How Long Can Israel’s Economy Survive War? Experts Warn of Devastating 10% GDP Hit

According to Saed News, Israel’s economy is showing signs of severe strain under the pressure of ongoing conflict. Unlike Iran, whose revenues rely heavily on oil and commodity exports, Israel’s economy is inherently fragile and vulnerable to disruption from warfare.

Moroccan economist Hashemi Alavi estimates that during the Gaza conflict, Israel spent approximately $260 million daily—a figure that has risen in the latest war due to more expensive military equipment. Simultaneously, commercial activities have slowed dramatically: business operations have been disrupted, tourism halted, and many flights canceled, all contributing to an economic slowdown.

Israel’s labor market, already under stress, faces acute shortages. Mandatory conscription has drawn approximately 360,000 workers—8% of Israel’s workforce—into military service during the Gaza war, many abandoning civilian jobs and severely impacting productivity. Furthermore, many Palestinian and foreign workers, who constitute a significant portion of Israel’s workforce in agriculture and construction, have been barred or fled, creating labor voids difficult to fill.

The result is a substantial underperformance of Israel’s economy relative to its potential output. As the conflict persists, the likelihood of recovery diminishes.

The situation worsens with disruptions to key infrastructure. The port of Haifa, vital for trade, has been devastated. Israeli gas exports have stalled following Iranian attacks, and vital oil refineries have suffered damage. Tourism, especially in coastal regions, has evaporated. Prominent companies like Intel have announced workforce reductions, citing instability near Gaza.

Consumer spending and household incomes have declined sharply, exacerbated by inflation and the devaluation of the Israeli shekel, which has hit a 14-year low against the U.S. dollar. Major credit rating agencies have warned that prolonged conflict could trigger downgrades, increasing borrowing costs and further deterring investment.

Israel’s tech sector, accounting for half of its exports but employing only 10% of the workforce, has also been disrupted. Many tech workers have been conscripted, further hampering this crucial economic engine.

Compounding fiscal challenges are internal political divisions over budget allocations, with tensions rising over subsidies to ultra-Orthodox parties and settlement-supporting factions—groups whose members often do not serve in the military or workforce, further straining state resources.

The government has accrued significant debt following the Gaza conflict and faces mounting pressure to extend subsidies to businesses and households. Analysts caution that without a swift resolution, Israel faces a looming macroeconomic crisis.

In summary, the Israeli economy is absorbing a severe dual shock to supply and demand. Experts warn that if hostilities persist for a year, the economic toll could reach 10% of GDP—an unsustainable burden that risks fracturing Israel’s economic foundation under the weight of war.