Global financial markets are discounting the risk of a “massive conflict throughout the Middle East for now,” economist Nouriel Roubini said.
Investors expect Israel “has no choice but go into Gaza and get rid of Hamas,” Roubini told Bloomberg’s Francine Lacqua on the sidelines of the annual meetings of the International Monetary Fund and the World Bank in Marrakech, Morocco. Markets are pricing in a baseline scenario in which “Israel occupies Gaza, it’s going to get ugly, but the conflict remains contained.”
But Roubini said there is a “downside scenario” in which Iran and Lebanon get involved, risking conflict between Israel and Iran. “If that were to be the case, of course the supply of oil from the Gulf gets disrupted and you get a spike in oil prices and the economic impact would be huge,” he said. “It’s not the baseline scenario, but it’s a risk.”
If oil prices do rise, it would be a “stagflationary shock” and a “huge dilemma for central banks,” he said.
Roubini, also a professor of economics and international business at New York University’s Stern School of Business, is known for bearish pronouncements that earned him the moniker “Dr Doom.” He correctly warned of disaster before the 2008 financial crisis and is followed for his often counter-conventional views.
This article was provided by Bloomberg News.