Though Israeli Prime Minister Benjamin Netanyahu announced the goal of launching of the bombing campaign in Gaza to be obliteration of Hamas resistance movement and occupation of Gaza, given the broad aspects of the war, one of the obstacles and concerns of a possible ground invasion of the besieged enclave and prolonged war is the economic consequences that can inflame the internal Israeli conditions even more than before.
Heavy pressure from high war costs
Since long-term wars mostly leave their impacts on the military and economic fields, the Israeli involvement in Gaza war can inflict serious damage on its economy, and war effects have already been apparent within the two weeks of conflict.
The Israeli bank of Hapoalim in a report cited by the Times of Israel newspaper said that preliminary estimates suggest that cost of war on Gaza will not be less than $7 billion, and should a ground offensive is launched, it will reach 1.5 percent of the Israeli GDP.
The Israeli bank explained that it is too early to estimate the economic damage caused by the current conflict, but it emphasized that the 50-day war with Hamas in Gaza in 2014 caused a loss of 3.5 billion shekels ($880 million), equivalent to 0.3 percent of the GDP.
Before the start of the war in Gaza, the Israeli Central Bank had predicted a growth of 3 percent in 2023-2024, a rate that may not be realized given the current developments.
“With many reserve soldiers on the front lines and civilians in shelters due to rocket attacks, war will affect real economic activities and probably continue in the coming period,” Amir Yaron, governor of the Israeli central bank, told the CNN about the blowbacks the war.
According to the Reuters, the Israeli stock exchange have dropped 8 percent since the start of the Hamas operation and this loss continues to unfold. The banking sector in the stock exchange has suffered the biggest losses by shrinking 8.7 percent since the start of the year given the crisis caused by Netanyahu’s judicial reforms and the protests to them. The government bonds value has dropped about 3 percent in the day one of the conflict.
According to Sky News Arabia, on October 9, two days after the Hamas operation, Israeli central bank sold $30 billion in foreign reserves to prevent further shekel value loss against the US dollar, however, in less than two weeks, the shekel lost about 4.8 percent of its value, its record low since 2015.
Nasr Abdul Karim, an economics professor at the Arab American University in Ramallah told Sky News Arabia that “having in mind that the cost of the war on Gaza for the Israeli economy is currently estimated at $1 billion per day, the Tel Aviv Stock Exchange will also suffer more losses.” Therefore, the continuation of the war in the coming weeks can inflict tens of billions of dollars in damage on the Israeli economy and will burn through the $200 billion of Israeli hard currency reserves in a few months.
Two rating agencies last week warned about rising Israeli debts. Also, on Friday, Moody’s rating agency in a report said that the current conflict in Gaza is more intense than periods of violence in recent decades and risks diverting resources from the economy, reducing investment, and losing economic confidence in the occupied territories.
Another important matter is the amount of weapons used by the occupying regime in Gaza. Hamas officials have announced that in the last two weeks they have consumed only 10 percent of their weapons stockpile and they are fully prepared for a long-term war. But the Israelis are pounding Gaza heavily. This issue will increase the military expenses of the occupiers in the coming weeks and months. Because the emptying of weapons arsenals, without getting tangible results, causes the government to allocate exorbitant budgets to the ministry of defense to refill the storehouses, so that it can meet the weapons needs. Therefore, in order to allocate more funds to the military sector, the government has to make spending cuts in other economic sectors, which may lead to a decrease in production.
Although the Israelis claim that they have adequate financial resources to continue the war, the request for $10 billion in economic aid from the US at the very beginning of the war shows that the situation is not so good as the hardliners claim. President Joe Biden’s administration has asked Congress for financial aid to the Israeli regime, but if the conflict in the occupied territories is prolonged, the opponents of war in the US will raise their voices.
It is noteworthy that over the past year, widespread protests against military and financial aid to Ukraine have risen in the US. Naturally, this issue also applies to the increase in costs imposed on the American economy as a result of Israeli warmongering. Therefore, the Israelis should take into account the fact that they cannot count on American support for a long time.
Israelis’ displacement
Another consequence of the war on Gaza for the Israeli economy is the displacement of Israelis. Last week, Israeli military admitted that since the Hamas operation, nearly 500,000 Israelis have moved from their homes. The fleeing of people from their homes can raise the government costs since it has to approve new budgets for settlement of this large number and the more people that are likely to flee their homes in the weeks to come. If this situation continues, the hardliners of the cabinet should think ways for permanent settlement of the displaced in other parts. Building new houses is costly as the government has to mobilize its financial resources for the war and this will have harmful effects on the economy.
Damage to business and technology sectors
Since the continuation of economic activities depends on the labor force, Tel Aviv’s war against resistance groups has caused this regime a serious challenge in this field as well. In the occupied territories, due to the call-up of the reserve forces, about 360,000 troops will leave their jobs to be mobilized for military duty in Gaza and other fronts, and therefore, parts of the economy will face a shortage of personnel, and manufacturing and service sectors will suffer disruptions.
The big shock is that many of the reservists called up for military service are tech entrepreneurs, teachers, lawyers and other secular Israelis, while ultra-Orthodox men are not obliged to serve in the military or work for religious reasons. This restricted the employment to people that run a major part of business and entrepreneurial activities.
According to the Sky News Arabia, a majority of the reserve forces are below 40 and make up the key population in the Israeli tech sector that accounts for one-fifth of the Israeli GDP. It should be noted that the army, air force, and navy of Israeli regime only have 150,000 regular personnel and in big conflicts, all of the reservists are called up for security defense.
On the other hand, while Israeli leaders are actively trying to attract a significant number of Jews from all over the world, immigration data published by the Israeli institutions show that the number of applicants for reverse immigration from the occupied territories has increased in a eerie way.
The Middle East Monitor in a report bringing in spotlight the reverse immigration in Israeli regime wrote that now, a significant number of Israelis no longer see the occupied territories as a safe place and are actively seeking to obtain a passport of another country, an issue that has caused long lines of them to form in front of foreign embassies in Tel Aviv. This is an equation that has taken on more serious dimensions with the occurrence of Operation Al-Aqsa Storm and objectively revealed the fragile foundations of the Israeli occupation. The Portuguese Immigration and Border Service has announced that 1,000 Israelis have applied for this country’s citizenship since the beginning of the year.
Israeli foreign trade taking the largest damage
Foreign trade is of significance for the Israeli regime and it is expected to take the largest part of the damage as economic activities are experiencing halts. Most of the major American technology companies, including Microsoft, Google, and Apple, have significant production factories or R&D offices in the occupied territories. According to Al Jazeera, for example, the world’s leading chip maker Intel planned to invest $25 billion to build a chip factory that is only 30 minutes away from the border with the Gaza Strip, but it is said that because of the war, the plan is currently taken off the agenda. Nvidia, another major maker of chips used in artificial intelligence and computer graphics in the world, announced that it has canceled the artificial intelligence conference that was scheduled to be held in Tel Aviv. Also, the wholesale companies H&M and Zara have closed their stores in Israeli market.
The Israeli government plans to transform Haifa port into a regional trade hub and as part of this strategy, in association with the US, it raised the idea of India-Europe corridor. Haifa port is planned to play a key linking role between the two sides of this trade corridor and can inject huge revenues into the Israeli economy. To realize this dream, huge investments are needed and Jewish investors from the US and Europe have approved to do a major part of it.
But the reports published by the Israeli media in recent months suggest that in response to the policies of the cabinet hardliners in Tel Aviv, foreign investors have withdrawn more than $80 billion of their capital from the occupied territories. Even 255 Jewish investors in the US have warned that if the Netanyahu government presses ahead with the judicial system bill, they will withdraw their investments from Israeli economy.
This means that if the war on Gaza continues, tens of billions of dollars may be pulled out of the occupied territories, because foreign investment requires security, but the occupied territories are facing a wave of conflicts and insecurity.
Also, the Israeli tourism and aviation sectors have not been immune to war. After firing rockets at Ben-Gurion Airport in Tel Aviv by Hamas, flights in it have considerably dropped and many American, Canadian, and European airlines have suspended flights to the occupied territories after warnings issued by Federal Aviation Administration. The continuation of this situation will cause expected losses in Israel’s tourism sector, whose income had reached about 13.5 billion shekels (more than $3.4 billion) in 2022. Therefore, in the absence of security in the occupied territories, the arrival of foreign tourists will stop, which will ultimately lead to a decrease in tourism revenues.
Drop in trade with Muslim countries
Given the waves of reactions by Arab leaders to the Israeli crimes, continued massacre of the Palestinians can negatively impact the Israeli trade ties with Muslim countries as large-scale boycott of Israeli products is expected in these countries.
The first impact of the attack on Gaza showed itself in the policy of Saudi Arabia, which, despite coming close to normalizing relations with the Israeli regime, in support of the Palestinians, announced that it has stopped all plans and negotiations in this regard. The UAE, which has the closest political and economic relations with Tel Aviv among other Arab states, could not remain silent anymore in the face of the Israeli crimes in Gaza, and its ruler, Mohammad Bin Zayed, called for an end to the Israeli bombardment and allowing humanitarian aid in for the Gazans.
The Emirates intended to use the upcoming climate conference in Dubai as an opportunity to strengthen mutual ties with the Israelis, mainly by inviting Netanyahu to the gathering. But the war placed Abu Dhabi in a dilemma as it rages and Arab public opinion increasingly oppose normalization with Tel Aviv.
According to Egyptian political analyst Mohammad El-Yamani, the war in Gaza will be long and may turn into a regional conflict, so the normalization may get stuck in Saudi station for a long time, and if the Israeli crimes in Palestine escalate, it may lead to downgrade of the level of relations of Arab countries, including the UAE and Bahrain, with the Israeli regime.
Deprivation of energy revenues
With the Israeli crimes stepped up, other resistance groups are possibly to enter the conflict. The first spark can be on the southern Lebanon front by the powerful Hezbollah that over the past two weeks kept firing rockets into the occupied territories.
The opening of the Lebanon front is the biggest concern of the Israelis and their Western supporters who warn about it. Tel Aviv leaders know very well that the power of Hezbollah is incomparable to Hamas and Islamic Jihad, and if the conflict starts with this resistance movement, thousands of precision rockets will be fired daily from the Lebanese side towards the Israeli settlements.
Armed with advanced precision missiles and drones, Hezbollah can deal heavy blows on its Israeli enemy and the economic infrastructures can be one of the targets.
Since in recent years tensions have been high between Hezbollah and Tel Aviv over Karish disputed gas field in the Mediterranean, if they clash, the Lebanese movement will strike the Israeli gas facilities without hesitation. It has more than once warned of such strikes.
Al Jazeera reported that after recent developments, global oil prices increased by $5 per barrel, and the multinational oil company Chevron announced last Monday that it closed down Israeli Tamar natural gas field, which is one of the most important sources for production and export. Drop in gas exports to Egypt and Jordan is predicted if the Tamar gas field remains shut down, and if Karish remains so, too, the Israeli economy will suffer a heavy blow.
Therefore, some analysts believe that Israeli conflict with
the resistance groups can lead to a downturn in the gas investments in
the region and harm the ambitions of Israeli regime that has recently
asked Chevron help for transformation into a regional hub for gas
exports to Europe and elsewhere. Cutting off Israeli gas revenues
presently yields adverse consequences for Tel Aviv, and it is difficult
to find alternatives to these revenues in the short term.
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