Hamas-Israel conflict: Risk of regional spillover

Tensions between Hamas and Israeli forces spiral to their highest level in many decades, risking regional fallout and wider disruption

The Israeli-Hamas conflict shows no sign of abating soon. The coming days are critical in how the levels of tensions evolve and what they could spell for further intervention from other countries, resulting in further instability across MENA. For now, the risk of any significant spillover remains very low. 

Below is an updated overview of important developments in neighboring countries and their level and nature of risks.


  • FrontierView expects involvement from Lebanon through Hezbollah to remain limited to sporadic exchanges of rockets and shelling. There is a strong likelihood of short episodes of tensions on the border between Lebanon soldiers/Hezbollah fighters and Israeli forces. The UN is likely to quickly quash such escalations. We could also see some drone attacks from south Lebanon, but these will remain limited in their impact. 
  • Hezbollah is only likely to widen its involvement and initiate more significant attacks across the border should Israeli forces shell numerous targets in Lebanon or Iran, or begin an aggressive and violent invasion of the Gaza strip.
  • Economically, there is a rising risk that diaspora tourism during the festive period could be disrupted should fighting intensify, which could drive us to revise down consumer spending for Lebanon and update our lira forecasts to reflect more volatility and depreciation in Q4 2023 and early 2024.


  • The fact that there is a lack of evidence of any Iranian involvement in the Hamas offensive that took place October 7 has helped contain a region-wide spillover in instability and conflict. However, Iranians remain vocal in their backing of Hamas and have showcased readiness to provide further support should the situation change. 
  • Iran could enter the conflict more directly should Israeli forces attack targets inside Iran’s borders or US sanctions widen significantly.
  • The US has yet to change its approach to the current sanctions on Iran. In recent months, the US has loosened its enforcements on Iranian oil trade in a bid to progress with the nuclear agreement/understanding. The lack of direct Iranian involvement means the US is unlikely to change that policy substantially, as a big change could risk the opposite.


  • An Egyptian policeman opened fire at two Israeli tourists on Sunday shortly after the conflict between Hamas and Israel began. FrontierView expects this incident to remain isolated.
  • Egypt’s tourism sector is unlikely to see a significant impact in 2023 and 2024 due to this conflict—as it currently stands. Israeli tourism into Egypt will remain very low, however, through 2024. 
  • Israel stopped gas exports to Egypt from its Chevron-run platform, which will weigh on Egyptian export revenues in 2023 should the disruption last for more than four weeks. For now, FrontierView is not making any substantial revision to its Egypt export forecasts. 
  • The recent rise in gas prices as the markets reacted to Chevron’s closure will play further into the sticky inflation the market is facing. FrontierView holds a bias for an upward revision to Egypt’s inflation outlook for late 2023/early 2024.
  • On the political side, with the presidential election coming up, incumbent President Abdel Fattah Sisi could change his approach to mediating between the Israelis and Hamas.

Saudi Arabia:

  • Global oil demand remains unchanged as a result of the Israeli-Hamas conflict, with prices remaining stable in the big picture. FrontierView sees no impact on Saudi exports, government spending, or progress in mega projects due to the ongoing fighting. 
  • Saudi Arabia’s foreign minister conveyed the kingdom’s conventional stance in support of the Palestinians, putting blame for the ongoing conflict on Israel’s extremist right-wing government representation and the recent months of settler attacks on Palestinians in the West Bank and Palestinian holy sites in Jerusalem. This brings recent (modest) progress in normalization talks between Saudi Arabia and Israel to an abrupt halt, with a resumption unlikely in the immediate future. 
  • Regardless of where the Palestinian statehood discussion ranked among Saudi Arabia’s priorities when negotiating with Israelis before the conflict erupted, the topic is likely to feature more centrally when normalization talks resume. Israeli forces’ next move in Gaza will strongly influence the delays and the demands Saudi Arabia will impose in any future talks. 
  • The risk of any tensions on the Saudi-Yemeni border remains negligible. However, should we see widened Iranian involvement in the Israeli-Hamas conflict coupled with a breakdown of the Saudi-Iranian agreement (negligible risk for now), Houthi militants could target Saudi oil assets.

The coming days will be critical in how this conflict evolves and what impact it could have on the region. For now, MNCs are advised to maintain their market strategies for most MENA markets with the exceptions of Palestine and Israel. MNCs should, however, review their mitigation plans for Lebanon and Egypt, and update assumptions should the conflict evolve in a manner that changes FrontierView’s outlook for both of these markets.

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