Israel has been at war, on several fronts, for most of the past three years, and its economy keeps performing like a country at peace. The shekel is among the strongest currencies in the world. Tel Aviv stocks have surged. Investment money keeps flowing in, and economists project the economy will outperform most of the developed world this year. The obvious explanation, that war is good for Israel’s economy, is wrong. The real explanation is that this war is being fought somewhere else.
The Iran war, the largest of Israel’s current conflicts, is a good place to start. Since February, the strikes have fallen on Iranian cities, ports and infrastructure, and the retaliation has hit American bases in the Gulf rather than Israeli ones. The war over the Strait of Hormuz is being fought over the horizon, in a theater where the United States is doing most of the bombing. Israel’s home front, the place where an economy actually breaks, has been comparatively quiet. That is not luck. It is strategy, and it is also the difference between this war and the ones that hurt.
The load-bearing wall
The second reason is the structure of the economy itself. Israel’s technology sector, built over decades on a pipeline from military intelligence units like 8200, is the load-bearing wall of the whole economy. It is also the part least exposed to war: the engineers work in Tel Aviv offices, their customers are abroad, and their products are sold in markets that do not close when the Gulf does. Foreign companies with Israeli research centers have kept them open through the wars because the talent cannot be relocated. By late April, Tel Aviv stocks were up more than seventeen percent for the year, and the shekel had gained around four percent over the course of the war. Even the IMF, in a February forecast written just before the Iran war began, expected Israel to grow 4.8 percent this year.
The defense industry is the other pillar, and it cuts both ways. Israel is one of the few countries in the world whose defense sector is a growth industry: the world is rearming, the region is burning, and Israeli firms sell into wars. The war economy has become, for a slice of the economy, an ordinary boom.
The other column
The ledger has a second column, and it should not be ignored. The credit agencies downgraded Israel during the earlier phase of the wars, and the borrowing costs went up. Defense spending has climbed from an already high baseline of about five percent of GDP. Construction, which depends on Palestinian workers from Gaza who can no longer reach the sites, has been crippled. Tourism has collapsed. The central bank spent tens of billions of dollars defending the shekel in the last big war and warned of the fiscal cost of conflict in the hundreds of billions of shekels. The boom is real and it is narrow: technology, defense, finance. The rest of the economy is quiet, and some of it is hurting.
That is the honest answer to the question of why Israel’s economy has not collapsed. It is not that the economy is immune to war. It is that the parts of the economy that dominate Israel’s growth, technology and defense, are the parts that benefit from the region’s chaos, and the war itself has been kept away from the cities where the economy lives. The home front was not attacked this time, because the enemy’s missiles were aimed elsewhere, and because the United States took the lead. Israel is not resilient so much as positioned: the war is a cost to the region and a stimulus to the sectors Israel happens to be good at.
The skeptic’s case is worth keeping in mind. Israel has recovered quickly from its wars before, once the shooting stopped. The IMF’s medium-term view of the economy is relatively favorable. The strength of the shekel reflects genuine investor confidence, not just war economics. And a country that can fight this long without an economic collapse is, by any standard, resilient. The question is whether the war ends before the bill does. The costs of this war will arrive later, in reconstruction, in demobilizing reservists, in the interest on the debt. Markets are discounting a peace that has not arrived. When it does, the bill will come due, and the economy will finally have to fight a war it cannot outsource.
Source
- Al Jazeera (Money Works): Why Israel’s economy hasn’t collapsed during a multi-front war
- CNBC: Israel’s economy and financial markets are booming despite Iran war
- Reuters: IMF says Israeli economy to rebound from Gaza war with 4.8% growth in 2026
- The Jerusalem Post: IDB chief economist on Israel’s 2026 economic outlook