There is war again in the Middle East. After years of relative peace, Hamas fighters broke out of Gaza, murdered non-combatants including grandmothers and babies, and took civilian hostages before returning to Gaza. The Israeli Defense Force called up 300,000 reservists. Israel has turned off the electricity and blockaded Gasa. The people of Gaza are without external supplies of food, water, medicines, or fuel. An invasion by Israel and house to house fighting are next. For those who are invested in Israel or thinking of investing in Israeli companies, are investments in Israel safe?
The Political Picture In Israel Before the Hamas Attack
In 2020 the United Arab Emirates established diplomatic ties with Israel making them the first Arab nation to do this since Jordan in 1994 and Egypt in 1979. They were followed by Bahrain and Morocco the same year. This year there was serious talk about Israel and Saudi Arabia coming to some sort of diplomatic agreement. In the meantime, a right wing Israeli government under Benjamin Netanyahu continued to seize land in the West Bank occupied territory and move to change laws so that they could remain in power. The “Palestine issue” was becoming increasingly marginalized as Middle East governments looked to economic issues. Although nothing excuses the ISIS-like slaughter of civilians by Hamas, it helps explain the timing of the attack.
The Investment Picture In Israel Before the Hamas Attack
Israel and especially Tel Aviv has come to look like a small version of Silicon Valley with a vibrant tech sector featuring tech startups. The constant risk that Israel faces of trouble with its neighbors did not deter investments in Israel in recent years. What did reduce investor interest was Netanyahu’s push to reduce the power of their supreme court and cement permanent control by his right wing government. The Times of Israel noted in September that foreign investments in Israel had fallen by 60% in the first quarter of the year. The stated reason was concern about the judicial overhaul and the potential loss of democracy in the country. Despite Israeli internal business concerns, other nations in the region appeared to be more interested in doing business with Israel than in fighting them.
Investments in Israel
For those interested in investing in companies in Israel, there are lots and lots of them that trade as American Depositary Receipts, Israel ADRs, in the USA. There is also a whole lot of foreign direct investment. That sort of investment is what fell off early in the year as investors worried about the future of this democratic nation. The new war with Hamas adds a potential new (or old and returned) dimension, the survival of Israel. At the current time, diplomats are running around the Middle East trying to keep the war from spreading and bringing in other state or non-state actors. The US has dispatched two aircraft carrier groups to the eastern Mediterranean and moved fighter aircraft into the region. President Biden has overtly warned non-state actors like Hezbollah and state actors like Iran about becoming involved.
How Will the New War With Hamas Affect Investments in Israel?
No matter how bad the situation gets with fighting between Hamas and the IDF, the physical safety of Israel and Israeli businesses is likely not in jeopardy. What is going to be at risk are investments to build up the Israel tech sector and a potential expansion of Israel’s business interests throughout the Middle East. On the political side, there had already been talk of businesses relocating out of Israel and key tech personnel leaving due to the perceived move away from a democratic government. The slaughter of more than a thousand innocent civilians has reminded Israelis of the Holocaust that took millions of Jews and why they wanted their own country in the first place. In all likelihood the IDF will invade Gaza and seek to eradicate all vestiges of Hamas. The issue for those with investment interests in Israel is how far back it will set potential business interests as well as diplomatic ties throughout the region and for how many years, decades, or lifetimes.
SlideShare Version – Are Investments in Israel Safe?