From battlefield to bankruptcy: Gaza war drags Israel into economic crisis

Channel 13 reported that, for the first time since the war began, Israel’s economy has shrunk by 3.5% in recent months. As the assault on Gaza nears its second year, Israel itself is now bearing the costs, with both domestic and international economic circles warning of destructive consequences for its economy and for settlers’ daily lives.

In the latest international warning, the Israeli financial newspaper Marker revealed that 23 top economists from leading universities in the U.S. and Europe—including several Nobel Prize laureates—have sent an open letter to Prime Minister Benjamin Netanyahu, cautioning that Israel could face severe economic repercussions, including European sanctions, credit downgrades, capital flight, and an exodus of skilled workers, particularly from the high-tech sector.

According to Marker, these warnings are grounded in alarming signs already emerging in Israel’s economy. The real estate market—long a central pillar of investment in the occupied territories—has been hit by massive capital outflows since October 2023, as investors now expect a decade of falling prices under prolonged stagnation.

Meanwhile, Israeli media and economists have voiced deep concerns over the war’s economic burden, including rising housing rents, travel and healthcare costs, and severe labor shortages as thousands serve in the reserves.

Yedioth Ahronoth recently warned military and political leaders that occupying Gaza could cut deeply into budgets for education and healthcare, costing Tel Aviv as much as $49 billion annually.

Netanyahu, despite warnings from the Finance Ministry of a 7% budget deficit this year and a looming credit downgrade, continues to push for Gaza’s occupation—a move projected to cost between 120–180 billion shekels ($32–49 billion) annually.

Israeli economic commentator Gad Lior noted that financing such a decision would require “drastic” cuts in education, healthcare, and welfare budgets, alongside new taxes and a ballooning deficit.

Sources within the Finance Ministry estimate the cost of mobilizing 250,000 reservists and munitions at 350 million shekels per day, amounting to 10–11 billion shekels monthly, and between 30–50 billion shekels by the end of 2025. Additional expenses include 10–15 billion shekels per month to administer Gaza in the event of occupation, as well as billions more for refugee camps and aid provisions such as food, water, medicine, and electricity.

According to Yedioth Ahronoth, both the Finance Ministry and the Bank of Israel expect this year’s budget deficit to reach at least 7%, while major global credit agencies may further downgrade Israel’s rating. Israelis, the paper concluded, should brace for austerity measures, new taxes, extended tax freezes, and severe cuts to education, healthcare, welfare, and infrastructure.