Israel has initiated a ground incursion into Lebanese territory, raising concerns in the market over the ongoing conflict between Israel and the Iran-backed Hezbollah militant group.
Early on Tuesday, the Israel Defense Forces (IDF) announced that they had begun “limited, localized and targeted ground raids” against targets in southern Lebanon identified as posing an “immediate threat to Israeli communities in northern Israel.” These operations are being supported by Israeli air and artillery forces, according to the IDF.
This ground incursion signifies a shift in Israel’s military focus away from the Gaza Strip, where it has been conducting a retaliatory campaign following an October 7 terror attack by the Palestinian militant group Hamas.
Since last year, Hezbollah and Israel have been exchanging cross-border fire after Hezbollah declared solidarity with the Palestinian cause. The latest Israeli offensive in Lebanon follows the assassination of Hezbollah chief Hassan Nasrallah on September 27, an action that has destabilized the group’s command structure. The offensive also follows a significant bombing campaign reported by NBC News, which has resulted in over 1,000 deaths in Lebanon and displaced 1 million people.
Western allies had been urging Israel to consider a 21-day cease-fire across the Lebanon-Israel border as recently as last week. In a social media post, Israeli Defense Minister Yoav Gallant stated that his discussions with U.S. Defense Secretary Lloyd Austin emphasized that Israel’s current operations build on ongoing measures to eliminate Hezbollah leadership and degrade the group’s offensive capabilities.
In response, Hezbollah officials, as reported by the Hezbollah-aligned Al Manar media outlet, denounced the Israeli airstrikes and called on the United Nations for relief supplies. They also denied reports of Israeli ground incursions and claimed there were no direct ground clashes.
The conflict in Lebanon exacerbates a severe financial crisis in the country, which has been ongoing since 2019 due to a severe dollar liquidity crisis. Israel’s own economy is feeling the pressure from multiple military campaigns. According to Reuters, Bank of Israel Governor Amir Yaron indicated that the central bank is likely to hold interest rates steady at 4.5% until the second half of the next year and may reduce its 2025 growth forecast due to the ongoing conflict.
International markets have so far managed to remain stable despite nearly a year of relentless conflict in the oil-rich Middle East. Oil prices, historically sensitive to geopolitical disturbances, have not seen long-term spikes, limited by expectations of declining global demand and potential increases in supply.
On Tuesday afternoon, Brent crude futures for December were trading at around $73.10 per barrel, a 2.1% increase from the previous settlement. The November West Texas Intermediate contract rose by 2.27% to $69.70 per barrel.
An attack by Israel in Lebanon that resulted in the death of Hezbollah’s leader marks a significant escalation in Middle Eastern hostilities. Analysts at Capital Economics noted that this situation would typically lead to higher oil prices and inflation. However, the current shift in OPEC+ policy toward higher production is mitigating these potential increases.
There are lingering questions about whether the hostilities will draw in other states from the Gulf Cooperation Council (GCC), including key U.S. ally Saudi Arabia, which has traditionally supported the Palestinian cause but has so far remained militarily uninvolved in the current conflict.
In an interview with CNBC, Jaap Meijer, head of research at Arqaam Capital, suggested that the GCC would likely remain on the sidelines, providing only humanitarian aid to Gaza and Lebanon. He added that Iran appears unwilling or unable to respond militarily, focusing instead on avoiding domestic instability during a leadership transition.
Meanwhile, exchanges of fire between Israel and Yemen, including recent Houthi drone attacks against Israeli military posts, are increasing the risk of further maritime incidents in the Red Sea. Ambrey Intelligence reported two such incidents affecting vessels in this crucial transit area by midday Tuesday.
