Israel-Palestinian Conflict Could Impact International Trade

Following a surprise attack by Hamas, part of the long-standing Arab-Israeli conflict, against Israel on Saturday, Israeli Prime Minister Benjamin Netanyahu declared that the country is "at war." Both counties have exchanged fire, resulting in numerous casualties. Meanwhile, the conflict could have significant effects on numerous economic activities on a global scale. 

The Mexican Ministry of Foreign Affairs (SRE) stated that the Mexican government favored a comprehensive and definitive solution to the conflict based on the premise of two states. This solution should address Israel's legitimate security concerns and establish a politically and economically viable Palestinian state, which can coexist with Israel within internationally recognized and secure borders, as per relevant US resolutions.

During his daily press conference, President Andrés Manuel López Obrador reaffirmed Mexico's stance on international conflicts, as stipulated in the country’s Constitution: non-intervention, self-determination of peoples, cooperation for development and peaceful resolution of disputes.

Beyond the loss of life, the conflict could have widespread repercussions across numerous countries and economic activities. Mexico could see its trade relations with Israel affected, as a result. From January 1999 to June 2023, Mexico received US$2.51 billion in FDI from Israel. Since 2000, Mexico has maintained a free trade agreement with Israel, making it its primary trading partner in the Middle East. Mexico is Israel’s second-largest trading partner in Latin America.

Mexico’s main exports to Israel are passenger cars, mobile phones, vehicles for transporting goods, memory units and processing units. Mexico, in turn, mainly imports medicines, medical equipment, processors, controllers, modular circuits, control units, adapters, plastic plates, sheets and strips. The medical and scientific instruments industry, which represents 7.87% and US$70.7 million of Mexico's international purchases from Israel, could be affected by a longstanding conflict. Israel is this sector's fifth-largest trading partner globally after the US, China, Germany and Japan. 

In June 2023, Mexican exports to Israel amounted to US$23.5 million, while imports reached US$85.3 million. This resulted in a trade deficit of US$61.8 million for that month. In 2022, the states with the highest commercial exchange with Israel were Aguascalientes with US$15 million traded, Morelos with US$1.86 million and Veracruz with US$367,000. 

In 2Q23, the total trade between Mexico and Israel amounted to US$693 million. In June 2023, the top Mexican export to Israel was Motor Vehicles for the Transport of Goods, valued at US$7.67 million. Conversely, the primary Mexican import from Israel in June 2023 were integrated electronic circuits, accounting for US$13.1 million. 

With Palestine, Mexico's agrifood and fisheries commercial balance recorded a surplus of US$121,000 in 2020. That year, Mexico did not import agricultural products. The leading export products from Mexico to Palestine in 2020 were pepper, not crushed or pulverized, chickpeas and bakery products. 

The Mexican government reports that there are about 5,000 Mexican residents in Israel, two in the Gaza Strip and 35 in the West Bank. In response, the government has sent two aircraft from the Mexican Air Force to Tel Aviv, Israel, to transport the Mexicans seeking to leave the country.