On June 29, 2024, protesters marched to the headquarters of the Histadrut, Israel’s general workers’ organization, in Tel Aviv, calling for a general strike and a deal to release hostages. Photo by Sharon Eilon/SOPA Images/LightRocket via Getty Images.
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Israel’s war in Gaza has raged on for over a year, with it recently expanding into surrounding areas such as the West Bank, Lebanon, Syria, Iraq, Yemen, and now, Iran. Israel currently faces a precarious future, grappling with economic instability, political fragmentation, and deep social divisions.
Economics Ramifications
The economic consequences of Israel’s military action came swiftly and severely. Israel’s GDP, which the International Monetary Fund (IMF) projected to grow by 3.4% in 2024, is now expected to grow by only 1% to 1.9%—and that’s if the war ends this year. The country experienced the sharpest economic slowdown among all 38 wealthy nations that constitute the Organisation for Economic Cooperation and Development (OECD) between April and June 2024.
A graph displaying the quarterly GDP growth of various OECD countries, including the OECD average, shows Israel experiencing the most significant fluctuation, with a steep drop between October and December 2023. Source.
With approximately 169,500 active-duty personnel and 465,000 Israelis in reserve units, many key sectors of the Israeli economy have been massively impacted. Since October 8—the day Israel declared war on Hamas last year—46,000 businesses have failed, with a projected increase to 60,000 by the end of the year.
Sectors such as construction, agriculture, and tourism have been hit particularly hard. According to Israel’s Central Bureau of Statistics (CBS), the overall construction industry value-add (the difference between value of goods and cost of materials) declined by 5.3% in 2023, compared to an annual growth of 9.3% in 2022. Additionally, the CBS reported in January 2024 that, since the start of the war, around 58% of the construction sites in the Jerusalem region, as well as 41% of the building sites in the Tel Aviv and central regions, had been shut down. The agricultural sector has also suffered significantly, due primarily to labor shortages and disruptions in supply chains. The labor shortage is exacerbated by the ban of over 150,000 Palestinian workers from the occupied West Bank—a crucial part of Israel’s agricultural and construction workforce. While not a cornerstone of the Israeli economy, tourism has considerably deteriorated, with international airlines suspending flights, hotel closures and layoffs, and shifting international relations, resulting in revenue losses reaching 18.7 billion shekels ($4.9 billion USD).
A graph showing Israel’s construction industry’s value-add contracted sharply by 34.8% year on year (YoY) in Q4 2023, compared with cumulative YoY growth of 5.9% in Q1-Q3 2023. Source.
Karnit Flug, a former governor of Israel’s central bank and now the vice president of research at the Israel Democracy Institute, warns that potential tax hikes and cuts to non-defense spending, coupled with a weakened sense of security, could cause highly educated Israelis—such as tech entrepreneurs—to leave. Notably, the tech industry accounts for 20% of Israel’s economic output, and lack of investment (foreign and governmental) could wreak havoc on the sector.
A graph from the report of the Israel Advanced Technology Industries (IATI) and RISE Israel demonstrates a sharp decline in investment in Israeli tech companies from the peak at the end of 2021 until stabilizing in 2023. The two quarters following the start of the war, however, marked a continuing decline of the industry. Source.
Further isolating Israel economically, Yemen’s Houthi rebel group declared that they would target all Israel-bound ships in the Red Sea and the Suez Canal, resulting in a 16% drop in shipping at Israeli ports.
Along with this growing list of issues is a burgeoning budget deficit, which has doubled from 4% before the war to 8% of Israel’s GDP. This increase is largely attributed to soaring military expenditures, which currently consume 10% of the national budget. The Bank of Israel estimates that the war’s total cost could amount to $66 billion by the end of 2025 (12% of Israel’s GDP). Other estimates are much bleaker, with independent economist Yacov Shienin placing the potential cost at a staggering $120 billion. The cost of the war in Gaza alone is estimated to be approximately $300 million per day. With operations expanding in Lebanon, Syria, Yemen, and Iran, that cost will only grow. In order to address this widening deficit, the Israeli government may have to resort to unpopular austerity measures such as tax increases or spending cuts, policies that will likely upset an already weary population.
Political Instability
In Israel’s parliamentary system, a government requires the support of a majority in the Knesset (the Israeli Parliament) in order to hold power. Because no single party usually wins an outright majority, coalitions are formed. Additionally, in times of national crisis, broader unity governments can be formed, incorporating even rival parties into the coalition.
On October 11, 2023, Prime Minister Benjamin Netanyahu formed an emergency unity government with members of his Likud party, other far-right religious parties, and rival centrist parties, with only one opposition party leader, Yair Lapid, refusing to join. A key element of this government, meant to be a united front and consolidated decision-making power, was the formation of a war cabinet tasked with overseeing military operations in Gaza. Upon its creation, the war cabinet consisted of three primary members: Prime Minister Netanyahu, Minister-without-Portfolio Benny Gantz (representing the centrist Blue and White party), and Defense Minister Yoav Gallant. There were also three observing members: Shas party leader Aryeh Deri, Strategic Affairs Minister Ron Dermer, and lawmaker Gadi Eisenkot (from Gantz’s party).
While the various parties under the coalition government initially expressed their willingness to cooperate under a united front, the ideological and strategic divisions quickly manifested in visible cracks. The presence of far-right figures like National Security Minister Itamar Ben-Gvir and Finance Minister Bezalel Smotrich significantly exacerbated disagreements over the war in Gaza. In May 2024, opposition leader Gantz submitted a six-point plan for a civil administration of Gaza, which he said must be agreed upon in order for him to remain in the cabinet. A month later, on June 9, Gantz announced his resignation from the emergency government, stating, “Netanyahu is preventing us from advancing toward true victory.”
After Gantz’s resignation, the war cabinet was dissolved, leaving no centrist opposition to the otherwise far-right coalition within the Israeli government. Netanyahu’s decision to abandon the war cabinet after Gantz’s resignation came amid pressure from Smotrich and Ben-Gvir to go further right on the war. Without the war cabinet, Netanyahu has consolidated more power over decisions related to the conflict, opting to hold private consultations with a smaller group of ministers. Though some Israelis support this move, much of the population has grown frustrated with Netanyahu’s war policy, leading to echoes of Gantz’s criticisms.
Public Discontent and International Pressure
According to a poll conducted in April 2024 by Israel’s Channel 12 News, 71% of Israelis believed Netanyahu should either resign immediately or step down after the war. Civil disagreement with Netanyahu and his policies reached a climax in late August when the Histadrut, Israel’s largest labor federation, announced a general strike in response to the mounting public frustration with war policy and hostage negotiation. That same day, an estimated 500,000 Israelis (5% to 6% of the population) took to the streets in Tel Aviv, Jerusalem, and other major cities, calling for a ceasefire deal that would guarantee the return of the remaining hostages.
The economic and political instability within Israel is further compounded by its increasing isolation in the international arena. The current escalation of conflict amplified existing tensions and movements abroad, such as the Boycott, Divestment, and Sanctions (BDS) movement, which was created in 2005 by over 170 Palestinian civil society organizations to pressure Israel to end its settler-colonialism, military occupation, and apartheid of Palestine. While the BDS movement has not yet reached the level of success of its inspiration, South Africa, it has undoubtedly inspired a number of significant entities to break ties or, at the very least, become weary of relations with/within Israel. BDS cites its impact on multinational companies such as G4S, Veolia, Orange, HP, and PUMA, among others, in “totally or partially [ending] their complicity in its crimes against Indigenous Palestinians.” The movement’s influence was further solidified by the case brought by South Africa and thirteen other countries to the International Court of Justice (ICJ), which, on January 26, 2024, ruled that Israel is plausibly perpetrating a genocide in Gaza. Soon after, on February 23, UN Human Rights experts issued a press release titled “Arms exports to Israel must stop immediately,” commending the decision of a Dutch appeals court which ruled that the Netherlands must halt the export of F-35 fighter jet parts to Israel and calling on states like the United States and Germany to follow their lead. In the following months, several nations like Colombia, Turkey, Bolivia, and Belize severed diplomatic ties with Israel, and many others withdrew ambassadors or made other official diplomatic protests.
Re-Evaluating the Future
The central issue of Israel’s military strategy and goals is its insistence on destroying Hamas, though its aim now appears to be shifting to the destruction of Hezbollah. The problem with this approach, besides the obvious and horrifying human consequences, is that it is unsustainable for a nation to pursue. As demonstrated by George W. Bush’s War on Terror, you can’t kill ideas—and trying to do so can become both extremely expensive and extremely destructive to all groups involved. A new approach that recognizes and prioritizes the humanity and sovereignty of all people is necessary to achieve peace in the region. It is a mistake to think things can, or should, go back to being how they were before October 7. Israel and its allies face a critical choice: whether they will continue to enable unlawful occupation and annexation of Palestinian lands, thus expanding illegal settlements, systemic racial segregation, and apartheid, or if they will abide by their purported values of democracy and human rights.
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This article was edited by Emily Caro and Isabella Valentino.
