The Wide Economic Consequences of Israel-Hamas War

Israel’s almost $500 billion economy—the most developed in the Middle East—was healthy for most of 2023. Then on Oct. 7, Hamas launched an attack on Israel that quickly became the deadliest of the five wars fought between the sides since Hamas seized control of the Gaza Strip in 2007. It’s been more than one month since that attack and the economic implications are beginning to surface. Customers in Israel are paying on average 41 days beyond terms according to FCIB’s October Credit & Collections Survey. Nearly three in every four credit managers say payment delays are increasing due to the Israel-Hamas war, supply chain issues and unwillingness to pay.

“Besides the disruption of normal economic activity, there will be an adverse effect on logistics as there is now only one port open for shipments into Israel,” said Mark Zavras, CICP, director of credit at Sub-Zero Group, Inc. (Scottsdale, AZ). “There will be a slowdown in shipping lead times, and supply chains could feel the constraints of the war due to shortages and lack of working population.”

Shipping in and out of Israel will only continue to become more difficult as conflict continues. “We’re fighting a major slowdown in our area,” said Christopher Finley, CICP, global credit analyst at Club Car LLC (Troutman, NC). The global conflict has been troubling for middle eastern businesses that Finley’s company works with. “I’m skeptical of taking cash in advance because we don’t know if the containers are going to get there or if we’ll have to pay for freight back,” Finley explained. “From a credit risk perspective, I don’t think we should be doing anything without having the CEO or CFO sign off on those shipments because of how high risk that situation is right now.”

The shekel has sunk to a 14-year low, prompting Israel’s Central Bank to sell $30 billion of foreign-exchange reserves, The Economist reported. “Since war is not just fought by military forces, but also by economic ones, an important question hovers over all this activity. Can Israel withstand the economic pain? The country’s clashes with Hamas since withdrawing from Gaza in 2005 do not provide much of a guide.”

Israel’s economy faces a major challenge amid the war—employment. The country’s armed forces have mobilized more than 360,000 reservists, or 8% of the country’s workforce—a bigger call-up than in 1973—and Gaza has lost at least 61% of its jobs. “Every order from Israel is being closely reviewed and decisions are made on a case-by-case basis because everything is evolving so quickly,” Melvin Ucelo, CCE, CICP, global credit manager at Franklin Electric Co. Inc. (Fort Wayne, IN) said during the October Global Credit Thought Leaders Discussion.

Economic forecasts for Israel have been cut from 3% to 2.3% amid disruption. More than half of all businesses in Israel are facing revenue losses beyond 50%, according to data from Israel’s Central Bureau of Statistics. The Gaza war has cost the Israeli economy nearly $8 billion with an additional $260 million in losses with each day that passes. An economic fallout is expected for “many years to come,” the United Nations labor agency warns. Extensive duration of Israeli occupation of the Gaza Strip along with controversial judicial reforms can cause economic growth to stunt in the long term.

The economic implications of the war are likely to bleed beyond Israel’s borders. Customers in Lebanon are paying on average 38 days beyond terms with 50% of credit managers saying payment delays are increasing due to the war and central bank issues.

“We’re already looking at what the conflict means for travel operations such as closures of airports and shipping lanes in those areas and neighboring countries,” said Drew Franklin, CICP, global director of credit and risk management at CP Kelco (Atlanta, GA). “Though the intensity in different locations is hard for us to understand as a privately held company, we already have a dower economic sentiment in North America, Western Europe and even China now. The more conflict and global entropy we have, the worse sentiment we’ll have at the consumer level which reaches to the business level, ultimately coming back to us as a B2B organization.”

Throughout the intense conflict across the world, credit professionals are finding ways to stay connected to customers they are dealing with in Israel, Lebanon and even those in Ukraine. Credit professionals dealing with customers in Israel say they are considering secured terms, LCs or cash-in-advance terms. Developing a close relationship with customers through consistent communication is especially important.

“In terms of politics, the West seems to be mostly supportive of Israel, so I don’t believe there will be much of an impact on the world economy in terms of global trade alone,” said Vidushi Bonomaully, senior manager of billing and collection at Ecovadis (Ebene, Mauritius). “However, the currency market could further fluctuate during these times of geopolitical uncertainty in several areas, coupled with the inflation and the Ukraine-Russia conflict.”

Further escalation of war can possibly bring Israel into conflict with Iran, meaning a spike in oil prices that could reach up to $150 per barrel and a global growth drop to 1.7%, according to Bloomberg Economics. As we have also seen in the past, Middle Eastern territories are key suppliers of energy and hold the biggest shipping passageways. For example, the Arab-Israeli war of 1973 led to an oil embargo and its impacts led to years of stagflation in industrial economies. GDP shrank 4% in the West Bank and Gaza just in one month of the war, sending more than 400,000 people into poverty, according to a report from the United Nations.

The aftermath of war and tensions between countries can take a devastating toll on the global economy. Russia’s invasion of Ukraine, China’s tensions with Taiwan and now the Israel-Hamas conflict all show how geopolitical disagreements drive economic outcomes. “The rise in debt to support this war as well Ukraine will have a negative impact especially if these wars continue indefinitely,” Zavras said. “U.S. credit rating has already been downgraded due to the large debt burden that we carry. Billions of dollars in aid and equipment are funded by the U.S. to support the wars. This will not get any better as these wars continue.”

The November FCIB Credit & Collections Survey is now open. Complete the survey to receive the results delivered directly to your inbox and to earn CEU/ICEU participation points.