Israel Faces a Wobbly Economy and Increasing Isolation Due to Gaza War

SadaNews - Israel's economic crisis has worsened in recent weeks amid the ongoing war in Gaza, as its trade relations with countries around the world, including friendly nations, are experiencing an unprecedented shock, according to a report published by Yedioth Ahronoth.

Israeli factories have seen a sharp decline in trade transactions, and companies and marketing chains abroad have ceased importing Israeli products, reflecting an increasing isolation. At the same time, Israeli economic experts warned that the global credit rating agency (Moody's) is likely to downgrade Israel's sovereign rating soon, amid massive defense spending and concerns over the ability to control the public budget, according to Yedioth Ahronoth.

Isolation with "Friends" and Canceled Deals

Israeli industrialists say that trade relations have deteriorated unprecedentedly, even with nations that have long been considered among Israel's closest allies. Meetings that still take place with Israeli delegations are conducted in complete secrecy and at the explicit request of the host party, with an insistence on not publishing any images or minutes of these meetings.

Ronen Tomer, the head of the Israeli Manufacturers Association, reveals a striking incident that occurred during a meeting of an Israeli economic delegation in a "very friendly country," as he described it, where participants received a message via WhatsApp just hours later demanding they delete photos of the meeting and not disclose the gathering with representatives of Israeli companies.

Tomer says, "We were astonished. In the past, we were warmly welcomed there, and we signed excellent contracts, but the situation has fundamentally changed now."

Canceled Contracts

Israeli exporters and importers confirm that the last few weeks have seen an unprecedented wave of cancellation of existing contracts or refusal to extend them. In some cases, companies and marketing chains in various countries announced a halt to the import of Israeli products "at this stage," reflecting a direct backlash from public anger and political pressure related to the Gaza war.

The newspaper indicates that some requests to renew export contracts for Israeli goods were rejected, while companies in Europe and America announced a sudden stop in dealings with Israeli suppliers.

According to Israeli economic officials, the situation has spiraled particularly since Israel announced a plan to occupy Gaza and circulated video clips documenting the bombing of buildings and mosques and the injury of civilians.

The newspaper quoted an industrialist saying, "We can no longer face these images. We have been condemned to complete isolation. We feel we are pariahs in the entire world," as reported by the newspaper.

According to Yedioth Ahronoth, the trade crisis is accompanied by deep financial risks, as a delegation of senior experts from the credit rating agency (Moody's) visited Israel last week, meeting with government representatives and economists.

Sources who attended the meetings indicated that the agency's representatives expressed serious concerns about the level of defense spending following the "occupation of Gaza City," warning that the budget deficit could spiral out of control and lead to the accumulation of massive debts.

The newspaper quoted a senior official who met with the Moody's delegation saying, "It would be like a miracle if the rating is not downgraded in the next two weeks."

Numbers Threatening Israel

Ronen Tomer expressed his fears that the damage to the "Israeli brand" could turn into a long-term crisis, even in markets that have always shown sympathy toward Tel Aviv, stating, "We feel that Israel's name has been severely damaged, and it may become difficult to sell our products even to friendly countries. If the government does not act quickly to find alternatives and provide support to exporters, the economy could regress years back."

Yedioth Ahronoth published preliminary results from a survey conducted by the Israeli Manufacturers Association on September 17 and 18, which included 132 top industrialists, showing a concerning picture as follows:

About half of exporters reported the cancellation or non-renewal of existing contracts, with 71% of these cancellations attributed to political reasons related to the war.

The European Union topped the negative scene, as 84% of manufacturers reported that its countries canceled their deals.

Approximately 38% of exporters faced contract cancellations from other European countries, and 31% from the United States.

About 76% confirmed that the war has harmed their exports, with 21% of them stating that the damage exceeded 40% of their total exports.

About 54% noted that new clients refused to cooperate with Israel.

Around 49% faced extraordinary logistical and organizational difficulties, including shipping problems and delays at customs and ports.

About 22% of Israeli importers experienced order cancellations from foreign suppliers.

The newspaper stated that the current crisis is not limited to direct commercial damages, but involves broader implications that could affect the stability of the entire Israeli economy; the decline in exports and isolation from international markets is accompanied by inflation in military expenses and a growing budget deficit, which threatens to undermine international confidence in the Israeli economy and weakens its ability to attract investments.

Amidst this scenario, observers believe that the Israeli government faces a dual challenge: internally, managing an economy wobbling under the pressure of war, and externally, confronting increasing isolation from the markets and countries that have long represented a vital lever for Israeli exports.

If Moody's credit rating downgrade expectations hold true, the repercussions could extend beyond commercial losses to affect Israel's financial status on the international stage, according to the newspaper.

Source: Yedioth Ahronoth