance, the price of SSV Network tokens significantly dropped following the conscription of its Israeli co-founder, Alon Muroch, on October 11th. Despite the team’s reassurances of ongoing operations, the token’s price has fallen by approximately 15% since the conflict began. Tokens like BNT and ORBS have experienced drastic price fluctuations due to substantial market maker and trader activities, while most other tokens have seen various degrees of decline. Due to Israel’s unique military service system, many tech company staff and project members could be directly or indirectly involved in military actions as reservists if the conflict escalates, posing further potential risks to crypto projects headquartered in Israel.
Notably, on October 10th, the Islamic cryptocurrency project, Islamic Coin, announced the launch of the ISLM token, distributing community airdrop rewards. The project operates on the HaqqNetwork blockchain and claims compliance with Islamic doctrines. Its mission is to introduce over 1.8 billion Muslims to digital finance without compromising their values and beliefs. After an initial surge post-launch, the token’s price has recently stabilized at a higher level. If the conflict continues to escalate and more members of the Islamic world participate, it may positively impact the token’s price.
4. Hamas and Cryptocurrency Financing
Recent reports from TRM Labs reveal that Hamas is the first Middle Eastern armed group to adopt cryptocurrency financing. Cryptocurrency research institute Elliptic’s analysis shows that digital wallets, believed by Israel to be associated with the Palestinian Islamic Jihad organization, received $93 million in cryptocurrencies from August 2021 to June of the following year. A BitOK research report also notes that roughly $41 million flowed into wallets associated with Hamas during the same period, though it remains unconfirmed whether these funds were used to finance attacks against Israel. However, Ari Redbord, head of legal and government affairs at blockchain intelligence firm TRM Labs, disclosed that cryptocurrencies represent only a small portion of Hamas’s fundraising strategies, with the primary funding coming from state actors. Previously, Israel announced that its domestic law enforcement had collaborated with Binance to identify and seize funds from certain accounts, with all confiscated money directed to the Israeli national treasury.
VII. Conclusion
1. There are three potential scenarios in the evolution of the Israel-Palestine conflict. First, after several weeks of continued conflict, both parties might be willing to engage in peace talks, or Hamas could be quickly defeated, leading to the exploration of new peace initiatives under the advocacy of major powers. Second, the conflict escalates into a broader proxy war lasting several months, with various Arab regional organizations intervening to support Hamas, balancing a situation skewed towards Israel, while major countries manage to maintain their interests in the region without direct intervention. Third, the conflict reaches extremes, evolving into a regional war. The second scenario increases the risk of further escalation, as the more forces and resources involved, the more likely it is that misjudgments occur, leading to aggressive decisions by one party. Any intervention by a major power in the conflict could escalate it drastically towards a full-scale regional war.
2. The key to the escalation of the conflict lies in the attitude of the Israeli Netanyahu government towards Hamas. Although the current conflict is confined to the Palestinian territories, Israel has demonstrated extreme right-wing attitudes and actions. Powers such as the United States and Iran are beginning to prepare and offer necessary support for an Israeli assault on Gaza. The United States has already deployed an aircraft carrier and a force of 2,000 in the Mediterranean to support Israel, and there have been direct border skirmishes between Lebanon, Syria, and Israel. The probability of conflict escalation is increasing daily, potentially evolving into the second or even third scenario.
3. Financial market implications under the three scenarios. In the first scenario, recent prices of oil, gold, and equities affected by the Israel-Palestine conflict will likely return quickly to pre-conflict levels, and if a ceasefire solution is adequate, there might even be further positive effects, driving up asset prices in the Middle East. In the second scenario, oil prices could range between $85–100, and gold might be between $1900–2000, with short-term trading opportunities arising alongside conflict developments. Middle Eastern stock markets and Israeli currency rates would stay at current low levels. Cryptocurrency markets might not be significantly affected, but BTC is currently the asset with the highest value bet among global assets. In the third scenario, oil prices could significantly rise above $100, even reaching $150, and gold could break the $2000 mark. Stock markets in the Middle East and the currencies of the warring nations would suffer significant falls. Cryptocurrency values might increase due to substantial capital flows from the Middle East to other markets, while cryptocurrency projects based in Israel could see their token prices fall.
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