Grigory Burenkov Weighs In on Navigating Geopolitical Risks Amid Iran-Israel Conflict

Grigory Burenkov, a Cypriot financial analyst, founder of Wheelerson Management Ltd, and owner of Osome Group, addresses the geopolitical risks of the Iran-Israel conflict and explores ways to avert them.

Grigory Burenkov, a Cypriot financial analyst, founder of Wheelerson Management Ltd, and owner of Osome Group, addresses the geopolitical risks of the Iran-Israel conflict and explores ways to avert them.

A New Challenge for the Global Economy

The world has been watching with bated breath as tensions escalate between Iran and Israel, a region already saturated with geopolitical strife, now the epicenter of renewed confrontation with potentially far-reaching implications. These implications extend beyond the immediate participants and Middle Eastern states to impact the global economy at large. The risks are numerous and palpable, spanning from market volatility in oil to disruptions in global supply chains.

The global economy, already navigating a series of crises, from post-pandemic recovery challenges to the repercussions of military actions in Ukraine in 2022, faces additional trials. These have sparked an acute energy crisis, a downturn in industrial production, and record inflation levels. Despite recent optimistic declarations from developed nations regarding economic recovery and lower interest rates, the situation remains precarious. The transition from verbal sparring to actual missile exchanges between Israel and Iran threatens to plunge the world back into uncertainty.

Burenkov, a seasoned financial analyst, views the current escalation as a significant destabilizer for global markets. “This region is pivotal both geopolitically and economically, with energy security at its core,” he states. The potential cessation of oil supplies, threats to critical infrastructure, and the militarization of key maritime routes could severely hamper the global economic recovery and present new challenges for policymakers and businesses alike.

Escalation Benefits No One

Despite the ominous landscape, Burenkov, echoing the sentiments of many analysts and financial institutions, anticipates a scenario devoid of further escalation. The preemptive strikes by both nations, more a demonstration of intent than an outright declaration of war, signal a mutual reluctance for a full-scale conflict. This is particularly pertinent given the potential for nuclear engagement or attacks on nuclear facilities, scenarios both sides, including Israel’s Western allies, led by the USA, are eager to avoid.

The lack of panic in global oil markets lends credence to this cautious optimism. The current stability of oil prices, despite the ongoing conflict, suggests a market that has already factored in the potential risks. Burenkov notes, “A significant escalation alone could alter this delicate balance.”

This perspective finds support among JPMorgan analysts, who contend that a significant uptick in oil prices would necessitate a marked increase in Middle Eastern tensions. They view the risks of supply disruptions and the potential closure of the Strait of Hormuz as manageable, largely due to a clear stance from Washington against a full-scale Israeli offensive on Iran and Tehran’s reliance on the strait for its own economic interests. Moreover, JPMorgan analysts argue that closing this vital transit point would adversely affect China’s economy, Iran’s largest trading partner.

The imposition of stricter sanctions by the US and UK could potentially alter market dynamics. However, as reported by Financial Times, despite Iran’s continued sale of approximately 1.56 million barrels of oil daily, the US is likely to eschew a maximum pressure approach, particularly in an election year, to avoid fueling domestic inflation.

From Economic Crisis to the Collapse of International Relations

As we discussed earlier, some analysts lean towards the possibility of containing the conflict within local bounds. But what happens if one of the sides escalates the confrontation? How will the world economy react? What can global markets expect in a negative scenario?

Firstly, a new phase of the energy crisis will begin. An increase in oil and gas prices will affect the entire world economy, intensifying inflationary pressure under already challenging conditions. Secondly, there’s a high likelihood that movement along the transport and trade routes of the Middle East will be limited or shut down. Such disruption in global supply will lead to a worldwide shortage of goods. Thirdly, amid escalating geopolitical tensions, investors will move away from risky investments, leading to increased demand for safe assets such as government bonds and gold. As a result, there will be a decline in stock markets.

All the above will force the ECB and the Fed to seek a balance between controlling price growth and supporting economic growth under inflationary pressure. In the end, key rates are likely to remain the same or change slightly.

And of course, the escalation of conflict in the Middle East will lead to an increase in geopolitical tension not only between the states of the region but also among major world powers: the USA, China, Russia, and European countries. This may lead to further deterioration of international relations, the severing of remaining trade ties, and a crisis in the world economy as a whole.

Grigory Burenkov: Restraint and Diplomatic Solutions Required

In any case, according to Grigory Burenkov, diplomacy must now save the global economy. “At the G-7 summit, the leaders identified the escalation of relations between Iran and Israel as a key discussion topic,” says the expert. The Iran-Israel conflict poses new challenges for the world economy, highlighting the fragility of global stability in conditions of geopolitical tension. In this context, the importance of international dialogue and cooperation, especially within forums like the G-7 summit, cannot be overstated.

The possibility of escalation requires restraint and a pursuit of diplomatic resolution from all sides. In this path, maintaining the tone of international financial and trade systems remains critically important for sustaining economic well-being worldwide Grigory Burenkov  told our publication.