The cost of war with Iran puts the Israeli economy on the brink of collapse and warnings of an unprecedented financial deficit

Economic circles in the occupation state are facing a state of shock after the revelation of the exorbitant financial cost of the military confrontation with Iran, as official data showed a huge gap in the public treasury. Economic sources confirmed that the current government has brought the economic cycle to the brink of collapse as a result of limiting compensation to specific sectors, which will force all Israelis to pay high living costs in the coming period.

In an interim report submitted by the Governor of the Bank of Israel, Amir Yaron, it was revealed that public spending since the beginning of October 2023 has exceeded 352 billion shekels, an unprecedented figure in the history of Israeli budgets. The report explained that the direct confrontation with Iran raised the average daily cost of military operations to between 1.5 and 1.7 billion shekels, which is a burden that the local economy cannot bear for long periods.

Yaron sharply criticized the government's performance, stressing that continued uncontrolled military spending and inflated sectoral funds threaten the confidence of international financial institutions. The governor warned that the absence of an austerity plan and a sharp reduction in non-growth-related spending would jeopardize Israeli financial stability, especially with the increasing financial deficit reaching dangerous levels.

Despite the suffocating crisis, the government quickly approved record amounts for the ruling coalition's funds for 2026, totaling about 6.1 billion shekels to ensure political loyalties. These allocations included billions of shekels directed to religious institutions affiliated with the Haredim, in addition to hundreds of millions for the Ministry of Settlement and the Jewish Identity Directorate, at a time when severe cuts are being imposed on health and education budgets.

These internal crises coincide with external pressures resulting from the turmoil in the global energy market, as tensions in the Arabian Gulf pushed oil prices to exceed $100 per barrel. While countries around the world are trying to absorb the price shock, the Israeli government appears unable to make economic decisions that protect its citizens from the escalating global inflation wave resulting from maritime threats.

For its part, Fitch Ratings maintained its negative outlook for the Israeli economy, noting that the political priorities of the ruling coalition take precedence over necessary growth reforms. The agency believes that the absence of fiscal discipline, an increase in the military budget, and a deepening deficit will turn this negative outlook into a difficult existential reality that will burden future generations of Israelis.

Regionally, the effects of this war extended directly to the Egyptian economy, as tensions in the Red Sea caused cumulative losses in Suez Canal revenues amounting to $10 billion. The halt of Israeli gas supplies since the end of last February also doubled Egypt's monthly gas import bill to $1.65 billion, increasing pressure on the local currency.

In a related context, the Egyptian pound recorded a significant decline against the dollar, which exceeded 53.63 pounds in official banks, amid expectations of continued decline due to the outflow of hot money. International reports indicate that the Egyptian economy has lost about 15% of its value since the start of the Iranian confrontation, with expectations that the exchange rate will reach record levels by 2028.

Reconstruction plans in the northern Israeli settlements are facing significant setbacks due to the absence of allocated budgets, despite the massive destruction they suffered from mutual shelling. Settler leaders protest what they describe as deliberate government neglect, asserting that reducing budgets instead of doubling them will hinder the return of residents and turn these areas into ghost towns for a long time.

The Israeli economy will not be able to continue bearing the enormous expenses for armaments and reserves, and the international community's confidence in our financial stability is in real danger.