How Are War Costs Threatening Israeli Regime’s Existence?

Though the Israeli military continues its campaign in Gaza, the financial burden of this adventure is heavy on the Israeli economy. The Bloomberg reported last Thursday that the damage to the Israeli economy as a result of the Gaza war is approximately 60 billion shekels ($16 billion).

According to the data provided by Israeli finance ministry, the financial deficit, which has continued for nearly 12 months, has increased to about 7 percent of the GDP by April. However, the actual budget deficit rate is projected to be higher than the cabinet estimates for 2024, and spending in the first four months of this year increased by almost 36 percent year-on-year.

Bloomberg report shows that the Israeli regime is on its way to the biggest budget deficit in the current century. The Gaza war costs overshadow all aspects in the occupied territories and no aspect or sector has been immune to the harmful effects of this barbarous war. 

The evacuation of some 250,000 Israelis, 40 percent of whom have not returned to their homes to date, cost them 6.4 billion shekels ($1.8 billion), according to a Al-Khaleej Online report cited by Bloomberg.

Ben-Gurion International Airport's flights have dropped from 70,000 in October 2022-March 2023 to 38,500 in the same period between 2023-2024. The number of passengers reached 4.3 million in October 2023-March 2024, which is a decrease compared to about 10.1 million passengers in the same period of the year before. 

The war from October 7 to the end of March has cost more than $73 billion. The daily cost of the war from October 7 to the end of December 2023 was $270 million, then dropped to $94 million in 2024.

Also, Israel's debts arising from war have increased from 59 percent to 62 percent of the GDP in 2022. The size of the budget deficit reached 6.2 percent of GDP by the end of March, and this deficit is expected to increase to 6.6 percent by the end of 2024. Since the beginning of 2024, the general budget has recorded a cumulative deficit of $7 billion. 

Heavy losses of Israeli settlements 

Having in mind that rocket attacks by resistance groups have continued on a daily basis over the past seven months, the Israeli settlements bordering Gaza and Lebanon in the north have sustained heavy economic losses. A report by the Bloomberg suggested that the buildings and facilities near Gaza have taken a damage of $405 million. Also, $3.35 billion in damage payments has been approved by the Israeli government to those suffered damage in settlements around Negev. 

It is noteworthy that a large part of the Israeli agricultural production and exports are by these settlements and continued evacuation of them everyday adds to the financial damage on this regime. According to Palestinian official news agency, WAFA, the export volume of only the Israeli settlements to Europe is €220 million ($294.4 million). 

The economy of the these settlements includes a variety of agricultural products, light and medium industries, chemical products, medicines and agricultural pesticides and fertilizers, clothing, fruits and vegetables, large quantities of which are shipped to domestic, European, and international markets. In addition, about 30 percent of Israeli companies will also suffer due to the increased sanctions on the settlements, considered illegal by international community. 

About 500 facilities in the occupied territories have been hit by Lebanese Hezbollah rockets, taking a damage of about $540 million. About $6 billion in compensation has been approved by the government to wounded civilians.

An additional $1.1 billion in the cost of absence of reservists from work for military service was also approved by government. Also, since the beginning of 2024, spending has reached $39.7 billion, which represents an increase of 38.1 percent compared to $28.7 billion in the first quarter of 2023.

The fall in construction work inflicts a daily loss of about $40 million on this sector. The halt in construction work has caused major losses for banks, as mortgage loans hit $19.2 billion in 2023.

According Al-Arabi Al-Jadeed, Rahul Srugo, the head of Israel Builders Association, in a strong-toned letter to PM Netanyahu warned that construction companies are suffering from huge debts and the main reason is absence of 100,000 Palestinian workers. He warned of the collapse of Israel's construction and infrastructure sector, which he believes will have painful consequences for the regime's economy, noting that the construction sector accounts for about 14 percent of national output.

The figures from 2022 show that companies active in construction have borrowed approximately 1.3 trillion shekels from banks, institutes, and the stock market, which will face difficulty repaying their debts. 

Forecasts of rating agencies for Israeli economy

All rating agencies have published their expectations for Israel's budget deficit and downgraded the regime's credit rating, forcing Tel Aviv to raise interest rates on new loans to find lenders to settle its ongoing financial problems. 

Moody's said that in February 2024, it downgraded Israel's rating for the first time in history, driven by the political and financial risks caused by the war on Gaza. It is likely that deficits in the coming years will be much larger than expected before the war. The cost of the war is projected to reach $69.8 billion between 2023 and 2025.

Fitch Ratings reported that Israeli general budget deficit in 2024 will reach 8.6 percent of GDP. The total budget deficit this year due to the war is $33 billion. The general budget deficit for 2025 is 3.9 percent. The GDP deficit will reach 65.7 percent in 2024. Also, the increase in general spending will be 12.5 percent. 

Standard and Poor's announced that it has lowered the rating of the Israeli regime by one step with a negative outlook. The general budget deficit is projected to increase to 8 percent of GDP in 2024. Total government debt is expected to reach 66 percent of GDP in 2026, and losses are set to increase. 

Israeli costs if regional war intensifies 

Abdelnabi Abdelmatlab, an economist, told Khaleej Online that Operation Al-Aqsa Storm has inflicted heavy losses on the Israeli economy, causing production halt in many sectors as many Israelis joined the army as reservists. He said that Israeli central bank governor estimated the losses between $50 to $65 billion. According to this economist, other major losses Israel suffered are caused by high costs of transportation and insurance after Yemen's Ansarullah imposed a ban on Israeli ships and ports from the Red Sea, causing a 10-15 percent drop in Israeli imports. 

Commenting on the damages to the monetary sector, Abdelmatlab said shekel has lost between 5 and 10 percent of its value. Although part of Israel's losses were reversed by the US through an aid package, Abdelmatlab believes that Tel Aviv has to procure weapons from sources other than official American funding, which means it will pay for them.

The economist added that the Turkish decision to halt trade with Israeli regime will impact a large number of Israeli companies that export to the Turkish market. He also pointed to the consequences of expansion of war across the region, saying: "If the war expands to the region, the gas pipeline between Israel and Egypt and Jordan will be cut off, which will result in losses between $30-$40 billion in the gas sector. After war ends and the real economic census begins, Israel's losses will double." 

This is as Ansarullah Movement in the past seven months has banned Israeli navigation from the Red Sea and has now expanded range of its operations to the Indian Ocean and Southern Africa. Half of Israeli maritime trade was used to be conducted from the Red Sea and recently from the Indian Ocean and the Cape of Good Hope in Southern Africa, and if navigation from these routes is stopped, Israeli economy have to bear the brunt of a heavy loss. 

Moreover, Israel's powerful emerging high-tech sector, which accounts for 18 percent of GDP, 48 percent of exports, and 30 percent of tax revenue, has significantly slowed down because of the war. The sector relies on the confidence of foreign investors, which before the conflict had been affected by fears of political changes that could follow the judicial reforms proposed by Netanyahu. In the shadow of threats and insecurity in the occupied territories, only about 400 new technology companies were established in Israel in 2023, a 70-percent drop compared to 1,400 companies in previous years. Fears of escalation of military tensions between Israel and resistance groups could reduce the activities of domestic and foreign investors. Meanwhile, the growth of the technology ecosystem is predicted to keep going slow until economic confidence is restored. 

Finally, prolonged Gaza war will broaden the opposition to the Israeli brutality and violence and disclose the bloody face of the Israeli regime in the region and the world, and this will strengthen possibility of sanctions on the occupation regime, and many countries, like in European countries including Belgium, are slated to join the Turkish campaign to severe business ties with the Israelis.