In the intricate web of global economics, the specter of conflict invariably sends ripples across markets, affecting not just the belligerents but economies worldwide. The Israel-Hamas conflict serves as a pertinent case study in how varying intensities and scales of war scenarios can have different impacts on oil prices and market volatility, as captured by the Volatility Index (VIX).

In a confined war scenario, such as a ground invasion of Gaza with limited broader regional involvement, the market impact appears to be relatively contained. The expected increase in oil prices might hover around $4 per barrel, arguably due to the disruption of routine activities and immediate, localized uncertainty. Interestingly, this scenario predicts no significant impact on the VIX, suggesting that market players may view such a conflict as contained and unlikely to escalate beyond its immediate theater.

A shift towards a proxy war, involving multiple fronts including Gaza, the West Bank, Lebanon, and Syria, speaks to a broader regional engagement. This not only doubles the potential increase in oil prices to $8 per barrel but also nudges the VIX upwards by 8 points. The implications for the global GDP and inflation are a modest reduction and increase by 0.3 percentage points and 0.2 percentage points, respectively. The broader the conflict, the larger the impact on global economics, reflecting increased uncertainty and risk in the markets.

The most alarming impact arises from a direct war scenario, where Israel and Iran engage in open conflict, leading to widespread unrest in the Middle East. This could lead to a dramatic surge in oil prices by $64 per barrel and a significant 16 point rise in the VIX, indicating high market volatility and uncertainty. The global GDP might face a reduction by 1.0 percentage points, with inflation experiencing a substantial hike of 1.2 percentage points. Such a scenario underscores the potential for considerable economic turmoil, disrupting global supply chains, spiking energy prices, and inducing inflationary pressures that can be felt across continents.

This analysis, drawing on historical data and Bayesian Global VAR models, shows us that the economics of war are as consequential as the politics and human toll. As nations navigate the complex terrain of international relations, the data underscores the need for peaceful resolutions to conflicts. In the delicate balance of the global economy, stability is not just a political ideal, but an economic imperative.

This understanding helps investors, policymakers, and the public brace for the potential economic outcomes of geopolitical conflicts. The key takeaway is clear: the true cost of war extends far beyond the battlefield, permeating the very fabric of our global economy.