Backlash over Gaza war hits parts of Israel鈥檚 economy. Will it last?
| Tel Aviv, Israel
Cookies, nuts, and dates were on display at the Israeli stand at the Anuga food and beverage trade fair in Cologne, Germany, in early October, just before a fragile ceasefire between Israel and Hamas took effect in Gaza. Potential European buyers sampled the items, praising their flavor.
But when they learned the products were made in Israel, 鈥渢hey left them on the table and walked away,鈥� says Dan Hecht, managing director and co-founder of Export IL, which helps Israeli companies sell their goods abroad.
Earlier this year, a Dutch supermarket chain stopped restocking Israeli crackers, and a Norwegian retailer halted purchases of Israeli produce after its stores were vandalized by anti-Israel protesters, Mr. Hecht says.
Why We Wrote This
Despite Israel鈥檚 war with Hamas and Iran, its economy grew, if modestly, due mostly to its strong tech sector. But calls to boycott Israel over the conduct of its war in Gaza appear to have hit some exports. Will that rage subside if the ceasefire holds?
鈥淭here were always groups of extreme Islamists that sometimes made trouble,鈥� says Mr. Hecht, who has worked in exports for 16 years. But 鈥渋n the past year, this has become unprecedented.鈥�
The global backlash against Israel as it retaliated for Hamas鈥� devastating Oct. 7, 2023, attack grew amid perceptions of severe Israeli overreach. An estimated 69,000 Palestinians have been killed in Gaza, the coastal enclave has largely been reduced to rubble, and some have called the campaign genocide, a characterization Israel vehemently rejects.
While the backlash has largely targeted Israeli academia, cultural events, and , it has also spilled over into the economy, raising concerns in Israel of increasing isolation. In September, this led Prime Minister Benjamin Netanyahu to warn, in a statement from which he later backtracked, that the nation could become a 21st-century 鈥渟uper-Sparta鈥� 鈥� an isolated, self-reliant, and militarized state.
Decline in exports
鈥淲e have always tried to separate the economy from politics,鈥� explains Dan Catarivas, president of the Israeli Federation of Bi-National Chambers of Commerce and Industry. But now, 鈥減ublic opinion has managed to affect governments and given legitimacy to using the economy as a tool to influence Israel and its policies and the war. And even countries with which we have good relations are toeing the line.鈥�
According to the Central Bureau of Statistics, Israeli exports from January through October 2025 have declined 8% compared with the same period last year, though analysts caution the reasons could be due to global sectoral changes and cannot be fully attributed to a boycott.
Yet Victor Bahar, chief economist at Bank Hapoalim, one of Israel's largest banks, says sectors like tourism, chemicals, diamonds, and electronic components have been hit more than other industries. Those include technology-based sectors in which Israel has an edge over global competition, and which have a larger share in total exports than the worst affected industries. And part of the drop in numbers can be attributed to Israel鈥檚 deteriorated global standing, he says.
鈥淓xports to Turkey, which totaled $1.5 billion in 2023, almost vanished in 2025. Exports to Ireland also declined substantially,鈥� he says.
In September the European Commission cutting trade ties and imposing sanctions on Israel; Spain announced an arms and partial import ban; and U.S. tech giant Microsoft, which has a large R&D center in Israel, said it had disabled some services it provided to the Israeli Ministry of Defense over they were being used for mass surveillance of Palestinian civilians.
It鈥檚 鈥渂etter when the cannons aren鈥檛 roaring鈥�
Israel and Hamas reached a U.S.-brokered deal on Oct. 9, for the return of the Israeli hostages, the disarming of Hamas, a withdrawal of Israeli forces, and the reconstruction of Gaza under a still-to-be-determined international and Palestinian governing body. On Monday, the United Nations Security Council approved U.S. President Donald Trump鈥檚 20-point ceasefire plan for Gaza.
Now, as the fragile ceasefire holds, there are hopes in Israel that the threat of economic isolation will be nipped in the bud and the anti-Israel trend will reverse.
鈥淭hings are better when the cannons aren鈥檛 roaring,鈥� says Mr. Catarivas. 鈥淭hings don鈥檛 change overnight. But I hope that what is happening now can help fix the damage.鈥�
Economic considerations played little role in the Israeli government鈥檚 war policies, says Mr. Bahar. That may be because the economy has shown remarkable resilience, 1% in 2024 even as the war raged on.
This year, the Tel Aviv Stock Exchange has hit highs while the shekel has , amid perceptions that in the nation鈥檚 longest, multifront war, Israel has managed to weaken Hamas, Iran, and the latter鈥檚 regional proxies.
Israel鈥檚 economy is now poised to rebound as the conflict winds down, driven by investment in housing, infrastructure, and the rehabilitation of towns and villages damaged by the war, Mr. Bahar says.
In September, the Bank of Israel that the economy will grow 2.5% in 2025 and surge 4.7% in 2026. Yet its governor, Amir Yaron, also issued a warning.
鈥淚nternational sentiment towards Israel has recently deteriorated,鈥� he said. 鈥淚srael depends to a considerable extent on its participation in the global economy 鈥� in terms of international trade, foreign investment in the economy, and various collaborations. Therefore, Israel must do all that it can to strengthen its international standing.鈥�
Solution is political
Yair Golan, leader of the opposition party The Democrats, says he is 鈥渧ery concerned鈥� about Israel鈥檚 increased economic isolation, but the solution is political.
鈥淚f there is a new government that wants to reach regional accords with the Emiratis and the Saudis, that will generate optimism and unprecedented growth. But if we continue to have a right-wing government, we will have a third intifada and instability, which will lead to even more isolation.鈥�
Much of Israel鈥檚 economic recovery will depend on its high-tech sector, the main engine of the nation鈥檚 economy. It accounts for over 50% of Israel鈥檚 exports and about 20% of GDP.
Tech firms raised nearly $11.9 billion from investors in the first three quarters of 2025, a 13% increase over the same period last year, according to Startup Nation Central . Mergers and acquisitions soared to $71 billion, almost five times higher than in the same period in 2024.
This was due mainly to two major deals: Google鈥檚 $32 billion all cash deal for Israeli cybersecurity firm Wiz, and Palo Alto鈥檚 deal for information security company CyberArk. Nvidia, the U.S.-based chip maker that became the world鈥檚 first company, said it would expand and the number of employees in Israel in the coming year.
鈥淚f you look at the numbers, Israel鈥檚 tech economy is emerging from the war stronger than ever,鈥� says Jon Medved, founder of the Jerusalem-based venture capital firm OurCrowd. The data shows that Israel鈥檚 tech sector 鈥渋s almost not correlated to geopolitical events,鈥� he says.
Still, not all is bright in Israel鈥檚 tech world. Some startups and VC funds found it harder to raise money and do business as some investors and customers preferred to take a more cautious approach because of the war.
鈥淧endulum has tipped too far鈥�
Nir Bar-Lev, CEO of cybersecurity firm HEQA Security, says the Israeli-registered firm may need to open subsidiaries abroad for better access to foreign markets. During the war, he recalls, a government-affiliated firm in Western European tried, unsuccessfully, to cancel a signed contract.
HEQA raised $5 million in 2024 from Israeli investors, but the process was 鈥渆xtremely difficult,鈥� Mr. Bar-Lev says. Reaching out to foreign investors at that time, he says, 鈥渨as completely out of the question.鈥�
Looking ahead, Mr. Bar-Lev sees a 鈥渄ichotomy鈥�: Some clients and investors want to get back to 鈥渂usiness as usual,鈥� while for others the 鈥渂ad sentiment is going to stay. It鈥檚 like the pendulum has tipped too far for them to go back.鈥�
For things to go back to normal, says Uri Gabai, a board member at the think tank RISE Israel, the best outcome would be for Israel to be 鈥渙ff the news.鈥�
Wait-and-see investors are likely to come back, he says, 鈥渂ecause the fundamentals of the Israeli economy and the Israel tech industry are very good.鈥� Eventually, he says, good companies will always find backing.
Export IL鈥檚 Mr. Hecht notes that Israeli exports are growing in the U.S. despite tariffs, but that there is concern that as the younger U.S. consumers grow to be more economically empowered, 鈥渢hey will make things hard for us.鈥�
鈥淲hat we try to do is offer innovative products, that have an innovation advantage,鈥� he says.
