Continued Economic Disruption Caused by the Israel-Hamas War 

Continued Economic Disruption Caused by the Israel-Hamas War 

Kaila Engle

Staff Writer

The current Israel-Hamas conflict has been going on for a little more than a year now, starting on October 7, 2023. This conflict has created significant uncertainty in global markets, resulting in volatile energy prices, particularly in the Middle East, a key oil and gas producer. S&P Global reports how heightened instability in such regions disrupts supply chains, especially in energy and commodities, and exacerbate inflationary pressures worldwide. Geopolitical tensions add to the economic strain caused by other challenges like inflation, pandemic recovery, and supply chain issues.

The conflict has led to substantial global economic uncertainty, especially regarding energy markets and geopolitical stability. According to Reuters, the violence has heightened tensions in the Middle East, raising concerns of disruptions to oil production.. This could significantly increase oil prices, further straining an already stressed global supply chain and contributing to inflation. The ripple effects of the situation are particularly concerning for emerging markets and economies reliant on energy imports. As the conflict continues, an increasing number of regional players are becoming involved. This situation could become problematic, particularly because the neighboring countries are significant contributors to the oil production industry. Specifically, Iran’s growing involvement in conflict after Israel’s attack on their forces at the end of October has caused Iranian leader Ayatollah Ali Khamenei to forewarn a retaliation attack on Israel. NBC News reports Khamenei threatened Zionist leaders directly, with no further information on the specifics of the attack to come other than it will be a “crushing response.” According to Reuters, Iran is an important oil-exporting country that is part of the Organization of Petroleum Exporting Countries (OPEC) and produces about 3.2 million barrels of oil a day, which correlates to 3 percent of the annual global output. Attacks on their infrastructure could disrupt the global flow of oil and rake up oil prices. 

In addition to the effects on the global economy, this conflict had a significant impact on Israel’s domestic economy. Al Jazeera reports that as the war drags on, key sectors such as tourism, retail, and manufacturing have been hit hard, with many businesses shutting down or reducing operations. It is also reported that the Bank of Israel approved 55 billion shekels, which converts into a $15 billion military budget for 2024, which will be instituted through more borrowing and government budget cuts, both of which will cause a strain on Israel’s economic stability. Al Jazeera adds that the conflict has cost Israel $269 million a day since it started. Such expensive spending and no end in sight for the conflict place significant strain on the Israeli economy. It is also noted that the war led to decreased consumer spending and lower productivity, particularly in areas near Gaza. Additional economic externalities include rising unemployment, especially in the south and border regions. 

Investor confidence has been affected, leading to increased volatility in the financial markets. Although Israel’s economy was experiencing growth prior to the war, the ongoing conflict has hindered its recovery, with analysts forecasting a lasting impact on growth.

NPR reports that this conflict has had a negative impact on Israel’s tech industry, which is a key driver of the country’s economy. The war has disrupted the operations of high-tech companies. Many workers in conflict zones are unable to commute, leading to the severe hampering of business activities. Israel’s startup ecosystem, which had been thriving, has faced challenges with funding as venture capital firms have become more cautious amidst the uncertainty. Additionally, there have been delays in product launches and international partnerships due to security concerns and logistical disruptions. The conflict has strained Israel’s workforce, with many highly skilled workers being called to reserve duty, further reducing productivity in the tech sector.

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