The intensifying air war between Israel and Iran is already exacting a heavy toll on the Israeli economy, with officials warning that weekly losses could exceed 9 billion shekels ($2.93 billion) if strict wartime restrictions remain in place.

Israel’s Finance Ministry said on Wednesday that under the current “red” emergency restrictions imposed by the military’s Home Front Command, the economy could lose about 9.4 billion shekels every week. The estimate largely applies from next week as the full effect of halted business activities, closed schools, and large-scale military mobilization begins to ripple through the economy.

The “red” designation is the highest civilian alert level. It limits travel to workplaces, shuts schools nationwide, bans public gatherings, and restricts most economic activities outside essential services. Large segments of the workforce are now operating remotely, while others have been called up for military service.

The government has requested that the Home Front Command lower the alert to “orange,” a level that still maintains security precautions but allows more workplaces to operate. If that shift occurs, the ministry estimates economic losses would fall to around 4.3 billion shekels per week.

The economic shock follows the escalation that began after the United States and Israel launched coordinated airstrikes on Iranian targets on Saturday. The offensive triggered retaliatory attacks across Israel and other parts of the Middle East, widening fears that the conflict could spread beyond a limited military campaign.

Officials in Washington and Tel Aviv have indicated the military operation could last for several weeks, raising the prospect of prolonged disruption to Israel’s economy and the wider region.

Across Israel, daily life has slowed sharply. Schools remain closed nationwide, large gatherings are banned, and businesses have been forced either to shut temporarily or shift to remote operations. Non-essential sectors—from retail and construction to tourism and hospitality—are among the hardest hit.

At the same time, Israel’s reserve military mobilization has pulled tens of thousands of workers away from civilian jobs, creating labor shortages in key sectors.

The escalation threatens to derail what had been a strong economic outlook for Israel. The country’s economy expanded by 3.1% in 2025, a pace that already reflected the lingering effects of the war in Gaza between Israel and Hamas.

Following a ceasefire reached in October, economists had projected a strong rebound, with growth expected to exceed 5% in 2026 as business activity recovered and investment resumed.

Those projections are now under threat as the confrontation with Iran opens a new and potentially more costly front.

Beyond Israel’s domestic economy, analysts warn that the conflict carries broader global economic implications, particularly through energy markets.

Iran sits at the center of the Persian Gulf energy corridor, a region that handles a large share of the world’s oil exports. The fighting has already disrupted some energy shipments and heightened risks to maritime routes that pass through strategic chokepoints such as the Strait of Hormuz.

Even limited disruptions in that corridor can trigger sharp swings in global oil prices.

Energy analysts say sustained military tensions could push crude prices unaffordably higher, feeding inflation across major economies and raising transportation and manufacturing costs worldwide.

Higher energy costs typically ripple across the global economy, raising fuel prices, increasing electricity costs, and pushing up the price of goods and services. For countries already struggling with inflation, such pressures could slow economic growth and complicate central bank policy decisions.

The impact may be particularly severe for energy-importing economies across Asia, Europe, and parts of Africa that rely heavily on Gulf crude supplies.

Global shipping and aviation industries are also watching the conflict closely. Airlines may be forced to reroute flights to avoid Middle Eastern airspace, increasing travel times and fuel costs, while insurers may raise premiums for ships transiting high-risk areas.

Financial markets have begun reacting as well. Investors typically move capital into safe-haven assets such as gold and U.S. Treasury bonds during periods of geopolitical tension, while equities tied to travel, logistics, and manufacturing often come under pressure.

If the conflict continues for several weeks—as U.S. and Israeli officials have suggested—the economic consequences could extend far beyond the immediate battlefield.

For Israel, the longer the restrictions remain in place, the greater the strain on businesses, government finances, and household incomes.

For the global economy, the most immediate risk lies in energy markets. A sustained rise in oil prices would ripple through supply chains and consumer markets worldwide, potentially slowing economic growth at a time when many countries are still dealing with the aftereffects of earlier inflation shocks.

Against this backdrop, economists warn that the longer the confrontation between Israel and Iran persists, the more likely it becomes that the conflict evolves from a regional security crisis into a broader economic shock felt across the global economy.

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Gold prices climbed 2% on Wednesday, rebounding sharply from a more than one-week low hit in the previous session, as the U.S. dollar took a breather and escalating military action in the Middle East — now in its fifth day — intensified safe-haven flows into the yellow metal.

Spot gold gained 1.8% to $5,175.39 per ounce by 0925 GMT, while U.S. gold futures for April delivery added 1.2% to $5,186.90. The metal has now risen 6.5% in February, contributing to a cumulative gain of 58% over the past seven months — one of the strongest sustained rallies in recent history.

The U.S. dollar index fell 0.1% against a basket of major currencies, making greenback-priced gold more affordable for buyers holding other currencies. The benchmark 10-year U.S. Treasury yield also eased, further reducing the opportunity cost of holding non-yielding gold.

Jamie Dutta, market analyst at Nemo. money, explained the rebound, noting: “After the past few days of position unwinds and dollar strength, markets are back to a more typical macro risk-off stance, with silver higher too. A pause in the rise of the dollar and Treasury yields helps with their opportunity costs. Gold and silver’s safe-haven characteristics can shine again.”

Gold had fallen more than 4% on Tuesday as investors piled into the dollar amid inflation concerns that dimmed expectations for Federal Reserve rate cuts. However, Wednesday’s recovery pinpoints a return to classic safe-haven dynamics driven by geopolitical escalation.

Middle East Conflict Enters Fifth Day with Intensified Strikes

U.S. forces continued round-the-clock assaults on Iranian targets, while Israel mounted a “broad wave” of strikes on Wednesday targeting Iranian missile sites and air defense systems. The conflict — sparked by U.S.-Israeli strikes over the weekend that killed Iran’s Supreme Leader Ayatollah Ali Khamenei — has now engulfed Lebanon (via Israeli-Hezbollah clashes), Gulf states (Iranian missile/drone attacks on U.S. bases), and Cyprus (a British air base strike). President Donald Trump told the Daily Mail Sunday the military campaign could last “four to five weeks, but that it could go on far longer than that.”

Global Market Reaction

Oil prices have soared as the conflict disrupts infrastructure and shipping. Brent crude hit a new 52-week high Monday at $79.40 per barrel before further gains, with analysts now forecasting sustained levels above $80–$85 if disruptions persist. Saudi Arabia’s Ras Tanura refinery (550,000 bpd) remains shut after a drone strike, Iraqi Kurdistan fields are offline, Israeli Leviathan and Tamar gas fields are idled, and uncertainty surrounds Iran’s Kharg Island export hub. Shipping through the Strait of Hormuz — handling 20% of global oil and LNG — has nearly halted after vessel attacks on Sunday, with insurers cancelling war-risk cover and tankers anchoring (200 vessels).

Airspace closures continue to devastate westbound flights from India and Europe. Many Europe/U.K. routes remain cancelled or rerouted, adding up to four hours of flight time and significantly raising fuel costs. IndiGo and Air India have suspended flights to/from the UAE, Saudi Arabia, Israel, Qatar, and parts of Europe. Aviation expert Mark D. Martin estimated the weekly impact on Indian/international carriers at ~?875 crore ($96 million), with disruptions likely persisting for at least another week.

Asian stocks tanked overnight as investors dumped crowded bets on chipmakers, fearing an oil shock would raise inflation and delay rate cuts. U.S. futures and European markets opened lower Tuesday, with safe-haven flows supporting gold and bonds while the dollar weakened.

Although Trump said he intends to provide Naval escorts for ships, the conflict’s duration remains highly uncertain. An extended Strait of Hormuz disruption would push prices higher. The situation has created room for market volatility, and gold is expected to rise further as investors seek a hedge.