Expensive-fraught: how much the protracted war cost Israel

Two years after the start of the Hamas militant attack on October 7, 2023, Israel continues to fight on several fronts, but the cost of this war is felt not only on the battlefield. The country's economy is experiencing a large-scale crisis: the government deficit is growing, investments are leaving, the tourist flow is falling, and daily defense spending is measured in hundreds of millions of dollars. In just 12 days of military action against Iran, Israel could lose a third of its defense budget. Experts interviewed by Izvestia believe that the conflicts of the last two years have seriously undermined the country's economy.

Israel calculates economic losses

Two years of fighting have weakened Israel's GDP growth and significantly increased the government deficit. Since October 2023, international agencies have already downgraded the country's credit rating several times. The situation is getting worse against the background of new operations. So, on the eve of the strike on Iran as part of Operation People like a Lion, the Israeli budget of 2025, approved just three months earlier, recorded an overspend of $6 billion.

The country's Ministry of Finance recognizes that the usual way to cover expenses through an increase in the deficit is becoming risky. The head of the department, Bezalel Smotrich, suggests looking for resources within the budget — through reducing the number of ministries, cutting coalition funds and reviewing social benefits. As a measure, the termination of funding for educational institutions that do not teach basic subjects is also being discussed.

According to the Ministry of Finance, by the end of 2024, military operations cost the budget $ 31 billion, and by the end of 2025, this amount may grow to $ 70 billion.

The military conflicts of the past two years have dealt a serious blow to the Israeli economy on several levels, Professor Hodr Zaarur, an expert on international relations from North Carolina State University, told Izvestia. He noted that the daily operation of defense systems costs the state from $10 million to $200 million. The launch of one missile of the David's Sling missile defense system, developed jointly with the United States, costs about $700 thousand, and the interception of Strelo-3 costs about $4 million. At the same time, the cost of maintaining combat aircraft reaches tens of millions of dollars per day: one hour of F-35 flight costs $ 10,000 excluding fuel and ammunition.

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According to Vi Eikstein, head of the Aaron Institute for Economic Policy at Reichman University in Israel, the country's daily costs of military operations against Iran significantly exceeded the costs of operations in Gaza or against Hezbollah. The reason lies in the scale of both defensive and offensive weapons used in the conflict. "The largest single expense item is related to the missiles needed to intercept Iranian projectiles, ranging from $10 million to $200 million per day," the expert notes.

In the first two days of the clash with Iran alone, the direct cost of ammunition, air sorties and the mobilization of reservists amounted to about $1.6 billion. At the same time, the tax administration received 2.4 thousand applications for compensation for damage caused by the shelling.

The total cost, according to estimates by Tomer Fadlon, a researcher at the Israel Institute for National Security (INSS), could reach $12 billion, which is about a third of the country's total defense budget. The expert explained to Izvestia that after two years of high deficits, this approach is extremely risky, especially considering that the planned deficit for this year before the operation was already 4.9% of GDP. According to him, the operation could increase it to 6-7%.

Hidden costs

Direct military expenditures are accompanied by indirect losses. Every three months, ministries and municipalities receive about $5 billion less, as funds are redistributed to the defense sector. The mass conscription of reservists leads to the shutdown of enterprises and a decrease in consumer activity.

Civilian infrastructure has also suffered significant impacts. The costs of emergency services, evacuation of the population and compensation for victims are increasing exponentially.

The hospitality industry is no less damaging. According to the Ministry of Tourism, Israel has lost 18.7 billion shekels ($4.9 billion) of income from foreigners since the start of the war. Closed airports and the missile threat have forced not only travelers, but also foreign businessmen and investors to leave the country.

— Earlier in the summer, Israel hosted thousands of international students and pilgrims. Today, this activity has almost completely stopped. Even airlines — American Airlines, Delta Airlines, British Airways — have stopped flights to Israel. This has affected the entire tourism and transport industry," Khodr Zaarur told Izvestia.

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Capital outflow has also increased due to uncertainty. Investments worth $10 billion, which were supposed to arrive in the summer of 2025, were either postponed or redirected to other countries. Budget losses from the delay of these investments are estimated at another $6 billion in taxes and fees.

— Investor confidence is formed over the years, but it collapses in months. It may take decades for Israel to regain its previous level of confidence," the professor said.

The diplomatic factor is added to the military and domestic economic costs. Britain, France and Canada have threatened Israel with "concrete actions" if the blockade of humanitarian aid supplies to Gaza is not lifted. The European Union has announced a revision of the trade cooperation agreement.

Such steps may be sensitive for the Israeli economy. The UK ranks 11th among exporters to Israel and eighth among importers of its goods. A potential freeze in trade ties could deal an additional blow to the country's economic performance.

Answering a question about the consequences of redirecting public funds from public needs to military spending, Khodr Zaarur noted that such a policy has led to a deterioration in public services and caused an outflow of the population — according to his data, more than a million Israelis have already left the country, using dual citizenship.

Israel found itself in a situation where fighting on several fronts has become not only a military but also a financial problem. Losses of tens of billions of dollars, reduced investments, falling tourist flows and threats of sanctions from Western countries are putting a serious strain on the economy.