Yves here. The text of a tweet from Thomas Keith (if you have a Twitter account, please follow him!) summarizes estimates of the many substantial hard dollar costs Israel incurred in its Iran misadventure, also with economic losses that have a much longer tail, such as the loss of venture capital, since no investor with an operating brain cell wants to operate out of a conflict zone. As most readers know, a significant majority of experts and other commentators see the cessation of hostilities as temporary and expect more kinetic action, as in more destruction.
We said at the outset that Israel has a glass jaw. It’s never been on the receiving end of the punishment it has been casually handing out for decades. As Alastair Crooke said after the October 7 attack, the raison d’etre for Israel was to be a safe haven for Jews. That belief was damaged then and not it has been smashed to bits.
Official tallies seem modest compared to the Keith’s list:
Israel estimates indicate that the cost may rise to $20 billion, with damage affecting the economy, society, and strategic infrastructure.
The Compensation Fund of the Israeli Tax Authority stated that it had received around 39,000 claims for direct material damage resulting…
— Elijah J. Magnier 🇪🇺 (@ejmalrai) June 26, 2025
Two days earlier, the Times of Israel estimated the damage at a paltry $1.5 billion, only twice the level of damage inflicted in the Hamas attacks. For reference, Israel’s GDP is $513 billion.
Note that even though the list below is extensive and specific, there are further costs it omits, in part because they can’t yet be reasonably estimated:
1. The severe economic downdraft as more Israelis flee if and when the country is opened up again, particularly the high-skilled ones on whom the economy depends. We covered that vulnerability at length in a June 2024 post, Israel Economy Bleeding Out as Damage Compounds. Note in particular that it cited an Israeli economist who says the country depends on a mere 300,000 professionals1
2. The loss of more IDF soldiers, which Israel has yet to admit to.
3. The cost of the damage to ports, which goes beyond the cost of repairing infrastructure to the loss of shipments, which could be protracted if insurers are leery
4. The odds that the BDS movement will gain more steam as Israel kept up its genocide even during the Iran conflict. From Aljazeera:
Since Israel began attacking Iran on June 13, global attention on the plight of Palestinians in the occupied territory has faded from the headlines.
But Israel has continued to attack Palestinians in Gaza, while conducting deadly raids in the West Bank…
“Israel is using the diverted attention away from Gaza to continue to carry out atrocious crimes against starving civilians,” said Omar Rahman, an expert on Israel and Palestine for the Middle East Council on Global Affairs think tank.
“We have also seen a lot of military and settler activity in the West Bank in recent days,” he told Al Jazeera.
Israel’s violence against helpless Palestinians at the GHF site on Tuesday resulted in the highest single death toll at any GHF site since the controversial organisation began operations last month. It has been lambasted for what opponents have called the militarisation of humanitarian aid relief.
Readers can add to this and Thomas Keith’s list; full text below the embed:
Israel entered the 12-day exchange convinced it could absorb costs; the ledger now shows a nation bleeding cash, talent, and confidence. Direct military outlays hit $5 B in the first week, then ballooned to $725 M every 24 hours, $593 M on offensive strikes that failed to silence…
— Thomas Keith (@iwasnevrhere_) June 25, 2025
Israel entered the 12-day exchange convinced it could absorb costs; the ledger now shows a nation bleeding cash, talent, and confidence. Direct military outlays hit $5 B in the first week, then ballooned to $725 M every 24 hours, $593 M on offensive strikes that failed to silence Iran, $132 M on frantic mobilisation and missile intercepts that still let 400 warheads through. Iron Dome batteries alone inhaled $10 M to $200 M per day while Iranian salvos sailed past them and erased $1.47 B in civilian property, triggering 38 700 damage claims, 11 000 evacuations, and 30 condemned high-rise skeletons across Tel Aviv’s financial spine.
The Weizmann Institute, Israel’s prestige export, lies in shards, 45 labs gone and $500 M in biomedical IP incinerated, pulling decades of grant pipelines and pharma partnerships off the table overnight. Intel’s Kiryat Gat fabs froze mid-wafer, choking a supply chain that feeds 64 % of Israel’s exports and 1/5 of its GDP; the high-tech sector now runs on skeleton crews because 300 000 reservists were yanked from R&D floors and data centers to guard empty runways at Tel Nof. Commercial flights halted twice at Ben Gurion, insurers jacked premiums, and foreign airlines rerouted around a country that once sold itself as the region’s safe hub.
Capital is already in flight. More than 80 000 Israelis emigrated in 2024, the largest outflow since 1948, pushing the two-year total above 500 000 and forcing Netanyahu’s cabinet to slap a travel ban on Jewish dual nationals to stem the leak. Investor confidence cratered: venture funds paused term sheets, construction sites stand idle, and mega-projects wait on credit that no longer clears. The finance ministry, staring at a deficit set to shove public debt past 75 % of GDP, begged for an extra $857 M in defence cash while slicing $200 M from hospitals and schools.
Analysts peg Israel’s aggregate loss between $11.5 B and $17.8 B, up to 3.3 % of GDP, before counting long-tail hits from halted exports, cancelled IPOs, and sovereign-risk downgrades. Iran, still sitting on its uranium stockpile, spent a fraction of that yet forced the self-styled “Start-Up Nation” into a liquidity scramble, an insurance panic, and a brain-drain spiral. Tel Aviv promised deterrence; Tehran handed it a balance sheet in red ink and the visible stamp of strategic humiliation.
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1
It’s not clear how much depth and resilience Israel’s economy (and society) have. Some on the anti-war right assert that Israel is a fake economy, more an imperial outpost than a reasonably self-supporting country. This is a topic I’d like to examine further but lack the bandwidth at this juncture. Any reader data points (better yet data sources) are very much welcome.
On the surface, Israel’s import and export statistics don’t indicate much US dependence…
To flip the question: what becomes of Israel if it continues to suffer an exodus, particularly of highly skilled, highly mobile professionals and experts? Many argue that the US and wealthy Zionists can continue to prop Israel up on an open-ended basis. But what if enough “talent” leaves and businesses shutter so that the support goes into what increasingly looks like a welfare queen? And how does a state that has become that much of a dependency defend itself in a neighborhood that it has united against it?
Now to some of the highlights from the important Mondoweiss story, which I encourage you to read in full. Critically, it describes severe, potentially irreparable damage all across the economy:
The economic indicators speak of nothing less than an economic catastrophe. Over 46,000 businesses have gone bankrupt, tourism has stopped, Israel’s credit rating was lowered, Israeli bonds are sold at the prices of almost “junk bonds” levels, and the foreign investments that have already dropped by 60% in the first quarter of 2023 (as a result of the policies of Israel’s far-right government before October 7) show no prospects of recovery. The majority of the money invested in Israeli investment funds was diverted to investments abroad because Israelis do not want their own pension funds and insurance funds or their own savings to be tied to the fate of the State of Israel. This has caused a surprising stability in the Israeli stock market because funds invested in foreign stocks and bonds generated profit in foreign currency, which was multiplied by the rise in the exchange rate between foreign currencies and the Israeli Shekel. But then Intel scuttled a $25 billion investment plan in Israel, the biggest BDS victory ever.
The crisis strikes deeper at the means of production of the Israeli economy.
These are all financial indicators. But the crisis strikes deeper at the means of production of the Israeli economy. Israel’s power grid, which has largely switched to natural gas, still depends on coal to supply demand. The biggest supplier of coal to Israel is Colombia, which announced that it would suspend coal shipments to Israel as long as the genocide was ongoing. After Colombia, the next two biggest suppliers are South Africa and Russia. Without reliable and continuous electricity, Israel will no longer be able to pretend to be a developed economy. Server farms do not work without 24-hour power, and no one knows how many blackouts the Israeli high-tech sector could potentially survive. International tech companies have already started closing their branches in Israel.An aside: the loss of Colombia’s coal supplies clearly would have a serious impact, if nothing else on prices as Israel scrambles for substitute sources. Whether the result is Ukraine-style daily outages has yet to be seen, but if so, for an advanced economy, the impact would be devastating. These are the top coal exporters in 2023, per Tradeimex Solutions, so Israel is not bereft of alternatives.
But how quickly can it line up replacement supply agreements? And to what extent would these new shipments be vulnerable to Houthi attacks?
The flip side is this section may somewhat understate the deteriorating condition of Israel’s businesses. In a July story, the Cradle cites CEO of Israeli information services and credit risk management firm, CofaceBdi, who said 60,000 businesses are expected to have closed by year end 2024. The tweeted video below claims (without sourcing, but its other stats echo those from mainstream accounts) that 50% of startups are on track to closing within six months:
Israel’s Economy is falling apart from so many angles pic.twitter.com/2iPeLPipyB
— Gaza Under Attack_🇵🇸 (@Palestine001_) July 17, 2024
Back to Mondoweiss:
Israel’s reputation as a “startup nation” depends on its tech sector, which in turn depends on highly educated employees. Israeli academics report that joint research with universities abroad has declined sharply thanks to the efforts of student encampments. Israeli newspapers are full of articles about the exodus of educated Israelis. Prof. Dan Ben David, a famous economist, argued that the Israeli economy is held together by 300,000 people (the senior staff in universities, tech companies, and hospitals). Once a significant portion of these people leaves, he says, “We won’t become a third world country, we just won’t be anymore.”…
The two sectors of the Israeli economy that do not report a crash are the arms companies, which are reporting high sales (although most of them are domestic, arming the genocide), and the “exits” — as international corporations scavenge the carcasses of Israel’s tech sector looking for bargains. Even Google expressed interest in buying the Israeli cyber security company Wiz, founded by Israeli intelligence officers who are eager to sell their company to Google in order to be able to leave Israel…
In the age of the information economy, the economic prospects of states are neither determined by raw materials nor the quality of the workforce. Instead, we live in an era of an “economy of expectations.” The hype of Israel’s “startup nation” has turned into a #Shutdownnation. Two senior Israeli economists, Jugene Kendel and Ron Tzur, published a secret report in which they predict that Israel will not survive to its 100th year. The report is kept secret because they do not want it to become a self-fulfilling prophecy, but they gave interviews about it.
I’ve started watching the latest Danny Haiphong / Brian Berletic discussion. The latter makes the point that economic damage to Israel doesn’t matter, as the USA will just foot the bill. I think that’s probably true for the most part, but some things are harder to replace, for example the years of work invested into the labs of the Weizmann Institute, and possibly the personnel. They will likely also have a hard time recruiting foreign talent.
This is Berletic not understanding how economies or complex organizations work. The same way America can’t magic an industrial and weapons-building capacity into existence, even with money, destroyed businesses, institutions, and departed key professional and administrators can’t be replaced easily, if at all.
They can be forced to stay, or sent back. The USSR operated in this way for decades.
Israel has already barred its citizens from fleeing by air. I think exit visas are on the cards, especially for eastern european immigrants.
No first-world western nation can survive an atttritional war against a peer, barring massive social coercion (coming soon to Israel) or social unity (2023-25 Russia)
amazing that ~15 years ago, the “intelligensia” was harping about “anti-fragility”…..then Taleb’s book tour ended and the hive moved onto the newest TedTalk mind-viirus.
in Israel during the early 1980s inflation rates rose to over 100% for multiple years, climbing to 430% in 1985. At its extreme, this is known as hyperinflation
https://hbr.org/2022/11/3-lessons-from-hyperinflationary-periods
~~~~~~~~~~~~~~~~~~~
Those countries that have experienced hyperinflation, are more likely to have it happen again, for what its worth.
Periods of hyperinflation not always, but frequently, occur in countries just after they lost a war, explained by the massive loss of productive capacity combined with the high spending and financing needs of the government: Austria, Germany, Hungary, Poland, Russia after WWI; Hungary after WWII; China in 1945-1949; Yugoslavia during its breakup 1992-1994.
Perhaps Israel, as you surmise, will join that list.
All of the South American countries hyperinflated without a shot being fired against a foe in the 1980’s, but yes war helps, it’s why the USA did it twice.
So war, or being run by kleptocrats. Not a good sign for Israel, or the US.
Comeuppance see me sometime.
This is a helluva report. Glass jaw indeed. I was reading about the damage that both Israel and Iran received and Israel came out far worse simply because they had no depth. Iran has about half a dozen major ports and Israel has only two. Iran shut down Haifa and pretty soon the other would have been shut down as well. Israel only has one international airport while Iran has several. And like their ports, they were operating during this war. But reading everything in this post, Israel is suffering a death by a thousand cuts. Some things will never be repaired in Israel no matter how much money they throw at it – assuming that they even have the money. Who wants to build big industrial concerns there if one day it may get hit with an Iranian ballistic missiles. It would be better to build in a safer country – like the Sudan. Said in a comment yesterday that this war will be seen as the high tide mark of Israel dominance and will double down on it. But I really do not know how they will cope with learning that they are no longer a safe country anymore free to rampage their way across the region. Will their hubris let them?
I’ve been wondering how long before the Israelis come to the U.S. seeking a bailout in the $20-$100 billion range. I’m sure Congress and Trump will be happy to oblige.
That won’t fix it. Israel lacks strategic depth, and it won’t take much to get Iran back to pounding it with ballistic missiles. No one is going to invest capital to build a target on a target range, and no capital –} no talent seeking opportunities. On top of rendering Israel un-investable, there is the old problem of something like 40% of the population being Ultra-Orthodox, dependent on state aid to survive, unwilling to serve in the IDF and wanting to impose strict Jewish law on their secular brothers and sisters (who are subsidizing them and actually serving). On the international front, Gaza is becoming a millstone around the neck dragging them to the bottom of the ocean. One good exogenous shock at this point and it all falls apart.
Really nice. This should become the accepted phraseology when talking about israel.
It’s also worth pointing out Iran was actually very kind in its targeting, and could have easily reduced Israel to the stone age by taking out, say, it’s few remaining desalinization plants and it’s power grid. And human casualties seem to have been extremely light, either by design or by good luck.
Nevertheless, the reputational damage to Israel is of course going to be devastating since it has traded on its invulnerability almost since its creation in 1948. The country is weak, population is fleeing, it’s finances are in tatters, and of course it’s government leaders have long stopped being even slightly sane. This kind of damage is going to take generations to repair, if ever.
“there is the old problem of something like 40% of the population being Ultra-Orthodox”
That many?
I know this is Wikipedia with all the necessary precautions, but the page on religion in Israel states:
“Ultra-Orthodox sector is relatively young and numbered in 2020 more than 1,1 million (14 percent of total population).”
The other page on Haredi Judaism put their numbers at 1’334’909 in 2023, and 1’392’469 in 2024. Given a total population in 2023 of 9’795’000 that gives 13.6% of the total Israeli population, or 18.6% of the total Jewish population of Israel.
I do not put in question the influence of the ultra-orthodox Jews, but I doubt that their proportion of the Israeli population has been multiplied by 2.15 to 2.94 in 2 years.
In six weeks to six months Iran will have a few nuclear armed IRBM. Then the Ayatollah be like Kim Jung Un
Note both Japan and South Korea ignored Trump’s Brussels “Daddy” moment. The “first island” chain is neutral at best wrt US NATO ambition in west Pacific.
There’s financial cost and then there’s reputational cost. I think the reputational cost to Isr within the US has been very large, particularly among the under-50’s. / my 2 cents
BTW I am in love with the lady in the BDS post you have up here. This is the kind of take-no-prisoners attitude and confidence that we saw on the left in the 60s and 70s in the US, and I have been sorely missing it ever since.
Hopefully I have just been missing it. Would everyone please turn the volume way up and keep it going? We need all we can get and then some.
It will be interesting to see just how much damage the Iranian missle campaign did now that the media blanket has been lifted.
I do agree that the bigger problem is lost of investor confidence to build anything new and the brain drain.
Yves, thank you, thank you, thank you for keeping on top of this vital and rapidly evolving issue. There is a plethora of stupid coverage and it’s almost worse than nothing in our information system right now as a result. You are doing your usual amazing work of ferreting out the good shit and bringing it into the light of day.
It’s to your credit that despite war and death being somewhat off topic for a financial blog (!), you have nevertheless centered much of your work on the various wars for the last several years. This is the kind of agility and freedom from dogmatism that I think most of us love about the non-profit press, and dare I say it, naked capitalism in particular.
Bless you.
Yes, it has the feel of the aftermath of a big earthquake and more temblors might be on the way, no hurry to rebuild.
Fascinating. Of course our mainstream media has censored any consideration, let alone analysis of Israel’s economic situation.
Even if the recent costs are $15bn, that is a relatively small % with a GDP of $500bn. However…….
The US donates military assistance of $3.8bn pa already plus a widely reported $9bn and $5bn of US debt since October 2023.
Yet one source (Watson Institute at Browns) suggests US spending is as high as $23bn – of which $17.9bn is “security assistance” up to the end of September 2024, and June 2025 will have a huge additional impact.
The question is how much of the US bankrolling is aid and how much is as loans or bonds ?
Does the abolition of USAID affect this ?
Will dollar/shekel exchange rates worsen or improve the Israeli debt position ?
As the costs will be mostly in US$, so international debt in the global reserve currency, then Israel cannot simply issue its own new fiat money to cover these sums, so will need very considerable external support.
Loss of future Israeli GDP must include a crash in tourism; lower industrial growth outside the military sector; high tech enterprises etc; – surely enough to create a longer term depression, though possibly there will be some growth offsets against rebuilding costs and defence industry expansion.
Emigration from Israel is another negative with unknown effects.
Longer term impacts will be at the very least debilitating.
From where future foreign investment will come is an open question..
Israel evidently needed the ‘ceasefire’ as much or more than the Iranians.
Just hope there is a positive knock on effect for the poor Palestinians in Gaza.
One wonders how long Israeli voters can keep voting for national suicide based on ancient mythological stories. I guess US voters have followed the same self-destructive path, thanks to both parties serving the plutocrats while they spin different fictions about caring for the “middle class”. Unlike recent immigrants, the sabra in Israel and the Joe Sixpack Americans would both find it too painful to pull up stakes and emigrate somewhere else, so you would think at some point they would get serious about ousting their murderous leaders and putting somebody sane in charge. But it doesn’t look like “democracy” is the way to do it, since that has been effectively neutered as a way of changing anything substantive. I think JFK had something to say about where that kind of situation leads.
Finally, an uplifting bit of news about Israel. I hope they manage to stay on trend until its obvious end point.
And that the nukes get dismantled, never to be heard of again.
Speaking of Mondoweiss the man himself has an article out today.
https://mondoweiss.net/2025/06/the-iran-crisis-and-the-crisis-of-jewish-identity/
The ideas I stated above used to be marginalized. The only positive outcome of the unlawful aggression that is causing immeasurable suffering in the Middle East is the effect on the U.S. discourse. Israel is today hated inside the Democratic Party, for ample reasons. Zohran Mamdani is rising in the New York City mayoral race, in part because progressives are rewarding his refusal to truckle to Israel. New York Magazine’s unprecedented cover story calling out the Democratic Party’s complicity in the destruction of humanitarian law (written by Suzy Hansen) is further proof.
and
This is a vulnerable time for American Jews, as Zohran Mamdani says. Overwhelmingly, our community is identified with a brutal aggressor. Zionist identity politics are the work of generations of Jewish leaders building an alliance between Jews here and in Israel. Myself, I have always opposed the conflation of Judaism and Zionism, and I cared more about actual American bombs falling on civilians than Jewish fears, yet I must also acknowledge the real bases for Jewish anxiety, in light of the violent attacks on Jews in Colorado and D.C.
and finally
I single out Jews because I’m Jewish, and the Jewish community was my first home. I single out Jews because we have a greater influence over the politics of the Middle East than other American communities. And it is clear that the Jewish discourse needs a revolution — and so does the American discourse.
What he doesn’t add is that the mostly non Jewish Trumpies have hijacked Zionism to go after the left and other groups they dont like. It has become the new McCarthyism even as good Dem George Clooney ends his Good Night and Good Luck (available on Youtube) on B’way. And so, apologists for genocide, “at long last have you no decency?” Events are not repeating but rhyming.
Israeli propaganda is full volume to imply Israel is safe from Iranian missile attack.
IDF is claiming it successfully destroyed hundreds of Transport Erector Launchers with infiltrators. The teams either used laser designation to line of sight aircraft or ATGM like the TEL was an apartment building with an atomic scientist.
If this were a thing missiles would have stopped and IDF would be fighting now!
It does give Iran a risk aversion plan for their TELs and borders.