Economic Bleeding: The Hidden Cost of Israel’s Military Strategy

Written by – Elijah J. Magnier:

Israel’s failure to achieve strategic victory in a half-year conflict, a departure from its historic successes since 1967, has had significant societal repercussions, most notably a diminished faith in the capabilities of its formidably equippedmilitary force. While the military’s destructive power has been demonstrated, particularly in its criminal indiscriminateactions against the Palestinians, it is not enough to instil confidence and security in a society that is anxious about returning to areas near the Gaza and Lebanese borders. This anxiety stems from the unresolved consequences of Israel’s most protracted conflict, despite substantial support from powerful allies in the form of ground, air and intelligence support, as well as a steady supply of ammunition and international backing. But the economic toll on Israel has been staggering, with losses reaching $56 billion in just six months, and the financial haemorrhage shows no signs of abating as long as the war continues. In the absence of security and economic stability, the very fabric of society threatens to unravel.

In a tactical shift, Israel opted for a partial withdrawal from Gaza while maintaining military operations after negotiations failed due to Prime Minister Benjamin Netanyahu’s reluctance to entirely cease hostilities and facilitate the return of all displaced persons to northern Gaza. The reduction in military activity on the southern front does not mean the demobilisation of the 300,000 reservists. These reservists are vital to the country’s economy and productive sectors, which have been severely disrupted by the ongoing military mobilisation along the Lebanese border with Hezbollah, compounded by the lack of a definitive strategy for the future.

Investment in critical sectors plummets amid ongoing conflict.

The economic impact is further evidenced by an 18 per cent decline in exports, significantly dampening trade activity. This downturn has been exacerbated by the Yemen’s closure of the Red Sea route to Israeli shipping and trade until a comprehensive ceasefire is declared and the siege of Gaza is lifted.

The Israeli economy is facing a severe downturn, with investment in fixed assets plummeting by 67 per cent, critically undermining the long-term economic framework. In particular, confidence in the startup ecosystem has plummeted, as evidenced by a 75 per cent drop in new startups. This crisis of confidence is primarily attributed to the unconvincing results of the strategic war declared by Israeli government officials, which failed to reassure the country’s productive and innovative sectors about mitigating threats from Gaza and Lebanon. As a result, this uncertainty has led to a brain drain, with thousands of young professionals, especially in the hi-tech sector – which employs 16 per cent of Israel’s workforce, accounts for half of the country’s exports and contributes 25 per cent of its tax revenues – moving abroad.