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Israel’s War in Gaza: Analysis of Civil, Political, and Economic Impacts

The ongoing conflict between Israel and Hamas, now stretching into its fourth month, has escalated into one of the most profound crises the region has faced in recent memory. The confrontation has led to a tragic toll, with around 30,000 lives lost in Gaza, highlighting the conflict’s devastating human cost. This crisis has not only intensified divisions within Israeli society but has also triggered a significant economic downturn and elicited strong international criticism.

 

Economic Strain and Government Subsidies

The conflict with Hamas in Gaza, now the longest in Israel’s history, has incurred a tremendous financial burden. Independent analyses, including those from Israel’s Ministry of Finance and the Bank of Israel, suggest the war’s cost could reach up to 200 billion shekels (over $50 billion), constituting approximately 10% of Israel’s GDP. A proposed aid package from U.S. Republicans, which was ultimately rejected, would have covered about a third of these expenses. In the absence of this aid, Israel faces tough choices such as increasing taxes, accruing more debt, and significantly reducing public spending, which could lead to the most severe economic recession the country has faced in years. The financial impact of this conflict is notably severe due to its comprehensive economic repercussions, extending beyond mere military spending to include widespread economic disruptions.

The war has imposed a heavy economic burden on Israel, with the government stepping in to subsidize the incomes of around 360,000 mobilized reservists. Many of these reservists are employed in critical sectors such as finance, artificial intelligence, pharmaceuticals, and agriculture, which underscores the conflict’s far-reaching impact on the nation’s economy. The Bank of Israel quantified the war’s “gross effects” on the economy at 198 billion shekels ($53 billion), leading to a significant revision of economic growth expectations to 2 percent annually for 2023 and 2024, down from previous forecasts of 2.3 percent and 2.8 percent, respectively.[1]

 

 

Trade Disruptions and Economic Challenges

The war has notably disrupted trade, particularly through the Red Sea, a crucial maritime route for global commerce. Houthi attacks on commercial vessels, in retaliation to the conflict, have heightened regional tensions and significantly impacted shipping industries. As a direct consequence, nearly 30% of the world’s container trade, which typically passes through the Red Sea, saw more than 90% of ships diverting their routes since December. This rerouting has led to a marked increase in operational costs: the price for transporting a 40-foot container from Shanghai to Rotterdam spiked from $4,406 on January 11 to $4,984 by January 25, according to the Drewry World Container Index. This escalation in shipping costs underscores the broader economic implications of the conflict, affecting not only regional but global trade dynamics.[2]

 

 

Tourism Sector Takes a Hit

The tourism industry, a significant pillar of Israel’s economy, has faced a devastating downturn due to the conflict. In December 2023, the total number of tourists visiting Israel, excluding day visitors and cruise passengers, plummeted to 52,800, marking an 80% decrease year-on-year. This collapse in tourism has been fueled by a combination of airline cancellations and global apprehension towards traveling to a conflict zone.

Before the conflict, Israel enjoyed a vibrant tourism sector, with monthly visitor numbers exceeding 300,000. The stark reduction in tourists has had a cascading effect on related businesses, from hospitality to retail, exacerbating the economic strain on an industry still recovering from the pandemic’s impacts. International Air Transport Association (IATA) forecasts for 2024 suggest a potential recovery, with an anticipated 4.7 billion global travelers. However, the uncertainty and risk factors introduced by the conflict could significantly influence the industry’s path to recovery.[2]

 

 

Construction Industry Faces Stagnation

The construction sector, responsible for 14% of Israel’s GDP, has also been severely impacted. Since the onset of the conflict, numerous construction projects across Israel have been halted, and permits for Palestinian workers, who constitute 65-70% of the construction workforce, have been indefinitely frozen. This labor shortage has led to a near standstill in the industry, with the Israel Builders Association reporting operations at merely 15% of their pre-conflict capacity in November. To mitigate the labor gap, Israel plans to import approximately 70,000 construction workers from countries like China, India, Moldova, and Sri Lanka. This solution, however, is stopgap measure that underscores the deep-seated challenges facing the sector, from delayed projects to increased costs and economic losses.[2]

 

 

Global Trade Disruptions and Import Costs

The conflict’s ripple effects have extended to global trade, particularly through disruptions in the Red Sea due to Houthi missile and drone attacks. This has necessitated the rerouting of shipping, increasing costs for Israel’s imports. “Many of Israel’s imports from Asia are now being rerouted around Africa, bumping up costs,” highlighting the broader economic implications of the conflict on Israel’s trade and supply chains.[2]

 

 

Public Concern Over Economic Hardship

The war’s economic fallout has significantly heightened concerns among Israelis about impending hardships, with over 45% fearing future economic deterioration. This anxiety is especially acute among those already vulnerable to poverty or food insecurity. TheAlternative Poverty Report reveals that nearly one-fifth of Israelis have been economically affected by the conflict, with all charities aiding the poor reporting a lack of government support despite increased demand for assistance.

The defined alternative poverty line highlights the gap between official poverty measures and the actual living conditions of struggling families, with a vast majority of aid recipients grappling with debt, energy deficiency, chronic diseases, and food insecurity. Economic pressures have led to stark choices for many families, including reduced meal sizes and compromised nutrition for nearly 40% of them, alongside an inability to afford basic educational resources for their children.

The elderly are particularly hard-hit, with over 81% living in poverty, many facing extreme poverty, serious food insecurity, and having to forgo essential medications or treatments due to financial limitations.[2]

 

 

Anger at government policy grows

Amidst the conflict there has been a significant shift in public sentiment towards the government’s handling of the situation. This shift is especially evident in the evolving tone of protests within Israel. This departure from previous policy was evident at the Hostages and Missing Families Forum’s weekly rally, its 17th, which thousands attended, highlighting a growing political charge in the demonstrations.

Weekly rallies in Tel Aviv, initially centered on demanding the return of hostages from Gaza, have recently seen a distinct transformation. Critics openly accuse Prime Minister Benjamin Netanyahu’s administration of indifference. Ronen Manelis, a former Israel Defense Forces spokesperson, voiced a lack of confidence in the leadership, stating, “The inability to make difficult decisions is leading to some difficult questions about the loss of commitment by the state to its citizens.” [3]

The accusation that Netanyahu’s actions are driven by personal agendas aimed at avoiding investigations and delaying elections has become a common theme. Avi Benayahu, another former IDF spokesperson, directly addressed the government’s stance, criticizing it for “abandonment, neglect, arrogance, and building up Hamas,” highlighting the perceived radical stance of certain government figures.[3]

The discontent is manifesting in larger, more politically charged demonstrations, with growing calls for Netanyahu’s resignation. “The Israeli leadership, the war cabinet, its head, are afraid to make the decision,” Manelis added, suggesting that fears of political fallout are preventing decisive actions like prisoner swaps with Hamas.[3]

The evolving protests, marked by the participation of military figures and a shift towards more politically charged rhetoric, underscore the public’s demand for immediate government action. “Don’t allow partisan consideration to kill them [the hostages]. They are not the silver platter on which the war has been handed to you,” pleaded Carmit Palti-Katzir, whose brother was abducted from Nir Oz, capturing the emotional intensity behind the calls for action.[3]

This critical moment for Netanyahu’s government is amplified by internal pressure and the broader critique of its approach to the Gaza conflict, indicating a pivotal juncture in Israel’s domestic and political landscape.

Certainly , the prolonged conflict in Gaza, now stretching into its fourth month, has laid bare the considerable consequences and dilemmas faced by the Israeli government. With a genocidal civilian death toll in Gaza and societal divisions deepening within Israel itself, the government’s current strategy and its handling of the crisis have come under intense scrutiny. Economic repercussions have been profound, affecting key sectors such as trade, tourism, and construction, and exacerbating existing socio-economic disparities. The increasing political charge of protests within Israel, particularly those demanding the return of hostages, signals a growing dissatisfaction with Prime Minister Benjamin Netanyahu’s leadership. Critics accuse the government of being guided by personal and political considerations, potentially at the expense of national interest and the well-being of its citizens. Faced with the remarkable resilience of the people of Gaza, and with no end to the conflict in sight, the Israeli government’s handling of the crisis can be summarized as an imminent failure, compounded by growing discontent at home.

 

 

 

[1] https://forward.com/opinion/580977/israel-gop-bill-economy/

[2] https://salaamgateway.com/story/crucial-math-key-economic-implications-of-the-gaza-conflict

[3] https://www.timesofisrael.com/latest-hostage-rally-demanding-deal-with-hamas-takes-on-stronger-political-tones/

Tariq Kurd was born and grew up in Hertfordshire. His family is originally from Halabja, Kurdistan but due to periodic migration currently reside across the Baluchistan region.
He has a BA Hons. in History from the Open University. Besides English, Tariq can speak Baluchi and Brahvi, he is also conversant in Persian and Pashto.
His has an eclectic range of interests including military and tribal history. Tariq lives in London and is currently studying Islamic apologetics through the Sapience Institute.