OPINION: Short term economic damage but Israel will emerge stronger
The long and the short of it - a view of the financial impact of war in the Middle East
Middle East wars no longer have the same power to disrupt global energy supplies as they did in 1973 when Arab producers slapped an embargo on the West generating a great inflation and recession. Nevertheless, Israel’s audacious assault on Iran’s nuclear capability and Tehran’s ballistic retaliation will have far reaching economic consequences.
Remarkably, given the damage inflicted on central Israel, the Shekel, Israeli shares and bonds have bounced strongly. Global investors are confident that when the tit-for-tat exchanges end Israel will emerge stronger. Most of Iran’s proxies have been destroyed and Iran’s nuclear programme disabled if not destroyed.
Over the longer haul that should make investment in Israel less risky than it has been historically. The bigger concern is that the war in Gaza, currently overshadowed by the battle with the ayatollahs, has done irreparable reputational damage giving additional firepower to boycott and sanctions activity.
The short-term damage to the economy will also be considerable. Ben Gurion airport is closed so commercial access to the country by overseas businesses and the tech community cut-off. Government offices, for the moment, remain closed although the pandemic demonstrated that state employees have the capacity to work from home. Consumers have been stocking up on food and essentials, but a prolonged conflict would present supply problems.
The lengthy war in Gaza, now into its second year, has been provided for in the 2025 budget. The most recent fiscal documents show up to $15bn has been provided for. Current estimates are that a month-long conflict with Iran, involving four rounds of missile exchanges, would cost some $11bn. The Iran war is costly because of the advanced equipment deployed. There has been no budgeting for the considerable damage done to buildings and facilities although so far major infrastructure, such as oil refining facilities in Haifa, remain safe.
The war is being watched anxiously on markets across the globe. The dollar initially bounced on the foreign exchanges on the outbreak of hostilities reversing a backlash against Trump tariff and tax bedlam which has driven the dollar down 8pc this year. In times of trouble fund managers flee for safety and dollar assets, which currently offer a decent yield, come back into fashion. Gold, the ultimate safe-haven, climbed to record levels, continuing a remarkable run.
Nowadays just one-fifth of Gulf energy production passes through the Staits of Hormuz with most output heading to Asia. Self-sufficiency of oil and liquified natural gas (LNG) in the United States means that one of the world’s largest energy consumers is no longer directly impacted.
Nevertheless, with airports across the Middle East temporarily closed, shipping in danger and the US doubling down on security at its Middle East bases the threat to energy supplies is very real. Big oil may have what it needs, a return to higher global prices, but the cost is heavy.
Israel already faces substantial rebuilding costs in the South and the Galil because of damaged inflicted by Hamas on October 7 and Hezbollah in the North prior to its effective defeat. Of the 60,000 Israeli citizens who left the North for safety many decided not to return because of safety concerns.
If victory over Iran can be delivered, then reconstruction and the return of reserve troops to work will boost output. There are huge uncertainties, but Israel’s markets are betting on victory and a return to growth led by a vibrant tech sector. Let’s hope they are correct.
- Alex Brummer, City Editor, the Daily Mail
Thank you for helping to make Jewish News the leading source of news and opinion for the UK Jewish community. Today we're asking for your invaluable help to continue putting our community first in everything we do.
For as little as £5 a month you can help sustain the vital work we do in celebrating and standing up for Jewish life in Britain.
Jewish News holds our community together and keeps us connected. Like a synagogue, it’s where people turn to feel part of something bigger. It also proudly shows the rest of Britain the vibrancy and rich culture of modern Jewish life.
You can make a quick and easy one-off or monthly contribution of £5, £10, £20 or any other sum you’re comfortable with.
100% of your donation will help us continue celebrating our community, in all its dynamic diversity...
Engaging
Being a community platform means so much more than producing a newspaper and website. One of our proudest roles is media partnering with our invaluable charities to amplify the outstanding work they do to help us all.
Celebrating
There’s no shortage of oys in the world but Jewish News takes every opportunity to celebrate the joys too, through projects like Night of Heroes, 40 Under 40 and other compelling countdowns that make the community kvell with pride.
Pioneering
In the first collaboration between media outlets from different faiths, Jewish News worked with British Muslim TV and Church Times to produce a list of young activists leading the way on interfaith understanding.
Campaigning
Royal Mail issued a stamp honouring Holocaust hero Sir Nicholas Winton after a Jewish News campaign attracted more than 100,000 backers. Jewish Newsalso produces special editions of the paper highlighting pressing issues including mental health and Holocaust remembrance.
Easy access
In an age when news is readily accessible, Jewish News provides high-quality content free online and offline, removing any financial barriers to connecting people.
Voice of our community to wider society
The Jewish News team regularly appears on TV, radio and on the pages of the national press to comment on stories about the Jewish community. Easy access to the paper on the streets of London also means Jewish News provides an invaluable window into the community for the country at large.
We hope you agree all this is worth preserving.
