The Economist Intelligence Unit (EIU) warned that if Iran were to become involved in the current Israeli-Lebanese conflict, the results could be catastrophic for the world economy with oil prices rising to USD100 a barrel.
This will certainly undo the prospects of economic growth in what is promising to be a prosperous year for the global economy.
Iran produces 4.3m barrels per day (bpd) at present and exports around 2.6m bpd.
Because global spare capacity is now around 2m bpd — down from 5.75m bpd in 2002 — the cessation of Iranian supplies would be catastrophic for the world’s oil market.
One of the major risks according to the report is that Iran, which backs Hizbollah and has threatened Israel with serious consequences if Israeli forces attack Syria, could become involved in the current war.
Although a cessation of hostilities could put an end to the current conflict in the next days or weeks, the EIU predicts that tensions in the region will remain high over the next few years.
Israel has set as its main goal the destruction of Hizbollah, an “impossible goal” according to Robin Bew the EIU’s chief economist.
Given the difficulty of achieving its objective, Israel seems set for a lengthy, low-level conflict with Hizbollah in and around its northern border, to the detriment of stability in Lebanon.
“The current situation also carries some risk of a broader and much more damaging regional escalation, should Syria or Iran be drawn directly into hostilities.”
The most probable outcome according to the EIU is that current hostilities will give way to a prolonged stalemate rather than peace arrangement.
“Israel would establish military positions and a security zone along the southern Lebanese border, making large-scale but probably temporary incursions in response to attacks by Hizbollah guerrillas,” it predicts.
Under these circumstances, the long-term stability of the Lebanese government could be called into doubt, and the wider region would remain unsettled, with increased radicalisation of militant groups.
With no long-term settlement on these issues in sight Syria could remain a destablising force even if a temporary cease fire is achieved.
In an interview with Business Today, former Maltese President Guido de Marco, had warned that if Syrian grievances on the occupation of the Golan Heights by Isreal are left unresolved, the situation could further deteriorate.
“Syria has its own grievances which cannot be ignored. Syrian land - the Golan heights - has been occupied by Israel since 1967. What can we expect from Syria as long as Israel occupies part of its own land?”
In another interview with this newspaper MLP spokesperson on foreign affairs Leo Brincat urged western powers to engage Syria in the peace process.
Citing a history of limited co-operation between Syria and the USA and Syria’s participation in the Madrid peace conference, Brincat expressed optimism that overtures towards Syria could bear fruit.
But engaging Iran could verge on the impossible with President Ahmadinejad calling for the destruction of Israel. With pro-Iranian Shi’ite militias emerging as a dominant force in occupied Iraq Iranian hegemony on the region could grow.
Iran could also try to deflect world attention from its nuclear ambitions by fuelling tensions in Lebanon.
According to Former Foreign Minister George Vella the pressure being levelled against Iran by the international community could be a factor contributing to the escalation of the crisis in the Middle East.
Although Iran is considered Hizbollah’s main sponsor, Robin Bew warns that “the relationship between Hizbollah and Iran is pretty unclear and it’s certainly not one in which Iran has dictatorial control.”
A prolonged stalemate in the absence of a general Middle East settlement could result in a future escalation engulfing Syria and Iran.
Although neither regime wants to become directly involved in the conflict, both have long histories of miscalculation when engaging in brinkmanship in times of crisis. In such circumstances the current outbreak of violence in the Middle East could escalate swiftly beyond the limits currently envisaged by any of the regional actors.
What is absent in the EIU report is any reference to the underlying cause of problems in the Middle East - the occupation of Palestinian lands by Israel.
The collective punishment of the Palestinian people in Gaza and the West Bank and the imprisonment of their elected representatives offers militant groups like Hizbollah their ultimate justification.