Israel is facing a serious situation. Hamas has launched a large-scale attack, and as of the morning of October 9th Japan time (current time), more than a thousand casualties have been reported on both sides. Israel has declared a state of war, and Hamas has shown a strong determination to fight. This marks the most significant number of casualties in Israel since the Fourth Arab-Israeli War in 1973, when it fought against Egypt and Syria.
I've received a request to create a video about this issue, so in this video, I would like to discuss the situation in Israel, its impact on the markets, and how we should consider it in the context of the global economy.
Firstly, why did this issue occur? There are various reports and perspectives on this, but I'll briefly recap. Recently, there have been increasing reports of Saudi Arabia and Israel progressing toward normalizing diplomatic relations. The negotiations seemed to be making headway, and this development was seen as one of the factors that prompted Hamas to launch its attack.
There's no doubt that this situation played a role in the escalation. Within the context of the Israeli-Palestinian issue, the normalization of diplomatic relations between Israel and Arab countries is viewed as a betrayal by the Palestinian side. Hamas might have perceived it as an abandonment by the Arab countries that were once their allies. This background has been widely discussed as a contributing factor to the current crisis.
The U.S. aimed to advance the Palestinian issue through the normalization of diplomatic relations between Israel and Saudi Arabia. However, this plan seems to have backfired with the outbreak of this war. Saudi Arabia, being an influential country in the Arab world, had a strategy of expanding its presence in the region through normalizing relations with Israel. Still, the benefits of such normalization have diminished due to the current conflict.
The changing dynamics among Middle Eastern countries are also significant. Saudi Arabia, the UAE, and other countries have shown varying degrees of support for Palestinians while calling for restraint from both sides. Egypt, which is facing an economic crisis and has received support from the IMF, has less room for maneuver and might wish to avoid escalating tensions with Israel. Therefore, they might implement stricter controls on public discourse to prevent anti-Israel sentiment from growing.
Moreover, an incident occurred in Egypt on October 8th when a police officer shot and killed Israeli tourists. Although the connection between this event and the ongoing situation in Israel is not clear, it has further heightened tensions in the region.
The United States has already expressed support for Israel, deploying an aircraft carrier to the Mediterranean and announcing the sharing of weapons. Consequently, the U.S. will bear substantial costs once again. The Biden administration had hoped to lead the normalization of relations between Saudi Arabia and Israel, showcasing achievements in preparation for the upcoming presidential elections. However, their plans have gone awry, and they are now facing the financial burden of another conflict.
Various reports suggest Iran's involvement in the current crisis. For Iran, this situation is highly advantageous. It inflicts pain on the United States, potentially prevents Saudi Arabia and Israel from forging closer ties, and allows Iran to exert influence in the Arab world. While the Biden administration has refrained from definitively attributing the crisis to Iran, criticism within the United States over its handling of the situation is increasing.
Tensions between Iran and Israel have escalated more than ever before. In this context, this situation also benefits China and Russia.
In summary, I've briefly reviewed the current situation in Israel. In the midst of these circumstances, how should investors respond? For individual investors who may not have access to specialized information on these issues, as well as institutional investors, the basic information available is essentially the same. While networks among investors or connections with prominent individuals can provide various insights, much of this information is speculative. There is very little reliable information that directly translates into trading ideas. Therefore, it's crucial to exercise caution when considering or acting upon speculative information.
However, investors should remain sensitive to significant changes in international geopolitics. Such issues have substantial long-term implications for the global economy. The ongoing conflict in Israel and the diminishing presence of the U.S. in the world, as I mentioned earlier, are undoubtedly influencing factors. While the direct impact on markets, such as a rise in interest rates due to fiscal deterioration, may not occur immediately, geopolitical issues can cause temporary risk-off reactions in the short term, often manifesting as a drop in bond yields. The effects of fiscal deterioration on interest rates are more likely to emerge as a long-term influence.
In conclusion, I've discussed the current situation in Israel and its potential impact on the economy and markets.