While the costs of Israel’s current conflict with Iran are high, the important question for the economy is “what happens next?” former Institute for National Security Studies executive director and economist Prof. Manuel Trajtenberg told The Jerusalem Post.
This is always the important question when it comes to the economy, he said, explaining that while the costs of the war – the operations themselves, the damages, and more – are very high, they are also one-time costs.
Israel “took a hit – ok, so we will need to pay for it, but it’s a one-time thing, we can overcome it,” he said. “What reality are we heading towards now? That is the really interesting question.
“I am convinced that unless something very unlikely happens, I think we are going to a much better reality,” he added.
From a national security perspective, as of Sunday, Israel is in a situation that is many times better than the situation on October 6 and than the situation 10 days ago, regardless of what happens next, he said.
“That is because we removed the most significant threats to us on all of Israel’s borders and beyond them in Iran.”
This “dramatically lowered security risk will almost necessarily bring an improvement in the economic situation,” he said, adding that the question now is “what happens internally inside the State of Israel.”
Israel's next moves after its achievements with Iran
The question now is “will the government be wise enough to translate the achievement against Iran into the end of the war in Gaza as soon as possible and to bring back all the hostages,” he said, adding that doing so is possible.
Another important question is will Israel’s leadership be able to translate the “enormous achievement and the consensus that was created around it” into a new and better political and social reality, he said.
“Israel has not had a consensus like this for a very long time regarding any issues,” he said.
While the question of Iran’s response to Israeli and now US strikes could, of course, have economic repercussions, Trajtenberg predicts that the likely scenario is that Iran will not respond catastrophically, meaning the result of the attack will likely be an improved economic situation for Israel as it faces a much better national security situation.
“All eyes are on the question of whether [Iran] will respond against the US, against the interests of the US, [or] against the Gulf,” he said, adding that, “the probability that this will happen is not zero, but it is very low,” he predicted.
“I think that given that the regime in Iran, first and foremost, wants to survive, and that they aren’t crazy, the probability of such a scenario is low but not zero.”
If Iran were to respond against the US or the Gulf, “it is very hard to predict the results. But I don’t see a scenario with a catastrophic result,” he said.
This is because “Iran does not have the ability to cause major damage to Saudi Arabia, the Emirates, [or] to the US itself,” he said. Iran has been so seriously impacted by Israeli and US strikes that its ability to cause a catastrophe “does not exist, or is very, very small.”
High stakes for Israel, Iran, and the US if situation continues
He added that for all players – Israel, the US, and Iran – there is a great deal to lose, and not much to gain from the continuation of the current situation, strengthening his belief that the situation will not escalate.
Each continued day of the current conflict means that Iran’s strategic abilities are damaged and the regime’s control endangered. For Israel, ongoing rocket strikes from Iran have the ability to paralyze the country, he added.
For the US, the continuation of the situation means that US President Donald Trump failed to bring an end to this when his stated goal has been to end wars and not start them, Trajtenberg said.
However, sometimes “you can be in a lose-lose situation for everyone,” but it can still be hard “to get ourselves out of it,” he said.
In spite of this warning and the various possible scenarios, Trajtenberg predicted that the US would soon bring about a ceasefire and renewed talks with Iran.
“I think that is the most reasonable thing that will happen.”