Despite international calls for a ceasefire, Israel's military has intensified its assault on Gaza, now encircling Gaza City with combined ground, air, and naval forces. The financial strain of the war is becoming evident.
According to the local financial newspaper "Calcalist," Israel's military operations in Gaza are expected to cost $50 billion within a year, accounting for about 10% of the country's GDP. This estimate is based on the assumption that the conflict will last only about a year and that 350,000 reservists will be able to return to their jobs afterward. Given the uncertainties of the situation, Israel's Finance Ministry considers this estimate conservative.
Compared to other factors that have devastated the economy, recovery from armed conflict is expected to be slow. Israel's GDP fell by 2.2% in 2020 due to the COVID-19 pandemic. However, economic activities in various sectors bounced back quickly after the pandemic, with GDP growth exceeding 15% in both 2021 and 2022. The Finance Ministry warns that the conflict could cause economic risks to soar, with a severe recession possible as early as 2024.
The current economic outlook for Israel is grim, with the local currency Shekel hitting a 14-year low and the benchmark stock index falling by about 10%. The tech industry, a key pillar of Israel's economic growth, had already begun to slide before the conflict. The Bank of Israel has revised its GDP growth forecast for 2023 down from 3% to 2.3%. Credit rating agencies Fitch, Moody's, and Standard & Poor's have warned that an escalation of the conflict could lead to a downgrade of Israel's sovereign debt rating.
Due to the financial pressures of the conflict, Israel requested $10 billion in emergency military aid from the U.S. in October. Since World War II, the U.S. has provided Israel with over $260 billion in military and economic aid, including nearly $10 billion for missile defense systems like the Iron Dome.
The U.S. House of Representatives passed a nearly $14.3 billion aid package for Israel on November 2. The plan includes provisions for weapons aid to help Israel eliminate Hamas. The new Speaker, Republican Johnson, has indicated that cuts to other government spending will be made to support this expenditure.
However, President Biden has said he will veto the bill since it falls short of the $106 billion he requested and does not include aid for other U.S. allies. The Biden administration views the bill as a political trap that deepens the divide between the two parties.
Last month, the Biden administration sought $106 billion from Congress to provide military support to allies like Israel and Ukraine, with $61.4 billion for Ukraine, $14.3 billion for Israel, and $9.15 billion for humanitarian aid in Gaza.
Within the Democratic Party, many younger members have shown more sympathy for the Palestinians, and the Biden administration must balance aid to Israel with humanitarian assistance to Gaza. A February poll showed that only 38% of Democrats support Israel, while 49% support the Palestinians.
Republicans, on the other hand, tend to prioritize domestic issues. Some far-right Republicans oppose U.S. aid to Ukraine. House Armed Services Committee member Pat Ryan said the House Republican leadership supports the MAGA movement and believes that the immigration issue at the U.S.-Mexico border should be addressed first. Congressman Matt Gaetz and his team have publicly committed to opposing any financial aid to Ukraine.
Before becoming Speaker, Johnson had voted multiple times against aid to Ukraine. Unlike Biden, who combines aid to Ukraine with aid to Israel, Johnson plans to propose a bill that ties funding for Ukraine to funds for strengthening U.S.-Mexico border security.
Since the Russia-Ukraine conflict began last year, the U.S. has provided Ukraine with over $60 billion in financial and military assistance. Trump, a leading candidate for the Republican presidential nomination, has sharply criticized U.S. support for Ukraine, arguing that the U.S. should be responsible for the Russia-Ukraine conflict.
Trump also claimed that if elected president, he could end the conflict between Russia and Ukraine within 24 hours. Ukrainian President Zelensky, in an interview with U.S. media on November 5, called for more aid to Ukraine and invited Trump to visit the conflict zone.
