How will the US’s assassination of Soleimani affect global economies? - ERDAL TANAS KARAGÖL

How will the US’s assassination of Soleimani affect global economies?

Global economies are negatively affected by risks posed by geopolitical factors as much internal matters.

Hence economies are sometimes further impacted by increasing geopolitical risks rather than internal issues.

What are the prominent geopolitical risks of 2020?

These risks can sometimes manifest in the form of trade wars and sometimes due to a myriad of bilateral tensions, negatively impacting the economy.

The assassination of Iranian General Qassem Soleimani at the hand of the U.S. during the first few days of 2020 escalated tensions and became a significant risk threatening the region.

The fact that the world’s biggest petrol producers, Saudi Arabia, Iran, the United Arab Emirates and Kuwait, are located in this region and because they ensure the transferal of petrol through the Hormuz Strait was an indication that the first repercussions for these tensions would be oil prices.

As a matter of fact, the risk possible repercussions carry became clear with the sudden uptick in oil prices in the immediate aftermath.

On the other hand, since about 20 percent of the world's oil vessels pass through the Strait of Hormuz, which is under the control of Iran, the hike in oil, i.e. energy prices, increases geopolitical risks as well.

Additionally, since a large portion of the oil that passes through the Strait or Hormuz is transferred to countries like China, Japan, India and South Korea proves that this region’s problems poses significant risks for the global economy.

Even the world’s biggest liquefied natural gas producer (LNG), Qatar, transports its gas to the global market via this region. A possible conflict that will break out in the region, which represents approximately 30 percent of the LNG market, points to an important threat targeting the security of the global energy demand.

It is clear that the possible negative effects of the ongoing trade wars between the U.S. and China on global trade and the contraction in trade volume will have a negative impact, especially on exports, which are an important source of economic growth. Hence, a thawing of ties between the U.S. and China in the days ahead will positively impact economies.

Developments and possible disputes in the eastern Mediterranean are also prominent among the risk factors this year.

Because the eastern Mediterranean is now a vital region in terms of natural gas and set to be one of the most important elements in the new global energy equation currently being rewritten.

Therefore, as more and more natural gas resources are discovered in the Eastern Mediterranean, disagreements about sharing these resources and even transferring them to international markets carry significant risks for the region.

The geo-political risks and Turkey

The region where Turkey is situated is one that is encumbered with severe geo-political risks. The internal conflicts, wars and crises occurring in Turkey’s neighboring countries render the geopolitical risks permanent.

What’s interesting is that the permanency of geopolitical risks occurring in countries that have natural gas and petrol resources indicates that the very possession of these resources feeds the risks itself.

The fact that Turkey has paid the highest price of the wars that have ravaged the Middle East shows the great toll of geopolitical risks.

Furthermore, the possibility of an oil hike, which will threaten the economy by increasing the current account deficit, and other repercussions, are also important issues.

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