August 5, 2024 - 2:30pm
Often described as a start-up nation and a powerhouse of innovation, it is hard to deny that Israel has created the most potent high-tech economy in the Middle East. While many of its neighbours depend on exporting fossil fuels, over 40% of Israel’s exports are in the technology sector. Yet news that the country’s stocks are falling sharply, in response both to wider market movements and the threat from Iran following a build-up of regional tension, is proof that its economy is far from invulnerable.
Clearly, the ongoing military conflict in the Gaza strip, a brewing proxy war with Iran, and heightened tensions on the Lebanese border are starting to take their toll. Israel’s economy shrank by almost 20% in the fourth quarter of 2023, and this was before the gathering signs of a general global economic downturn, which has itself been accelerated by the growing likelihood of a broader war in the Middle East.
The war also contributes to rising pressures on inflation, which is expected to hit a 14-year high later in 2024, with a rate of 4.5%. Although the central bank has done a good job keeping inflation under control, it also does not have a lot of wiggle room for potential rate cuts, holding back spending and investment.
It is understandable that future investments are being re-evaluated, since it is not clear in which direction the current conflict will develop. In April it appeared as though concerns regarding a wider conflict in the region were receding, but since last week the opposite has happened.
While Israel’s decision to assassinate a major Hamas figure in Tehran was evidence of the lethality of Jerusalem’s security apparatus, this will most likely force Iran to react more aggressively than it did earlier this year. Attacking Iranian installations in Syria is one thing, but killing a guest in the regime’s capital is an altogether more serious escalation. No member of the Iranian leadership will feel safe anymore, and fear can replace rationality very quickly. There is a growing concern that the powers involved are slipping into a 1914-style scenario, where a series of escalatory steps cause a broader war which spirals out of control.
It is therefore no surprise that markets appear to be reacting more nervously than they did earlier in the Middle Eastern conflict, as a broader war seems increasingly likely. This can also be seen in the unbroken threat posed by the Houthis in the Red Sea. A ragtag army out of Yemen should not be able to hold significant sections of global supply chains hostage yet, in the absence of any tangible strategy from their opponents, they have done just that.
These are red lights flashing for the world economy, since expectations are shifting. Originally, it was assumed that the world is fundamentally ordered, albeit with areas of chaos which can be managed. Now, this appears to have been replaced with the assumption that the world is a chaotic place with small areas of order. In such a world, risk premiums will be ever higher, and economic growth ever lower.
Ralph Schoellhammer is assistant professor of International Relations at Webster University, Vienna.
Raphfel
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SubscribeIsrael’s army is a militia force – in a militia force, the soldiers are pulled away from their civilian jobs to fill the ranks of the fighting forces. They are consequently not available to the economy to generate GNP, and they don’t earn salaries to pay taxes – and the State has to pay for their upkeep during the call-up. It’s a triple-whammy on the economy.
For a short time, an economy can weather such a hit. But not for long.
“Attacking Iranian installations in Syria is one thing…”
It blurs context to not make clear that Iran specifically reacted to the bombing of its consulate in Damascus. Without distinction, the article’s writer lumps a formal diplomatic institution with the provocative term “installations.”
Whatever you think of Iran’s government, by long convention consulates are considered sacrosanct, if only for the obvious reason that violating this principle opens up the consulates of any country to attack, which undermines a critical apparatus of international relations.
It wasn’t a consulate, it was a military building where the Iranian Revolutionary Guard Corps – designated as a terrorist organization by Bahrain, Canada, Saudi Arabia, Sweden and the United States – was meeting with the heads of Hezbollah – a Jihadi Paramilitary group – to discuss how best to the destroy a democratic country.
Last time I checked, not taking civilians hostage was considered sacrosanct, as was fighting in uniform & not using hospitals, schools & places of worship as military bases etc etc.
That’s before we even get into the question of the IRCG’s legitimacy as representative of Iran the country. eg:
https://youtu.be/L0dkCsSwa0gsi=dz7ZEqJNI1Fjx2ug
& https://youtu.be/Ujt3St6coNM?si=rv_1Wqbq054L5v54
Finally, the Islamic Republic + Hezbollah were recently found guilty by Argentina’s highest criminal court for the deadly 1992 attack on Israel’s embassy in Buenos Aires and the 1994 attack on AMIA Jewish community center, which killed more than 100 people. The court declared Iran a “terrorist state.”
Refocusing on the actual subject of my reply, which was the nature of the target building, there is no doubt that it was formally recognized as part of Iran’s consulate. And it’s not uncommon for military or intelligence agency representatives to visit their own consulates and hold meetings in them. One may not like what those representatives may be talking about, but it doesn’t change the convention against attacking embassies, which exists for the reason given.
This may be part of the Iranian strategy. Keep the war or wars going to keep the reservists away from their business and work to shrink or tank the Israeli economy. Iran does not care about its people, or its proxies people, and is very willing to sacrifice large numbers of Gazans, Lebanese, Palestinians, Houthis, and naturally Iranians.
Actually it fits Netanyahu’s strategy: prevent a ceasefire by killing the principal interlocutor.
Hamas has repeatedly rejected ceasefires based on the return of Israeli civilian hostages. What are you smoking?
Rather than it being the Iranian strategy, it is the Israeli strategy to keep the wars going, and it seems as if war with Iran has been Israel’s ultimate goal, with the belief that the US will continue to support whatever Netanyahu and the Israeli government choose to do. And why wouldn’t they be convinced of that? Because the US president has continue to warn, but no consequences ever follow the red line being crossed.
Who or what is ‘Iran’ in your expert opinion? I don’t think it’s the same entity as actual Iranians believe it is. Iranians like Masih Alinejad
Elica le Bon https://youtu.be/L0dkCsSwa0g?si=dz7ZEqJNI1Fjx2ug
Mahyar Tousi
& the son of the former Shah:
https://youtu.be/Ujt3St6coNM?si=-nNG4euho2MvUOlC
I think that’s essentially correct, Marianna. Regardless, responses to any criticism of Israeli aggression, even mild ones, are always followed by knee-jerk insinuation or accusation that the critic is therefore pro- Iranian (or whatever target) and/or anti-Semitic.
Whether such reflexive responses are knowingly disingenuous or symptoms of indoctrination, the goal is the same, to stifle criticism of Israel. Excluding it from criticism runs counter to the goals of justice and lasting peace in the region.
Absolutely correct.
The downvoters need to listen to some actual Iranian people & stop listening to MSM propaganda.
This is how Israel will lose
They won’t lose a war with Iran or Syria or Hezbollah
In the end people will just leave Israel
Does it matter how much pressure the economy is under as long as the US continues to pour billions into a tiny country that controls the US? An extraordinary situation.
Pure antisemitic misinformation. Israel does not in any way control the US. I suggest you get back to your tinfoil bunker & copy of the Elders of Zion.
In fact, a country’s economy typically undergoes a downturn during time of war. This author is stating quite an obvious point, one which I did not need him to say to both know and understand the economic impacts of war. This is true for any country, and Israel is unfortunately not immune from this.