Update on Israel-Gaza War, Huge Geopolitical Risks, and Impact on the Markets

By the Curmudgeon with Victor Sperandeo

A Smidgen of Good News - At Last:

1. Humanitarian aid arrived in Gaza for the first time Saturday since the brutal unprovoked attacks by Hamas in Israel on October 7th (Simcha Torah- the happiest day in the Hebrew calendar).

Egyptian officials said 20 trucks filled with medical supplies and some food and bottled water crossed into the Gaza Strip on Saturday morning from Egypt.  The convoy included four trucks from the World Health Organization (WHO), which the agency said carried trauma medicine and kits to treat as many as 1,200 injured people, as well as medication for 1,500 patients with chronic illnesses. The WHO said it also provided basic essential medicine and health supplies for 300,000 people for three months.

A second convoy of 14 aid trucks entered the Rafah crossing from the Egyptian side to the besieged Gaza Strip on Sunday night, Juliette Touma, director of communications at the U.N. Relief and Works Agency (UNRWA), told Reuters. 

“Another small glimmer of hope for the millions of people in dire need of humanitarian aid,” Martin Griffiths, the U.N.’s head of emergency relief, wrote on social media. “But they need more, much more,” he added.

Egypt closed the border with Gaza again after the trucks carrying aid entered the Strip. Citizens of the U.S. and other foreign countries stuck in Gaza couldn’t enter Egypt, officials said. 

U.S. President Biden said Saturday in a statement that the first convoy was “the result of days of diplomatic engagement” and said the U.S. is committed to getting additional aid to Gaza.

2.  On Friday, Hamas freed two American hostages, a Chicago-area woman, and her teenage daughter, who were reunited with family inside Israel.  The hostage release was announced by Abu Ubaida, a spokesman for the armed wing of Hamas, the Izz el-Deen al-Qassam Brigades, and confirmed a short time later in a statement from Israeli Prime Minister Benjamin Netanyahu.


Serious Cause for Concern:

There are indications that the Israel - Hamas conflict is expanding and drawing in more participants.  A U.S. destroyer this week shot down three cruise missiles and several drones fired by the Iranian-backed Houthi rebel group in Yemen. A Pentagon spokesperson said the missiles were “launched from Yemen heading north along the Red Sea, potentially towards targets in Israel.”

Saudi Arabia also shot down an Iranian backed Houthi-launched drone. On Thursday, U.S. bases in Syria and Iraq were the targets of drone attacks that caused minor injuries and damage. Also on Thursday, the U.S. warned all its citizens to leave Lebanon, while the Israeli military warned that the West Bank could become a third front in the Israel - Hamas war as fighters from the militant group began launching attacks there.

Iran backed Hezbollah wields significant power in Lebanon, where it operates as both a Shiite Muslim political party and militant group.  Israel is worried that Hezbollah could launch an attack from Lebanon at any time.


Will Egypt Prevent a Humanitarian Crisis in Gaza?

One has to wonder why Egypt, which claims to be a friend of the Palestinians, won’t open their border to permit Gaza’s would be refugees to escape the war? Egypt has had a long, troubled history of hosting Palestinian refugees, welcoming them, and subsequently restricting their rights according to the political whims of the day. But since Hamas’ attack and Israel’s retaliation bombing of Gaza, Egypt is faced with a moral dilemma.  Preventing Palestinians from safe access to its territory is a violation of international law and will surely lead to more civilian deaths. The displaced residents of Gaza are trapped with nowhere to go.

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Geopolitcal Futures- Huge Predicament for Arab States; Big Win for Iran:

Hamas’ unprecedented Oct. 7th attack on Israel has created a major predicament for the Arab states. Countries like Egypt, Jordan and Saudi Arabia, which have long sought peaceful relations with Israel and deeply oppose Hamas, have been forced to avoid criticizing the extremist Palestinian Islamist movement and instead take a public stance in opposition to Israel.

The attack has also created rifts between Arab nations and the United States. The unfolding crisis is a huge gain for Iran, which has long sought to destabilize the Middle East in order to enhance its power and influence.

Amid a growing number of anti-American and anti-Israeli protests in many regional countries, Jordan canceled a summit it was to host on Oct. 18 with U.S. President Joe Biden, Egyptian President Abdel Fattah el-Sissi, Palestinian Authority President Mahmoud Abbas and the country’s monarch, King Abdullah II.

Gaza Hospital Bombing:

A deadly blast at the Al-Ahir Baptist hospital in the Gaza Strip has created much controversy and finger pointing.  The U.S and Israeli authorities are saying the explosion was caused by a misfired rocket launched by the Palestinian Islamic Jihad militant group. Arab states insist Israel is responsible for hitting the hospital, but U.S. intelligence evidence strongly disputes that.

The bombing of the hospital in Gaza occurred as Mr. Biden was enroute to Israel to help prevent the crisis from spreading into a regional conflict.  Biden was forced to cancel his trip to the Jordanian capital after the hospital bombing.

Putting it all in Perspective:

The scale of the latest Hamas attack has broken the cycle of the past decade and a half, in which every few years there was a Gaza war ending in a truce. It has created a situation where the Arab states, which oppose Hamas and share an interest with Israel in containing the Iranian-backed group, have been forced to disregard its actions and instead criticize Israel.

The fear of regional instability among Arab governments has them on the defensive. In this way, Iran and Hamas have been able to derive significant geopolitical dividends.  As more Palestinian civilians in Gaza are killed in the Israel - Hamas war, Iran stands to benefit from the negative publicity.

For decades, proxy terrorist groups have been a core component of the Islamic Republic’s regional and international strategy.  Iran’s supreme leader, Ayatollah Ali Khamenei, has already declared the Hamas conflict “an irreparable defeat” for Israel, adding that the Israeli government “will no longer be the regime it used to be, and they cannot easily compensate for the blow that has struck them.”

Impact on the Markets:

As one might expect when there’s war in the Middle East, Oil moved higher this week.

l  West Texas Intermediate, the U.S. benchmark, rose 0.3% to $88.30 a barrel after starting the week around $87.

l  Brent Crude, the international standard, ticked 0.4% higher to $92.51 after beginning the week around $90, according to FactSet.

Gold has also increased in price since the Gaza invasion of Israel, but not as much as many expected as a “flight to safety.”

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Chart courtesy of Goldprice.org

-->Please see Victor’s market comments below for more clarity.


Victor’s Market Comments:

The financial and economic consequences of the Hamas attack on Israel are a high probability game changer event for the entire world. There are important geopolitical ramifications as the Curmudgeon has noted above and I augment below in the subhead: “Possible Expansion of the Israel-Gaza War.”

The big “IF” in the mix of this war is Iran’s involvement, and to what extent? Iran funds both Hamas and Hezbollah.  The Islamic Republic has already made some cryptic comments about Israel, but has not been specific about what they would do if Israel went into Gaza in a major military invasion.

The bottom-line question is: will Iran is close the Strait of Hormuz, - a body of water between the Persian Gulf and the Gulf of Oman where tankers carry oil from the Middle East?  That strait is the only sea passage from the Persian Gulf to the open ocean and is therefore one of the world's most strategically important choke points.  

On the north coast lies Iran, and on the south coast lies the Musandam peninsula, shared by the United Arab Emirates and Musandam Governorate, an exclave of Oman. The strait is about 90 nautical miles long, with a width varying from about 52 nautical miles (nmi) to 21 nmi.

More on why the Strait of Hormuz is critically important:

A third of the world's liquefied natural gas and almost 25% of total global oil consumption passes through the Strait, making it a highly important strategic location for international trade. It has been so for centuries.

Implications for Oil, Gold, Silver, U.S. Dollar, and Bonds:                                                                                                                                                    

If Iran closes the Strait, threatening to sink ships that enter, Oil prices would double very quickly. Because virtually everything we use is tied to the cost of energy, thereby what we purchase would also double in price. Coal, and Electricity can be used in some cases, but the bulk of energy comes from natural gas and especially oil. If oil doubles in price the economic results will be dire, indeed.

Gold and Silver would also (approximately) double in price, while the U.S. dollar and bonds would decline in a big way. Markets would close until global governments are able to negotiate some settlement on the price of oil to permit the exchanges to reopen.

In this unpleasant scenario, Oil, physical Gold, and Silver would be hoarded, while a massive run to own these assets takes place. Yields on long duration bonds would increase substantially as bond prices decline.

President Biden’s Trip to Israel:

The main reason President Biden went to Israel this week was to try to stop them from invading Gaza to avoid the expansion of the war which then might bring in Iran. Biden did not say a negative word about Iran, despite the well-known fact that the Iranian Revolutionary Guard (IRG) has funded, armed, and trained Hezbollah militants since the early 1990s. 

Also, Biden promised an unprecedented $14.3 billion package of aid to Israel. The aid, which must be approved by the U.S. Congress, includes funding for air and missile defense, military financing, and embassy support.  However, with bulging budget deficits, the U.S. can’t afford to finance two wars (Ukraine and Israel) at the same time.

Possible Expansion of the Israel-Gaza War:

The obvious new players, both backed by Iran are Hezbollah and the Houthis (see Serious Cause for Concern above). 

Hezbollah has exchanged deadly fire with Israeli forces for more than a week, but it has so far been relatively limited cross-border shelling. The powerful Iran-backed group is based in Lebanon, and it has a large arsenal of long-range rockets.  With tension along the northern border soaring, Israel's Ministry of Defense announced Friday that the roughly 20,000 residents of the town of Kiryat Shmona, near that Lebanese border, would be evacuated.

Reports of U.S. bases in Iraq and Syria being targeted by drones have increased since the Israel-Hamas war erupted.  Iran-backed militias in northern Iraq and Syria have long targeted American forces in the region.

President Biden has warned Iran and its regional allies repeatedly and clearly not to get involved in Israel's war with Hamas.

Another critical issue, not talked about much, is the possible involvement of Turkey, which has 1.5-5 million Arab citizens and an army of 500,000+ men. Turkey reportedly harbors some of Hamas’ top leaders.

If this war expands to include Arab countries and other terrorist groups, it will be an existential threat to Israel’s existence, which could in turn precipitate a third world war.

Addendum 1.  Backgrounder:

Israel left Gaza in August 2005 and ceded control of the strip to the Palestinian Authority (PA), which was envisioned as an interim organization to administer a limited form of Palestinian self-governance.  That didn’t last very long.  The residents of Gaza voted for Hamas in the January 2006 elections, because they believed the PA was corrupt.  There have not been any elections either for president or for the legislature in Gaza since then!

Hamas governs more than two million Palestinians in the Gaza Strip, but the group is best known for its unprovoked and brutal terror attacks on Israel.  The U.S., EU, and dozens of countries designated Hamas a terrorist organization many years ago.

Hamas’s charter is to eradicate the state of Israel. They want a one state solution which is exclusively Palestinian with no Jews left.  The original 1988 Hamas covenant invokes this injunction:

“The Day of Judgment will not come about until Muslims fight Jews and kill them. Then, the Jews will hide behind rocks and trees, and the rocks and trees will cry out: ‘O Muslim, there is a Jew hiding behind me, come and kill him.”

Hamas later (2017) softened the language from “Jews” to “Zionists” and “kill” to “resisting the occupation with all means and methods,” but the meaning is the same - eradicate the state of Israel, killing the many Jews that live there!

To accomplish its objectives, Hamas acquires smuggled weapons from Iran and builds them in Gaza in order to attack Israel. They’ve also built tunnels into Israel to facilitate their attacks on the Jewish state.

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Addendum 2. The Massive Historic Immorality of Hamas:

Hamas’ October 7th attack was not a military operation, even though some Israeli soldiers were killed and held as hostages. It was a general attack on ALL CIVILIANS in Israel, including women, children and even visitors to Israel (many of whom were not Jewish). 

There is nothing Victor could find in all of history (from Genghis Khan in the 1200’s to date) like the indiscriminate killing of anyone who happens to be on the land of an enemy state.  No entity has chosen mass murder to innocent people to achieve their objectives!

In contrast, the Drug Lords of Mexico and South America have killed specific families who betrayed the drug gang, or who testified against them, but they never killed innocent people just to kill.  Yet that is exactly what Hamas has done!

The Hamas attack on Israel can only be understood as serial killing murder without a reason, but to kill for its own sake. This goes beyond Hamas’ charter (aka as a covenant) to eliminate the state of Israel in a “divinely ordained holy war.”

In summary, the killing of civilians and deliberately failing to avoid killing civilians are war crimes under international law.  

All nations should declare that this type of moral reprehensible terror has no place in a civilized world. 


Be well, success, good luck and till next time……………

The Curmudgeon

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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