Warring thoughts on Israel vs Hamas

Key points

• Geopolitical developments are often difficult to understand and usually quite complex. In most cases, the history that generates them is long; there is much nuance throughout that time, and any solutions tend to involve significant compromises. That is why they are difficult to resolve and can be costly if left to fester. The war between Israel and Hamas is one such example. For decades, experts have tried to find solutions to ease tensions and allow for peaceful coexistence, but they have all failed.
• The latest developments offer a reminder of all the above, made that much more difficult because of the atrocities committed and the loss of lives on both sides. From an investment perspective, this makes decision-making difficult. There are numerous permutations with very different consequences, some good and some bad. The impact on financial markets will be limited if the war remains localised. The risks pile up quickly if the war graduates to something more regional and serious.

Conclusion

The risk for now is that the war becomes more widespread. The danger is that it impacts oil production at a time when oil prices are already buoyant. Inflation remains a worldwide theme, and any further spikes in the oil price will not be welcome. It holds the potential to impact equity market performance and to spike global levels of risk aversion, which for a currency like the ZAR, spells bad news. The alternative of a quick resolution appears to be far off for now.