Israel’s economy, once hailed as a regional and global powerhouse, is confronting significant challenges as the ongoing war in Gaza enters its prolonged phase. At this point, even Israeli Prime Minister Benjamin Netanyahu understood that the state would directly have to adapt to a new, more austere economic reality. He stressed the importance of self-sufficiency as the world grows more disconnected. Right now, Israel is facing these very urgent challenges, as it grapples with the prospect of European embargoes from multiple countries. The spotlight on its arms trade is growing.
This has all played a key role in Israel history, in that the Israeli economy has largely been propped up by its high tech sector, helping Israel stay internationally competitive. The reality of the new, so-far limited conflict has raised doubts about whether this success can endure. People are demanding that we rethink economic approaches. Netanyahu emphasized the need for Israel to develop its weapons industry, stating, “We’ll need to develop our weapons industry – we’re going to be Athens and super Sparta combined.” This declaration marks a major tactical turn. It would make Israel less reliant on foreign arms imports – particularly as most of Israel’s weaponry is today sourced from the United States.
The economic consequences of the war on Gaza are now widely visible. It has become the longest and most expensive conflict in Israel’s history. Its influence is felt throughout the economy and society. Netanyahu warned that this situation threatens the nation with “the beginnings of economic sanctions and problems importing weapons and weapon parts.” Suffice it to say, his remarks intensify the imperative for Israel to transform its economic paradigm and achieve much greater self-sufficiency in defense production.
In the wake of all these changes, Finance Minister Bezalel Smotrich vowed Israelis can trust their Finance Ministry’s management of Israel’s economy amid all this chaos. He commended the resilience of the nation’s financial systems and pointed to the robust performance of Israel’s stock market, which Netanyahu described as “the strongest in the world.” This optimism contrasts sharply with criticisms from opposition leaders who argue that Israel’s current predicament stems from Netanyahu’s leadership.
Yair Lapid, a prominent opposition figure, stated, “Isolation is not fate; it is the result of Netanyahu’s flawed and failed policy.” His comments are not just offhand remarks, but rather a reflection of increasing concern among critics over the long-term viability of Israel’s diplomatic and economic strategies. Gadi Eisenkot echoed these sentiments, warning that there would be “no second chance to repair the damage caused by him and his partners who abandoned the hostages and isolated Israel in the world.”
At least as significant are the implications of a potential arms embargo. Crucial nations such as France, the Netherlands, the UK, Spain and Italy have already indicated they may impose arms embargoes on Israel. This dire circumstance is forcing Israel to quickly ramp up its domestic defense production. This change is intended to address and mitigate existing vulnerabilities. It further cements Israel’s regional role in a multipolar and increasingly hostile geopolitical environment.
As Israel continues to operate in this complicated regional landscape, Netanyahu’s far-right government seems wholly focused on creating an Israeli economy resilient enough to survive potential outside forces. The dominant pivot to self-sufficiency in defense and perhaps other sectors may reshape Israel’s economic landscape for decades.
