Senior Finance Ministry officials are voicing deep concern that a renewed military campaign against Iran could trigger a third consecutive year of painful budget cuts, following two years of the longest war in the nation’s history.
Officials warned that another round of hostilities with Tehran would cost the defense establishment tens of billions of shekels and require the government to pay out billions more in compensation for expected damage to property and infrastructure, should Israel come under heavy missile fire.
“A new war with Iran must be weighed seriously from an economic perspective,” a senior Finance Ministry official said Tuesday. “The damage to the economy could be enormous.”
The official pointed to significant additional defense spending and large-scale compensation for both direct and indirect damage to households and businesses, expenditures that would leave the government facing three undesirable options: increasing the national budget deficit; breaching the state budget again, as it has for the past two years even before final approval of the 2026 budget; or imposing deep cuts across government ministries, potentially alongside new taxes. The latter, officials noted, would be politically fraught in an election year.
Following last summer’s Operation Rising Lion, the Finance Ministry was forced to breach the budget framework by 30.8 billion shekels and imposed cuts on multiple ministries. Another round of hostilities with Iran, officials fear, could have an even greater economic impact.