Conflict in Israel and Gaza: What could it mean for the UK?

With Westminster having returned from Conference, and two further by-elections taking place this week, many would have expected a return to usual business, with each party seeking to demonstrate their new direction after a busy conference season.

But geopolitical events have shifted the country’s focus far away from a glitter-covered Labour Conference or HS2 revocation to the harrowing events in Israel and Gaza, and the humanitarian crisis developing in the region. With the Prime Minister’s visit to the region this week underlining the scale of the challenge and fears of a wider regional escalation, it is worth reflecting on what this could mean for Britain in the near and longer-term.

The fundamental mood underpinning this conflict is one of uncertainty. In a global economy still teetering since Russia’s invasion of Ukraine last year, further shocks to global commodity prices could tip the global economy over the edge into recession. Concerning rhetoric emerging from Iran has already pushed global oil prices to $93 a barrel, whilst further military escalation could see shipping and energy infrastructure threatened. There is a very real scenario emerging that a sustained conflict, even if controlled for the time being, pushes Brent oil futures above $100, whilst uncertainty continues as to whether the conflict will draw in further regional actors.

Rising oil prices will only serve to fuel inflation, creating a stagflationary environment in the UK that will continue to push up food and energy prices, potentially dashing Rishi Sunak’s pledge to halve inflation. Interest rates will continue to rise, causing further pain for homeowners and renters alike ahead of the upcoming General Election. Russia’s invasion of Ukraine revealed the global economy to be overwhelmingly vulnerable to commodity price shocks, and with global fuel reserves now threatened by two major conflicts, any attempts made in the interim to introduce greater economic resilience will again come under immense strain. So whilst the primary motivation behind Sunak’s trip was a humanitarian and diplomatic one, the implications of a protracted conflict for his own election prospects back home will not be lost on him and his team.

This conflict also puts immense pressure on two policy areas which the Conservatives are keen to make wedge issues over the next 12 months; immigration and crime. Since the conflict began, antisemitic hate crimes have increased by 300% in the UK, whilst mosques across the UK have been forced to step up security in the wake of Islamophobic attacks. Couple this with millions of displaced Palestinians, and whilst neighbouring countries such as Egypt and Jordan refuse to accept large numbers of refugees owing to their own fragile economic states, there will be a greater expectation of diplomatic partners such as the UK to set up refugee resettlement routes or at least to support partners in the region to accommodate the influx of refugees.?

Should the conflict result in vast numbers of refugees, Sunak is going to have to find a way to reconcile his unwavering support for Israeli military action with a hawkish immigration policy which will make the UK incredibly resistant to accepting refugees. The UK Government has options to reconcile this (which include buying Egypt’s debt or financially supporting Jordan to take on more refugees), but within a worsening economic climate, and UK bonds underperforming, this is a challenging fiscal sell.? If this conflict does escalate further, or indeed deteriorate into a drawn out ground war, as we have seen in Ukraine, foreign policy is likely to become much more of a feature of political discourse leading up to the next election.?

Internationally, Britain’s much touted trade negotiations with Saudi Arabia and the potential visit of Crown Prince Mohammed Bin Salman to the UK this Autumn have been kicked into the long grass as a result of this conflict. This promised much greater economic partnership opportunities for British businesses from education to energy, and would have been central in supporting the UK’s decarbonisation agenda. One of the remaining vestiges of the Conservatives’ Global Britain ambitions, any expected warming of relations between the UK and Gulf powers will come under strain from Sunak’s unwavering support for Israel throughout this conflict. Sunak’s recent visit to Saudi Arabia demonstrates the importance of this relationship to the UK, as our 17th largest export market and one of the biggest investors in UK infrastructure - as well as recognising Saudi Arabia as a key regional power broker.?

With the UK and Europe increasingly reliant on fuel from the region after diversifying in light of Russia’s incursion into Ukraine - not only on fossil fuels from the Gulf, but importing renewables and natural gas from key countries such as Egypt - the implications of a wider conflict on the UK’s energy sector are potentially enormous. With a swathe of energy policy announcements expected as part of Sunak’s new approach to Net Zero in the coming months, the imperative to diversify our energy mix will become ever greater, as will calls to boost domestic energy resilience as global supply chains dwindle.

For the moment, everyone is pulling in the same direction. Arab rulers, especially in the Gulf, are terrified of widening conflict in the region, and growing rage among their people toward normalisation with Israel, and are thus pressuring Western leaders and using backchannels to urgently de-escalate the conflict. In a historic shift for the region, the Crown Prince spoke directly to the Iranian president Ebrahim Raisi, urging him to prevent a further widening of the conflict through proxy militias - a direct result of the Chinese-brokered normalisation treaty signed by both regional power players last Spring.

But as the humanitarian situation continues to worsen, Arab leaders may find it increasingly difficult to reconcile this imperative towards normalisation with their peoples’ traditional allegiance toward the emergence of a Palestinian state. The region was closer than ever to developing a workable two-state solution, as part of the normalisation reforms driven by Saudi Arabia - perhaps the catalyst for Hamas’ incursion in the first place, given their violent opposition to the very existence of the state of Israel.

Now, conflict has returned to this embattled part of the world. Given its increased integration into global politics and rapid economic growth in recent years, the global repercussions of any conflict here, even one that remains contained, cannot be underestimated. International partners, including the UK, must be able to deal with this newly empowered region with the respect and nuance that it mandates, in order to help facilitate a way out of a growing humanitarian crisis.