How costly could another Iran war be for Israel?
Economists say Israel could absorb the financial blow, but the strategic and regional risks would stretch far beyond the defense budget.
The sudden movement of American warships closer to Iran raises a fundamental question: how much would a second round of conflict with the Ayatollah regime cost the Israeli economy? Although this appears to be a purely budgetary issue, it is inseparable from the strategic scenarios under which such a confrontation might unfold. The difficulty is not in calculating military expenditures, but in predicting the nature of the war itself, who would initiate it, which actors would join, how long it would last, and whether Israel would play an offensive role or primarily remain a defensive target, as occurred during the first Gulf War under the Shamir-Bush administration. Beyond the usual uncertainty over a war’s duration, this time there is an added challenge: determining the character of the conflict and the extent of Israel’s involvement.
It is important to remember that the first round, Operation “Rising Lion,” already carried a price tag: approximately 20 billion shekels ($6.5 billion) in direct military costs for 12 days of fighting, with roughly half of that amount devoted to defensive and offensive armaments. This figure is critical because it serves as the main benchmark for any future estimate. To sketch a preliminary assessment for a potential second round, Calcalist consulted two former economic advisers to the IDF Chief of Staff: CPA Ram Aminoach (2011-2014) and Dr. Sasson Haddad (2014-2017). A third senior defense official, familiar with the financial details of “Rising Lion,” also contributed on condition of anonymity.
“Calculating costs is easy. The real problem is not the cost, it’s trying to guess what the war will look like,” says Aminoach, former accountant general at the Defense Ministry. “If you tell me it will resemble the previous round, it will cost roughly the same. The question is not the price, but the direction the conflict takes.” Both Aminoach and Haddad agree on one key point: there is no single price tag for a war with Iran, but rather a very broad spectrum of scenarios, ranging from a few billion shekels to tens of billions. “The variation here is enormous,” Aminoach stresses. “It ranges from a situation in which Israel does not attack at all, or perhaps does not even participate, to a prolonged war lasting months.” He even raises the possibility that Israel could be asked by Washington to refrain from retaliating if attacked, similar to 1991, in order to preserve an Arab coalition under President Trump.
The third security source disagrees with some of these assumptions. In his view, if the United States strikes Iran, Israel will inevitably be part of the campaign; and if Iran attacks, Israel will not remain passive but will “seize the opportunity” to respond forcefully. According to this official, there is almost no scenario in which a second round would be cheaper than “Rising Lion,” unless it is significantly shorter.
Discussions with experts indicate that the central variable is the United States. The prevailing assumption within the defense establishment is that Israel will not launch a broad, proactive offensive without an American opening move. This marks a major difference from the first round, in which Israel initiated the campaign and shaped its tempo. Such a scenario is unlikely to repeat.
The relatively cheapest scenario would be one in which Israel does not attack at all. Yet even then, Aminoach warns, the costs would be far from negligible. “Even without an Israeli offensive, there are major expenses, air defense, Arrow and David’s Sling interceptions, readiness, defensive sorties,” he says. In such a case, military costs alone could reach 7-10 billion shekels.
The more probable scenario, according to most experts, is a short campaign similar to the previous 12-day round, in which Israel also carries out strikes. Official estimates at the time were 20-22 billion shekels, though Haddad believes the final figure may be slightly lower, under 20 billion. Aminoach argues the true cost was higher: “The 20 billion did not include many elements, computing, logistics and additional overhead.” In this scenario, estimates range from 15 to 25 billion shekels, depending on the duration, the intensity of fire on the home front, and the speed at which Israel achieves air superiority. “Complete air control was an extraordinary achievement,” Aminoach notes. “Without it, you cannot operate freely, and without that freedom, costs rise.”
The most alarming possibility is a prolonged campaign. If Washington hesitates, Iran chooses to drag out the confrontation, or Israel is drawn into an extended process, expenses could soar. “A war could last much longer than we imagine,” Aminoach says, recalling that “anything can happen in the Middle East,” and citing the eight-year Iran-Iraq war as a cautionary example. “If I had to bet, I’d put the military cost at around 25 billion shekels or more.”
The senior defense official describes costs as a product of three variables: time, armaments, and reserve mobilization. The last component is not expected to be dramatic. “As long as we do not exceed roughly 40,000 reservists per day, there is no budgetary problem, that is already planned for 2026.” Armaments, he says, will resemble the previous round; the main unknown is duration. Haddad agrees: Iran has ample missiles and manpower. “They do not lack missiles. The constraints are time, production lines, and fuel. Manpower is not the issue.”
Beyond military expenses lies the harder-to-quantify civilian damage: casualties, destruction of homes and infrastructure, evacuation costs, and harm to research and industry. “Civil damage is not a simple number,” Aminoach says. “Restoring a building in the center of a city, caring for displaced families, that is an entire economic universe.”
This is where the state compensation fund becomes crucial. According to data obtained by Calcalist, the fund held about 7.2 billion shekels at the end of 2024, and accumulated a further 3.4 billion in 2025, largely from purchase-tax revenue, bringing the theoretical balance to roughly 10.6 billion shekels at the start of 2026. Expenditure from the fund for “Rising Lion” has not been officially published; an informed estimate places it at around 4 billion shekels, give or take 1 billion. If accurate, the fund currently provides a reasonable cushion for another round, but it is not unlimited. A prolonged campaign with heavy shelling of population centers could quickly erode it.
Past experience shows that the economic impact extends well beyond defense budgets. Even short campaigns depress GDP, consumption, investment, and confidence for months. Yet Israel has repeatedly demonstrated a strong capacity for recovery: demand that is postponed during wartime often rebounds rapidly afterwards. This pattern was evident in 2025, as reflected in the Bank of Israel’s monthly economic activity index, which combines data on production, trade, consumption, employment, taxation, and financial indicators.
The index rose steadily until June, when the operation triggered an almost complete shutdown and a sharp decline. Recovery began immediately in July-August and accelerated by September-October, returning to its prior trajectory by year’s end. Unlike 2025, the current period finds the economy in a phase of rapid growth, expected to exceed 5% this year compared with 2.8% last year. These stronger opening conditions could prove decisive in shaping Israel’s ability to absorb another shock.
