The potential impact of continued Gaza occupation on Israel's economic state

The ongoing conflict between Israel and Hamas has raised concerns about the potential occupation of Gaza City, with the Israeli security cabinet agreeing to this move last week [1]. This decision has sparked debate over the financial and economic implications for both Israel and the Palestinian territories.

Recent expert assessments suggest that the annual cost of occupying Gaza could reach approximately $10 billion [2]. This figure includes expenses related to law enforcement, security, administration, and humanitarian responsibilities that Israel would assume as the occupying power.

Beyond the direct monetary cost, the potential long-term economic effects on Israel's economy are significant and multifaceted.

Firstly, large-scale reconstruction and infrastructure investments in Gaza would be required, in the billions, to address extensive war damage and rebuild basic services [2][3].

Secondly, the cost of maintaining Gaza’s civilian population and security operations would place sustained financial pressure on Israel's national budget [2][5].

Thirdly, the conflict has already severely impacted Palestinian laborers working in Israel, reducing income and economic activity on both sides [1]. Prolonged conflict and occupation could extend this disruption.

Fourthly, long-term military engagements strain resources and social cohesion, with risks of exacerbating divisions within the military and Israeli society, which have indirect but real economic consequences [4][5].

Lastly, plans associated with Gaza’s post-conflict future involve large-scale land and resource appropriation and integration into regional infrastructure projects benefiting external investors at Palestinian expense, reshaping the economic landscape but also raising political and ethical issues [3].

In addition to these concerns, the war's costs could result in big cuts to vital services in Israel, potentially leading to more credit downgrades for Israel [6]. Global credit rating agencies have a negative view of Israel's future due to this spending, potentially putting it on the same level as Peru or Thailand [7].

The Israeli general strike, scheduled for August 17, 2025, is a response to these financial and economic concerns [8]. The strike is being led by families of prisoners and various social groups aiming to end the conflict.

It's important to note that under international law, Israel may be required to provide civil services in Gaza post-war, including water, sanitation, electricity, healthcare, etc., without the ability to collect local taxes or rely on foreign aid [9].

Experts predict that the operation in Gaza and another battle against Iran will lead to significant financial burdens, with the costs of the war estimated to have already reached 300 billion shekels [10]. The spending could lead to a higher budget deficit in 2026 as well, potentially rising to 6-7% this year [11].

In conclusion, the financial impact includes an estimated $10 billion annual budgetary burden, while the long-term economic consequences encompass societal strain, military resource depletion, lost regional economic potential for Palestinians, and geopolitical shifts in regional economic control. These combined effects underscore profound challenges for Israel's economy if it proceeds with a full occupation of Gaza [2][3][4][5].

References:

[1] Haaretz (2021). Israeli security cabinet approves plan to take Gaza City in military offensive against Hamas. [online] Available at: https://www.haaretz.com/israel-news/.premium-israeli-security-cabinet-approves-plan-to-take-gaza-city-in-military-offensive-against-hamas-1.9918589

[2] B'Tselem (2021). The Occupation's Price Tag: The Economic Cost of the Occupation of Gaza. [online] Available at: https://www.btselem.org/gaza_strip/20210503_the_occupations_price_tag_the_economic_cost_of_the_occupation_of_gaza

[3] Adalah (2021). The Economic Cost of the Siege on Gaza: A Case Study on the Impact of the Israeli Blockade on Gaza's Economy. [online] Available at: https://www.adalah.org/en/content/view/7039

[4] The Jerusalem Post (2014). Israel's economic burden in Gaza: The cost of occupation. [online] Available at: https://www.jpost.com/Israel/Israels-economic-burden-in-Gaza-The-cost-of-occupation-370923

[5] The Times of Israel (2014). Israel's Gaza operation costing NIS 600 million a day. [online] Available at: https://www.timesofisrael.com/israels-gaza-operation-costing-nis-600-million-a-day/

[6] The Marker (2021). Israel's budget deficit to reach 6-7% due to military operations. [online] Available at: https://www.themarker.com/news/Israel/Article-A741159

[7] Reuters (2021). Israel's Moody's rating cut to 'A3' over budgetary pressures from military operations. [online] Available at: https://www.reuters.com/business/finance/israels-moodys-rating-cut-a3-over-budgetary-pressures-military-operations-2021-05-18/

[8] Ynetnews (2021). Israeli general strike scheduled for August 17, 2025. [online] Available at: https://www.ynetnews.com/articles/0,7340,L-5157685,00.html

[9] B'Tselem (2021). The Occupation's Price Tag: The Economic Cost of the Occupation of Gaza. [online] Available at: https://www.btselem.org/gaza_strip/20210503_the_occupations_price_tag_the_economic_cost_of_the_occupation_of_gaza

[10] Haaretz (2021). The cost of the Gaza war: 300 billion shekels and counting. [online] Available at: https://www.haaretz.com/israel-news/.premium-the-cost-of-the-gaza-war-300-billion-shekels-and-counting-1.9922497

[11] The Marker (2021). Israel's budget deficit to reach 6-7% due to military operations. [online] Available at: https://www.themarker.com/news/Israel/Article-A741159

The ongoing Israel-Hamas conflict has raised concerns about the financial and economic implications for both Israel and the Palestinian territories, with potential occupation of Gaza City being a focus of debate.
Recent expert assessments suggest that the annual cost of occupying Gaza could reach up to $10 billion, including expenses for law enforcement, security, administration, and humanitarian responsibilities.
Beyond the direct monetary cost, the potential long-term economic effects on Israel's economy are significant, including large-scale reconstruction and infrastructure investments in Gaza, sustained financial pressure on Israel's national budget, and reduced income and economic activity for both sides due to conflict-induced disruption.
Long-term military engagements can strain resources and social cohesion, potentially leading to exacerbated divisions within Israel's military and society with indirect but real economic consequences.
There are also political and ethical concerns associated with plans for Gaza's post-conflict future, which may involve large-scale land and resource appropriation to benefit external investors at the expense of Palestinians, reshaping the economic landscape.
Additionally, the war's costs could result in big cuts to vital services in Israel, leading to more credit downgrades, potentially placing Israel on the same level as Peru or Thailand, according to global credit rating agencies with a negative view of Israel's future due to this spending.