With the increasing possibility of a comprehensive war between Lebanon and Israel, it is necessary to analyze the effects of this war on the Israeli economy, the Lebanese economy, the effects of the war on the Middle East and the movement of investments, and finally on the global economy and the possibility of a third world war.
In this article, we will present an unbiased scientific analysis, expand on future expectations and conclude.
The impact of the comprehensive war on the Israeli economy
In the event of a full-scale war between Lebanon and Israel, the Israeli economy is expected to suffer severe damage on several fronts.
Indeed, the Israeli economy has been reeling from the ongoing war in Gaza, contracting by 20.7% in the last quarter of 2023, a larger than initially estimated decline in exports, investment and consumer spending.
As the war escalates, pressure on the Israeli economy is expected to increase. The direct costs of the war, estimated at NIS 42 billion ($11.66 billion), will consequently increase, with the possibility of exceeding these estimates depending on the extent of the escalation.
If the conflict expands to include Hezbollah in Lebanon in an intensive manner, the damage is likely to worsen, leading to a decline in economic activity across several key sectors such as tourism and trade.
Israeli exports may also be severely affected by security disturbances, leading to a decline in the volume of international trade.
Israel may also face lower credit ratings due to increased political and economic risks, which will raise borrowing costs and affect its ability to attract foreign investment. Damage to infrastructure in affected areas could disrupt production and services, slowing the pace of economic recovery.
The impact of war on the Lebanese economy
Lebanon, already suffering from a stifling economic crisis since 2019, will face additional pressures in the event of a full-scale war.
The sharp decline in the value of the lira – which has reached more than 90% against the US dollar – makes Lebanon vulnerable to any further escalation.
Any conflict will exacerbate existing crises, including shortages of basic materials and medicines, further harming citizens and leading to a deeper humanitarian crisis.
In the event of a blockade of ports and airports, Lebanon may stop receiving basic supplies, leading to severe shortages of food, medicine and fuel.
The country’s infrastructure, already damaged by previous crises, will also face additional challenges, requiring massive reconstruction.
The tourism sector, which was one of the main sources of revenue, will suffer a sharp decline in the number of visitors, which will affect the national economy and increase the level of unemployment.
The effects of the conflict on the banking sector will be devastating, as banks will face challenges in maintaining financial stability in light of the increasing crises.
While companies are struggling with successive economic crises, they may find it difficult to survive if war breaks out, exacerbating the economic recession and increasing social burdens.
Middle East and Investment Movement
The conflict between Lebanon and Israel is expected to have broad implications for the Middle East as a whole. The conflict will increase instability in the region, which will affect investment flows in neighboring countries.
Companies and investors often avoid unstable areas, which can lead to foreign investment withdrawals and postponement of planned investment projects.
Increased tensions could affect energy markets, especially if the conflict involves vital areas such as the Strait of Hormuz, which could lead to higher oil and gas prices.
Of course, the outbreak of war has a major impact on regional trade, including ports in the Mediterranean, and this may cause disruption to supply chains and increase transportation costs, affecting the movement of international trade.
In addition, the conflict may contribute to the escalation of conflicts between regional countries, increasing instability and affecting economic cooperation in the region. This may lead to a decline in economic growth in some countries due to increasing security costs, as well as a decline in confidence in regional conditions.
Impact on the global economy
The conflict between Lebanon and Israel could indirectly affect the global economy, as it could lead to increased global tensions, with the possibility of affecting energy markets or international trade.
It is not unlikely that the rise in oil and gas prices – as a result of the disturbances in vital waterways – will lead to global inflation, increasing the cost of living in many countries.
As for the possibility of a third world war, regional conflicts may contribute to increasing tensions between the major powers, but they do not necessarily indicate the outbreak of a large-scale global conflict, as these powers will seek to avoid escalating matters to the level of world war.
Future expectations
In the event of war, Israel and Lebanon will face significant challenges in economic recovery.
For Israel, recovery will be a long process that will require massive investments in infrastructure and rebuilding damaged economic sectors. Challenges will include restoring confidence in the economy and compensating for losses caused by the conflict.
Lebanon needs urgent international support to rebuild its economy and improve its stability. This requires significant investments in rehabilitating infrastructure, improving security, and enhancing financial stability.
It also requires international support to boost the local economy and restore confidence in economic institutions.
At the regional level, it is necessary to enhance peace efforts and cooperation among neighboring countries to avoid further escalation and reach effective diplomatic solutions. Here, the international community must provide the necessary support to support regional stability and promote economic growth.
In conclusion, the current situation in the Middle East and the international community require avoiding escalation and pursuing diplomatic solutions to avoid further economic and humanitarian damage. Regional conflicts affect all parties, and therefore international cooperation and regional peace are key to securing a sustainable future.
