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The Gaza war, which began in October 2023, has now entered its twenty-fourth month and continues to shape Israel’s economy, society, and political-administrative structure. Data from Israeli sources shows that despite the relative decline in battlefield intensity, the economic consequences remain fully active, impacting multiple dimensions of the budget, trade, labor market, and the psychological climate of Israeli society. This article, drawing on official Israeli reports, provides an overview of the regime’s wartime economic landscape.
Israel’s 2026 draft budget has sparked a major dispute between the Ministry of Defense and the Ministry of Finance. While the Finance Ministry speaks of a military budget of 80 to 90 billion shekels (around 23 billion dollars), the Defense Ministry demands 144 billion shekels (over 37 billion dollars). These disagreements indicate that even after a ceasefire, security and defense expenditures will continue to rise due to ongoing instability and the need to rebuild military infrastructure.
The international credit-rating agency Standard & Poor’s announced on November 7 that Israel’s credit rating, which had been downgraded twice previously, remains at A+, mainly due to the Gaza ceasefire. The agency predicts that Israel’s economy will improve after the war and potentially grow by 5 percent, but it also warns that ongoing political-military tensions may keep the economy fragile.
Finance Minister Bezalel Smotrich has stated that the cost of the Gaza war is expected to reach 250 billion shekels (65 billion dollars), making it the most expensive war in Israel’s history. Around 180 billion shekels (nearly 47 billion dollars) have already been spent on military expenses, including ammunition purchases, mobilizing reserve forces, and operational activities. The displacement of 200,000 settlers in northern and southern areas has also imposed significant costs, which continue even after the ceasefire, contributing to rising prices, higher unemployment, and reduced wages.
The end of the war will mean that tens of thousands of reserve soldiers will return to the labor market at once. Unemployment is projected to rise from 2.9 percent to over 3.5 percent, and could go even higher if reserves re-enter the workforce suddenly. Studies suggest that in the coming year only 10 to 25 percent of reservists will immediately be able to return to their previous jobs, creating serious tension in the job market and putting both businesses and job seekers under pressure.
According to Israel’s Accountant General, the government’s budget deficit in October 2025 (the twenty-fourth month of the war) reached 4.9 percent of GDP (120.5 billion shekels), exceeding expectations. The initial target for the deficit was 4.2 percent, which increased to 4.7 percent after the budget revision, and has now climbed to 4.9 percent. The main reason for this rise is the 12-day confrontation with Iran and the financial burden of mobilizing reserve forces. Recently, the government increased the deficit target to 5.2 percent while approving a reduction of more than 3 percent in the budgets of several ministries. Meanwhile, Smotrich announced a projected deficit of 3.2 percent for 2026, a target seen as unrealistic given the Defense Ministry’s rising demands and declining tax revenue due to the war. Forecasts suggest the deficit may reach 5 percent.
Israel’s commercial service exports increased by 9 percent in the first seven months of 2025, reaching 75 billion dollars. On October 6, 2023, one day before Operation al-Aqsa Flood, the shekel traded at 3.86 per dollar; after two years of war, the rate now stands at 3.26. This means the shekel has strengthened by 9.7 percent in real terms since the war began. The main reasons are the resilience of Israel’s high-tech sector, a surge in military-related exports, and substantial U.S. military assistance. Since 2023, the United States has provided 20.1 billion dollars in military aid to Israel.
A less-discussed aspect of the war is the depletion of Israel’s emergency stockpile of essential goods. Unlike countries that have expanded domestic production, recent Israeli governments prioritized increasing food imports, making Israel more dependent on imported grains than most other countries. For instance, three of Israel’s six largest food companies are foreign-owned. The halt of imports from Turkey has led to shortages of certain essential goods. Additionally, wheat reserves are insufficient, and parts of the stockpile have been contaminated.
Ninety-nine percent of Israel’s imports come through the sea. The Houthi operations in Yemen and the 77 percent decrease in Israeli merchant sailors from 2013 to 2023 have created serious vulnerabilities for a regime heavily dependent on maritime trade. Any expansion of conflict or closure of ports would trigger a severe food-security crisis.
Following the Gaza ceasefire, the IMF raised its economic-growth forecast for Israel in 2025 from 580 to 611 billion dollars. This represents a 12.7 percent increase over 2024, putting Israel in 27th place among 191 countries. By the end of the year, Israel’s total GDP is expected to reach roughly 662 billion dollars, surpassing Singapore, the UAE, Austria, and Norway.
Tourism, one of Israel’s key revenue sectors, has suffered the most. Hotel occupancy in September dropped to only 54 percent, and the number of overnight stays by foreign tourists fell by 68 percent compared to the same month in 2023. Even with a ceasefire, due to global negative perceptions, tourism is unlikely to recover quickly.
Despite the 11-month ceasefire with Hezbollah, Israel still lacks a practical plan to rebuild its damaged northern regions. Proposed plans remain in early stages, and reconstruction is estimated to take until the end of 2029.
To avoid increasing next year’s budget while still boosting defense spending, Netanyahu’s government plans to cut 3.35 percent of the budgets of several ministries that provide essential public services such as healthcare and education. Meanwhile, financial benefits for soldiers engaged in the war will be reduced. Yet benefits for Haredi Jews, including tax breaks, subsidies for Torah study, and kindergarten funding, remain untouched, despite their lack of participation in the war. Such disparities are fueling public discontent with Netanyahu’s government.
The Gaza war has also taken a heavy psychological toll on soldiers. Many have turned to drugs as a coping mechanism. According to statistics, 18 percent of patients at the ELSAM Association are soldiers. ELSAM and similar institutions rely not on the government but on public donations, highlighting a systemic failure in state-run treatment services.
In conclusion, after two years of war, Israel’s economy has entered a phase of structural erosion. Despite improvements in certain indicators, rising military expenses, the costs of displaced populations, stagnation in tourism, a widespread psychological crisis, weakened strategic food reserves, and deep political-economic divisions collectively point toward a challenging future. Even if the ceasefire had held, the regime’s economic reconstruction would still face substantial obstacles, and the financial burden of war would continue to weigh heavily on the government budget, labor market, and social structure.
Translated by Ashraf Hemmati from the original Persian article written by Mohammad Saleh Ghorbani
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