Economist warns EU sanctions could cost Israeli economy billions of dollars

Professor Dan Ben-David, a prominent economist at Tel Aviv University, warned on Wednesday that Israel could lose billions of dollars if the European Union follows through on its threat to cancel its trade agreement with the country.

"Countries cannot fulfil all of their needs by themselves and that is especially true in a small country like Israel," Ben-David said in an interview with the Israeli news outlet Ynet News, stressing that the EU is currently Israel’s largest trading partner. 

"If they begin to impose restrictions, it will have a considerable effect on our ability to obtain what we need and will limit our ability to sell to others. This will massively complicate things," he said, adding that Israel's standard of living is expected to decline.

The EU announced earlier this week that it would formally review its trade agreement with Israel due to the “catastrophic” situation in Gaza. Like Canada and the United Kingdom, the EU opposes Israel’s new military offensive against Hamas terrorists and has demanded that Israel facilitate the inflow of significantly more humanitarian aid into the Gaza Strip. 

“The aid that Israel has allowed in is, of course, welcomed, but it's a drop in the ocean. Aid must flow immediately, without obstruction and at scale, because this is what is needed,” EU top diplomat, Kaja Kallas, told media representatives on Tuesday. 

Since the Hamas Oct. 7 attack in 2023, Israel has facilitated the transfer of thousands of humanitarian aid trucks into Gaza. However, the Israeli government has increasingly warned that Hamas steals the humanitarian aid and uses it as a political and financial tool to stay in power and exercise its influence in the Gaza Strip. Israel has sought to establish a new mechanism for distributing the aid, transferring it directly to civilians.

However, a growing number of Western governments are increasingly critical of Israel’s military operations against Hamas.

Looking ahead, Ben-David warned that trade sanctions against Israel could have negative long-term consequences for the Jewish state and its living standards. 

"This Pandora's box that we do not yet know what it will reveal," he argued. "We are a small country and there are limits to force, which this crazy government simply does not understand. It will impact our ability to belong to the 1st world and we will not be able to hold on to our most talented people. It is a slippery slope."

"It took decades to bring Israel to the position that it is seen as a part of Europe, although we are in the Middle East and that includes agreements such as our free trade deal with the EU. We are about to destroy what we spent decades building," he added. 

Ben-David has argued that Israel’s current economic demographic trajectory is not sustainable in the long term.

In January, he wrote in Israel Hayom that Israel needs to urgently upgrade the education system and especially integrate Arab Israelis and ultra-Orthodox Israelis into the Israeli economy and workforce. 

Israel currently has a Gross Domestic Product (GDP) per capita that is comparable to many European economies. However, economists have warned of the long-term consequences of the ongoing Gaza War.

Last year, Bank of Israel Governor Amir Yaron estimated that the war in Gaza could potentially cost the Israeli economy $67 billion, making it by far the most expensive war in modern Israeli history.