US monitoring economic impact of Israel-Gaza war, Yellen says

Oil price cap policy has significantly reduced Russian revenue over the past 10 months, Treasury Secretary says

Palestinians leave the Al Karama neighbourhood in Gaza city as fighting between Israel and Hamas continued on Wednesday. AFP

Live updates: Follow the latest news on Israel-Gaza

The US is monitoring the economic impact of the Israel-Gaza war and the development is not expected to be a major driver of the global economic outlook, according to the US Treasury Secretary Janet Yellen.

“We will see what impact it [the conflict] has thus far,” Ms Yellen said on Wednesday on the sidelines of the International Monetary Fund and World Bank annual meetings in Marrakesh, Morocco.

“I don't think we've seen anything suggesting that would be very significant. But of course, we are monitoring economic impact as well,” she said. The US administration is focused on human beings who have been affected due to the conflict, she added.

She spoke as the Israel-Gaza war entered its fifth day after an attack by Hamas in which its fighters broke through the border fence and stormed the country's south. Israel responded by launching a barrage of air strikes on the Gaza Strip.

The combined death toll from the Hamas attack on southern Israel and Israel’s assault on the Gaza Strip climbed to more than 2,100 as the fighting continues between the two sides. More than 260,000 people displaced in Gaza, according to the UN.

“We have not in any way relaxed our sanctions on Iranian oil and we have sanctions on Hamas and on Hezbollah,” Ms Yellen said.

“These are areas we have long recognised or deserving of constant attention with respect to our sanctions, and we've been vigilant about that.”

The US is also focused on working with a global coalition to deprive Russia of the funding as it continues to wage a war against Ukraine, Ms Yellen said.

“We've put in place in novel price cap policy, which has significantly reduced Russian revenue over the last 10 months, while promoting stable energy markets,” she said.

The G7 price cap took effect in December as part of the West's effort to limit Moscow's ability to finance its war in Ukraine.

Enforced by the G7, the EU and Australia, the price cap came on top of the EU's embargo on imports of Russian crude by sea and similar pledges by the US, Canada, Japan and Britain.

It allows Russian oil to be shipped to third-party countries using G7 and EU tankers, insurance companies and credit institutions, only if the cargo is bought at or below the price cap of $60 a barrel.

Ms Yellen said energy prices have been largely unchanged, while “Russia has had to either sell oil at a significant discount or spend huge amounts on its alternative eco-system”.

Brent touched about $140 a barrel in March following Russia’s invasion of Ukraine and the subsequent sanctions by the US and the UK on the import of crude from Moscow.

However, oil fell in the subsequent months as concerns grew over the possibility of a looming recession hitting fuel demand globally.

Brent, the global benchmark for two-thirds of the world's oil, was trading 0.24 per cent lower at $87.44 per barrel at 1.38pm UAE time on Wednesday. West Texas Intermediate, the gauge that tracks US crude, was down 0.29 per cent at $85.72 a barrel.

“I also support harnessing windfall proceeds from Russian sovereign assets, immobilised in particular clearing houses and using the funds to support Ukraine,” Ms Yellen added.

She said the IMF's updated outlook showed the global economy was in a better place than expected at last year's annual meetings, but the Treasury Department will continue to monitor downside risks.

The IMF has maintained its forecast for global growth this year but revised it marginally lower for next, saying the world economy is on the path of recovery. However, growth remains slow and uneven.

The fund kept its global economic growth projection for this year at 3 per cent, slower than the 3.5 per cent expansion recorded in 2022, remaining below the historical growth average.

For 2024, the IMF expects the global gross domestic product to expand by 2.9 per cent, a 0.1 percentage point downgrade for next year from the fund’s forecast in July.

Ms Yellen expects a soft landing for the US economy as the labour market continues to perform well and the unemployment rate remains low.

“We have low unemployment, continue with solid job creation, wage pressures that could have been a concern with respect to inflation, we are seeing diminish, and inflation itself is diminishing,” she said.

Hiring in the US surged last month, signalling a resilient economy.

Employers added 336,000 jobs in September, up from August's revised gain of 227,000, data from the Labour Department showed.

September's job gains were well above the average monthly gain of 267,000 over the previous 12 months.

“Of course, the situation in Israel poses additional concerns. I am not saying that soft landing is an absolutely sure thing, but I do continue to think it is the most likely path,” she added.