ISRAEL/IRAN: The consequences of war

08/30/2012| 09:38am US/Eastern

While the U.S. election approaches, the situation between Iran and Israel has deteriorated sharply in recent times. An attack before November against Iranian nuclear facilities suspected to have a civil and military target is clearly in focus, for Prime Minister Benjamin Netanyahu and Defense Minister Ehud Barak. A very tense situation Recently, the Israeli defense minister said that the Israeli front is prepared as it has ever been. The strategy would be to attack Iranian nuclear facilities, the bases of Hezbollah in Lebanon and Hamas in the Gaza Strip. In reply, on the day of Al-Quds, Iranian President Ahmadinejad said the cancerous tumor Israel would soon disappear, comparing the Zionists (Jews) to usurpers. The Iranian regime is also made in the United States by declaring that American domination of the world will end. These statements have been called offensive and hateful by the White House in Washington. In case of an Israeli attack against Hezbollah or Iranian bases, the head of the Shiite political movement H. Nasrallah said that they were not able to destroy Israel, but they could make the life of millions of Zionist hell. Many measures have been taken preventively eg sending SMS in case of fire, the massive purchase of gas masks ; computer systems are ready to counter any cyber attack. Regarding the timing of the attack, the Israeli press and some officials have suggested that countries could intervene before the U.S. elections on November 6. Israeli President being more reserved and he relies on Washington to prevent Iran from acquiring nuclear weapons. The outcome of the conflict is no doubt as if fighting goes wrong for Israel, the Western nations, including the United States and Europe, will take place against the Islamic regime. Moreover, Iran remains without ally either on the side of Egypt (the Muslim Brotherhood are moderates), Syria (under Western control) or Libya, none of these countries would help Iran. Tensions on oil These events have led to an upward acceleration of oil prices, which were, however, join in a downtrend between April and the end of June (30% decrease). In fact, the price of Brent in London reached a high of 3 months and a half to less than 10% of the highest in 2012 and about 25% of the highs of July 2008 when the price of Brent crude reached 145 dollars a barrel. Remember that Iran has 12% of OPEC oil reserves, organization which holds more than 80% of world reserves. Escalate a situation could then easily cause oil prices beyond recent highs in May to $ 126 a barrel. During the invasion of Iraq by the United States in 2002, the price of Brent crude rose by 73% between January 2002 and February 2003 from 19 to more than 30 dollars. Economic impact According to a study by BDI-Coface, in case of attack against Iranian nuclear facilities, the Israeli economy could be impacted to the tune of 41.6 billion euros in total nearly 20% of GDP. Counting only direct damages and indirect losses in the short term, the addition would

amount to 18 billion euros. The Governor of the Bank of Israel, Stanley Fischer spoke publicly about the situation and said an attack against Iran would have serious repercussions, but we are ready to deal with crises and consequences of such an initiative. He also recalled that the Central Bank had $75.3 billion of foreign exchange, which finance its imports and defend the national currency, the Shekel. Freight transport could be disrupted because of the risk of bombing near the coast, while 90% of external trade by sea. The government must also cope with a drop in tourism in the country, while 2012 should have been announced as promising. Market impacts During Israel's war against Lebanon in 2006, which had lasted 32 days, the country's economic growth has been reduced by 0.5% and the damage had costed the equivalent of 1.3% growth. The former Israeli Minister of Economy and Finance said that during the war of 2006, the department had to pay $ 2.2 billion to the Department of Defense and 1.75 billion dollars to rebuild the damage. The Tel Aviv Stock Exchange could fall sharply if hostilities broke out. Moreover, the authorities have already put in place a system that will stop the quotes if sharp decline in components of the index. The national currency could also become the target of speculators despite the large foreign exchange reserves of the Central Bank.

The Israeli economy could therefore know serious difficulties for attacks against Iran. Even if it does not happen, the military spending already crippling the finances of the State was forced to implement cuts in social spending due to the explosion of the defense budget as well as raise a point of VAT. Growth, which reached 4.7% in 2011 should be limited to 2.3% this year according to Bank Hapoalim.