The Aftershocks of the 12-Day War: Israel’s Economy and the Future of Foreign Workers

By ipsc

July 8, 2025

By Fatemeh Khadem Shirazi
Researcher and University Lecturer

International Peace Studies Centre – IPSC

What shook the Middle East and the world in June 2025 went beyond a mere military event. The 12-day war between Israel and Iran shattered traditional geopolitical boundaries and established new rules for regional security and the economy. Israel, with U.S. support, carried out targeted airstrikes on Iran’s nuclear facilities, while Iran retaliated with a barrage of missiles and drones aimed at Israel’s vital infrastructure. Like any modern conflict, this war had unpredictable yet profound effects on Israel’s economic and social fabric, consequences that were not easily contained.

Israel’s economy had already been under pressure long before this crisis, grappling with the prolonged war in Gaza and Lebanon, a stagnant private sector, and capital flight (1). However, the 12-day war and Iran’s entry into the equation revealed a picture of systemic and unprecedented recession. According to Al Jazeera, the initial direct costs of the war were estimated between $6.5 and $12 billion, primarily covering infrastructure repairs, reconstruction of damaged facilities, compensation for businesses, and severe disruptions to economic activities—from schools and factories to small shops (2).

Unlike previous attacks that mostly targeted marginalised areas, this time, the majority of Israel’s population was directly affected by the destruction and security restrictions. Key damaged facilities, such as the Weizmann Institute in Rehovot and the Haifa refineries, were among the critical sites. Estimates suggest the war’s costs exceeded 22 billion shekels (approximately $6.5 billion), leading to a decline in investment, eroded confidence among economic actors, and heightened risks for the banking system (3). Meanwhile, Israel’s public deficit surged past 6% at an unprecedented rate, and security expenditures grew exponentially (4).

On another front, one of the silent pillars of Israel’s economy—foreign workers, who drive construction, agriculture, elderly care, and domestic services—was hit harder than any other group (5). Official data from Israel’s Ministry of Immigration (2024) indicates that over 300,000 migrant workers (both legal and undocumented) play a key role in the country’s economy. The wartime conditions, widespread missile attacks, and persistent insecurity forced many of these workers into unemployment, drastic income reductions, or outright flight. According to Union Journal, at least 20% of Thai workers in agriculture left Israel (6). The exodus of these workers, particularly in sectors reliant on their skills and continuous presence, led to production stagnation and a crisis in agricultural output. Rising unemployment among locals due to business closures also intensified competition for jobs (7).

On a psychosocial level, Israel, a society already marked by significant identity divides, suddenly faced the trauma of war and the fragility of collective security. The duality between national unity against an external threat among the dominant class and the growing sense of alienation among migrants and minorities became more pronounced. Even media outlets like Haaretz and The Times of Israel criticised the government’s policies regarding support for migrants and minorities in vulnerable areas (8). The labour shortage crisis also led to the suspension or withdrawal of foreign investment projects. In the weeks following the war, according to Globes, at least four international companies halted their projects (9). A drop in the Tel Aviv Stock Exchange and a 20% decline in the value of some tech companies further exacerbated the economic and psychological pressure (10).

In response, the Israeli government, which had championed domestic unity before the war, was forced to abandon its threatening stance toward migrants and instead introduced incentive packages, established safe camps, and streamlined work permit issuance (11).

However, trust between migrant communities and government decision-makers was not easily restored, and the continued reverse migration kept economic risks high. Reduced willingness from countries like Thailand and the Philippines to send workers, coupled with restrictive measures from Arab nations on labour exports to Israel (12), created new and serious challenges for Israel’s economy, which relies heavily on foreign labour. From a regional perspective, this labour deprivation led Israel’s Arab allies to reconsider their support for Tel Aviv and drove up the costs of sourcing workers from East Asia (13).

Ultimately, the 12-day war marked a turning point for Israel’s fragile economic and social structure. The massive financial costs, deepening private-sector recession, rising social insecurity, and the reverse migration of foreign workers left the regime with wounds that even continued U.S. support could not easily heal. The uncertain fate of “rented people”—the migrant labour force—remains an unstable and unpredictable variable. These workers, silently central to the economy, have no share in its security or future. Without deep reforms and structural support for this workforce, Israel’s economic resilience will continue to weaken, and its social divides will deepen.