Gaza War Update:
Israel Defense Forces (IDF) resumed
combat operations against Hamas in the Gaza Strip on Friday after the Islamic
terrorist group violated the cease-fire that was reached on Nov. 24th. Fighting was reported to be heavy on Sunday
as Israeli military struck tunnel shafts, command centers and weapons storage
facilities in overnight raids.
Israel has recalled its team
of negotiators from Qatar after reaching a dead end in talks aimed at
securing a fresh pause in fighting with Hamas. Negotiations broke down over the
terms for releasing women still held in Gaza, a source told CNN.
Will the Gaza War Expand to a Regional Conflict?
After several years of
seemingly improved relations between Israel and parts of the Middle East,
including the Abraham Accords [1.], the intense fighting between Hamas
and Israel in Gaza has sparked fears of a wider regional conflict. That would have an incredibly negative effect
on global economic growth and destabilize financial and commodity markets.
Note 1. The Abraham
Accords are a series of agreements that normalize diplomatic relations
between Israel and several Arab states. The agreements were signed on September
15, 2020. The states involved are Israel, United Arab Emirates (UAE), Bahrain,
Morocco (North Africa), and Sudan (Sub-Sahara Africa). The U.S. has been attempting to get Saudi
Arabia to recognize Israel as an extension of these accords, but the war in
Gaza has clearly jeopardized that initiative.
The U.S. and European allies
are concerned that the war could spill over into a broader conflict throughout
the Middle East. Hezbollah has been firing rockets into Northern Israel
from Lebanon. Meanwhile, Houthi
rebels in Yemen have been launching drones and missiles targeting Israel. A U.S. official, speaking on condition of
anonymity to discuss intelligence matters, told the Associated Press the
attack began at about 10am in Sanaa, Yemen (07:00 GMT) on Sunday, and continued
for the next five hours.
Last month, the Houthis
seized a vehicle transport ship also linked to Israel in the Red Sea off Yemen.
The rebels still hold the vessel near the port city of Hodeida. Missiles also landed near another U.S.
warship last week after it assisted a vessel linked to Israel that had briefly
been seized by gunmen.
Role of Iran:
Its important to understand
that Iran backs, trains, supports and supplies Hamas, Hezbollah, Islamic
Jihad, and the Houthis as a trademark of its foreign policy. The Shia ruled Islamic Republic uses those
terrorist groups as proxies to fight its enemies in Israel, Yemen, an
Iran has gained clout and
increased geopolitical influence from a deterioration in Israel's relations
with Arab monarchies, the rise of antisemitism and global condemnation of
Israel for (unintentional) killing of thousands of civilians in Gaza. Like their
terrorist proxies, Iran wants to totally eradicate Israel which it refers to as
the Zionist entity.
If Israel succeeds in
removing Hamas from Gaza, Iran will view that as a significant blow to their
political interests. A key question is will Iran do anything to prevent Israel from destroying
Hamas like encouraging Hezbollah to open a second front of the war in
Iran is trying to coordinate
its actions with regional players. Iran's foreign minister has already visited
Doha (capital and financial center of Qatar) twice, the hostage situation being
among the topics discussed. The problem for Tehran is that the American
administration now has new reasons to increase sanctions pressure on Iran.
What About Russia?
Will Russia, who Iran supplied
drones and ammo in their war with Ukraine, join the fray? Russia is moving away from Tel Aviv and
getting closer to Tehran.
The crisis in Israel is
beneficial for Russia so long as it is manageable. It not only distracts
attention from the war in Ukraine, but also provides Russian propaganda with a
great deal of vitriolic material to portray the west and Ukraine in a bad light.
Russia has attempted to accuse Ukraine of exporting weapons to Hamas (which
is beyond ridiculous)! There have
also been Russian attempts to accuse the United States of undermining the
stabilization process in the Middle East.
World Crunch reports Russia as saying, "The
Palestinians have come to us, we are talking to them, we are talking to Iran,
and if you want, we can broker negotiations.
Moscow is doing all this not for the sake of Palestinian people or for
the sake of Israel, but solely to serve more global Russian objectives, which
are to deflect global criticism of its invasion of Ukraine.
Yet the U.S. and Israel are
clear that they do not see Russia as a neutral party, especially in the context
of its aggression against Ukraine, and that no one is going to bring Moscow in
as referee at the negotiating table between Israel and Hamas (or its
Who Might Replace Hamas in
Replacing Hamas with an
alternative could be a bet in the game for dominance in the region. However,
there are currently no legitimate contenders.
Orna Mizrahi, a former deputy national security advisor, concedes there's
no clear candidate. "If you want to
replace Hamas, who is going to come afterwards? What is going to be 'the day
after?' This is the big question," said Mizrahi, who is now with Israel's
Institute for National Security Studies.
Heres the current
Israeli troops operate inside the Gaza Strip in this photo provided by the Israeli military. Israel says it will not allow Hamas to rule Gaza in the future, but it's unclear who might be in charge in the territory.
Impact on other Middle
Qatar and other Gulf countries perceive any crisis as a
threat. Doha is actively playing its role as a mediator and wants to avoid
increasing confrontation in the region, since this poses a huge danger for such
a small country.
For Saudi Arabia, the political
victory of concluding treaties and establishing ties with Israel has been put
There are also risks for the United
Arab Emirates, which too has been trying to mend its relations with Israel.
Jordan, which established diplomatic relations with Israel
in 1994, integrating Palestinian refugees has been a problem. A division remains at the everyday level
between ethnic Jordanians and Jordanized Palestinians. King Abullah II of
Jordan is wary of increasing the Palestinian population and its influence on
the country's politics. He certainly
does not want Jordan to assume any political role in Gaza.
We suggest watching Hezbollah
rocket attacks or even ground invasion of Northern Israel for an indication of
a wider regional conflict with Israel.
What they do will largely be dictated by their sugar daddy - Iran.
All eyes are on the
humanitarian situation in Gaza and the potential flow of refugees (once the
Ramah crossing is open). No country in the Arab world is ready to accept them,
and Palestine's closest neighbors Egypt and Jordan see new refugees as a political
and economic threat.
The United States
Institute of Peace has published an analysis of the impact of the conflict on regional
relations, which readers may find informative.
Be well, keep active, and
try to be objective in this age of disinformation and propaganda
campaigns. Till next time
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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