Goldman Sachs says the Israel-Hamas war could have major implications for Europe’s economy
Armoured vehicles of the Israel Defense Forces (IDF) are seen during their ground operations at a location given as Gaza, as the conflict between Israel and the Palestinian Islamist group Hamas continues, in this handout image released on November 1, 2023.
Israel Defense Forces | Reuters
The Israel-Hamas war could have a significant impact on economic growth and inflation in the euro zone unless energy price pressures remain contained, according to Goldman Sachs.
The ongoing hostilities could affect European economies via lower regional trade, tighter financial conditions, higher energy prices and lower consumer confidence, Europe Economics Analyst Katya Vashkinskaya highlighted in a research note Wednesday.
Concerns are growing among economists that the conflict could spill over and engulf the Middle East, with Israel and Lebanon exchanging missiles as Israel continues to bombard Gaza, resulting in massive civilian casualties and a deepening humanitarian crisis.
Although the tensions could affect European economic activity via lower trade with the Middle East, Vashkinskaya highlighted that the continent’s exposure is limited, given that the euro area exports around 0.4% of the GDP to Israel and its neighbors, while the British trade exposure is less than 0.2% of the GDP.
She noted that tighter financial conditions could weigh on growth and exacerbate the existing drag on economic activity from higher interest rates in both the euro area and the U.K. However, Goldman does not see a clear pattern between financial conditions and previous episodes of tension in the Middle East
The most important and potentially impactful way in which tensions could spill over into the European economy is through oil and gas markets, Vashkinskaya said.
“Since the current conflict broke out, commodities markets have seen increased volatility, with Brent crude oil and European natural gas prices up by around 9% and 34% at the peak respectively,” she said.
Goldman’s commodities team assessed a set of downside scenarios in which oil prices could rise by between 5% and 20% above the baseline, depending on the severity of the oil supply shock.
“A persistent 10% oil price increase usually reduces Euro area real GDP by about 0.2% after one year and boosts consumer prices by almost 0.3pp over this time, with similar effects observed in the U.K.,” Vashkinskaya said.
“However, for the drag to appear, oil prices must remain consistently elevated, which is already in question, with the Brent crude oil price almost back at pre-conflict levels at the end of October.”
Gas price developments present a more acute challenge, she suggested, with the price increase driven by a reduction in global LNG (liquefied natural gas) exports from Israeli gas fields and the current gas market less able to respond to adverse supply shocks.
“While our commodities team’s estimates point to a sizeable increase in European natural gas prices in case of a supply downside scenario in the range of 102-200 EUR/MWh, we believe that the policy response to continue existing or re-start previous energy cost support policies would buffer the disposable income hit and support firms, if such risks were to materialize,” Vashkinskaya said.
Bank of England Governor Andrew Bailey told CNBC on Thursday that knock-on effects of the conflict on energy markets posed a potential risk to the central bank’s efforts to rein in inflation.
“So far, I would say, we haven’t seen a marked increase in energy prices, and that’s obviously good,” Bailey told CNBC’s Joumanna Bercetche. “But it is a risk. It obviously is a risk going forward.”
Oil prices have been volatile since Hamas launched its attack on Israel on Oct. 7, and the World Bank warned in a quarterly update on Monday that crude oil prices could rise to more than $150 a barrel if the conflict escalates.
General consumer confidence is the final potential channel for spillover affects, according to the Wall Street bank, and Vashkinskaya noted that the euro area experienced a substantial deterioration in the aftermath of Russia’s invasion of Ukraine in March 2022.
The same effect has not been historically observed alongside outbreaks of elevated tensions between Israel and Hamas, but Goldman’s news-based measure of conflict-related uncertainty reached record highs in October.
Tesla has launched a new accessory enabling you to “Macgyver” a couple of power outlets from the Cybertruck’s charge port.
It appears to be designed for the new cheaper Cybertruck, which doesn’t have power outlets in its bed.
Earlier this week, Tesla launched the Cybertruck Long Range RWD: a new, cheaper, and badly nerfed version of the electric pickup truck.
The new version is extremely disappointing as it is $9,000 more expensive than the Cybertruck RWD was supposed to be, and while it has more range than originally planned, Tesla has removed a ton of features, including some important ones.
Here’s what you lose with the Cybertruck RWD:
- You get a single motor RWD instead of Dual Motor AWD
- You lose the adaptive air suspension
- No motorized tonneau, but you have an optional $750 soft tonneau
- Textile seats instead of vegan leather
- Fewer speakers
- No rear screen for the backseat
- No power outlets in the bed
The last one has been pretty disappointing, as it can’t be that expensive to include, and Tesla is basically removing $20,000 worth of features for only a $10,000 difference with the Dual Motor Cybertruck.
But the automaker appears to have come up with a partial solution.
Tesla has launched a $80 ‘Powershare Outlet Adapter’ on its online store:
When combined with Tesla’s Gen 3 Mobile Connector plugged into the Cybertruck’s charge port, it gives you two 120V 20A power outlets.
Tesla describes the product:
Powershare Outlet Adapter allows you to power electronic devices using Mobile Connector and your Powershare-equipped vehicle’s battery. To use this adapter, plug Mobile Connector’s handle into your Powershare-equipped vehicle’s charge port and connect the adapter to the other end of your Mobile Connector. You can then use this adapter to plug in any compatible electronic device you want to power.
For now, Tesla says that this only works for the Cybertruck and you have to buy the $300 mobile charging connector, which doesn’t come with the truck.
Electrek’s Take
I guess it’s better than nothing, but I’m still super disappointed in the new trim. It makes no sense right now.
Not only you lose the 2x 120V, 1x 240V outlets in the bed, but you also lose the 2x 120V outlets in the cabin. Now, you can can pay $380 to have a “Macgyver” solution for 2 120V outlets in the back.
I’m convinced that Tesla designed this trim simply to make the $80,000 Cybertruck AWD look better value-wise.
It looks like Tesla took out about $20,000 worth of features while giving buyers only a $10,000 discount.
It’s just the latest example of Tesla losing its edge.
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The International Maritime Organization, a UN agency which regulates maritime transport, has voted to implement a global cap on carbon emissions from ocean shipping and a penalty on entities that exceed that limit.
After a weeklong meeting of the Marine Environment Protection Committee of the IMO and decades of talks, countries have voted to implement binding carbon reduction targets including a gradually-reducing cap on emissions and associated penalties for exceeding that cap.
Previously, the IMO made another significant environmental move when it transitioned the entire shipping industry to lower-sulfur fuels in 2020, moving towards improving a longstanding issue with large ships outputting extremely high levels of sulfur dioxide emissions, which harm human health and cause acid rain.
Today’s agreement makes the shipping industry the first sector to agree on an internationally mandated target to reduce emissions along with a global carbon price.
The agreement includes standards for greenhouse gas intensity from maritime shipping fuels, with those standards starting in 2028 and reducing through 2035. The end goal is to reach net-zero emissions in shipping by 2050.
Companies that exceed the carbon limits set by the standard will have to pay either $100 or $380 per excess ton of emissions, depending on how much they exceed limits by. These numbers are roughly in line with the commonly-accepted social cost of carbon, which is an attempt to set the equivalent cost borne by society by every ton of carbon pollution.
Money from these penalties will be put into a fund that will reward lower-emissions ships, research into cleaner fuels, and support nations that are vulnerable to climate change.
That means that this agreement represents a global “carbon price” – an attempt to make polluters pay the costs that they shift onto everyone else by polluting.
Why carbon prices matter
The necessity of a carbon price has long been acknowledged by virtually every economist. In economic terms, pollution is called a “negative externality,” where a certain action imposes costs on a party that isn’t responsible for the action itself. That action can be thought of as a subsidy – it’s a cost imposed by the polluter that isn’t being paid by the polluter, but rather by everyone else.
Externalities distort a market because they allow certain companies to get away with cheaper costs than they should otherwise have. And a carbon price is an attempt to properly price that externality, to internalize it to the polluter in question, so that they are no longer being subsidized by everyone else’s lungs. This also incentivizes carbon reductions, because if you can make something more cleanly, you can make it more cheaply.
Many people have suggested implementing a carbon price, including former republican leadership (before the party forgot literally everything about how economics works), but political leadership has been hesitant to do what’s needed because it fears the inevitable political backlash driven by well-funded propaganda entities in the oil industry.
For that reason, most carbon pricing schemes have focused on industrial processes, rather than consumer goods. This is currently happening in Canada, which recently (unwisely) retreated from its consumer carbon price but still maintains a price on the largest polluters in the oil industry.
But until today’s agreement by the IMO, there had been no global agreement of the same in any industry. There are single-country carbon prices, and international agreements between certain countries or subnational entities, often in the form of “cap-and-trade” agreements which implement penalties, and where companies that reduce emissions earn credits that they can then sell to companies that exceed limits (California has a similar program in partnership with with Quebec), but no previous global carbon price in any industry.
Carbon prices opposed by enemies of life on Earth
Unsurprisingly, entities that favor destruction of life on Earth, such as the oil industry and those representing it (Saudi Arabia, Russia, and the bought-and-paid oil stooge who is illegally squatting in the US Oval Office), opposed these measures, claiming they would be “unworkable.”
Meanwhile, island nations whose entire existence is threatened by climate change (along with the ~2 billion people who will have to relocate by the end of the century due to rising seas) correctly said that the move isn’t strong enough, and that even stronger action is needed to avoid the worse effects of climate change.
The island nations’ position is backed by science, the oil companies’ position is not.
While these new standards are historic and need to be lauded as the first agreement of their kind, there is still more work to be done and incentives that need to be offered to ensure that greener technologies are available to help fulfill the targets. Jesse Fahnestock, Director of Decarbonisation at the Global Maritime Forum, said:
While the targets are a step forward, they will need to be improved if they are to drive the rapid fuel shift that will enable the maritime sector to reach net zero by 2050. While we applaud the progress made, meeting the targets will require immediate and decisive investments in green fuel technology and infrastructure. The IMO will have opportunities to make these regulations more impactful over time, and national and regional policies also need to prioritise scalable e-fuels and the infrastructure needed for long-term decarbonisation.
One potential solution could be IMO’s “green corridors,” attempts to establish net-zero-emission shipping routes well in advance of the IMO’s 2050 net-zero target.
And, of course, this is only one industry, and one with a relatively low contribution to global emissions. While the vast majority of global goods are shipped over the ocean, it’s still responsible for only around 3% of global emissions. To see the large emissions reductions we need to avoid the worst effects of climate change, other more-polluting sectors – like automotive, agriculture (specifically animal agriculture), construction and heating – all could use their own carbon price to help add a forcing factor to drive down their emissions.
Lets hope that the IMO’s move sets that example, and we see more of these industries doing the right thing going forward (and ignoring those enemies of life on Earth listed above).
The agreement still has to go through a final step of approval on October, but this looks likely to happen.
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