Israel-Hamas War Could Have Far-Reaching Economic Impact

Israel has officially declared war on the Gaza Strip after surprise attacks by the armed Palestinian group, Hamas, this past week. The death toll has topped 2,800 in Israel and Gaza, with thousands of others injured, in the region’s worst fighting in 50 years. ?

Not only does this war impose a humanitarian crisis, but also a strain on Israel’s economy. More than 300,000 working class Israeli’s are now out of work fighting for their country, according to CNBC. “The impact is substantial,” said Eyal Winter, a professor of economics at Hebrew University in Jerusalem. “In a case like this, tourism dries up immediately … but confidence is high that in the end we’ll have a military victory, even as it’s likely we’ll suffer terrible losses.”

Major stock indexes have dropped more than 6% and bank and insurance stocks suffered losses of around 9% after the Hamas attacks. Some economists warn this war may have more of an impact on the local financial market than those in previous years because the financial markets are a main source of the Israeli economy.

Though the amount of economic damage depends on how long workers are away from their jobs, economic activity has the potential to increase after the war ends. “There will be a temporary hit for the startup industry but when the soldiers return so will investment and demand,” Winter said.

The war also could cause oil prices to spike across the globe. “The global Brent oil benchmark rose nearly 5% in trading on Monday, reversing some of a major decline in recent weeks that had cheered many market onlookers and car drivers,” reads an article from ABC News. “The price of crude oil holds major implications for the economy and consumers through its direct effect on costs as an input into products ranging from gasoline to plastics.”

The expected damage to the economy comes from two main factors. “First, it is likely that the war in Gaza will last for a long time, a period in which it can also be assumed that a significant part of Israel will continue to be under missile threat,” Ori Greenfeld, chief strategist at Psagot Investment House told The Times of Israel. “Such a threat will cause the Israeli consumers to go out less and naturally cut consumption. Beyond that, in a period of such heavy uncertainty, it is likely that the volume of investments in the economy, both of the private and public sectors, will also decrease.”

Other countries are also watching the war closely, such as Taiwan, who faces a campaign of intimidation and threats by China similar to the Hamas-Israel war. China claims Taiwan as part of their territory and has conducted several military drills around Taiwan’s air and nearby waters as tensions continue to build between the two countries and the U.S. Taiwan expressed their support for Israel as more than 2,400 Israelis and Palestinians have been killed in the Middle East since the Hamas attack. Taiwanese Defense Minister Chiu Kuo-cheng said the country has “established a working group to study and reinforce the importance of collecting intelligence,” per AP News. “With intelligence, many countermeasures can be made. A war can even be avoided.”