**Analysis: The Financial Burden of Israel’s Ongoing Conflict in Gaza and Rising Tensions in the Middle East**
As the year mark approaches in the conflict in Gaza, Israel finds itself grappling with unprecedented economic strain. The surge in military expenditure and soaring government debt has cast a shadow over the nation’s financial landscape. With potential escalations into surrounding territories, a crucial question arises: can Israel sustain this level of financial commitment, and from where will the necessary funds originate? In a recent discussion on RTÉ Radio 1, journalist Gregg Carlstrom of The Economist delved into the profound economic implications of the ongoing strife. The following insights stem from that riveting conversation, thoughtfully condensed for clarity and brevity.
**What has been the financial toll on Israel so far?**
According to Israel’s central bank, expenditures over the last twelve months have reached an eye-watering $60 billion. Approximately half of this colossal sum is earmarked for direct military costs. However, that figure doesn’t encompass the entire picture. Another $30 billion accounts for civilian expenses, which include relocating and housing tens of thousands of residents from the northern border. Add to this the cost of constructing buildings destroyed in the conflict, extinguishing wildfires, and various other related expenses, and it becomes evident that the conflict has consumed more than 10% of Israel’s GDP within a single year. “The implications of this level of spending are staggering,” remarked Carlstrom.
**Where is this funding sourced?**
According to Carlstrom, the primary strategy for financing this spending has been ramped-up borrowing. This fiscal year has seen Israel’s deficit balloon to over 8%, triple the initial estimates made prior to the conflict erupting on October 7th. While Israel’s debt remains relatively manageable at around 62% of GDP, that figure is projected to escalate beyond 70% in the next fiscal period. This trend has prompted notable credit agencies like Moody’s and S&P to systematically downgrade Israel’s credit rating throughout the past year.
**How much aid is Israel receiving from the United States?**
“In addition to the regular $3 billion military assistance provided by the United States annually, there was a substantial one-time aid package of $14 billion approved by Congress earlier this year,” Carlstrom explained. “This infusion addresses nearly half of the increased military expenditures. Yet, many economists are drawing parallels to the aftermath of the Yom Kippur War in 1973, predicting a prolonged phase of high inflation coupled with sluggish growth. Therefore, the once-thriving Israeli economy may soon exhibit signs of weakness.”
**Does the Iron Dome come with a hefty price tag?**
“Indeed, there’s a stark contrast between the costs incurred by an attacker and the expenses associated with defending against those assaults,” Carlstrom noted. He elaborated that while relatively primitive rockets used by Hamas or Hezbollah might only cost a few thousand dollars to manufacture, intercepting these threats can run into tens of thousands of dollars. The expenses increase dramatically for advanced missile interceptors like Arrow, designed to counter more sophisticated threats such as Iranian ballistic missiles.
**How about the workforce? Is there a labor shortage attributed to the conflict?**
The labor market is experiencing significant constraints due to frequent call-ups of reservists. Initially, some were able to resume their jobs after the troop levels in Gaza began to decrease, but many have been recalled for additional duty, creating instability in the workforce. “Companies are facing considerable strain as they constantly oversee a revolving door of employees returning to military service,” Carlstrom said. With current unemployment sitting at a mere 2.7%, the low figure reflects a troubling reality: there simply aren’t enough workers available, given the extensive military mobilization.
**What economic ramifications might a broader conflict have on Iran?**
“Iran’s capacity to export oil is a critical concern amidst these tensions,” Carlstrom cautioned. “Sanctions and a lack of significant investment in oil infrastructure have severely hampered their potential output. Presently, Iran sells oil at a considerable discount compared to global market values. This discounted oil represents one of their few lifelines for hard currency.” The dire consequences of potential strikes on Iran’s oil facilities could, indeed, trigger a ripple effect across the global economy. Threats from Iranian proxies towards oil infrastructure in Gulf countries illustrate the precarious nature of the entire situation.
“When President Biden mentioned possible military actions targeting Iran’s oil exports, we saw a notable spike in Brent Crude prices, which jumped about 5% shortly after his remarks,” Carlstrom highlighted. Interestingly, Brent prices today are still hovering $5 to $6 below levels witnessed prior to the outbreak of regional hostilities on October 7th. It’s somewhat paradoxical that oil prices would decline during a time of conflict, a scenario most would find baffling. Factors influencing this oddity include fluctuations in Western and Chinese demand amid global economic concerns, as well as attempts by nations like Saudi Arabia and the UAE to navigate relations with Iran delicately.
While the current situation remains fluid, it’s crystal clear that the repercussions of Israel’s military involvement extend far beyond its borders, inviting external economic instability that could have long-lasting consequences.
For ongoing updates and insightful discussions, be sure to connect with RTÉ Brainstorm on WhatsApp and Instagram.
Edited by: Ali Musa
Axadle international–Monitoring
