Israel’s Wartime Economy: Resilient, Scarred and Subsidised by the US

Posted on by Elijah J Magnier

By Elijah J. Magnier

Israel has conducted prolonged military operations in Gaza, Lebanon and Iran without experiencing the economic collapse commonly associated with an extended war on several fronts. The shekel has strengthened rather than disintegrated, unemployment has remained comparatively low, foreign investment has continued and the technology, defence and energy sectors have generated exceptional transactions. The headline figures are therefore genuinely resilient, but they do not tell the complete story. Israel’s economic performance has been sustained by a concentrated group of highly productive sectors, substantial financial reserves, continued access to international capital and extensive American military assistance. Beneath those buffers lie slower underlying growth, higher public debt, disrupted labour markets and mounting opportunity costs.

The distinction between resilience and immunity is essential. Israel has demonstrated that a technologically advanced economy integrated into Western financial and commercial networks can absorb repeated military shocks. It has not demonstrated that prolonged war is economically sustainable without significant external support or long term domestic consequences.

The International Monetary Fund expects Israeli gross domestic product to grow by approximately 3.5 per cent in 2026, following growth of about 2.9 per cent in 2025. This would exceed the projected growth of most advanced Western economies. It is nevertheless considerably weaker than the 4.8 per cent the IMF forecast before the latest regional escalation. 

The Bank of Israel is slightly more optimistic. Its July forecast projects growth of 4 per cent in 2026 and 5.5 per cent in 2027, assuming reduced military activity and the gradual easing of supply constraints. The difference between these forecasts reflects uncertainty about the duration of the fighting, future reserve mobilisation and additional defence expenditure. Annual growth should not be confused with a complete recovery. Israel’s economy is expanding from a level depressed by successive shocks. The initial Gaza war, repeated mobilisation, the interruption of construction, the absence of Palestinian workers and later confrontations with Lebanon and Iran all pushed production below the trajectory expected before October 2023.

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Published by Elijah J Magnier

Elijah J. Magnier is a veteran war correspondent and analyst specialising in military affairs, intelligence, strategic affairs and political risk. He has spent nearly four decades living and reporting inside countries at war, often from the front lines, while developing long-standing access to political leaders, military and intelligence officials, diplomats, armed non-state actors and communities directly affected by conflict. His field experience includes the 1982 Israeli invasion of Lebanon, the Iran–Iraq War, the Lebanese Civil War, the 1991 Gulf War, the wars in the former Yugoslavia, conflict in Sudan, the war in Afghanistan and Yemen, the 2003 US-led invasion of Iraq and its aftermath, the 2006 Lebanon War, and the wars in Libya and Syria. He has lived for extended periods in Lebanon, Bosnia, Iraq, Iran, Libya and Syria, allowing him to follow conflicts, political transformations and regional networks beyond the limitations of short-term war reporting. His work focuses on warfare and deterrence, terrorism and counterterrorism, intelligence, political violence, armed non-state actors, regional security and the relationship between military power and political outcomes. He has also served as an adviser to the European Parliament’s Rapporteur on Iraq and Lebanon. Magnier holds a PhD in Policing and Criminal Justice from Liverpool John Moores University and an MSc in Counterterrorism Studies from the University of London. He has undertaken advanced studies in terrorism—including terrorist ideologies, financing and counterterrorism—at the University of St Andrews; terrorism and counterterrorism at Leiden University; and negotiation, including international and cross-cultural negotiation, at ESSEC Business School in Paris. His work combines sustained field access with academic analysis of war, sovereignty, deterrence and political violence.