In the previews of Financial Stability Report, European Central Bank (ECB) warned of the possible effects that geopolitical tensions can have on the economy. According to Frankfurt, the consequences of wars in Middle East and Ukraine they can add to factors already underway to create a systematic crisis.
In recent years the situation geopolitics has worsened, with the emergence of latent tensions that have affected the global economy. The war in Ukraine has had a direct impact on energy and food markets, while the conflict between Israel and Hamas has changed global trade routes.
The ECB warns about wars
The European Central Bank, the single currency’s supervisory body, has brought forward its Financial Stability Report which this year will focus on geopolitical risks. In fact, in recent years, he points out ECB, the international situation has become increasingly unstable and this can affect the economy.
In particular, in the previews of the study, the ECB indicates how some geopolitical shocks can initiate systematic economic crises by acting as triggers for problems already present previously. The central bank therefore invites the competent political and economic bodies to carefully monitor certain situations to prevent them from degenerating and spiraling out of control.
The study also indicates some ways to keep the economic and financial situation of euro area countries stable even in the event of geopolitical shocks. On the one hand he advises banks to diversify its operations to make them more resilient in the event of sudden changes in international scenarios. The ECB then pushes for a careful risk assessment and more stringent requirements on liquid assets. Finally, it suggests allocating some human resources, in particular experts in the field of risks arising from geopolitical crises, to better evaluate situations that can influence the economy.
All the economic consequences of geopolitical conflicts
In recent years, several geopolitical scenarios have emerged conflicts remained dormant for years. This has had a direct impact on the world economy, with serious consequences for Europe and the rest of the world. The war in Ukraine is an adequate example to explain the effect of geopolitical dynamics on the economy.
Following Russia’s invasion of Ukraine, Europe cut a large part of its economic ties with Moscow, causing a crisis the energy market. In fact, the Old Continent depended almost entirely on Russian gas for electricity generation and heating. The new trade routes opened with the USA, the Middle East and African countries have changed the world economy.
Another scenario that has caused serious consequences is the war between Israel and Hamas. In this case the domino effect reached the mouth of the Red Sea. In solidarity with the Palestinian group, the Yemeni rebels Houthisallies such as Iran’s Hamas have begun attacking ships passing through the Bab-el-Mandeb Strait, which leads to the Red Sea and, via the Suez Canal, the Mediterranean.
Many maritime logistics transport companies have therefore diverted their routes around Cape of Good Hopeadding days and costs to the journey between Asia and Europe, one of the most traveled routes for goods transit.
