Economic considerations and incentives typically play strongly into the calculations of leaders in conflict. While this is true for Middle Eastern nations, an emphasis on religious and ideological disputes obscures the impact of economic and resource-based factors. In the current conflict between Israel and Hezbollah , economic concerns within Israel put pressure on the government to end the conflict before mid-August. Meanwhile, a different set of incentives spurs Hezbollah to maintain fighting with Israel at the current level for a longer period of time. This could lead to Israel looking for a deescalation or ceasefire before the attainment of its articulated military objectives: pushing Hezbollah back from the border and depriving it of much of its military capacity.
Economists estimate that the Israeli economy may be losing as much as US$112 million a day, excluding military expenditures and property destruction, due to the conflict. Losses come in the form of decreased production or closing of factories in northern Israel, damage to the tourism sector, and the closing of ports at Haifa and Ashdod. However, the Israeli economy is expected to weather the conflict well. This year, it was expected to experience a rate of growth higher than any year since 2000. Some analysts have even looked at a fall in stock prices due to the conflict as a good opportunity to invest at a lower price in a market that is expected to rebound easily and continue a strong rate of growth.
“War is unpleasant, but if Israel could have chosen the economy’s best point for being attacked, this is the best timing because it is facing this challenge from very, very solid ground,” said Ella Fried of Dun & Bradstreet Israel in a Reuters report. Economically speaking, Israel is on good footing for a short-term war and is not expected to make significant adjustments to economic forecasts.
Economic incentives may play a role in driving an intense, short-term (ie a month-long) conflict. If Israel can accomplish some of its military objectives in southern Lebanon , then improved security conditions in the north could help spur the development of the area. The destruction of Hezbollah rockets that can reach Tel Aviv, the commercial and financial heart of the country, will also improve the investment and business climate.
However, pressure on the Olmert government to cut the conflict short will mount quickly, as the cushion in the Israeli economy that is absorbing blows begins to thin. There are hints that the government will respond to this pressure. First, the Israeli business community makes up an important part of Olmert’s base. Second, Israel’s Finance Minister announced on July 20 that there were no plans to exceed fiscal targets set for the year, a signal to investors that the conflict would be brief.
As the return on investment, militarily speaking, of the Israeli ground incursion into southern Lebanon shows signs of waning, the pressure on Olmert will mount quickly, within a day or two, to move toward a ceasefire so that the economy can recover to meet optimistic forecasts. This will be pronounced if continued Israeli aggression does not deliver improved security conditions and attendant economic advantages for northern Israel.
Hezbollah deals with a different set of incentives. The longer it fights limited Israeli incursions into Lebanese territory and continues firing rockets at Israel, the more outside support it can attract. The conflict and Hezbollah’s portraying itself as the only defender of Lebanon’s southern border is bound to bring a flood of outside donations from expatriate Lebanese in communities and its state sponsors. Much of the damage to Hezbollah’s physical infrastructure has been done, and so there is little left to lose in extending the conflict. Individuals within the Hezbollah power hierarchy are more likely to be personally financially rewarded for their continued aggression than they are for entering in to talks for a long-term peaceful solution. From a political perspective, as the Lebanese Shia are made poorer and more desperate, they will be more reliant on Hezbollah’s services and resources, making the militia more politically powerful within its own base even as other factions in Lebanon align against it.
