Israel’s war economy – economic outlook following the Iran strike

ISRAEL - In Brief 14 Jun 2025 by Sani Ziv

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On June 13, 2025, Israel launched a major military operation inside Iranian territory, targeting nuclear sites, missile launch infrastructure, and senior military command centers. The strikes caused significant damage and reportedly killed several high-ranking Iranian officials and military officers. In retaliation, Iran launched missiles and drones toward Israel on Friday night causing serious property damage, three civilian deaths, and dozens of injuries. Iran subsequently announced it would suspend planned nuclear negotiations with the U.S. These events have significantly heightened geopolitical uncertainty and introduced renewed downside risks to Israel’s economy. Possible scenarios: strategic and economic implications A key uncertainty is how the confrontation will unfold. One scenario is that continued Israeli strikes could pressure Tehran into accepting a far-reaching nuclear agreement that dismantles its enrichment capabilities. However, such a move may be seen as capitulation, weakening the Revolutionary Guard and challenging the regime’s ideological foundations. For Tehran’s leadership, especially the IRGC, yielding under fire could pose an existential risk. Past events proved that such a capitulation is something Teheran refrains from doing. A second scenario is a “controlled confrontation”: several rounds of limited retaliatory strikes, followed by renewed talks between Iran and the U.S. This could lead to a partial deal allowing civilian uranium enrichment under supervision, while leaving core issues unresolved. While this outcome may serve U.S. interests by reducing tensions, it would likely fall short of how current Israeli government defines Israeli sec...