First Gaza, Now Iran: What Two Back-to-Back Wars Will Cost Israel?

Israel’s prolonged conflict—first with Gaza and now with Iran—has captured the world’s attention. What initially began on October 7, 2023, with a deadly Hamas attack on southern Israel has now turned into an intensified direct military confrontation between Israel and Iran. These back-to-back wars are not just disrupting the geopolitical landscape of West Asia but are also placing an enormous financial burden on Israel.

From skyrocketing military expenses to economic slowdowns and long-term fiscal challenges, Israel is facing its most expensive conflict period in history. But what exactly is the cost of these wars? And how will they impact Israel’s economy in the years to come?

The Gaza War: A Long and Costly Conflict

The recent war between Israel and Hamas began after the militant group launched a surprise attack on October 7, 2023, killing around 1,200 Israelis and taking over 250 hostages. Israel responded with a massive military offensive in Gaza, vowing to dismantle Hamas.

Impact

According to Israeli Business Outlet, Calcalist, By the end of 2024, the cumulative cost of the Gaza war reached 250 billion shekels ($67.5 billion.

This includes:

• Military operations (airstrikes, ground assaults, ammunition)
• Civilian costs (evacuations, rebuilding damaged towns)
• Revenue losses (business closures, reduced productivity)

One of the biggest financial drains has been reservist mobilization. Israel called up 300,000 reservists in the early stages of the war. Each day with 100,000 reservists costs the government 70 million shekels ($18.5 million) in wages alone. Including food, shelter, and lost civilian productivity, the daily cost rises to 200 million shekels ($53 million).

Impact on Israel’s Budget

• Defense spending skyrocketed: From 60 billion shekels ($16 billion) in 2023 to 99 billion shekels ($26 billion) in 2024.
• Deficit increased: The government set a deficit ceiling of 4.9% of GDP, but war expenses are pushing it higher.
• Economic slowdown: Growth forecasts for 2025 were revised down from 4.3% to 3.6% due to prolonged military call-ups.

The Iran-Israel Escalation: A New Financial Burden

Tensions between Israel and Iran have been longstanding, but it escalated in April 2024 after an Israeli airstrike on Iran’s consulate in Syria, killing several Iranian military officials. Iran retaliated with a massive drone and missile attack on Israel, marking the first direct military confrontation between the two nations.

Impact

The financial impact of this new front is already staggering:

• During the First 48 hours of direct retaliation: around 5.5 billion shekels ($1.45 billion) were spent, including:
  • Israel’s offensive strikes
  • Defensive measures (Iron Dome, air defense systems

• Daily cost of war with Iran: Estimated at 2.75 billion shekels ($725 million) per day, including jet fuel, missiles, and emergency measures.

Broader Economic Impact

• Business disruptions: Many businesses shut down during the conflict, leading to fears of mass layoffs.
• Oil price risks: If the conflict escalates further, it could threaten the Strait of Hormuz, a key oil shipping route. This could send global oil prices soaring, hurting Israel’s economy further.

How Is Israel Paying for These Wars?

1. Rising Defense Budgets

Israel’s defense spending is set to nearly double from pre-war levels:

• 2023: 60 billion shekels ($16 billion)
• 2024: 99 billion shekels ($26 billion)
• 2025 (projected): 118 billion shekels ($31 billion)

2. Borrowing and Debt

The government is increasing borrowing to fund the wars, adding to public debt. Some emergency funds are being used, but they are running out fast.

3. Cutting Social Spending

With defense needs growing, Israel may have to divert funds from healthcare, education, and infrastructure to military expenses.

4. Using Gas Revenues

Israel has considered redirecting revenues from its natural gas fields—originally meant for social programs—toward defense.

For now, the wars show no sign of ending, meaning the economic disparities will only keep rising. But how long can Israel afford to fight?