Iran War Fuels Economic Concerns in Israel, Beyond Energy Costs
TEL AVIV, Israel (AP) — While Israeli consumers haven’t yet felt the immediate pinch at the pump from rising oil prices linked to the ongoing conflict with Iran, economists warn the war’s economic impact will extend far beyond fuel costs, potentially slowing growth and increasing the cost of living in a country already considered expensive.
The conflict, triggered by an attack on Iran by the United States and Israel more than two weeks ago, has seen Iran regularly targeting Israel, U.S. bases, and energy infrastructure in Gulf Arab nations with drones and missiles. Critically, Iran has disrupted shipping traffic through the Strait of Hormuz, a vital artery for global oil supplies, raising fears of a wider energy crisis.
Brent crude oil has surged to around $120 a barrel since the start of the war, remaining above $100 despite efforts to stabilize the market. Though Israel’s government-regulated fuel prices haven’t yet reflected the full increase, experts predict a ripple effect throughout the economy.
“If the world economy is hit by another energy crisis, this is going to affect Israel, because we are a part of the world economy so we’re going to have to be also carrying some of the cost,” said Prof. Benjamin Bental, who heads the Economics Policy Program at the Taub Center for Social Policy Studies. “Right now, the energy story in Israel is of some concern, but relatively speaking, secondary.”
The primary economic burden for Israel, according to economists like Esteban Klor of the Hebrew University, stems from the direct costs of the fighting – munitions, damage to infrastructure, and disruptions to businesses. However, higher energy prices will inevitably translate into increased costs for food, transportation, and manufacturing.
“The production process of every Israeli company uses gas and fuel as input to produce goods and services,” Klor explained. “If the price of these inputs increases, then that is transmitted to the price of the products that the consumer will ultimately buy from these firms.”
Israel was already the fourth most expensive developed country to live in, according to 2025 data from the Organization for Economic Co-operation and Development, with prices roughly 29% higher than the OECD average. The war is expected to exacerbate this situation.
Essential imports like fertilizers, metals, and grains – key components in food production – are also likely to become more expensive. “We are going to see higher food prices because everything we import has to be transported to the country and for everything that is produced in the country, utility costs will be going up,” Klor said.
Beyond consumer goods, sectors reliant on transportation and logistics, such as airlines and tourism, are also vulnerable. Mizrahi Tefahot Bank chief markets economist Ronen Menachem warned of a potential economic slowdown as rising costs erode disposable income and dampen consumer demand.
The situation is further complicated by Israel’s significant military expenditures related to the conflict. The war is already costing billions of shekels weekly, straining government finances and potentially leading to lower tax revenues.
The long-term economic outlook hinges on the war’s resolution. A positive outcome – potentially including a change in the Iranian regime – could lead to regional stability and economic revitalization. However, a prolonged conflict or continued uncertainty could plunge Israel into a period of economic stagnation reminiscent of the 1970s, economists caution.
“If the Iran war ends with regime change and we succeed in removing Israel’s biggest threat, it will be positive for the country’s economy,” said Klor. “But if not, and uncertainty remains, that could be the harbinger of a lost decade for the Israeli economy.”
The Times of Israel contributed to this report.
