The futile back-and-forth talks between Israel and HAMAS representatives on a ceasefire in Gaza and the release of Israeli hostages have finally «yielded» results.
Today, Israel urged tens of thousands of Gaza residents, who are barricaded in eastern Rafah, to evacuate to a humanitarian zone in the face of the imminent possibility of a military operation in the city.
Not even the pleas of Western nations, especially Belgium's call for trade sanctions against Israel, have been able to sway Jerusalem. The EU could follow suit.
Specifically, the EU Council could use Israel's non-compliance with the human rights provisions of the Association Agreement with the EU as a reason to impose sanctions.
Incidentally, last week, the Biden administration ended the shipment of U.S.-made ammunition to Israel, Axios reported, citing two Israeli officials.
However, the threats yielded a different result than the desired, as evidenced by the latest escalation. Hopes for a positive outcome are slim, especially since Israel's military cabinet unanimously approved the Rafah operation on May 5.
The Israeli Prime Minister has stated that pressure from other world leaders will not deter his country's efforts to defend itself. He has made it clear that "if Israel has no choice but to act alone, it will."
And if the operation goes ahead?
Well, depending on how you look at it, it's another humanitarian catastrophe, potentially resulting in the loss of hundreds or even thousands of lives. And economically, it doesn't bode well either.
Speaking of markets, following Israel's order to evacuate Palestinians from Rafah, oil and gold prices soared, while Bitcoin suffered a setback, and the dollar index barely moved.
As for the future, if escalation occurs, it could spell trouble for the entire region, even without triggering a full-blown war.
The severity of the impact, however, depends on neighboring countries, particularly Iran, Lebanon, and possibly even Turkey. If they decide to intervene, market reactions will be much more severe.
So what is an investor to do?
The key is not to panic or rush into decisions. In other words, don't rush to buy shares of arms manufacturers or the dollar immediately.
It is worth noting that previous escalations and their effects on global markets were temporary and limited. More of the same could happen this time.
However, in a worst-case scenario, analysts recommend maintaining a portfolio allocation to defensive assets such as gold. But again, do not go full YOLO.
