Israel’s Economy Buckles Under Cost of War on Iran

Israel’s ongoing military aggression againt Iran has delivered a heavy economic blow to the occupying regime, with significant disruptions across key sectors and a sharp increase in public spending.

According to a report by Germany's Deutsche Welle, Israel is now fighting on at least two fronts, and its financial infrastructure is straining under the burden.

The regime is attempting to fund part of its mounting military expenditures through higher taxes, a move that has sparked further unrest among citizens already reeling from war-induced disruptions.

“War is extremely costly,” the report said. “Beyond the destruction, loss of life, and human tragedy, vast resources must be spent on mobilizing forces and acquiring equipment.”

The Israeli economy is facing acute labor shortages, as tens of thousands of reservists have abandoned their civilian jobs to serve on the front lines.

At the same time, work permits for Palestinian laborers have been revoked, further intensifying workforce gaps.

Military spending has surged dramatically.

In 2024, Israel’s defense budget soared by 65%, reaching $46 billion -equivalent to 8.8% of its GDP- ranking it second in global military spending only after Ukraine.

The regime’s 2025 budget has also jumped by 21% to a record $215 billion, with $38 billion allocated for defense.

Deutsche Welle quoted Itay Eter, an Israeli economist from Tel Aviv University, as saying, “War is very expensive, and there is massive uncertainty regarding the short- and long-term future.”

“The costs of both defensive and offensive operations are enormous,” he added. “This will certainly have negative effects on the budget deficit, GDP, and Israel’s debt levels.”

According to the report, many Israelis have spent hundreds of days on reserve duty over the past 20 months, while thousands more have been displaced from their homes.

Social services are buckling under the pressure.

The economic toll has intensified since Israel’s attack on Iran last Friday.

“Many people haven’t returned to work since the strikes,” Eter admitted.

Industries including manufacturing, commerce, technology, and education have been disrupted.

International airlines have halted flights to and from Israel, with some removing their aircraft from the regime’s airports entirely.

Large portions of Middle Eastern airspace have also been closed.

To offset part of the deficit, Israel has raised its value-added tax from 17% to 18%, and increased taxes on health services.

“Short-term risks for investors have risen,” Eter said, “but much depends on how long this conflict lasts and how it ends.”

He warned, “If we enter a prolonged war with Iran -which is a real possibility- it’s unlikely the Israeli economy will recover.”

Eter also acknowledged long-standing internal fissures.

“Security is a major long-term challenge for Israel’s economy,” he said. “And the internal social divide is a reality we can no longer ignore.”