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Home Market Research Business

IDF surprises Iran – and the Treasury

by TheAdviserMagazine
4 months ago
in Business
Reading Time: 3 mins read
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IDF surprises Iran – and the Treasury
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Israel’s sophisticated strike on Iran at the end of last week caught the country’s leaders unprepared. Operation Rising Lion, planned in secret over a long period, also managed to surprise the state budget. The 2025 budget, passed by the Knesset less than three months ago, does not take into account a direct conflict with Iran. According to market estimates, and on the basis of previous statements from the Ministry of Finance, a prolonged operation will mean that the fiscal deficit target for the year of 4.9% of GDP cannot be met, and will necessitate reopening the budget.

The defense establishment and the Ministry of Finance are not yet prepared to put a number to the costs of the operation, but several things can be said about them. In fact, the budget does allow for part of the costs of the initial blow inflicted by the IDF and the Mossad on Iran. The fiscal problem lies in the consequences of the scenario taking shape of war with the Islamic Republic beyond an operation lasting a few days. The IDF had already bought the tons of bombs dropped on the Iranian nuclear installations and the munitions secreted by the Mossad onto Iranian territory, so that a substantial part of the expenditure was paid in advance. Even if the stocks of these munitions need to be replenished, the fiscal consequences are not necessarily immediate.

As a function of the duration of the campaign and its nature, the costs will deepen with the purchase of interceptors to protect against Iranian missiles, expensive operational hours of the Israel Air Force, and unfortunately also compensation for casualties and damage on the home front.

The rules don’t apply to Iran

Unlike in the war in the Gaza Strip and Lebanon, the Ministry of Finance has no precedents to guide it in preparing to meet the demands. Direct war with Iran is of an altogether different order, both because of the geographical distance, which changes the operational conditions, and because of the character of the enemy: not another local terrorist organization, but a sovereign state with a population of more than 90 million that has become the biggest terrorism force in the region.

The usual rules of thumb for calculating the economic cost of military operations, such as according to the extent of drafting of reservists, don’t apply in a war in which the size of the ground forces that Israel deploys on enemy territory is not a main factor.

The assessment among senior Ministry of Finance officials that they would have to reopen the budget in order to increase the defense item was formed even before the conflagration on the Iranian front, because of the continuing campaign against Hamas.





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In recent weeks, however, in the light of the steady rise in tax revenues since the beginning of the year, with each month in 2025 showing growth over the corresponding month in 2024, the Ministry of Finance believed that the fiscal deficit target could be maintained, even if there was no choice but to breach the budget spending limit. The government cannot increase spending without Knesset legislation.

With every passing day of the conflict with Iran, the Ministry of Finance’s hope has evaporated, although, if it results in victory, the operation could ultimately have positive economic consequences.

“Escalation of the war with Iran will weigh on economic growth in the second quarter, and lead to a rise in the fiscal deficit, in Israel’s risk premium, and in inflation in the short term. The long-term effect on the Israeli economy, however, will be determined by the way that the conflict ends. Removal of the nuclear threat will eventually lead to a fall in Israel’s risk premium,” Bank Hapoalim chief financial markets strategist Modi Shafrir writes. In his view, besides the reopening of the budget, there is also the possibility that Israel’s credit rating will be downgraded by at least one of the rating agencies.

The three international rating agencies – Moody’s, S&P, and Fitch – maintain negative outlooks for their ratings for Israel. They have said explicitly that the outlook for a further downgrading of Israel’s rating will materialize in the event that conflict with Iran becomes a broad regional war. The agencies are expected to comment on the latest developments, but they may refrain from making rating decisions for the time being.

Published by Globes, Israel business news – en.globes.co.il – on June 16, 2025.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.




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