Already a humanitarian crisis, war with Hamas could have major impact on Israel’s economy

As Israel prepares for what could be a long war with massive humanitarian implications, there are also concerns about how a protracted fight could weigh on the country’s dynamic economy.

Since Hamas militants staged a surprise terrorist attack over the weekend, Israel’s defense forces called up more than 300,000 reservists for duty, an unprecedented number in recent history. Israel’s standing army, air force and navy is is comprised of 150,000 members. 

The reserve force, made up of a cross section of Israeli society, has about 450,000 members, many of which are more experienced in combat than the younger soldiers in the standing army. The reservists are teachers, tech workers, startup entrepreneurs, farmers, attorneys, doctors, nurses, tourism and factory workers.

“The impact is substantial,” said Eyal Winter, a professor of economics at Hebrew University in Jerusalem who has studied the economic impact of Israel’s wars.

The amount of the economic damage, however, will depend on how long the reservists are away from their jobs in the country, which has a population of over 9 million and a gross domestic product of $521.69 billion. 

“In a case like this, tourism dries up immediately” said Winter. But, he added, “there’s also a major increase in tourism when the fighting ends due to pent up demand.”

Many of Israel’s key employment sectors will continue uninterrupted during the war due to the fact that they’re heavily staffed with foreign workers. 

That includes Israel’s chemical sector, which is a major source of exports. 

The Dead Sea region is rich in minerals. The Port of Ashdod, just 20 miles north of the Gaza Strip, is a major hub for potash exports. Wall Street was so concerned about the prospect of a potash supply problem stemming from Israel, several fertilizer stocks saw significant jumps earlier this week, including Mosaic and CF Industries. Both were up almost 7% in the first day of trading after Saturday’s attack.

So far this week the main Israeli stock index is down 6%. There’ve been no new warnings from ratings agencies about Israel’s debt. All, however, were concerned about economic problems before the fighting due to the instability in Israel’s political climate over proposed reforms to the judicial system. 

Since Hamas’ takeover of Gaza in 2007, Israelis have always believed the status quo wasn’t sustainable.  Winter of Hebrew University believes as bleak as things are right now, there will be an improvement for the country and the economy. 

“Confidence is high that in the end we’ll have a military victory, even as it’s likely we’ll suffer terrible losses,” Winter said. “But Gaza has been an unstable problem for years, this war should end that.” 

Winter has also seen increased economic activity in other segments of the economy after previous wars.

In the case of Israel’s ever-growing technology industry, when many of the soldiers come home, they will take experiences they learned on the battlefield and turn them into security businesses. 

“There will be a temporary hit for the startup industry but when the soldiers return so will investment and demand,” Winter said.

Almost every major American technology company also has significant production or research and development offices in Israel, including Microsoft, Alphabet, Apple and Oracle, to name a few. Intel is investing in a manufacturing facility 30 minutes away from the Gaza border.

While nobody would comment directly due to security concerns, one high-tech manager in Israel said “because of our experience with allowing employees to work from home during and after Covid, work continues, unless you’ve been called in to a reserve unit.”