The confrontation between Israel and the Houthi group in Yemen is escalating, as the group’s leaders threatened to respond to the Israeli warplanes’ raids that targeted vital facilities in the city of Hodeidah in western Yemen. The statements stressed that the confrontation with the “Zionist enemy will be open and without borders or red lines.”
The group vowed that it would not abide by “any rules of engagement,” that it had a bank of targets deep inside Israel, and that “the surprises would be big.”
Goal Bank
Amid speculation about the group’s goals within a “bank of targets in occupied Palestine,” according to Houthi military spokesman Yahya Saree, the repercussions on Israel’s economy, which has been reeling under the weight of the war on Gaza since October 7, are emerging.
This month, the Israeli newspaper Maariv quoted the CEO of the Eilat Port, Gideon Golber, as saying that “work in the port has completely stopped because ships are unable to reach the port due to the attacks by the Ansar Allah group (Houthis) in the Red Sea.”
He added, “Starting in November 2023, the port was closed due to the ongoing crisis in the Red Sea, and its activities were transferred to the ports of Ashdod and Haifa, and a large number of workers were laid off.”
Golber confirmed that the port’s losses amounted to 50 million shekels ($14 million), and could increase if Israel does not take measures with its allies to stop the attacks.
In “solidarity with Gaza”, which has been facing a devastating Israeli war for about 10 months, the Houthis have been targeting Israeli or Israeli-linked cargo ships in the Red Sea, the Arabian Sea and the Indian Ocean with missiles and drones since last November.
The Times of Israel reported that Houthi attacks in Yemen have disrupted trade coming from the Red Sea, contributing to higher shipping costs with the use of longer alternative routes.
Affected sectors
Regarding the economic repercussions of the confrontation between the Houthis and Israel, Israeli affairs expert Ahmed Al-Bahnasi says that the economic sectors affected by this confrontation are multiple, but he specifically mentioned:
- Ports Especially the port of Eilat, which reports indicate is suffering from a state of atrophy, according to Al-Bahnasi, who stressed the importance of this port from an economic standpoint, given that it is Israel’s only outlet to the Red Sea.
- Startup sector It is the second major sector that will be affected by the expansion of the confrontations, at a time when official data indicates that 44% of start-up companies have fled Israel.
Al-Bahnasi says, “We are not exaggerating when we say that the startup sector represents the backbone of the Israeli economy after the facilities that Israel has provided over the past decades to attract a large number of European, American, and even Asian startup companies.”
The Tel Aviv Stock Exchange’s benchmark TA-125 index and the TA-35 index of blue chips fell 1.1% after Israel’s attack on Yemen’s Hodeidah on Saturday, while the Tel Aviv 5 Banks Index fell 1.3%, before paring some of its losses. The TA-Construction index fell 1.6%, while the TA-Biomed index fell 2%.
While no data has yet emerged on the impact on other economic sectors, observers believe that the tourism and construction sectors could also be affected, Al-Bahnasi said.
Oil and shipping cost
Al-Bahnasi noted that the continued Houthi attacks on ships passing through the Red Sea to Israel necessarily means the continuation of tensions, and may provide a reason for oil prices to rise above current levels, in addition to increasing the cost of insurance on ships, which has already increased since last November with the beginning of the naval attacks.
Reuters reported earlier this month, citing unnamed insurance industry sources, that war risk premiums, which are paid when ships sail through the Red Sea, had reached 0.7% of a ship’s value in recent days, up from about 1% earlier this year, adding hundreds of thousands of dollars to the cost.
The sources added that war risk premium rates for insurance on Chinese ships, which are seen as not linked to Israel or the United States, which are targeted by the Houthis, remained at about 0.2% to 0.3%.
Fiscal deficit
Israel’s fiscal deficit widened in June to 7.6% of GDP over the past 12 months, or NIS 146 billion ($39.8 billion), up from 7.2% in May, Finance Ministry Accountant General Yali Rotenberg said this month.
The deficit is 1% higher than the government’s target of 6.6% for the end of the current year.
During the past month alone, the fiscal deficit reached 14.6 billion shekels ($4 billion), compared to 6.4 billion shekels ($1.74 billion) in June 2023.
Since the beginning of this year, the fiscal deficit has reached NIS 62.3 billion ($17 billion), compared to a surplus of NIS 6.6 billion ($1.8 billion) in the first six months of 2023.
Government spending
Government spending since the beginning of the year has risen above NIS 300 billion, an increase of 34.2% compared to the same period last year.
The main increase in the deficit is due to increased spending on defense and civilian ministries as a result of the war. However, even excluding war expenses, the increase in government spending is about 9.3%, compared to a rise of only 3.3% in state revenues, which since the beginning of the year amounted to about NIS 238 billion, compared to NIS 230.4 billion in the first half of 2023.
The Ministry of Finance expects the deficit to peak by next September before declining.
