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Strategy

What the Israel-Hamas conflict means for global business

Published 20 October 2023 in Strategy • 7 min read

Amid a complex situation rife with uncertainties, businesses should be prioritizing political risk alongside economic opportunities.

In a tumultuous global landscape, the horrific violent conflict between Israel and Hamas has emerged not only as an immediate and pressing humanitarian crisis but also as a critical challenge for business leaders, affecting not only the region but the wider world economy. It requires a resilient approach so that organizations can effectively navigate the turbulence and minimize potential negative impacts on their operations. 

The international community was already grappling with a myriad of economic headwinds: persistent inflation, China’s economic slowdown, and escalating tensions between the US and China. Many companies were reevaluating their supply chains, making them more regional and diversified. But these adjustments came at a cost, and, concurrently, the demand for goods and services weakened in many parts of the globe. 

While the world’s focus should be on the victims – the Israeli victims of Hamas’ heinous terrorist attack and the many Palestinian civilians suffering from Israel’s military response – and on efforts to end the violence as quickly as possible, it is already clear that the conflict exacerbates these preexisting macroeconomic challenges. It raises serious concerns about the stability of energy markets, as exemplified by the surge in oil prices to over $90 per barrel due to fears of a potential ground attack on Gaza.  

Moreover, there is potential for the crisis to widen, drawing other groups and nations into its maelstrom. In response, the US has taken precautionary measures by deploying two aircraft carrier strike groups to the eastern Mediterranean, underlining the scale of concern over the conflict’s repercussions. 

While the primary battlefront remains between Israel and Hamas, a complex and interconnected geopolitical web surrounds the conflict. Concerns are growing about the potential involvement of other nations, most notably Iran. Diplomats and analysts worry that the conflict could expand to draw in Hezbollah, an Iran-backed Lebanese militant group. Such an escalation could open a second front in the north of Israel. Hezbollah is considered far more powerful than Hamas; its arsenal of Iran-supplied guided missiles can precision-strike deep into the country, threatening government buildings in Jerusalem, business hubs in Tel Aviv, as well as military installations. 

In this intricate and politically charged environment, businesses with operations or affiliations in the region face major ethical and humanitarian considerations. Rather than viewing this long-standing and deeply rooted conflict in binary terms – i.e., taking sides – it will be important for business leaders to show compassion for innocent victims on both sides of the conflict.  

In a conflict that has lasted for almost a century, there are too many victims to count, and nobody can claim innocence. Instead of rushing to pass judgment on this latest horrific escalation, business leaders are better served by focusing on advocating for peace, stability, and the protection of human dignity. They must also maintain open lines of communication with their employees and colleagues in the region to ensure their safety and the continuation of business operations. 

The commitment to employee safety is evident in the actions of global tech giant Google, which has two offices and 2,000 employees in Israel. The company has initiated measures such as direct contact with local employees and the dissemination of reliable, accurate information through its products. Furthermore, Google has been sharing observations of cyber activity with experts to enhance security. 

raises serious concerns about the stability of energy markets
The Israel-Hamas conflict raises serious concerns about the stability of energy markets

For those companies that do choose to weigh in on the recent violence, their statements have generally expressed support for Israel while condemning Hamas, which many countries have designated as a terrorist organization. Microsoft, JP Morgan, and Citigroup are among the companies that have offered statements, with their messages primarily expressing condolences for those affected by the conflict. 

“Heartbroken by the horrific terrorist attacks on Israel and the escalating conflict,” Microsoft’s Managing Director Satya Nadella has said. “My deepest condolences are with all those killed and impacted. Our focus remains on ensuring the safety of our employees and their families.” 

However, extending condemnation of Hamas’ terror into blanket support for Israel as it prepares for a possible Gaza invasion is a risky proposition for CEOs. Security analysts and leaders of humanitarian organizations, including UN spokespeople, have warned that a ground offensive could bring untold suffering. Sympathy for the plight of the Palestinian people extends far beyond the region. Opinion surveys suggest that many global companies’ employees, customers, and investors reject black-and-white assessments or efforts to equate Hamas with civilians in Gaza or the West Bank.  

Economic impact

The lessons learned from previous conflicts in the Middle East hold valuable insights for businesses seeking to adapt and navigate the current situation effectively. Historical conflicts in the region have had significant global economic ramifications, mainly due to its critical role in global energy production and trade.  

Past conflicts involving Iraq, Yemen, and Syria disrupted oil production, leading to spikes in commodity prices. These price fluctuations in turn affected transportation, manufacturing, and energy costs worldwide, contributing to inflation and economic uncertainty. 

Additionally, the Middle East serves as home to vital maritime chokepoints, such as the Strait of Hormuz, which are pivotal for global trade, especially the transportation of oil and gas. Threats to these strategic waterways can disrupt global trade, increase shipping costs, and result in delayed supply chains. 

The unexpected violence and threat of a wider conflict in the region is another reminder for business leaders to prioritize political considerations alongside economic opportunities. The interconnected nature of the global economy necessitates a keen awareness of how significant disruptions in regions like the Middle East can reverberate across the world. 

In response, companies should stay informed about the Israel conflict’s developments and its potential impact on their operations. This involves tracking political, security, and economic developments in the region. Analytics agency Moody’s, for example, has already warned it could downgrade Israel’s credit rating, suggesting that the conflict could last for some time and drain the country’s resources. 

In addition, businesses should undertake comprehensive risk assessments, evaluating potential threats to their employees, assets, and supply chains, considering both short-term and long-term risks. While many businesses have a presence in the Middle East across various industries, including oil and gas, technology, finance, and construction, a cautious “wait and see” approach is vital when contemplating further investments within the region. This might involve redirecting investments to other regions or sectors less susceptible to geopolitical instability. 

Microsoft is among the companies that have offered statements, with their messages primarily expressing condolences for those affected by the conflict
Microsoft is among the companies that have offered statements, with their messages primarily expressing condolences for those affected by the conflict

Furthermore, companies should consider diversifying their investments and operational footprint across different regions, including the Middle East, to minimize exposure to political, economic, and security risks in any single location. Diversification not only ensures business continuity but also provides a buffer against regional disruptions. 

An emerging approach, “nearshoring”, encourages companies to locate manufacturing and sourcing activities closer to their primary markets, reducing vulnerability to geopolitical tensions and conflicts, while offering logistical advantages and quicker response times to market demands. At the same time, businesses are increasingly engaged in “friendshoring”, that is, prioritizing investments in countries that are less likely to become affected by bilateral political disputes. 

Additionally, businesses should explore the potential of alternative entrepreneurial hubs in regions known for their political stability. While Israel stands as a strong example of innovation and entrepreneurship, having produced companies like Waze, Mobileye, and Check Point, emerging hubs in other parts of the world, such as Estonia or Rwanda, hold potential opportunities for expansion and collaboration. By establishing a presence in such areas, companies can leverage political stability to drive innovation, attract talent, and access new markets. 

In the long term, addressing the fundamental issue of fossil fuel dependency in geopolitically unstable regions like the Middle East is essential. Reducing reliance on fossil fuels and transitioning to renewable energy sources can significantly decrease vulnerability to the turbulence of global energy markets.  

This strategic shift not only bolsters energy security but also contributes to environmental sustainability, promoting greater stability in energy markets and the world economy. These steps will make companies more resilient to navigate not just potential future conflicts involving Israel and its neighbors, but what is an increasingly turbulent and unstable world. 

Authors

David Bach

David Bach

Professor of Strategy and Political Economy, and Dean of Innovation and Programs. IMD

An expert in strategy and political economy, David Bach is Professor of Strategy and Political Economy, Rio Tinto Chair in Stakeholder Engagement, and Dean of Innovation and Programs. He is also the Program Director of IMD’s Shaping the Business Environment for Sustainability program. Through his award-winning teaching and writing, Bach helps managers and senior executives develop a strategic lens for the nexus of business and politics.

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