By its nature, war imposes incalculable costs. There is no way to put a price on the tragic loss of a son, a daughter, a parent, or a spouse. Nor is there any good way to measure the psychological costs of war, either on those who bear its burdens directly or those who live with secondary effects. When we hear that Hamas’s October 7 massacre was the proportional equivalent of fifteen 9/11s — or that the death toll of 900 Israeli soldiers killed in two years of fighting is proportionally four times that of the U.S. military in 20 years of fighting in Iraq and Afghanistan combined — it still fails to convey the depth of Israel’s suffering.
Yet there’s a side of war that is calculable — the financial side. For all the intangibles that make a nation victorious in battle, money is one thing a modern military can’t do without. With costs only increasing as the fighting drags on, along with the growing specter of isolation, Israel is feeling the squeeze economically, as Benjamin Netanyahu stated in September.
To give a sense of just how much the last two years of fighting have cost Israel, it helps to start relatively small. Over three separate skirmishes with the Islamic Republic — April and October of 2024, and then during the 12-Day War of June 2025 — the regime fired approximately 800 missiles at Israel. If we assume a 2:5 interceptor-to-missile ratio, the United States and Israel may have fired a total of around 320 interceptors. If we assume that Israel fired about two-thirds of the interceptors (a rough assumption), that would equal 213 Israeli interceptors. At roughly $4 million for each Arrow-3 interceptor, that amounts to $852 million.
That number is conservative. And it doesn’t include the Arrow interceptors deployed to shoot down dozens of Houthi missiles fired at Israel out of Yemen since November 2023. It is likely that Israel spent more than $1 billion on Arrow interceptions alone since the start of its multifront war.
Moreover, that estimate does not include the cost of shooting down dozens of cruise missiles, hundreds of drones, and thousands of rockets launched against Israel following October 7. Defeating many of those attacks required hundreds of Iron Dome and David’s Sling interceptors, and air-to-air munitions. Iron Dome is considered to be the least expensive of these defenses, yet it still runs at roughly $50,000 per interceptor.
Then there is the price of offensive operations. The number of precision, high-tech munitions fired at targets in Gaza, Lebanon, Yemen, Iraq, Syria, and Iran has yet to be made public. But there’s no question that the total runs well into the thousands, meaning that the cost will also run into the billions. In fact, since the war began, Israel has had $11.4 billion worth of air-launched munitions requests approved by the United States for purchase. And don’t forget the price required to fuel Israel’s fighter jets for thousands of sorties over Gaza, Lebanon, Syria, Yemen, and Iran.
And this is just the air war. Keeping troops in the field over hundreds of days of fighting, while maintaining, repairing, or replacing their equipment, adds additional billions to the check. So do repeated military mobilizations, which sap Israel’s economic vitality by removing tens of thousands of people from the civilian workforce.
Of course, there is the cost to Israel of preparing for the next war. The Israeli defense establishment has already decided it needs a far more independent defense-industrial base as a hedge against future boycotts or embargoes, like the one imposed by the Biden administration when it decided to suspend deliveries of 2,000-pound bombs. The development of cutting-edge military technologies that allow Israel to stay a step ahead of its enemies, such as the Iron Beam laser for which the state last year signed a $500 million contract with defense contractors Elbit and Rafael, will further strain the public fisc, even if the laser is ultimately able to dramatically reduce the cost of interceptions.
There’s also the cost of the wars to the home front. The destruction wrought by Iranian ballistic missiles — especially in central Israel — will require massive reconstruction, including $1.5 billion in property compensation and over $300 million to rebuild a single tower in Tel Aviv. Multiple towers were destroyed. Rebuilding the kibbutzim in the Gaza Envelope and northern communities such as Metula (where more than 60 percent of homes and buildings were destroyed by Hezbollah rockets) adds further billions.
Now consider some of the aggregate numbers. From October 2023 to June 2025, the cost of the Gaza war crept up, not only because of the length of the war but also because the ground operations expanded. Earlier this year, the Bank of Israel estimated that the war’s total cost through the end of 2025 could reach approximately $68 billion. This translates to a daily burden of $84 million on Israeli taxpayers.
Then came the war with Hezbollah in Lebanon. In November 2024, the direct and indirect damage to Israel’s north was estimated at roughly $1.5 billion. Approximately 75 square miles of land were burned in the north, with losses estimated above $100 million. As of September 2024, the cost of evacuating northern residents was $2.34 billion. That’s at least $3.84 billion in direct damage, indirect damage, and evacuation costs. And it doesn’t include the cost of the battles with the Assad regime in Syria or the destruction of the remnants of the Assad regime’s military assets and the expansion of Israel’s security perimeter on the Golan Heights.
Next came the war with Iran. The price of that campaign reportedly came to $10.5 billion, or nearly a billion dollars for each day of the war.
Last year, Israel ran a budget deficit of 6.9 percent of GDP. That’s more than twice the level of Germany’s and higher even than in France, the land of perpetual budgetary crisis. Israel’s defense spending as a percentage of GDP, which stood at 4.5 percent in 2023, has risen to a whopping 8.8 percent — the second-highest in the world, according to the Stockholm International Peace Research Institute. Israel’s Nagel Commission, headed by Brig. Gen. (Res.) Jacob Nagel, believes that those numbers are only going to increase.
Still, Israel is also getting a lot for its money. For all the physical destruction and human injury wrought by Iran’s ballistic missiles, Israel emerged from the daily barrages with just 29 fatalities, all terrible losses, but in their limited number an extraordinary tribute to the efficacy of Israeli air defense. The expensive bombs that killed Hassan Nasrallah and most of Hezbollah’s leadership removed a sword of Damocles over Israel’s head, as did the degradation of Iran’s nuclear and missile capabilities and the humbling of its regime. The air assaults that paved the way for the toppling of the Assad regime severed the link by which Iran supplied Hezbollah with its most potent weapons. Whatever happens in Gaza, it’s a safe bet that Hamas will never again be able to hurt Israel the way it did in 2023. Israel has emerged, once again, as the dominant military power in the Middle East.
Even so, Israelis will also have to pay to ensure that these victories aren’t fleeting, and how they do so will matter. Shortly after the fighting erupted in 2023, the Institute for National Security Studies warned against repeating the post–Yom Kippur War economic mismanagement that led to a “lost decade.” This was a period marked by the deadly combination of a stagnating economy and inflation. It’s too early to worry about such a bleak scenario right now.
Back in the 1970s, Israel’s economy was still dominated by a socialist state. Today’s Israel is decidedly capitalist. One of the bright spots for the country is that the Tel Aviv Stock Exchange has soared during the conflict, with Israeli high-tech and defense companies leading the way. It also helps that Israel entered the war in a strong fiscal position thanks to 20 years of prudent economic management. Even Israel’s debt-to-GDP ratio, which is projected to rise to 75 percent, remains relatively low by Western standards. In the United States, it is 124 percent; in Japan, 216 percent.
Still, the fiscal challenge Israel will have to face is daunting. The state intends to pare overall expenditures at the same time that demand for them — such as the cost of mental health services, reconstruction projects, or security for schools — rises. The government has already begun cutting civilian ministry budgets by roughly $5 billion, with a view toward bringing its budget deficits to below 3 percent over the next three years.
American aid will also help: In March, Secretary of State Marco Rubio used emergency authority to expedite approximately $4 billion in military aid. The Full-Year Continuing Appropriations and Extensions Act of 2025 maintained $3.3 billion of foreign-military financing and $500 million for missile defense and extended loan guarantees through 2030.
But there could be a limit to American generosity. The current 10-year memorandum of understanding between the United States and Israel, signed in 2016 and worth $38 billion, is set to expire in 2028. Even though most of those funds have been spent in the United States on American-made systems, with neo-isolationists working in the administration and congressional support for Israel not as iron-clad as it once was, Israel may have to envision a diminution, if not an end, to American aid — at some point. In the face of this uncertainty, Israelis will have to lean into the virtues that have allowed their state to survive and thrive in the face of continuous adversity: ingenuity, perseverance, adaptability, and self-reliance.
Among other blessings in disguise, Israelis will come away from the war with a keener understanding of how artificial intelligence and other advanced technologies work on a battlefield. No other war in history has been fought with so many inputs from this emerging technology. This is a value proposition that militaries and businesses around the world will pay good money to acquire — assuming that Israel is willing to share what it has learned.
Israelis have overcome far more severe economic challenges in the past. The country today enjoys a standard of living that could scarcely have been imagined 40 years ago, much less at the state’s founding. Per capita gross domestic product exceeds that of Japan and most European countries. And for all of its hardships, living in Israel offers something hard to come by in other democracies: People know who they are and what they believe. This will ultimately help secure the Jewish state as its people absorb the costs, and the lessons, of this long, difficult, and transformative war.