Economic Repercussions of the Gaza War on Israel and the Region
A year following the outbreak of the Gaza conflict, dubbed the "Al-Aqsa Flood," the economic landscape in Israel and neighboring countries has been severely impacted. The ongoing war has not only caused substantial economic losses for Israel but has also disrupted regional and global trading routes, leading to heightened fears about its long-term effects on the global economy. As international tensions rise, the repercussions extend beyond borders, affecting trade dynamics and economic stability in the Middle East.
In Israel, the war has precipitated a decline in the value of the shekel by approximately 5%, despite efforts by the Bank of Israel to stabilize it with an infusion of about $30 billion. The stock market has similarly suffered, with losses estimated between 9% to 20%. A report from the Arab Institute for Studies indicates that the Israeli stock market has faced losses totaling around $20 billion. Furthermore, credit rating agencies such as Standard & Poor's have downgraded Israel's rating from "A+" to "A," highlighting concerns regarding geopolitical risks and an expected decline in economic growth rates.
The economic fallout has also seen Israel's military spending soar, with estimates placing the total cost of the war at around $66 billion, representing 12% of the nation's GDP. This financial strain has led to a budget deficit of 8.3%, compelling Israel to rely heavily on loans, which amounted to about $53 billion last year.
Global Trade and Regional Stability at Risk
The ramifications of the Gaza conflict are not confined to Israel. Neighboring countries, including Lebanon, Jordan, and Egypt, are experiencing significant economic challenges as a result of the ongoing violence. In Lebanon, the tourism sector has suffered a steep decline, with about 1 million people displaced due to the conflict. The situation has been exacerbated by the suspension of flights by 10 airlines and a significant drop in tourist numbers from 1.6 million to 1.5 million in the first half of 2024.
Jordan's economy is under strain as well, with a 7.9% drop in tourism and rising inflation driven by increased shipping costs in the Red Sea. Meanwhile, Egypt has reported losses of approximately $6 billion in the Suez Canal revenue due to the ongoing conflict and trade disruptions.
The global implications are equally alarming, particularly concerning the stability of oil and gas supplies. The region is responsible for 25% of the world's oil needs, and any escalation in conflict could threaten these vital supplies, driving prices higher and contributing to ongoing global inflation. As the situation unfolds, the effects of the Gaza war will continue to resonate across economies, highlighting the interconnectedness of regional conflicts and global markets.
