Israel-Gaza conflict: Implications of the clash on Israel's economy

Date Posted: 18-Oct-2023

Author:  Guy Anderson, London

Publication: Jane's Intelligence Review

The outbreak of conflict between Israel and Hamas-led groups on 7 October 2023 has led to the disruption of Israeli life and its economy. Guy Anderson assesses the economic impact of the conflict so far and how the continued disruption may affect the country's economy

Key points

• Israel's dynamic, export-oriented economy is very unlikely to experience long-term damage, but the call-up of reservists by the Israel Defense Forces (IDF) is the principal source of short-term disruption with the potential to hamper commercial activity through workplace absences and reduced consumer activity at home
• The mobilisation of the IDF and the attrition of military inventories will almost certainly come at a financial cost in terms of government expenditure, with the sums involved depending heavily on the direction the conflict takes and the duration of hostilities
• The response of currency and equity markets to the conflict between Israel and Hamas has been limited so far. The Israeli shekel lost ground against the US dollar immediately after hostilities began but remained just 4% below its pre-conflict level by 17 October

Israel's dynamic, export-orientated economy is very unlikely to experience long-term damage as a result of the conflict with Gaza that began on 7 October, although short-term disruption is very likely and there is a roughly even chance of reduced medium-term growth.

The call-up of reservists by the Israel Defense Forces (IDF) is the principal source of short-term disruption with the potential to hamper commercial activity through workplace absences and reduced consumer activity at home. However, impaired trade ties within the Middle East region and beyond have the potential to subdue the trajectory of future export growth.

Economic position