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Israelis Have Come to Expect Prosperity. Rocket War Could Change That

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Israeli firefighters and security forces inspect damage at a house in Yehud, near Tel Aviv, on May 12, 2021
Inspecting damage at a rocket strike in Yehud, near Tel Aviv, May 12, 2021Credit: GIL COHEN-MAGEN - AFP

The images of a bus burning and people rushing to take cover this week are certainly disturbing. But in a perverse way, these are scenes of ordinary life in Israel, at least life as it is for a few days or weeks every year.

The fact is that rocket and missile attacks have become so frequent over the past 15 years that they’ve become part of the Israeli experience, at least in some parts of the country.

It’s become a cliché to say that no country would ever tolerate having its cities bombarded without responding in force, as Israel. It’s even truer that it would be hard to find another country that quite literally goes about its business while under attack. But can we expect this to continue in the future?

It’s an important question because one thing that has held Israel together politically and socially over the last two decades, be it global financial crises, wars and terrorism, or COVID, was a thriving economy. Jobs are abundant, wages have been rising and the standard of living has grown, even for those at the lower rungs of the income ladder. Throughout these years, foreign investment has risen and business and consumer confidence has remained strong.

Yet the rocket attacks we have suffered to date are minor compared to the ones we may face in the future.

In the instances where Hamas unleashed major barrages since 2009, the daily average ranged between about 70 to about 345. With those kinds of numbers, Iron Dome was generally able to do the job of protecting the country, and civil defense measures did the rest.

A few months ago the army estimated that Hamas and Islamic Jihad have, between them an arsenal of about 13,000 rockets in Gaza with which to pummel Israel’s homefront. That is a lot of firepower that could keep Israelis in bomb shelters and paralyze the economy for an extended period.

Even if Israel decided it had no choice but to invade Gaza in order to halt the attacks, the barrages would almost certainly continue for some time.

The threat from Hezbollah in Lebanon, with whom Israel hasn’t fought a war since 2006, is many times greater. Fifteen years ago, it had an estimated 15,000 rockets at its disposal and pounded Israel with 4,000 rockets at a rate of 117 a day. There was no Iron Dome and the result was that the northern third of Israel shut down for the duration of the war.

Today, Iron Dome would be at pains to respond to a mass missile attack by Hezbollah, which is estimated to have 10 times more rockets and missiles than exist in Gaza. Many of them are more sophisticated than anything Hamas has. Hezbollah has a bigger territory to operate from, which would make any ground invasion to stop it long and complicated. Maybe the next generation of laser-based anti-missile technology will save us, but it’s too early to say. In the meantime, Iron Dome defenses risk being overwhelmed. Even now, Hamas and Islamic Jihad are reportedly trying to do just that.

After the Second Lebanon War, the Israeli economy bounced back quickly, setting the template for future conflicts and giving rise to the attitude that the economy is impregnable. That attitude has been useful because it buttressed business and consumer confidence. However, as time goes on it’s becoming illusory.

A good place to do business

Sustained rocket attacks would, of course, cause substantial casualties and material damage. But the real damage, from an economic perspective, would be to diminish, if not end, Israel’s image as a low-risk country in which to do business.

On that front, Israel’s high-tech sector is particularly vulnerable because the entire startup sector is reliant on global markets –  from the capital it raises from overseas investors, to the customers they sell to and the partnerships they form, and finally to the exit stage, when they either sell themselves to a big multinational company or go public on Wall Street. If the world begins to see Israel as a security risk, that could all quickly change.

The threshold for Israelis to turn bearish on their own country as a business risk is much higher, but it exists. Israel is not the place it once was, where people expected to have a lower standard of living, fewer career opportunities and less consumer choice. After two decades of economic growth, people have come to expect prosperity and middle class comforts. They won’t easily adapt to a prolonged period of economic stagnation.

Israel’s ability to see off the missile threat is in the hands of its generals and scientists. But there is another threat to the economy’s long-term health that is, unfortunately, in less able hands.

Just a few days ago, the two years of political uncertainty we have been living with seemed to be coming to close. Now, with the fighting and unrest in places like Lod and Ramle, the ability of the Lapid-Bennett coalition to form a government is looking shaky. If it fails, we’ll all be back at the polls in a few months’ time while the dysfunctional Netanyahu caretaker government remains in power.

The risk we face on both these fronts – the missiles and political uncertainty – is still speculative, but it’s not as speculative as you might think.

The shekel, which retained its strength throughout the coronavirus crisis and four elections, has been weakening on the combined effect of the fighting and Israel’s political logjam. Twenty good years could be coming to an end.

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