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Strategy
What the Israel-Hamas conflict
means for global business
by David Bach
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
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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 longstanding 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
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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.
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.
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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 longterm 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.
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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.
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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
Professor of Strategy and Political Economy
An expert in strategy and political economy, David Bach
holds the Rio Tinto Chair in Stakeholder Engagement at
IMD. Through his award-winning teaching and writing, Bach
helps managers and senior executives develop a strategic
lens for the nexus of business and politics.
Related
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What the Israel-Hamas conflict means for global business - I by IMD
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