Israel-Hamas war threatens global economy, bankers warn in Saudi Arabia

Saudi officials push forward with plans for economic reform despite war, fears of worsening regional instability

Attendees arrive for the yearly Future Investment Initiative (FII) conference in the Saudi capital Riyadh on October 24, 2023. (Fayez Nureldine/AFP)
Attendees arrive for the yearly Future Investment Initiative (FII) conference in the Saudi capital Riyadh on October 24, 2023. (Fayez Nureldine/AFP)

RIYADH, Saudi Arabia — The war between Israel and Hamas could deal a heavy blow to the global economy, banking titans told a glitzy investment forum in Saudi Arabia on Tuesday.

The dour mood from some of the gathering’s most high-profile speakers underscored how the war threatens attempts by the world’s biggest oil exporter to diversify its economy away from fossil fuels.

On October 7, some 2,500 Hamas terrorists stormed into Israel from the Gaza Strip under the cover of thousands of rockets fired from within the Strip and massacred at least 1,400 people, mostly civilians, in a single day. At least 224 more were taken hostage.

Following the deadliest massacre in the country’s history, Israel declared war on Hamas and launched Operation Swords of Iron with the goal of eradicating the terror group that rules the Gaza Strip.

The Hamas-run Health Ministry has claimed that more than 5,700 Palestinians, mainly civilians, have been killed across the Gaza Strip in Israeli airstrikes. These numbers cannot be independently verified, and are believed to include the group’s own terrorists and gunmen, as well as civilians killed by Gaza’s own misfired rockets.

“What just happened recently in Israel and Gaza — at the end of the day you put all this together, I think the impact on economic development is even more serious,” World Bank President Ajay Banga said on Tuesday in remarks at the Future Investment Initiative, often referred to as “Davos in the Desert.”

“I think we’re at a very dangerous juncture,” he added.

World Bank Group (WBG) president Ajay Banga attends a press conference on the third day of the annual meetings of the WBG and the International Monetary Fund (IMF) in the Moroccan city of Marrakesh on October 11, 2023. (Fadel Senna/AFP)

The raging war risks drawing in other countries, notably Lebanon, home to the Iran-backed Hezbollah terror group which has engaged in daily exchanges of fire with Israeli forces.

“If these things are not resolved, it probably means more global terrorism, which means more insecurity, which means more [of] society is going to be fearful, less hope,” said BlackRock CEO Larry Fink.

“And when there’s less hope we see contractions in our economies.”

More than 6,000 delegates are registered for the three-day event that will feature appearances by global banking chiefs and the presidents of South Korea, Kenya and Rwanda, organizers said.

But multiple Wall Street leaders indicated that lofty themes of innovation and economic transformation would be at least partly overshadowed by the violence in Israel and Gaza.

“We’re sitting here with the backdrop, which I think we all acknowledge, of the aftermath of the terrorist attack in Israel and the events that have been unfolding since, and it’s desperately sad. So it’s hard not to be a little bit pessimistic,” Citi CEO Jane Fraser said.

The war stands in stark contrast to the vision of a more stable and prosperous Middle East championed by Saudi Arabia, which this year rebuilt ties with Iran and was in talks towards recognizing Israel before the fighting broke out.

Israeli army armored vehicles roll towards the border with the Gaza Strip at an undisclosed location in southern Israel on October 15, 2023. (Yuri Cortez/AFP)

The conflict comes halfway through the Vision 2030 reform agenda championed by the kingdom’s de facto ruler, Crown Prince Mohammed bin Salman, which is intended to transition the oil-reliant Saudi economy.

“Saudi Arabia today is all about their internal transformation which demands a stable neighborhood,” said Kristin Diwan of the Arab Gulf States Institute in Washington.

“It’s harder to get people to invest, to golf in Riyadh, or to sun along the Red Sea coast when the region is associated with war and terrorism.”

Riyadh has in recent weeks condemned violence against civilians in Gaza and affirmed its support for the Palestinian cause.

A source familiar with discussions on possible normalization with Israel told AFP this month that the process had been paused.

Saudi officials have signaled they intend to forge ahead with their economic reform plans despite fears of wider regional turmoil.

In addition to FII, the capital this week is also hosting its first fashion week and a boxing match between Tyson Fury and Francis Ngannou.

The FII opening ceremony featured a vocal performance by Britain’s Got Talent contestant Malakai Bayoh as a giant dove flashed on a screen behind him.

Yasir al-Rumayyan, governor of Saudi’s deep-pocketed Public Investment Fund, referred only obliquely to the Israel-Hamas war in his comments on Tuesday, though he did warn about challenges presented by high interest rates.

“This has been the fastest rate increase since the early 1980s and has caused significant and unpredictable disruptions,” he said, but added: that “even in a high interest rate environment we can see the acceleration of growth and productivity.”

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