Tel Aviv: The Israeli economy is grappling with significant challenges following a 12-day conflict with Iran, which has resulted in substantial economic losses for the country.
According to Anadolu Agency, the conflict has cost Israel billions, with expenses reaching hundreds of millions of dollars. Initial reports indicate that Israel spent approximately $5 billion during the first week, with daily war expenditures at $725 million. Of this, $593 million was directed towards offensive operations, while $132 million was used for defense and military mobilization.
The Wall Street Journal highlighted that the daily cost of operating anti-missile systems for Israel ranged from $10 million to $200 million. The Aaron Institute for Economic Policy estimated that if the conflict had continued for a month, costs could have surpassed $12 billion.
Naser Abdelkarim, an assistant professor of finance at the American University of Palestine, pointed out that the conflict's impact extends beyond military spending, affecting Israel's production activities. He projected that the war's direct and indirect costs could total up to $20 billion, with the budget deficit expected to rise by 6%. Compensation payments to affected citizens are anticipated to further strain public finances.
The Israel Tax Authority reported that over 10,000 Israelis evacuated their homes in the first week, with 36,465 individuals filing for compensation. To address the budget deficit, the Israeli government is considering reducing public spending on health and education, increasing taxes, or borrowing, which could elevate the public debt to national income ratio above 75%.
The Israeli Ministry of Finance requested an additional $857 million for the Ministry of Defense and proposed $200 million in cuts from health, education, and social services. Israeli financial newspaper Globes noted that most of the funds would cover military personnel expenses, as 450,000 reservists were called to duty during the conflict.
Abdelkarim remarked that the Israeli shekel initially fell to 3.7 against the US dollar but recovered to 3.5, attributed to the dollar's weakness and speculative transactions.
Investor panic has further impacted the Israeli economy, with experts warning of slowed growth, increased unemployment, and rising poverty rates if the conflict persists. Iran's attacks on critical infrastructure, including the closure of Israel's largest oil refinery in Haifa, have resulted in significant daily losses, as reported by the Financial Times.
Ben Gurion Airport's temporary closure, coupled with El Al suspending flights, has compounded the economic fallout. These disruptions alone are expected to incur operational costs of around $6 million.
The Tel Aviv Stock Exchange has also been affected, particularly after Iranian missiles struck Israel's diamond exchange, a key export sector. The Israel Diamond Institute noted that this has caused investor concerns, leading to selloffs and market instability.
A ceasefire was announced by US President Donald Trump, effective at 0400GMT Tuesday, urging both Israel and Iran to adhere to it. However, tensions remain high, with Israeli Defense Minister Israel Katz ordering strikes on Tehran, accusing Iran of truce violations, which Iran has denied. The conflict has resulted in significant casualties on both sides, with at least 25 Israelis and 430 Iranians killed, and hundreds more injured.