Can Israel’s Economy Endure the Escalating Costs of Its Two-Front Struggle?

The ongoing war in Gaza has cost Israel approximately 250 billion shekels, or $67.5 billion, covering combat infrastructure, civilian aid, and lost tax revenues. These figures exclude the broader impact of reduced productivity and business closures.

The escalation with Iran adds further strain, with 5.5 billion shekels ($1.45 billion) spent in the first 48 hours and daily costs averaging $725 million over a twelve-day period. This dual financial pressure poses a risk of pushing Israel's economy to a critical point.

Can Defense Spending Outpace Economic Resources?

Israel relies on a multi-layered air defense system, including Iron Dome, David’s Sling, and Arrow, to counter Iran’s missile threats, with each interceptor costing around $50,000. Defense spending has surged from 60 billion shekels in 2023 to 118 billion in 2025.

The need to neutralize complex attacks, including GPS-jamming and submunition-capable missiles, drives these costs higher. Sustaining this level of expenditure may outstrip available resources, threatening long-term economic viability.

Did you know?
Israel’s Iron Dome, deployed since 2011, has intercepted thousands of rockets, though the cumulative cost of each defense action continues to mount.

Does Reservist Mobilization Deepen the Economic Crisis?

The mobilization of 300,000 reservists imposes a daily wage cost of 70 million shekels per 100,000, totaling 170 million shekels when including lost productivity. This labor withdrawal disrupts key sectors and economic output.

Foreign investment has plummeted by nearly 68% last year, while consumer spending declines and tourism halts completely. These cascading effects amplify the economic crisis, challenging Israel’s ability to endure the conflict’s toll.

Will Social Sacrifices Compromise Future Growth?

The government has shifted budgetary priorities, doubling defense spending while underfunding healthcare and education. Officials frame this as a temporary measure, but concerns arise about a permanent reallocation.

This shift away from Israel’s “startup nation” identity raises questions about its economic and societal future. Prolonged military focus could undermine the innovation and social stability needed for recovery.

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Autonomy’s Uncertain Horizon

Israel’s economy faces an escalating test with $69 billion in costs from the Gaza and Iran conflicts, driven by soaring defense spending and reservist mobilization. The stakes are heightened by the decline in investment, tourism, and social services. As military demands persist, the nation must determine if it can endure this financial strain. Can Israel’s economic foundation withstand the weight of its two-front struggle?