Israel has ordered more than a million people to leave the north of Gaza ahead of a potential ground assault intended to squash Hamas following attacks on southern Israel. The gloves are off for Israel, and such an invasion could destabilize the region.
Louis-Vincent Gave, the chief executive of Gavekal Research based in Hong Kong, penned a note at Gavekal Research on Monday titled "When There Are No Good Options," addressing Israel's three potential strategies in handling Hamas.
Gave writes in the first option, Israel could heavily bomb Gaza, which could lead to significant civilian casualties and the potential eradication of Hamas, reminiscent of the devastation in Dresden or Tokyo in 1945. This approach, however, comes with severe consequences. Firstly, it might provoke vast public protests and alienate Israel's Western allies. More critically, it could unify Arab nations against Israel, drawing support from countries like Turkey and Iran. This may pave the way for an expanded conflict and heightened terrorism, especially given the current arms proliferation due to Afghanistan and the Ukraine-Russia conflict. This volatile scenario could destabilize financial markets, leading to surging oil prices, plummeting bonds, increased inflation, and elevated investment risks.
The second option for Israel is to avoid large-scale bombings but deploy Israel Defense Forces to target Hamas' infrastructure and leadership. While this approach may reduce widespread devastation, it would still result in significant civilian casualties. Urban warfare is challenging, as evidenced by historical events like the capture of Berlin in 1945. Hamas' strategy might be to provoke a street battle in Gaza, questioning the IDF's capability and reliability. Given the rapid dissemination of information on social media, public tolerance for casualties might be limited, pushing for a negotiated resolution. Engaging in such an operation and subsequently retreating could be perceived as an Israeli defeat.
The third option is for Israel to adopt a patient approach, possibly targeting Hamas' leadership surgically, similar to actions taken against groups like Black September following the 1972 Munich tragedy. However, maintaining the 300,000 conscripts recalled to their units in this scenario would be costly.
Gave noted world leaders are mostly favoring Israel adopting option three. Yet, after the recent incidents in southern Israel, this approach might be challenging for the Israelis to accept because their instinct is to retaliate and confront the terrorist group.
"As I write, Israel has said that it will delay any large-scale move into Gaza, which could indicate that it is leaning towards a third option (by far the least worst for Gaza's civilian population and for the rest of the world)," Gave said, adding markets appear to be pricing in option three:
Oil prices are moderately increased, with the near-term WTI contract moving from US$83/bbl to US$87/bbl, but they're still below early October levels.
US government bond yields have remained stable, even with wars' inflationary tendencies.
Even after the attacks, global equity markets have seen a slight rise.
Gold and silver prices have experienced a modest rebound during these heightened geopolitical risks but remain below summer levels.
This muted response in precious metal prices is peculiar, especially as several Federal Reserve policymakers hinted at halting interest rate hikes, which should boost gold prices.
Gave offered this forecast: "Right now, markets are indicating that we will avoid World War III. Israel's move to delay its Gaza operation suggests they may be right."
Meanwhile, Michael Every, Global Strategist at Rabobank, warned "global security order is crumbling" and provided readers with three brief scenarios for how this war could potentially develop ahead.