The Second Lebanon War taught us something new about the Israeli economy. In 2006, we were sure that the economy would get caught up in a crisis and deep recession following the barrage of rockets on the north, which we feared would hit Tel Aviv. But it turned out we were wrong. The economy was unusually strong and stable. It did shift down a gear for one quarter, but it returned to its previous pace of growth immediately afterward, as though nothing had happened. So maybe our economy will be able to survive an attack on Iran intact?
This time around, the Bank of Israel and the Finance Ministry are predicting that an attack on Iran would cause serious economic damage. They are concerned that the economy will ground to a long-term halt; they worry about bankruptcies and mass layoffs. The Bank of Israel is preparing to launch a program protecting the banks from a possible panic manifested by a mass withdrawal of money, which could put the banking system at risk of bankruptcy.
An attack on Iran would be condemned around the world. There are already countries, companies, labor associations and consumer groups that boycott Israel because of its occupation of the territories. An attack on Iran would broaden and intensify the boycott. There are also European companies that won't trade with Israeli companies because of the risk they say Israel poses. And when that threat is actualized - when rockets fall on Tel Aviv - the rest of the world's investors will also flee. So we should expect stocks and government bonds to drop sharply, and the deficit to rise in the wake of an increase in security expenses as tax revenue drops.
A military assault on Iran will also spell a sharp rise in oil prices, which will intensify the global recession and make us even less popular in Europe and the United States than we already are. Because if there's anything that unemployed Spaniards or Greek demonstrators really don't want right now, it's a gas hike.
Iran's response to an attack is expected to be far more significant than Iraq's late and relatively minor response to the bombing of its nuclear facility in 1981: dozens, and perhaps hundreds, of rockets fired on Israel as an initial reaction, boosted by a drizzle of rockets over the long term. A few Shahab-4 missiles a day will be enough to cause immense damage to morale and to the economy. You can't live a normal life under a daily threat like that. People will be scared to go shopping and the malls will be empty. Demand for goods and services will drop and factories will go bankrupt. Tourists will stop coming, investors will flee, the ports will be paralyzed and international airlines will stop landing here.
As a result, the shekel will drop sharply, inflation will rise, interest rates will be sky-high and unemployment will go up. One blow will follow another. At least housing prices will drop, though.
Under such a scenario, we will have no choice but to ask our only friend for help. But given the state of relations with U.S. President Barack Obama, there's no reason for him to rush in to assist Israel. After all, he opposes an attack in the first place, and particularly doesn't want one now, on the eve of presidential elections. It is this undermining of the alliance with the United States that is the most dangerous step of all.
In both his first and second terms of office, Benjamin Netanyahu has managed to make himself hated by the U.S. administration because of his manipulative approach toward the Palestinian issue. Now he, along with the rest of us, is reaping the fruit of that approach.
It appears that the Israeli public understands full well the degree to which we are dependent on the United States. It's not just the $3 billion a year or the new military aircraft. Without a source of more weapons during wartime and without diplomatic protection, our situation will be frightfully dangerous. All it takes is for a U.S. president to imply that he's reconsidering his country's ties with Israel and we will become a pariah country to which no one will want to lend even a single dollar. Under such conditions, even international corporate giants like Teva won't be able to get credit abroad.
But wait, isn't it possible this whole doomsday scenario won't take place and the dour predictions will turn out to be just as mistaken this time around as they were in 2006?
In light of the massive differences between the war in Lebanon and a military assault on Iran, one would have to be an incurable optimist to believe that's the case. The doomsday scenario seems to be the most likely.
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