One Year Later: Understanding the Economic Impact of the Middle East Conflict

One Year Later: Understanding the Economic Impact of the Middle East Conflict

The conflict in the Middle East has worsened since a Hamas attack on Israel on October 7, 2023, causing serious economic problems in the region.

Israel’s Economy

The war has been expensive for Israel. The U.S. government approved at least $17.9 billion to help with Israel’s military operations and another $4.86 billion for American military efforts in the region. This includes fighting in Yemen.

Israel’s economy is also suffering. The high-tech sector, a key part of its economy, has been affected. In 2024, Israel’s economy grew only 0.7% in the second quarter. Predictions say GDP may grow by just 0.5% this year and 3.8% in 2025, which is lower than earlier forecasts.

However, S&P Global Ratings gives a worse outlook, expecting no growth in 2024 and only 2.2% in 2025. It has also lowered Israel’s credit rating due to economic risks.

The economy is struggling further because many reservists have been called to fight, leaving fewer workers for regular jobs, especially in construction.

The Shekel’s Decline

As the conflict continues, Israel’s currency, the shekel, has weakened. By October 27, 2023, it dropped 5.4% against the U.S. dollar, but it recovered slightly by October 10, 2024. The central bank has been selling foreign currency to support the shekel and keep the economy stable.

Rising Public Debt

The war has caused Israel’s debt to grow. Military spending and reservist salaries have put a strain on the national budget. By the end of 2024, the debt is expected to reach 68% of GDP, and 69% in 2025. If the conflict worsens, Israel may need to make budget changes to stay financially stable.

Impact on Palestinian Territories

The Palestinian areas, especially Gaza, have been hit very hard. Over 42,000 people have died, and Gaza’s economy has collapsed, shrinking by 86% in early 2024. Almost the entire population lives in poverty.

In the West Bank, the economy also shrank by 25% in early 2024 due to Israeli restrictions and violence. Overall, the Palestinian economy fell by 35% in that period.

Lebanon’s Struggles

The conflict has spread into southern Lebanon, where Israel has fought Hezbollah. Israeli airstrikes have caused many people to flee north, creating a housing crisis. Lebanon’s economy is barely growing, with GDP expected to increase by just 0.5% in 2024. The war has also hurt farming and tourism.

Impact on Global Markets

The conflict has affected the global economy, especially energy markets. The Middle East supplies 35% of the world’s oil and 14% of its gas. Combined with the ongoing war in Ukraine, the situation has led to unstable energy prices.

Outlook

If the war continues, the damage will get worse. Lebanon faces a humanitarian disaster, and the global economy remains uncertain. Peace is urgently needed to stop the suffering and help the region recover.