Aletho News

War with Hamas deals ‘severe economic blow’ to Israel

The Cradle | October 17, 2023

Eleven days into its war with the Hamas-led Palestinian resistance, Israel is paying a heavy economic toll, Maariv reported on 17 October.

The Israeli newspaper reported that “the Israeli economy appears to have already begun to pay a heavy price for the war,” which began on 7 October with the start of Hamas’ Al-Aqsa Flood Operation.

The newspaper explained in a report published Tuesday that “4.6 billion shekels [$1.1 billion] is the price paid by the Israeli economy as a result of workers not coming to work and low productivity in Israeli institutions.”

According to the analysis of the economic department of Israel’s Manufacturers Union, the closure of the education system, blocking of traffic routes, and the extensive mobilization of the army reserves has also hurt economic productivity.

In total, it is estimated that about 1.3 million Israeli workers did not go to work this week.

In southern Israel, some 85 percent of workers were absent from their jobs, along with about 20 percent of workers in the rest of Israel.

The head of the Manufacturers’ Union and the head of the Employers and Companies Association, Ron Tomer, said after the harsh assessments that “there is no doubt that the war constitutes a severe economic blow to the economy.”

According to Maariv, this estimate does not take into account “additional and very significant financial damage, which will only be assessed economically at the end of the fighting, such as direct damage to factories and damage to profitability.”

In addition to decreased productivity, Israel will see indirect damage, such as the damage to the reputation of Israeli companies with customers abroad, cancelled transactions, failure to adhere to schedules, and the depreciation of the shekel.

Should the conflict widen to include not just Hamas but also Iran, a key backer of the Palestinians, Bloomberg estimates oil prices could climb to $150 a barrel and cause a global recession that takes about $1 trillion off world output.

Iranian involvement on the Palestinian side could lead to a cut in Iranian oil output and a tightening of western sanctions hindering Iranian oil sales.

Bloomberg notes further that an oil shock of this size would also derail the worldwide effort to rein in inflation. In the US, the Federal Reserve’s 2 percent inflation target would not be met, and costly gasoline would be a hurdle for President Joe Biden’s re-election campaign.

Another possibility is that Iran could close the Strait of Hormuz, the world’s single-most important energy corridor. Globally, over one-sixth of oil and one-third of liquefied natural gas passes through the narrow strait

“The gas market is calm but tense,” Henning Gloystein, director for energy, climate and resources at the Eurasia Group think tank said.

“It doesn’t take much to go into a fever pitch. We had the Ukraine war, Russian gas supply cuts, oil cap sanctions and now you have war in the Middle East as well — that’s a problem,” he said.

October 17, 2023 - Posted by aletho | Economics, Militarism | Iran, Israel, Palestine, United States