Blowback: The Gaza War’s Massive Toll on Israel’s Economy

By Kit Klarenberg – Nov 13, 2023

Israel may never recover from its post-October 7 economic collapse. The Palestinian resistance managed not only to destroy Israel’s internal security perception, but also to erect significant risk barriers for foreign investors.

On 6 November, the Financial Times published an extraordinary investigation tracking the devastating economic toll of Israel’s war on Gaza – its impact reverberating across personal finances, job markets, businesses, industries, and the Israeli government itself. 

The FT reports that the war has disrupted and ravaged “thousands” of companies, many teetering on the brink of collapse, with entire sectors plunged into an unprecedented crisis.

Data cited from Israel’s Central Bureau of Statistics reveals a bleak reality – one in three businesses have either shuttered or are operating at 20 percent capacity since Operation Al-Aqsa Flood commenced on 7 October and punched a hole in Israeli national confidence. 

More than half of businesses face revenue losses surpassing the 50 percent mark. The southern regions, closest to Gaza, bear the brunt, with two-thirds of businesses either closed or functioning “to a minimum.”

Adding to the crisis, Israel’s Labour ministry reports that 764,000 citizens, close to a fifth of Israel’s workforce, are jobless due to evacuations, school closures mandating childcare responsibilities, or reserve duty call-ups. 

The toll on Tel Aviv’s trade and tourism
On Monday, Bloomberg put numbers to the economic impact of Tel Aviv’s military belligerence: The Gaza war has cost the Israeli economy almost $8 billion to date, with a further $260 million in losses incurred with every day that passes.

Despite this dire situation, Prime Minister Benjamin Netanyahu, who is heavily reliant on support from right-wing, ultra-Zionist political factions, persists in allocating “vast sums” to non-essential ideological and settler-colonial projects, diverging from the typical wartime economy protocol.

Netanyahu has earmarked a record 14 billion shekels ($3.6 billion) in discretionary spending for the five political parties comprising his coalition government, much of it intended for religious schools and the development of illegal Jewish settlements in the occupied West Bank.

In a bitter irony of the war on Gaza, multiple Israeli construction projects have temporarily ground to a halt as they primarily relied on exploiting Palestinian laborers. The FT reports that Zionists “are upset at the sight of Arab workers holding heavy tools,” so they “don’t want to have Palestinian workers there.” Such disenfranchisement comes despite many businesses being reduced to pleading for donations to remain afloat.

Consider Atlas Hotels, a boutique chain that opened its 16 facilities across the apartheid state to evacuees “displaced” by Palestinian freedom fighters. Desperation led them to implore suppliers, overseas contacts, customers, and even their own staff for financial support. 

A senior executive grilled by the FT openly admitted if such income was unforthcoming, the company was finished. Given that Israeli consumer spending has plummeted since the war began, the same is undoubtedly true of many firms dependent on discretionary spending for survival.

Tourism, a potential economic lifeline, offers little respite for Tel Aviv. Figures from the Organisation for Economic Co-operation and Development (OECD) depict international travel contributing a mere 2.8 percent to Israel’s GDP and supporting 230,000 jobs, just over 6 percent of the total workforce. 

Despite persistent efforts throughout 2022 to revive tourism, October saw a massive 76 percent year-on-year decline. The onset of Al-Aqsa Flood further decimated travel, with daily flights to and from Ben Gurion Airport plummeting from 500 to a mere 100.

By contrast, in October 2022, international arrivals exceeded 370,000. With no end to the war in sight, and Zionist settlers themselves fleeing in droves, it seems unlikely Tel Aviv will become a popular holiday destination again anytime soon.

The Reality of Gaza’s Forced Exodus: Unveiling Israel’s Secret Plan

‘The Economic War’
The catastrophe unfolding is not lost on Tel Aviv’s economists, 300 of  which, on 1 November, urged Netanyahu and his finance ministers to “come to your senses,” due to the “grave blow that Israel was dealt.” 

They believe the cataclysm “requires a fundamental change in national priorities and a massive rechannelling of funds to deal with war damage, aid to victims, and the rehabilitation of the economy.” In response, the Prime Minister boldly pledged to create an “economy under arms”:

“My guidance is clear: we are opening the taps, pumping money to everyone who needs it…Whatever economic price this war exacts on us, we will pay it without hesitation…We will beat the enemy in the military war and we will win the economic war, too.”

Despite such rhetorical bombast, there are ample indications the Zionist state is as dangerously deluded about its economic sustainability as its military prowess. Reports published by Tel Aviv’s Start-Up Nation Policy Institute (SNPI) “think tank” reveal a grim outlook. 

Just two weeks after Al-Aqsa Flood erupted, the organization issued a study on damage to Israel’s tech sector, once a source of national pride and joy, and a bellwether for its prosperity more generally. The findings were stark.

Even at that early stage, SNPI forecast a rapidly impending “economic crisis whose force is still unknown” based on its survey. In all, 80 percent of Israeli tech firms reported damage resulting from the country’s worsening “security situation,” while a quarter recorded “double damage, both in human resources and in obtaining investment capital.” 

Over 40 percent of tech companies had investment agreements delayed or canceled, and just 10 percent were “managing to have meetings with investors” at all. The report concluded:

“The uncertainty and the resulting decision of many investors to ‘sit on the fence’ due to the current situation hits an ecosystem that was already struggling to raise capital, partially due to the political instability on the eve of the war, combined with the worldwide economic recession.”

Another reason for the Israeli tech sector’s failure, unmentioned by SNP – but investigated by The Cradle on 13 October – is the exposure of Tel Aviv’s electronic surveillance and warfare system vulnerabilities by Al-Aqsa Flood. 

That report concluded the Palestinian resistance operation would “likely lead to a significant decline in the fortunes of Israel’s cybersecurity sector,” given it represents a grave and potentially terminal blow to the “Startup Nation” brand, which relies heavily on cybersecurity. The subsequent events have borne out this prediction.

‘Sharp Fluctuations’
Fast forward to 2 November, and SNPI published a further study investigating Israel’s historical economic resilience to security crises based on data from “significant combat events of the last twenty years,” notably 2014’s Operation Protective Edge. 

While conceding recent events had “naturally” raised “big concerns among foreign investors, partners, and customers” of Israeli businesses, SNPI painted a more optimistic picture than before, suggesting that Tel Aviv has “proven its ability to overcome crises of this sort in the past and…emerge stronger.” 

This bullish judgment is based on the 2014 assault on Gaza costing just 0.3 percent of Israeli GDP, or around 8 billion shekels in today’s money. Moreover, that military effort did not enduringly disrupt financial markets, or cause “sharp fluctuations” in Tel Aviv’s stock exchange in the short or long term. SNPI concluded that the same impact, or lack thereof, could, therefore be assumed regarding today’s Operation Swords of Iron against Gaza.

Yet, the unprecedented scale of Al-Aqsa Flood, which forced the mobilization of 360,000 Israeli troops, in addition to the intensification of military skirmishes on the northern front with Lebanon’s Hezbollah, and enduring economic devastation, challenges the applicability of the Protective Edge scenario. In 2014, 7a mere 5,000 soldiers were mobilized in an Israeli Occupation Force military action lasting just 49 days.

Netanyahu at least rhetorically gives every appearance of wanting to eliminate Hamas and end the movement’s rule in Gaza, even if these objectives are so far nowhere near achieved. There are unambiguous indications, too, that the US and Britain are seeking a protracted, consequential proxy conflict not just in Palestine, but across West Asia. This unholy trinity may be on the verge of learning an excruciatingly painful lesson in the true, modern-day limits of their power.

Operation Al-Aqsa Flood has achieved surprising successes, challenging established security measures and potentially signaling the beginning of a larger unraveling of the Zionist project. The risks for Israel have never been higher. Tel Aviv’s settler-colonial economy, reliant on the subjugation of Palestinians, may be facing a precarious future, possibly marking the next domino to fall in this unfolding scenario.

 

(The Cradle)