But if you announce Israel Victory, the Israeli Prime Minister’s Office will not recognize this victory as Pyrrhic. However, from an economic standpoint, this victory will be very costly, just as it would be a complete victory, according to a report by the Israeli newspaper Haaretz.
The word indicates Perique (Pyrrhic) To a Pyrrhic victory, where the cost of achieving victory is very great.
Why did Israel’s economy lose the war?
By June 30th, it had become Israeli economy About 1.5 percent smaller than the previous year, because it has not yet fully recovered from the collapse of the first few weeks of the war.
I reduced Credit rating agencies The three main global ones: Moody’s and Standard & Poor’s And FitchIsrael’s credit rating. It also shrank Exports And investments, supply restrictions have caused inflation to increase, and it will take many years to pay the bloated war bill.
The economic damage will not stop growing, as you expect Standard & Poor’s Globalwhich is the last credit rating agency to act against Israeli economyThe Israeli economy will achieve zero growth in 2024 and 2.2 percent growth in 2025, less than half of its previous estimates.
According to Standard & Poor’s, it will shrink gross domestic product this year and growing just 0.2 percent in 2025. The high-tech sector remains stagnant, with fundraising down 20 percent in the third quarter compared to the second quarter, according to IVC Research.
Did the economy have to get this bad?
The Israeli newspaper says that there are two factors that must be taken into account:
- The first is whether the war had to last that long
- The second is whether the government is able to better manage the economic impact of the conflict.
It was clear from the beginning that Gaza war It will not be like the other wars with Hamas, which did not last more than a few weeks.
Israel learned on October 7, 2023, that Hamas could no longer be contained – it must be defeated, and Hezbollah must also be defeated because it poses a similar threat. This would necessarily entail a longer and more expensive war, but for how long and how costly this war will be… The answer depends primarily on the Israeli leaders.
Israel insists…no more containment
The Israeli government has been calling for “total victory.” For Netanyahu, this means a victory that would erase the stain on his career since October 7, and allow him to retain his position as prime minister. As for his far-right partners, victory means reoccupying Gaza and resettling its residents to erase the “stigma” of the 2005 withdrawal.
After a year of fighting, their hopes for complete victory remain elusive, and so the war continues with no end in sight.
Israel’s leaders could have chosen to take a broader view of the war and its objectives, especially its impact on the economy and Israel’s global standing. They could have set reasonable military goals for themselves, such as ensuring that Hamas is militarily weakened to the point that it is unable to wage another war such as the October 7 War, and establishing mechanisms to govern and rebuild Gaza after the fighting ends.
The Israeli newspaper said: “If that were the case, victory in Gaza could have been announced months ago, and attention would have been diverted to Lebanon early enough for us to celebrate on October 7, 2024, the anniversary of a conflict that has passed and ended. The blow that was inflicted would have been “The economic impact of a shorter war would have been serious, but it would have been much smaller, and the recovery process would have already begun.”
Regarding the second issue related to the economic management of the crisis, it is enough to look at how Netanyahu dealt with the Ministers of Defense and Finance.
Goodbye to the economy
even though Netanyahu He continues to threaten to dismiss him defense minister For purely political reasons, the truth is that the Prime Minister kept Yoav Gallant in his job because he realizes that the country cannot be without a defense minister with extensive experience and capable of managing a war, especially when Israel is on the brink of war with Iran.
The newspaper said that Israel in wartime also needs an experienced and capable (and full-time) finance minister, but Netanyahu is content to allow the inexperienced and indifferent Bezalel Smotrich to remain in his position. In contrast to Gallant, who has no voter base and does not contribute anything to maintaining the coalition, Smotrich is extremely important to Netanyahu on the political level.
Twenty years ago, Netanyahu launched unprecedented economic reforms; At one time, he was proud to be an economics man, not a security man.
Today, the economy comes second after political and military calculations. So, despite a growing fiscal deficit, the 2025 budget process, a series of credit rating downgrades, and accelerating inflation at a time when inflation is falling in the rest of the world, Finance Minister Smotrich’s job remains secure.
For the global economy, the war had no significant impact. Outside the war zone in Israel, the West Bank, Gaza and Lebanon, she felt nothing but… Egypt (due to the loss of Suez Canal revenues as a result of Houthi attacks on maritime trade) and Jordan (whose foreign trade was also affected by attacks The Houthis) with his influence.
But war with Iran may lead to a complete change in the picture. If Israel responds to the Iranian missile barrage last week by striking Iranian oil facilities, the world may lose four million barrels of oil per day, or about 4 percent of the world’s total oil.
Simply hitting Iranian exports – which is not difficult militarily because 90 percent of Iranian exports pass through one huge terminal on Kharg Island – would reverberate around the world because about half of Iranian production is exported.
Consulting firm ClearView Energy Partners estimates that an attack on Iran could raise oil prices by about $13 per barrel. This is higher than $78 a barrel for benchmark Brent crude after oil prices began rising last week after Netanyahu vowed revenge.
It could be worse if Tehran responds and that escalation leads to the closure of the Strait of Hormuz. As a fifth of the world’s oil passes through that water strait between Iran and the United Arab Emirates.
Earlier, OPEC members said that they produce about five million barrels per day less than they are able to produce, and therefore they are able to increase production to replace Iranian oil.
But the measure will take time: ClearView says a seven-day interruption in all Gulf exports would push up oil prices by as much as $28 a barrel.
Moreover, OPEC’s additional capacity is mainly concentrated in the Gulf, so if war breaks out in the region, they may not be able to increase production for some time.
According to the Israeli newspaper, the Israeli attack on Iran would easily reflect on the Israeli economy by raising the cost of imported oil and ultimately raising the costs of all products due to high energy costs.
It’s hard to believe that Iran It might choose to strike a blow that hard at the global economy in this way. But Tehran may be betting that the United States will take seriously the issue of forcing Israel to end the conflict. If this scenario comes true, the war will finally end, but at a particularly high price for the Israeli economy.
