While Israel and Iran are making strikes against each other for a seventh consecutive day, the region is impatiently preparing for a potentially wider conflict. But the question points remain on the ability of both parties to finance a sustained war effort.
Friday, Israel killed several of the main Iranian and nuclear scientists and damaged military commanders and damaged some of its nuclear sites. He has since damaged parts of the Iranian fossil fuels sector. In response, Iran has launched missile attacks in government buildings and metropolitan areas in Israel.
Thursday, Israeli attacks killed 240 people while Iranian strikes killed at least 24 people.
But the conflict also costs billions of dollars to the two nations and could suffocate their economic growth and trigger concerns about long -term budgetary planning.
What are the costs of war for Israel?
The prolonged military operations of Israel in Gaza since October 2023 and the recent climbing with Iran have plunged the country into the most expensive conflict period in its history.
According to a January report from the Journal of Israeli companies, the cumulative cost of the Gaza War alone had reached 250 billion shekels ($ 67.5 billion) by the end of 2024.
A June 15 of the Israeli media report Ynet News, citing a former financial adviser from the Chief of the Israeli army, estimated that the first two days of combat with Iran alone cost Israel 5.5 billion shekels (approximately 1.45 billion dollars). At this rate, a prolonged conflict with Iran could see Israel going beyond the war expenses of Gaza End-2014 in the seven weeks.
Even before current climbing with Iran, Israel had considerably increased its defense budget in the midst of its multiple regional conflicts and the war against Gaza. From 60 billion shekels ($ 17 billion) in 2023, it increased to 99 billion ($ 28 billion) in 2024. Projections for 2025 suggest that it could reach 118 billion shekels ($ 34 billion).
The Ministry of Finance established a deficit ceiling of 4.9% of the gross domestic product (GDP) of Israel for this exercise, which is equivalent to 105 billion shekels ($ 27.6 billion). Higher military spending would test this.
How will the last conflict have an impact on the profile of Israel’s debt?
Despite a recent increase in expected tax revenue – from 517 billion to 539 billion shekels ($ 148 billion to $ 154 billion) – Israel growth forecasts were revised from 4.3 to 3.6%.
According to the Commercial Survey Cofacebdi, around 60,000 Israeli companies closed in 2024 due to labor shortages, logistical disruptions and the feeling of companies pricing. In addition, tourist arrivals continue not to fall on the pre-October 2023 levels.
These trends could be aggravated in the event of a full -fledged war with Iran.
S&P Global Ratings issued a striking warning on the vulnerability of the Israeli economy on Tuesday.
The agency said that a continuous Israeli war campaign, in particular if it had met a sustained and strategic Iranian response, could lead to a gradient on the Credit of Israel from A to A-. If this would happen, it would probably increase borrowing costs and soften investors’ confidence in the Israeli economy.
How was the Iran fossil industry affected?
In recent days, Iran’s oil exports seem to have decreased spectacularly. Total Iranian crude and condensate oil exports are expected to reach 102,000 barrels per day (BPD) the day ending on Sunday. This represents less than half of the 242,000 BPD, it was on average exports this year, according to data from the KPLER analysis company.
Above all, exports from the island of Kharg, hence Iran exports more than 90% of its oil, seem to have stopped completely since Friday. No oil tanker was anchored on Kharg Island on Monday, according to LSEG satellite ship monitoring data.
In 2025, Iran produced an average of 3.4 million B / J of crude, according to the United States Energy Information Administration (EIA), China seeming to be the main foreign buyer. Most of the oil that Iran produces concerns domestic consumption.
On Saturday, Iran partially suspended gas production at South Pars Gasfield in the Gulf after being struck by Israeli missiles. South Pars, which Iran shares with Qatar, is the largest gas field in the world. It produces around 80% of the total gas production of Iran.
For the moment, the extent of damage to the South Pars field is unknown. In addition, Israel has targeted the Shahr Rey refinery outside Tehran as well as fuel deposits around the capital. The complete impact of these strikes on production is unknown.
How do sanctions against Iran play a role?
Iran had to face economic sanctions from the United States after the Islamic Revolution and the hostage crisis of the United States Embassy in 1979, then on its nuclear program.
In order to put pressure on Tehran to accept an agreement on his nuclear program, the administration of the President of the Americian, Barack Obama, has led several major economies worldwide to reduce or stop their oil purchases in Iran, using a wave of additional sanctions.
These sanctions were relaxed after Iran concluded the joint agreement of the Complete Action Plan (JCPOA) in 2015 with the United States, Russia, China, France, Germany, the United Kingdom and the European Union.
The following year, Iran exported 2.8 million b / d of petroleum products.
But US President Donald Trump reproduced sanctions in 2018 during his first mandate as president and added more, pressure on most other nations to stop buying an Iranian crude. The result, according to the EIA, was that Tehran generated only $ 50 billion in oil export income in 2022 and 2023, which represents around 200,000 b / d of raw exports, less than 10% of the levels of 2016.
The result is that the sanctions have emptied Iran’s exchange gains.
Iran has avoided the economic collapse in part thanks to China, the main buyer of its oil and one of the rare nations which still exchange with Tehran.
However, loss of income due to sanctions has deprived the country of long -term economic development and struck Tehran’s ability to repair dilapidated infrastructure.
President Masoud Pezeshkian repeatedly stressed the gravity of the economic situation that the country faces, declaring that the situation of Tehran is more difficult than during the Iranian-Iraq war in the 1980s.
In March, he openly criticized the latest series of American sanctions targeting oil tankers wearing Iranian oil.
What are the other challenges of Iran?
Iran is also faced with a series of other constraints – energy and water shortages, collapsed currency and military setbacks among its regional allies – all amplified by sanctions.
A lack of investment, a decrease in natural gas production and ineffective irrigation all cause power outages and water shortages.
Meanwhile, the Rial, the currency of Iran, has lost more than 90% of its value compared to the dollar since the reimposing of sanctions in 2018, according to exchange websites.
And while the official inflation rate oscillates around 40%, some Iranian experts said it actually operated at more than 50%. “The specific figures are difficult to find,” said Hamzeh Al Gaaod, an economic analyst at TS Lombard, a political research firm.
“But what we can say is that years of sanctions have triggered inflationary pressure, including by the devaluation of the Rial. In turn, this makes imports of goods from abroad more expensive,” Al Gaaod told Al Jazeera.
In January, the Tasnim news agency cited the head of Iranse of Iranse of Labor and Social Protection, Ebrahim Sadeghifar, saying that 22 to 27% of Iranians were now below the poverty line.
Unemployment operates at 9.2%. However, the Iranian supreme assembly of workers’ representatives, who represents labor interests, said that the real figure of people without access to work at the level of subsistence is much higher.
What can Iran spend?
According to Al Gaaod, Tehran has a “relatively low budget for military purposes”. He estimated that from 3 to 5% of Iran’s GDP is spent on defense, which represents around $ 12 billion.
Tehran has $ 33 billion in the exchange reserves that it could theoretically rely. But Al Gaaod said: “This is where Iran is on backfoot. Using reserves for short -term military conflicts would paralyze them in the longer term.”
“We have seen a feeling of” rally under the flag “in recent days. But if Iran is undergoing more strikes and civil evacuations, this could easily relax,” he said.
