The Israeli newspaper Haaretz said in a recent report that Israel is facing huge economic losses due to the continuing war in the Gaza Strip and the government’s mismanagement of financial policies. Despite the constant talk about achieving a “complete victory” by Prime Minister Benjamin Netanyahu, the economic reality shows a completely different picture, as Israel suffers from an economic recession that may last for a long time.
The newspaper pointed out that since the beginning of the war, the Israeli economy has shrunk by 1.5%, according to official estimates. These numbers reflect the economy’s inability to recover from the damage it suffered during the first weeks of the war. The Haaretz report indicates that the war caused a significant decline in exports and investments, which directly affected the country’s gross domestic product.
Besides, all major credit rating agencies – Moody’s, Standard & Poor’s and Fitch – downgraded Israel’s credit rating, further complicating economic matters.
The report says that these reductions came due to the high rates of budget deficit and the continued large spending on the war. Standard & Poor’s warned that the Israeli economy may record zero growth in 2024, while it expects weak growth of 2.2% in 2025, which are numbers much lower than previous expectations.
The costs of war and its direct impact
One of the most notable aspects of the economic effects of war is the significant increase in military spending. It is estimated that the war bill exceeded billions, with the high cost of purchasing fuel and military equipment. For example, the Israeli Electricity Company spent hundreds of millions of shekels on purchasing diesel to secure emergency energy supplies, which significantly affected its financial results. Although this reflects the electricity company’s importance to the Israeli economy, the high costs will continue to put pressure on its budget for years to come.
Haaretz adds that Israel expects additional costs related to rebuilding the Gaza envelope and providing security in the region. Although some of these costs may be covered by international aid, the greatest burden will fall on the already damaged Israeli economy.
With the downgrade of the credit rating, it has become difficult for the Israeli government to borrow money at favorable interest rates. This directly affects the government’s ability to finance reconstruction projects or even fill the growing budget deficit. According to Haaretz, budget deficit projections for 2025 have reached record numbers due to military spending and humanitarian aid.
Could this scenario have been avoided?
The report suggests that the war could have been less costly if the government had made better decisions. Economic experts say that the war could have been shortened if more realistic military goals had been set. For example, if the military objectives had been focused on weakening Hamas and ensuring that it was unable to launch another attack such as the October 7 attack, “victory” could have been declared earlier, thus minimizing the economic damage.
Regarding the global economy, the report indicates that the impact of the war has been limited so far on the global economy, with the exception of some neighboring countries such as Egypt and Jordan.
But Haaretz warns that escalation with Iran could radically change the situation. If Israel decides to target Iranian oil facilities, about 4 million barrels of oil per day could stop flowing to the market, which could lead to global oil prices rising by up to $13 per barrel, according to specialist estimates.
This rise in oil prices may worsen if Iran or its allies, such as the Yemeni Houthi movement, decide to target oil facilities in Saudi Arabia or the UAE or even close the Strait of Hormuz, through which about a fifth of global oil production passes.
A costly victory
Despite the hope that the war will end soon, economic challenges will remain for a long time, according to Haaretz. Standard & Poor’s expects that Israel’s GDP per capita will contract this year by 0.2%, which reflects the deteriorating standard of living. Inflation also continues to rise, increasing pressure on Israeli families.
While Netanyahu may seek to declare “total victory” in Gaza, economic realities indicate that such victory may be very costly. The economic challenges facing Israel will continue to affect the country for years to come, making it difficult to achieve economic stability anytime soon under the current circumstances.
