Ceasefire with Iran sparks economic optimism in war-weary Israel

Nearly two years of incessant war have battered the Israeli economy, but Israelis hope that the recent ceasefire with Iran and the IDF’s significant weakening of its terrorist proxies in the region will bring an economic 'peace dividend' with neighboring countries.

Since June 15, when Israel’s strikes on Iran – known as Operation Rising Lion or the 12-day war – had already begun, Tel Aviv share indexes have surged by double digits. In addition, the shekel has appreciated 8% since June 13, hitting a more than two-year peak. Furthermore, Israel's risk premium, the cost of insuring government debt against default, has declined sharply. This has led to speculation that interest rates may be cut as soon as August. 

According to Gil Dotan from the IBI Investment House, investors are anticipating “new opportunities that may arise with Israel's neighbors.” Some of that optimism is driven by numerous reports about new Abraham Accords that have been floating around since the end of the war against Iran with the leading candidates being Saudi Arabia and Syria.

A senior Israeli official confirmed last week that there are “advanced talks” on a bilateral agreement halting hostilities between Israel and Syria.

The official said that for now, the talks focus on security issues and cautioned against enthusiasm. “Could it develop into something beyond? We will wait and see. For now, there isn’t anything concrete.”

The chief economist at Israel’s Ministry of Finance Shmuel Abramzon said that there is a widespread atmosphere of “de-risking”: 

“We are witnessing an extensive situation of de-risking. We are removing an existential threat and also an economic threat, as well as geopolitical risks.”

Despite the recent optimism, Israel’s economy took a sharp hit from the costly Operation Rising Lion, compounded by the seven-front wars the country has been fighting almost continuously since Hamas launched the Gaza War (Iron Swords War) with its attack on Oct. 7, 2023.

Until Operation Rising Lion, said Karnit Flug, a former Bank of Israel Governor and now a senior fellow at the Israel Democracy Institute, Israel’s economy showed surprising resilience. 

“Before this episode with Iran we were generally positively surprised with the resilience of the economy given the very long war with Gaza,” Flug said. Now, however, J.P. Morgan has lowered its growth projection for Israel from 3.2% to 2% following the 12-day war. Israel’s Finance Ministry is in the process of reassessing its original growth forecast of 3.6% following the economic damage from the war, which has been estimated at NIS 8 billion ($2.37 billion). 

According to Israel’s Statistics Bureau, 35% of businesses in Israel reported losing more than 50% of their revenue in June. Many were forced to shut down or scale back operations – struggles that began as early as Oct. 7, 2023. Businesses reliant on tourism were especially hard-hit, as tourism has sharply declined since the war began. Overall, over the past 20 months, Israel has faced rising consumer prices – already high before the war – stagnant growth, and a significant increase in national debt, largely due to a sharp rise in defense spending.

On the bright side, Israel’s high-tech sector – one of the main drivers of its economy, accounting for 20% of economic activity – is flourishing. According to Startup Nation Central, Israeli tech firms raised more than $9 billion in the first half of 2025, marking the sector's strongest six-month performance since 2021. By comparison, tech firms raised $12 billion in all of 2024.