Comment 32: How the conflict between Israel and Hezbollah will affect the globalization process. (July 24, 2006)

The globalization process is heartless and cruel. It does not care how many people die, and what kind of human tragedy is unfolding. The globalization process only cares about factors that will influence its performance. With regard to the conflicts in the Middle East, it only cares about one thing, that is, the supply of oil. For this conflict between Israel and Hezbollah, the concern of the globalization process is still about the supply of oil, but we need to consider both the short-term effect and the long-term effect on the supply of oil.

In short term, the supply of oil is not endangered as long as Iran is not directly pulled into the conflict. The markets around the globe are gauging the chance that Iran will be pulled into conflict directly. When they deem the chance for the fire to burn to Iran is high, oil price will jump and stock markets tumble. If the chance of Iranian entanglement is reduced, oil price will drop and stock markets will cheer. The most likely scenario of Iranian involvement is as follows: As the fight between Israel and Hezbollah intensifies and draws closer to the border of Syria, Syria sends army back to Lebanon, and the direct hostility between Israel and Syria erupts. Iran starts to attack Israel in order to help Syria. Israel bombs the nuclear site of Iran and the full war starts between Israel and US at one side, and Iran, Syria and Hezbollah at the other side. Oil price will skyrocket, probably substantially pass $100 per barrel under such a scenario, and a global recession will arrive. If some kind of ceasefire is achieved and the chance of direct involvement of Iran diminishes, oil price will fall by a modest amount and stock markets will sigh a sigh of relief. On the other hand if Israel beats Hezbollah decisively before Syria and Iran have any chance to get involved, oil price will drop big, and global stock markets will become euphoric.

The long-term effect of the conflict on oil supply is much more complicated than the short-term effects discussed in the previous paragraph. If Hezbollah is destroyed by Israel, Iran will lose an important agent and will be much easier to deal with. Even the militancy of Palestinians may be reduced and make a final peace with Israel and Palestinian possible. However, to defeat Hezbollah is easy said than done. The organization is based on about one million Shiite population of the southern Lebanon. It is well organized. Its militia consists of fierce fighters. It is safe to say that as long as this Shiite population exists, so is Hezbollah. Suppose a 25-mile safety zone is established along the Israel border, and controlled by a modern international army with a token existence of Lebanese military. The displaced Shiite of southern Lebanon will demand to return to their home. If they are allowed to return to their homeland, Hezbollah also returns to the safety zone. If the natives are not allowed to return to their homeland, an armed guerrilla war will erupt against the international force. The situation will be worse than the cases of Afghanistan and Iraq since in southern Lebanon the international force will not have any allies and will face the Hezbollah guerrilla alone. Most likely the international force will be forced to withdraw after sustaining heavy tolls, and the situation before the current crises, Israel facing Hezbollah, will reoccur. In that case, Hezbollah will be viewed as a hero in the Moslem world for standing up against the giant USA and its ally, Israel, and holding its ground. The influence of Hezbollah will be significantly enhanced, and the influence of the west will be reduced throughout the Moslem world in contrast, endangering the future oil supply.

Global markets are only concentrated on short-term effects at present, and will rejoice if a cease-fire is reached and the chance of Iranian involvement diminishes. However, for those who take a long-term view of the globalization scheme, they must keep their eyes open toward the unpleasant future possibility.