For the last 11 years, Israel has been living in a fantasyland where war is something that happens on the other side of the border. It may afflict Syria, Iraq, Lebanon and Libya, but has nothing to do with us.
True, we have had no fewer than four conflicts ourselves since 2006, but except for the casualties, they were a romp – material damage was minimal, and economic activity was barely interrupted.
Maybe that explains why even though many experts warn the risk of conflict with Hezbollah is greater than any time in years, neither investors nor business people seem to be giving the thought the slightest attention. The Tel Aviv Stock Exchange’s TA-35 index of large-caps has fallen 2% in the past month, but that’s mainly due to Teva Pharmaceuticals’ woes. The shekel, meanwhile, has strengthened against the dollar.
That nonchalance is based on a scenario that is no longer valid.
Since 2006, Israel’s conflicts with Hezbollah and Hamas have been first and foremost missile wars. But even the biggest and most damaging of them – the Second Lebanon War of that year, when 4,000 Hezbollah rockets rained down on Israel during more than a month – wasn’t disastrous, from an economic point of view.
Even though a third of the country was constantly sent scuttling to bomb shelters and large swathes of the economy were brought to a standstill, the economy quickly recovered. Gross domestic product fell during the months of the war but rebounded sharply right afterwards, erasing the impact.
That established the pattern for the conflicts that followed in 2009, 2012 and 2014, when Israel fought Hamas.
Hamas not only had fewer and less powerful rockets than Hezbollah: also, Israel developed the Iron Dome system to intercept them, which reduced their impact to nearly zero.
In the 2014 campaign called "Protective Edge," Iron Dome took out 90% of all the rockets that Hamas launched from Gaza.
In 2006, during 34 days of fighting, 4,000 rockets landed and 53 Israelis were killed. Come 2014, the 50-day conflict and 3,360 rockets resulted in just two rocket-related deaths.
In 2006, about 30,000 insurance claims for rocket-related damage were filed while in 2014, there were just 2,400.
In 2014, the missile war wasn’t a threat so much as a spectacle, as Israelis watched Iron Dome missiles bring down Qassam rockets, to applause. Score one for the home team.
The next war isn't going to look like that. The round figure everyone uses for Hezbollah's missile arsenal is 100,000. That is a suspiciously round figure and is probably wrong, but no one disputes that the Shiite militia is well-armed, and more importantly, many of its missiles carry much more powerful warheads and are much more accurate than they were in 2006. Hezbollah's arsenal includes attack drones and coast-to-sea missiles, too.
For its part, Israel is also better prepared. Iron Dome, which is designed to bring down short-range rockets, has been complemented by the introduction of the David’s Sling and Arrow systems, designed to intercept long-range rockets and ballistic missiles, respectively.
But against an onslaught of thousands of missiles, no Domes, Slings or Arrows will be able to provide the kind of defense Israelis have grown used to. Israel’s infrastructure and economic activity are vulnerable to even a limited missile attack from Hezbollah.
Geographically, Israel is a small country with no hinterland, which means facilities for electric power and water are concentrated in small areas. More than a quarter of electric power is generated at just two sites. Natural gas is produced at a single offshore field and delivered via a single pipeline. A large portion of our exports derive from a single industrial plant.
A prolonged missile war will almost certainly bring business to a halt.
In 2006, that’s what happened in the north, but that was a relatively small part of the economy; the next war will almost certainly encompass Tel Aviv. Factories will have to close and orders will be delayed; multinational research and development centers won’t be able to meet their timetables; airlines will suspend flights to Israel (as indeed happened in 2014) ; and basic services like banking could be brought to a halt.
The physical damage would be costly enough, but the shuttering of the economy and the media coverage could be many times worse.
In the worst-case scenario, a post-war Israel would no longer be seen by global investors and businesses as a safe place to put their money and do deals. Imagine Startup Nation without the constant flow of cross-border capital and mergers and acquisitions. The fantasyland of the last 11 years would disappear in a matter of days or weeks.
None of the parties to the next conflict – Israel, Hezbollah and Iran – seems to angling for a fight right now. And maybe the situation in Lebanon is such that we’ll enjoy a kind of Cold War peace, where both sides will do anything to avoid a conflict they know will be so destructive (Israel had made it clear to Hezbollah that it will respond harshly to an attack).
But the situation now is unusually tense. The resignation of Lebanese Prime Minister Saad Hariri is shaking Lebanese politics and signals a new Saudi willingness to take on Iran with results that no one can predict. Iran is moving to enhance its military position in Syria, including plans to build air and naval installations there that Israel sees as an existential threat. Syria itself has grown more obstreperous about Israeli raids. The conditions are all there for one of the parties to make a wrong move and set off a war no one wants, that everyone will pay for dearly.
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