First Gaza, now Iran: What two back-to-back wars will cost Israel

Israel’s prolonged military operations in Gaza and the recent escalation with Iran have plunged the country into the most expensive conflict period in its history.

The dual warfare fronts are not only costing billions in direct military spending, but they’re also dragging down economic productivity, straining state resources and triggering national concerns on long-term fiscal planning.

The cumulative cost of the Gaza war alone reached approximately 250 billion shekels (over $67.5 billion) by the end of 2024, according to a January report by Israeli business outlet Calcalist.

This figure accounts for military operations, civilian expenditures, and revenue losses, but still doesn’t capture the full scope of economic repercussions. Now, the confrontation with Iran has introduced new budgetary challenges — and the price tag is rising fast.

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How much is a war going to cost Israel?

Israel’s strikes against Iran and Tehran’s retaliation have added substantially to wartime expenditures.

A report by ynet news cited Brig. Gen. (res.) Re’em Aminach, a former financial adviser to the IDF Chief of Staff, who estimated that the first 48 hours of fighting cost about 5.5 billion shekels (roughly $1.45 billion), split evenly between offensive and defensive actions.

Israel’s attack alone is said to have cost around 2.25 billion shekels ($593 million). These are considered only direct military costs, with indirect economic damage yet to be measured.

Shachar Turjeman, president of the Federation of Israeli Chambers of Commerce, warned in a letter to Economy and Industry Minister Nir Barkat that business closures during the state of emergency could lead to massive layoffs, reported The Jerusalem Post.

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He urged the government to ease restrictions and enable businesses to reopen with safety protocols in place, stressing, “Allowing for economic activity in the market, including commerce, is necessary for the citizens, the workers, and the economy, as every day like this costs the economy a fortune and harms the business sector.”

Barkat responded by noting that he had met with business leaders to create joint solutions and highlighted the need to provide conditions that allow the economy “to continue to function even in an emergency.”

Meanwhile, according to an economist advising the government, just the direct cost of jet fuel and munitions involved in the campaign against Iran is estimated at around $300 million per day.

Other experts have calculated that the daily cost of the Iran war is closer to 2.75 billion shekels ($725 million).

How is Israel budgeting its wars?

The Israeli Finance Ministry set a deficit ceiling of 4.9 per cent of GDP for the fiscal year, equating to approximately 105 billion shekels ($27.6 billion). While the government had included an emergency reserve, much of it had already been depleted by the war in Gaza.

Despite a recent increase in projected tax revenues — from 517.1 billion to 538.6 billion shekels — the state’s 2025 growth forecast was revised downward from 4.3 per cent to 3.6 per cent, largely due to the continuation of reserve call-ups.

According to the Arab Center Washington DC, reservist mobilisation has been one of the war’s major financial drains. In the early stages of the Gaza war, the government recalled around 300,000 reservists.

The Israeli Ministry of Finance estimated that each day involving 100,000 reservists costs the state about 70 million shekels in wages, with actual total costs closer to 100 million shekels daily after including food and shelter.

Additionally, the loss of economic output from workers pulled out of the civilian workforce contributed to another estimated 100 million shekels in indirect costs per day.

The Israeli Tax Authority’s Compensation Fund disbursed 2.4 billion shekels from January through May 2025 to cover civilian property damage. Net withdrawals reached 3 billion shekels during this period.

Although these funds are not reflected in the official fiscal deficit due to controversial accounting methods, they are counted as public debt and contribute to the broader economic burden.

To accommodate the increased military demands, defence spending has soared. The Israeli Ministry of Defence’s 2023 budget stood at 60 billion shekels.

For 2024, it was raised to 99 billion, and 2025 projections suggest it could reach 118 billion shekels — nearly double the pre-war figure. Analysts expect the security budget to absorb around 7 per cent of GDP in 2024, a share second only to Ukraine globally.

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The sustained cost of warfare has led to heated discussions about redirecting revenues from natural gas resources — previously intended for healthcare and education — to military uses.

The Nagel Committee recently proposed an additional 275 billion shekels ($74 billion) in defence spending over the next decade, recommending yearly increases of 27.5 billion shekels ($7 billion).

This would support air defence systems like Iron Dome and new laser interceptors, along with building a fortified barrier along the Jordan Valley.

Internationally, the Israel-Iran conflict is also reverberating through energy markets. Iran, despite facing sanctions, continues to export oil extensively. Oil Minister Javad Owji said exports generated over $35 billion in 2023.

Reports by energy analysts indicate that from January to May 2024, Iran exported an average of 1.56 million barrels per day, largely to China — often using a “dark fleet” of sanctioned ships that disguise their cargo origins.

As tensions rise in the region, global concerns have grown over t he security of the Strait of Hormuz, a narrow but vital maritime chokepoint through which about one-third of the world’s seaborne oil supply travels — roughly 21 million barrels per day.

Any disruption here could send oil prices soaring, and Brent crude already rose to $74.60 per barrel early in the current crisis.

Critics of Israel’s war effort have described the expense as a “heavy burden” and put a spotlight on the structural shift underway in Israel’s budget — one that may sideline social services in favour of defence for years to come.

And as military operations continue on both fronts, there is still no firm estimate of the total indirect losses, including damage to GDP, business output and long-term economic momentum.

With inputs from agencies