The cost to Israel’s economy of a potential war with Iran could reach as high as NIS 167 billion, according to an estimate by the Israeli business information group BDI-COFACE.
Direct costs stemming from state funding of the war effort and damage to civilian property and infrastructure would reach around NIS 47b. BDI forecasts a further NIS 24b. in annual losses over a three to five-year period immediately following the war, caused by a loss of foreign customers and the collapse of about 10 percent of new small businesses.
BDI made its calculations by extrapolating from the costs of the 2006 Second Lebanon War. That war lasted 34 days, reduced growth by 0.5% and imposed direct costs of NIS 8b. on the economy. The combined cost totaled 1.8% of Israel’s GDP at the time, which was NIS 633b.
Given that the GDP reached around NIS 870b. in 2011, it should be assumed that another war of the same scale and duration would cause around NIS 16b. in damage to the economy, BDI said. However, it pointed out that most of the damage from the Second Lebanon War occurred in northern Israel, which produces only 20% of GDP.
In the event of a war with Iran it is reasonable to assume the damage would also include the Center of the country, which produces about 70% of GDP, it said.
Treasury and Bank of Israel officials have thus far refused to speculate on how much the economy would suffer should war break out following a possible strike on Iran’s nuclear facilities, although both institutions are believed to be preparing for the worst-case scenario.
Bank of Israel Governor Stanley Fischer recently told Channel 2’s Ulpan Shishi program that the foremost responsibility of any country was the security of its citizens, adding that if there was a need to spend more on defense, “then that simply is what will have to be done.”
“Scenarios in which Israel faces all-out war would be very difficult to deal with,” Fischer said. “We are preparing to face a real crisis.”