Bank of Israel Governor Prof. Stanley Fisher warns of the dire consequences to the nation’s economy in the event the IAF attacks Iran. Actually, the experts explain that the “war economy” mode will begin even before the first Israel Air Force fighter jet takes off.

One Wednesday, 27 Menachem Av 5772, senior government officials including the defense minister, chief of staff and chief of military intelligence will convene to discuss the military’s budget for the coming years. The Iranian issue will not be on the agenda but the concerns expressed at the meeting will undoubtedly include the advancing Iranian nuclear program.

The treasury is demanding a multibillion NIS cut in defense spending in 2013 while the defense experts are calling to leave the current budget alone, calling on cabinet ministers not to cut the defense budget in light of the current security concerns facing Israel today.

Whatever the case will be the economic experts explain that if Israel does attack Iran, the nation will switch over to a wartime economy, which includes a decrease in tax collection and a growing budgetary deficit which many feel will be compensated by an increase in value added tax and/or income tax.

It is reported that as the war drums are beating, pointing to an Israeli attack against Iran in the fall of 2012, investment in Israel is on the downswing as war and investment do not go hand in hand. If an attack does occur, and Iran attacks, the international community will view the situation as one of regional instability and this will deter even more investors, thereby having a growing negative impact on the economy. Based on the actions of shipping companies and airlines during the Gulf Wars, they will take their planes and ships and run for the hills, which will have an impact on tourism and shipping, both imports and exports as well as the cancelation of agreements.

Fisher reports a foreign currency reserve of $75 billion, which he explains would give the government operational breathing space during the weeks following an IAF assault in Iran. In the event of war, the Bank of Israel will operate the financial market from the secure room in Jerusalem and the banking system will move to emergency mode, which means many bank branches will not open.

Some banks have already taken measures to back up and protect databases in advance of a military assault against Iran. However, not all banks have taken such measures and if a missile made a direct hit on a bank’s computer system, as was almost the case in the first Gulf War, the damage to the bank and clients would be irreversible. In the event of a state of emergency, the stock market may ask permission to halt trading. This would most likely lead to a sharp drop in the market, tens of percentage points, impacting long term investments such as pension funds and more. Insurance companies will have difficulty finding coverage for policies and insurances policies will most likely skyrocket according to many experts.

One should remember that during the missile strikes from Iraq against Israel during the 1991 First Gulf War, the entire international community stood firmly behind Israel, which may not be the case this time around if the military conflict is initiated by an Israeli strike in Iran. Some financial experts fear that if Israel launches an attack, the White House may give Israel a “financial cold shoulder” and the result in Israel could be “unprecedented financial collapse”.

(YWN – Israel Desk, Jerusalem)