Editor’s note: Liu Xu is an executive director at the Center for International Energy and Environment Strategy Studies of Renmin University of China. The article reflects the author’s opinions and not necessarily the views of CGTN.

The Palestinian-Israeli conflict is showing signs of becoming more permanent, and as Israel plays a significant role in the global supply chain and is an important trade center in the Middle East, the impact of the military conflict on the country is causing further negative impacts on the global economy through trade networks and commodity markets.

Israel plays an important role in the global semiconductor industry, and almost all major chip makers have set up production bases or R&D centers in Israel. Some of these R&D centers and production sites are located in close proximity to Lebanon and the Gaza Strip.

In addition to semiconductors, Israel is also a major global exporter of potash. In particular, the Israel Chemical Group, which owns exclusive rights to mining Dead Sea minerals and phosphate rock from the Negev Desert, is the world’s sixth-largest producer of potash fertilizer, and the second-largest potash producer and the first phosphate fertilizer producer in the pan-European region.

Israel as a whole has an annual production capacity of about four million tonnes of potash, equivalent to eight percent of the global potash market, and if another potash giant in the region, Jordan Potash Company, is included in the calculation, then the 6.5 million tonnes of annual production capacity of potash in the region accounts for 12 percent of the global production capacity, enough to cause a huge impact in the global fertilizer market.

The coast around Israel is also an important global trade route. The continuation of the conflict will inevitably increase the risk of disruption to coastal transport and raise the cost of shipping. Even if Israel’s potash export ports are not closed, rising trade costs can not be avoided.

The port of Ashkelon, just 10 kilometers from the border with the Gaza Strip, was hit by a Hamas missile attack in October, and after a brief shutdown its throughput dropped sharply, with only about 20 ships docking at the port. As for the more important port of Ashdod, it is also facing the challenge of a sharp increase in shipping costs.

The Middle East is one of the major sources of global oil supply, and the Palestinian-Israeli conflict could lead to a disruption of oil production in the region, reducing global oil supply, potentially leading to a rise in oil prices and an increase in the global cost of energy.

If the conflict stays confined to Israel and Hamas, its impact is likely to be limited, and the only countries affected may be those that have direct trade contacts with Israel or Palestine. However, if the conflict spreads to major oil-producing countries in the region, such as Iran and Saudi Arabia, the global economy could be severely affected, as energy costs could soar for businesses and households if supplies are disrupted.

Israel has significant natural gas fields in the Mediterranean. In order to guard against Hamas attacks, Israel has stepped up the protection of its gas fields. If the conflict escalates further, it could lead to disruptions in gas production and supply, impacting European energy markets. The price of oil and gas in the international market remains high, and further rises having the knock on effect of inflation in most countries, including Western countries in Europe and the United States. Furthermore, the conflict causes these countries to try and strike a balance between the dual objectives of “suppressing inflation” and “stabilizing growth”.

Geopolitics has become the biggest uncertainty in the global economy. The Palestinian-Israeli conflict is another example of geopolitical tensions. International cooperation is going backwards in a more uncertain and shock-prone world.

The world is witnessing the rise of fragmentation, with increasing barriers to trade and investment, the extreme form of which is economic blocs. Blocs can impede globalization, thereby increasing the costs of global trade and investment, and will further slow the pace of global economic recovery.

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