Cost of a War: The Economic and Financial Impacts of a War
- Shivang Sajwan, Abhimanyu Kumar, Adhiraaj Ahuja
- Oct 8
- 4 min read
INTRODUCTION
War has historically shaped global civilizations and redefined economic trajectories through its profound and often devastating impacts. While the human lives lost are widely recognized, the economic effects are usually underexamined. From the Israel-Palestine conflict to the Russia-Ukraine war the economic aftershocks of a war continue to influence fiscal policies, trade policies and economic development of a nation. The paper seeks to quantify and put into context the full economic burden of a war through the case study of the ongoing Israel-Palestine conflict and Russia-Ukraine war. Drawing from case studies, this research paper aims to offer insights into establishing a foundational framework for more accurate economic forecasting in conflict prone areas.
ISRAEL-PALESTINE CONFLICT
The ongoing Israel-Palestine conflict has evolved into a conflict with far-reaching economic and financial burdens for both the countries with ripple effects on the global economy and international trade. The conflict, which has intensified since October 2023, has triggered unprecedented economic contractions, shipping disruptions, and market volatility that continue to reshape economic realities across the Middle East and beyond. For Israel, 90% of the economic shock will come up in the form of indirect effects such as reduced investment, a disrupted labor market and slowed productivity growth.
Oil markets have shown sensitivity to developments in the conflict as prices have been significantly affected with escalations and de-escalations in the conflict.
(Source : Yahoo Finance)
Following the announcement of a ceasefire agreement between Israel and Hamas in January 2025, oil prices decreased, with Brent crude falling by 0.4% to $81.30 per barrel and West Texas Intermediate (WTI) dropping by 0.3% to $78.90 per barrel. However, the fragility of ceasefire arrangements has maintained underlying volatility in oil markets.
While the broader market indices such as SnP 500 and NASDAQ remained largely unaffected by the conflict, the defence sector experienced a noticeable surge. Stocks of major defence contractors such as Lockheed Martin and Northrop Grumman, saw significant gains contributing to an approximate rise of 5% in the aerospace and defence sector market.
(Source: Calcalistech.com)
Both Israelis and Palestinians will require substantial external support for recovery, which may create economic incentives for a long-term political solution. The economic benefits of peace might constitute a common rationale for cooperation, shifting focus from the political impasse over Palestinian sovereignty to shared economic interests.
The path to economic recovery faces significant obstacles. The Palestinian Authority's growing financing gap threatens stable governance as well as public service delivery. Gaza's economy has been so thoroughly devastated that rebuilding essential infrastructure will require massive investment and international support. Israel's economy faces reduced investment and productivity growth that could hamper long-term economic performance.
RUSSIA-UKRAINE CONFLICT
The Russia-Ukraine war, escalating in February 2022, has triggered significant economic consequences for both nations. Ukraine's GDP plummeted by an estimated 30-35% in 2022 , with over $524 billion needed for reconstruction. Millions have been displaced, creating a substantial labor shortage. Russia's economy, while initially resilient, faced a 2.3% GDP decline in 2022 due to sanctions that have frozen around $340 billion of its reserves. Military spending in Russia has surged, reaching 6% of GDP in 2024. Global economic impacts include increased inflation and disruptions in energy and food markets.
If the war persists, Ukraine faces prolonged economic hardship with continued infrastructure destruction and a slow recovery. Despite expected GDP growth, reaching pre-war levels may take until 2030 or beyond. Persistent labor shortages and reliance on substantial foreign aid will remain critical challenges. The fiscal deficit is projected to remain high, increasing the public debt-to-GDP ratio.
Russia's economy, while showing unexpected resilience in the short term, will likely face increasing strain from prolonged sanctions and a growing dependence on military spending. Labor shortages and limited access to Western technology will hinder long-term growth. The shift towards a war economy could lead to stagflation and a decline in the standard of living.
CONCLUSION
This research showcases the profound effects of warfare that are not only limited to loss of human lives but also to the far-reaching global economic effects of war. Both case studies reveal that the true cost of war extends far beyond immediate destruction, permeating long-term economic stability, global markets, and fiscal resilience.
The Israel-Palestine conflict has demonstrated how regional instability triggers oil price volatility, disrupts labor markets, and reshapes investment patterns, while disproportionately benefiting defense sectors. Similarly, the Russia-Ukraine war has precipitated severe GDP contractions, labor shortages, and global inflationary pressures, with reconstruction costs and sanctions imposing enduring burdens. Notably, both conflicts highlight the paradox of war economies: short-term sectoral gains (e.g., defense stocks) contrast sharply with long-term national and global economic degradation.
The findings emphasize that recovery hinges on sustained international aid, diplomatic cooperation, and economic incentives for peace. For Ukraine and Palestine, reconstruction demands unprecedented external funding and institutional support, while Israel and Russia face structural challenges like reduced productivity and technological isolation. Globally, the ripple effects of energy market disruptions, inflation spikes, and trade realignments stress the interconnectedness of modern economies.
Shivang Sajwan is an Analyst at IFSA Hansraj Abhimanyu Kumar is an Analyst at IFSA Hansraj
Adhiraaj Ahuja is an Analyst at IFSA Hansraj
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