Israel’s Multi-Front Conflicts: Economic Impact and US Financial Support
Introduction
Israel is currently engaged in unprecedented military operations across multiple fronts, with significant implications for its economy and its relationship with US military aid.
FAF, Economy.Inc comprehensive analysis examines Israel’s current conflicts, economic position, and the complex dynamics of American financial support.
Current Military Conflicts
Gaza Operations
Israel has been conducting extensive military operations in Gaza, with the conflict experiencing various phases throughout 2024 and 2025.
Following a brief ceasefire in early 2025, Israel launched “Operation Might and Sword” in March 2025, effectively ending the temporary peace agreement.
The operation resulted in significant casualties and marked a resumption of intensive military action in the Gaza Strip.
Syrian Invasion and Operations
Israel has dramatically expanded its military presence in Syria since December 2024, launching “Operation Arrow of Bashan” following the fall of the Assad regime.
Israeli forces have invaded the buffer zone in southwestern Syria and declared the 1974 Disengagement agreement void.
Since December 2024, Israel has conducted over 200 air, drone, or artillery attacks across Syria, averaging an assault every three to four days.
The Israeli military has established at least nine army posts in Syrian territory and has indicated plans to maintain occupation “for the long run.”
Iranian Confrontation
The most dramatic escalation occurred on June 13, 2025, when Israel launched “Operation Rising Lion,” targeting Iran’s nuclear facilities and military infrastructure.
This massive operation involved over 200 Israeli aircraft dropping more than 330 munitions on around 100 targets, including Iran’s primary uranium enrichment facility at Natanz.
The attack killed several high-ranking Iranian officials, including Revolutionary Guard commander Hossein Salami.
Israel’s Economic Position
GDP and Growth
Israel’s GDP is projected to reach $432.4 billion in 2025, representing a growth rate of approximately 2.7% from the previous year.
The country maintains one of the strongest economies in the Middle East, with the IMF estimating Israel's GDP per capita in 2024 to be $54,191.462. This is a slight increase from the previous year's $51,750.494.
Despite ongoing conflicts, Israel’s economy has shown resilience, though growth slowed to 0.9% in 2024 due to wartime conditions.
Government Expenditure Breakdown
Israel’s 2025 budget represents the largest in the country’s history at NIS 755 billion ($205 billion). The budget allocation reflects wartime priorities
Defense
NIS 136 billion ($36.9 billion) total defense budget, with the Defense Ministry alone receiving NIS 110 billion ($29 billion)
Education
NIS 92 billion ($25 billion)
Health
NIS 59-60 billion ($16 billion)
Government spending accounts for 41.5% of GDP as of 2023, with military expenditure reaching $46.5 billion in 2024, nearly doubling from $27.5 billion the previous year.
Israel spent $31 billion on military conflicts in Gaza and Lebanon in 2024 alone.
Debt Situation
Israel’s debt position has deteriorated significantly due to wartime spending:
Internal Debt
Israel’s national debt jumped 17.9% in 2024, rising by NIS 202 billion to NIS 1.33 trillion.
The debt-to-GDP ratio increased from 61.5% at the end of 2023 to 67.9% by 2024.
The government raised NIS 278 billion in debt in 2024, compared to NIS 160 billion in 2023.
External Debt
Israel’s external debt reached $147.1 billion as of September 2024, compared to $140.8 billion in the previous quarter.
While this represents a significant financial obligation, Israel maintains a current account surplus, which helps offset some external debt concerns.
US Financial Support
The scale of Military Aid
The United States provides Israel with approximately $3.8 billion annually in military aid under a memorandum of understanding that expires in 2028.
However, since October 7, 2023, US support has dramatically increased.
Emergency Aid
$17.9 billion in security assistance approved since October 2023
Total Support
At least $22.76 billion, including regional operations
Additional Packages
Multiple emergency aid packages, including $14.3 billion approved in April 2024
US aid accounts for approximately 15% of Israel’s defense budget, though this percentage has increased significantly during the current conflicts.
The aid comes through various channels, including Foreign Military Financing (FMF), direct transfers from US stockpiles, and commercial sales.
Unique Financial Arrangements
Israel receives several preferential arrangements not granted to other countries:
Cash flow financing allows multi-year purchases based on future commitments
Lump sum payments at the beginning of the fiscal year, earning interest on US assistance
Permission to spend 25% of routine military aid on the Israeli defense industry (being phased out)
US Debt and Financing Capacity
Current US Debt Situation
As of June 2025, the US national debt reached $36.21 trillion, having increased by $1.56 trillion over the past year.
The fiscal year 2025 deficit was $1.3 trillion at the end of March 2025, representing a 15% increase from the previous year's period.
Debt Servicing Costs
The US spent $1.1 trillion on debt interest payments in 2024, nearly double the amount from five years earlier. Interest payments now exceed defense spending; projections suggest this could reach $1.8 trillion by 2035.
The Treasury Department projected borrowing needs of $823 billion for the January-March 2025 quarter.
Financing Mechanisms
Despite the massive debt burden, the US continues to finance Israel’s military operations through several mechanisms
Regular appropriations under existing aid agreements
Emergency supplemental funding approved by Congress
Drawdowns from existing US military stockpiles
Commercial sales facilitated by government approvals
The US maintains its ability to finance these commitments through its continued access to global capital markets and the dollar’s reserve currency status.
However, rising interest costs are creating fiscal pressures.
Cost of the Gaza - Lebanon, Syria, and Iran Conflict to Israel - 2023 onwards
Gaza War and Lebanon Front
Direct and Indirect Costs
By the end of 2024, the financial cost of Israel’s war on Gaza—including direct military spending, civilian expenditures, and economic losses—was estimated at approximately 250 billion shekels ($67.6 billion) according to the Bank of Israel and Ministry of Finance.
Expansion to Lebanon
With the conflict’s expansion into Lebanon, estimates suggest the total cost could reach 300 billion shekels (about $81 billion).
2024 Military Spending: Israel’s Finance Ministry reported that in 2024 alone, military operations in Gaza and Lebanon cost 112 billion shekels ($31 billion), with total defense spending for the year reaching 168.5 billion shekels (8.4% of GDP), up from 98.1 billion shekels in 2023.
Syria Conflict Spillover
Military Engagement: Since October 7, 2023, Israel has conducted over 116 airstrikes in Syria, targeting Iranian and Hezbollah-linked assets.
These operations are part of the broader regional escalation but are not individually costed in Israeli budget reports.
Economic Impact: While the direct financial cost of Israeli operations in Syria is not separately detailed, these actions are included within the overall surge in defense spending.
The spillover has also led to increased military readiness and indirect costs, such as heightened alert status and mobilization.
Iran Conflict (2025 Escalation)
Major Strike in June 2025
In June 2025, Israel launched “Operation Rising Lion,” a large-scale air campaign targeting Iranian nuclear and military infrastructure.
Immediate Economic Effects
The strike triggered a sharp drop in the Israeli shekel, a spike in oil prices (up to 14% intraday), and global financial volatility. The operation required the mobilization of tens of thousands of Israeli troops and the closure of Ben Gurion Airport.
Cost Estimates
While the specific financial outlay for the Iran operation is not yet fully available, the Bank of Israel projects that the total cost of the Gaza war and its regional extensions (including Syria and Iran confrontations) could reach $66 billion (12% of GDP) by the end of 2025.
This figure encompasses ongoing and anticipated military expenditures, economic disruptions, and indirect losses.
Israel in absence of US support
Israel’s military capabilities and geopolitical standing without U.S. support involve a complex interplay of self-reliance initiatives, regional alliances, and strategic vulnerabilities. Here’s a breakdown.
Military Capabilities Without U.S. Support
Domestic Defense Production
Israel has accelerated efforts to reduce reliance on U.S. military aid through programs like the Blue and White Independence Initiative, which prioritizes domestic manufacturing of critical munitions (e.g., heavy bombs, tank shells) and advanced technologies (e.g., Iron Beam laser systems).
Contracts with firms like Elbit Systems aim to secure sovereign production lines for air munitions and raw materials.
Despite these efforts, key platforms like fighter jets (F-35s) and missile defense systems (e.g., THAAD) still depend on U.S. technology and funding.
Operational Limits
A unilateral strike on Iran’s nuclear facilities, while technically feasible, would face significant challenges:
Logistical Risks
Israeli jets would need to navigate 2,000 km of hostile airspace to hit fortified sites like Fordo or Natanz, with no U.S. intelligence or air cover.
Retaliation Threats
Iran and proxies like Hezbollah could launch missile barrages, overwhelming Israel’s defenses despite its multilayered air shield.
Prolonged conflicts would strain stockpiles, as seen during the 2023 Gaza war when U.S. resupply delays exposed vulnerabilities in ammunition reserves.
Nuclear Deterrent
Israel’s undeclared nuclear arsenal (estimated at 80–400 warheads) remains a critical deterrent against existential threats, reducing the likelihood of direct state-on-state invasions.
Geopolitical Standing in the Middle East
Regional Alliances
Arab States
Normalization with UAE and Bahrain under the Abraham Accords has created pragmatic partnerships against Iran, though Saudi Arabia remains hesitant due to Palestinian issues.
Reduced U.S. backing might push Israel to deepen ties with India or China for defense exports and diplomatic leverage.
Iran’s Weakened Proxy Network
The collapse of Syria’s Assad regime and Hezbollah’s retreat from Syria have eroded Iran’s regional influence, offering Israel strategic breathing room.
Increased Isolation Risks
A U.S. withdrawal could embolden critics of Israel’s policies in the West Bank and Gaza, undermining its international legitimacy.
Cold responses to Israeli strikes, like Secretary of State Marco Rubio’s June 2025 statement distancing the U.S. from operations in Iran, highlight this fragility.
However, Israel’s technological edge (e.g., drone exports, cybersecurity) and intelligence-sharing relationships with global powers provide alternative leverage points.
Shift in Conflict Dynamics
Without U.S. mediation, Israel might adopt more unilateral military actions, as seen in its 2025 strikes on Iran.
This could escalate regional tensions but also position Israel as a self-reliant power deterring adversaries through demonstrated capability.
Israel could sustain its defense through domestic production and nuclear deterrence but would face operational constraints in prolonged conflicts.
Geopolitically, reduced U.S. support might strain diplomatic ties but could also incentivize stronger regional alliances and a recalibrated strategy emphasizing technological and military independence.
The outcome hinges on Israel’s ability to balance self-sufficiency with pragmatic diplomacy in a volatile Middle East.
Conclusion
Sustainability and Strategic Implications
Israel’s Financial Capacity
While US aid is significant, it represents only about 15% of Israel’s defense budget under normal circumstances.
Israel’s strong economy, with GDP per capita comparable to developed nations, provides substantial domestic resources for military operations.
However, the current multi-front conflicts are straining Israel’s finances, as evidenced by the 80% increase in defense spending and rapidly rising debt levels.
US Strategic Considerations
The US continues financing Israel’s conflicts despite its fiscal challenges for strategic reasons.
Military aid serves broader strategic interests in the Middle East
Aid often returns to the US economy through defense contractor purchases
Israel is viewed as a key ally in regional security arrangements
However, some Israeli leaders, including Prime Minister Netanyahu, have begun discussing the eventual reduction of military aid dependence, similar to how Israel ended economic aid dependence in 2007.
The current situation represents a critical juncture where Israel’s expanding military commitments across multiple fronts are testing both its domestic financial capacity and the sustainability of US support arrangements, even as both countries face significant fiscal pressures.
