The Israel-Palestine conflict has intensified significantly over the past week. In retaliation against Hamas attacks, Israel announced its commitment to a "difficult and prolonged war," mobilizing 300,000 reservists from various sectors to the battlefield.
Beyond its 150,000 standing army, Israel, a Middle Eastern nation of over 9 million people, maintains approximately 450,000 reservists. These individuals hail from diverse backgrounds, including teachers, tech professionals, startup entrepreneurs, farmers, lawyers, doctors, nurses, tourism workers, and factory employees. The deployment of over 300,000 of these workers will inevitably disrupt certain industries.
Eyal Winter, an economics professor at the Hebrew University of Jerusalem, noted that Israel's economy will undoubtedly suffer. However, the extent of the damage depends on the duration of the reservists' absence.
Internationally, there are particular concerns about the impact on the tech and chemical industries.
High-tech is one of Israel's primary economic drivers, with its tech ecosystem considered second only to Silicon Valley in the U.S. After decades of growth, the high-tech sector now accounts for nearly one-fifth of Israel's GDP and provides 14% of the nation's jobs.
Global tech giants, from Intel, Apple, Microsoft, Google, Facebook to IBM, operate extensively in Israel. In June, Intel announced a $25 billion investment to build a new factory in a southern city, roughly 42 kilometers from Gaza. Since the beginning of this week, U.S. tech stocks have seen significant declines, with many of these giants operating extensively in Israel being affected.
Analysts suggest that as Israel enters a state of war and potentially launches a ground invasion into Gaza, the safety of tech companies operating in the country is a concern. Intel declined to comment on any potential disruptions to chip production but stated they are "closely monitoring the situation in Israel and taking measures to protect and support local employees." NVIDIA has canceled its AI summit scheduled for next week in Tel Aviv.
Additionally, there are global concerns about the supply of potash fertilizer, crucial for global food security.
Due to its proximity to the mineral-rich Dead Sea, the chemical industry, including potash fertilizer, is one of Israel's primary export sectors. Ashdod Port, a significant hub for Israel's potash exports, is located about 30 kilometers north of the conflict's epicenter in Gaza. According to a report by Ben Isaacson, an analyst at the Canadian Bank of Commerce, disruptions at this port could jeopardize 3% of the global potash supply.
Isaacson also highlighted that if Iran, a significant nitrogen exporter in the region, becomes directly involved in the conflict, the price of nitrogen-based fertilizers essential for grain production could surge due to limited supply and potential premiums on Dutch TTF natural gas.
Fertilizer manufacturers have seen a surge in stock prices since the escalation of the Israel-Palestine conflict. Following the Israeli military's full encirclement of Gaza on October 9, Nutrien, the world's largest potash producer, saw its stock rise by over 4.2%, marking its most significant increase since July. Mosaic, the world's second-largest fertilizer producer, saw its stock soar by over 6.7%, its most significant intraday gain in nearly a year.
The broader global economic implications of this war remain to be seen. The annual meetings of the International Monetary Fund (IMF) and the World Bank are currently underway in Morocco, with the Israel-Palestine conflict's impact on the global economy being a focal point.
IMF Managing Director Kristalina Georgieva mentioned at the conference that the escalating Israel-Palestine conflict is casting a shadow over the global economic outlook. While she believes it's too early to assess its specific impact on the global economy, the IMF is "closely monitoring" the situation.
For Israel, this war will also bring significant losses.
According to a preliminary forecast by Israel's largest bank, Hapoalim, on Tuesday, the estimated cost of this conflict for the country will be at least 27 billion new shekels (approximately $6.8 billion). This includes the loss from the mobilization of 300,000 reservists, infrastructure recovery, rehabilitation of injured soldiers, and compensation for the families of fallen soldiers.
The bank's chief strategist, Modi Shafrir, stated that while it's challenging to predict the war's duration and trajectory, a rough estimate suggests the conflict could cost Israel at least 1.5% of its GDP. According to World Bank data, Israel's GDP was approximately $520 billion last year.
This forecast is partly based on the costs of Israel's previous wars. According to data from the Israel National Security Studies (INSS), the cost of the 34-day Second Lebanon War in 2006 was approximately 9.4 billion new shekels (about $2.4 billion), or 1.3% of GDP. At that time, parts of Israel were paralyzed due to rocket attacks. However, the relatively short duration of the war allowed for a swift economic recovery.
Shafrir noted that past experiences show that wars primarily impact GDP through private consumption and tourism. However, the large-scale mobilization of reservists and expectations that the current conflict could last several weeks suggest Israel may face more significant economic losses.
Before this escalation, Israel's economy was already grappling with challenges, including protests sparked by judicial reforms, a slowdown in high-tech investments, and rising inflation. Before the outbreak of the war, the Bank of Israel had projected growth rates of 3% for this and the next year, down from 6.5% last year.
On Tuesday, international rating agency Moody's indicated that this round of conflict might negatively impact Israel's credit rating, stating that "a prolonged conflict that significantly damages economic activity and policymaking will test the resilience of Israel's economy."
