War is not only a humanitarian tragedy but also a significant economic burden for the nations involved. The “economics of war” refers to the study of the economic aspects and consequences of war and conflict. It encompasses a wide range of topics, including the costs of war, the allocation of resources for military purposes, the impact of war on the economy, and the economic motivations behind conflicts.
The recent escalation of tensions between Israel and Iran has brought to light the significant financial costs associated with combating drone attacks. According to reports from Israeli media outlets, the interception of dozens of Iranian missiles and drones overnight incurred substantial expenses for Tel Aviv, with estimates ranging between 4-5 billion shekels ($1.08-1.35 billion).
The price tag for intercepting a single Iranian ballistic missile using an ‘Arrow’ missile amounts to $3.5 million, while the cost of intercepting with a ‘Magic Wand’ missile stands at $1 million. Additionally, the deployment of aircraft sorties to intercept Iranian drones further added to the overall expenses.
Economics of War: Israel
Direct Costs of military operations, such as the expenses for weapons, equipment, personnel, and logistics. It also includes indirect costs, such as the impact on the economy, infrastructure, and human capital. The direct costs of war include expenses related to munitions, military equipment, and the salaries of military personnel. In the recent conflict, Israel spent billions of shekels on intercepting Iranian missiles and drones, as well as on the salaries of reservists.
Israel’s advanced missile defence systems, such as the Iron Dome and Arrow missiles, come at a significant cost. Each Arrow missile used for interception costs approximately $3.5 million, while the Magic Wand missile costs around $1 million per unit.
The involvement of aircraft in interception operations adds to the overall expenses, including fuel, maintenance, and pilot salaries. 300 Iranian drones and missiles, launched in response to Israel’s own strike on the Iranian consulate in Damascus were intercepted by these Arrow Missiles which would have cost Israel at least $1 Billion for one night.
Economics of War: Russia
Russia’s economy is intricately tied to the conflict in Ukraine. Despite facing international sanctions and geopolitical tensions, the International Monetary Fund (IMF) predicts Russia’s GDP to grow by 2.6% in 2024. This growth, however, is precarious, given the country’s reliance on oil, gas, and other commodities.
Russia’s role as a major exporter of oil, gas, metals, wheat, and corn makes it susceptible to supply shocks. The conflict in Ukraine has disrupted trade routes and reduced supplies, leading to higher commodity prices globally. Economics of War not only impacts Russia but also affects its trading partners.
The United States and the European Union have imposed stringent sanctions on Russia, targeting its financial institutions and energy sector. While these measures have had localized effects, the global economy has largely absorbed the shock. Russia’s economic resilience remains a subject of debate.
Beyond the immediate economic impact, the war has led to a brain drain in Russia. Skilled professionals and entrepreneurs seek stability elsewhere, affecting long-term innovation and productivity. The loss of human capital is a silent crisis that compounds economic challenges.
Economics of War: Ukraine
Ukraine, unfortunately, bore the brunt of the conflict. In the initial year of the war, it suffered a staggering 30-35% contraction in GDP. This is the most sever impact of Economics of War. The war compounded the existing challenges posed by the COVID-19 pandemic, plunging the nation into its deepest recession ever. Additionally, the displacement of approximately 5 million Ukrainians to neighbouring countries exacerbates the humanitarian and economic crisis in the region.
The war disrupted Ukraine’s production and export capacities. Infrastructure damage, reduced exports, and inflation have strained the economy. Moreover, global supply chains have been disrupted, affecting both Ukraine and its trading partners.
War exacts a toll beyond economic metrics. The loss of lives, displacement, and trauma impact social cohesion. Mental health issues rise, affecting workforce productivity and overall well-being. Addressing these non-monetary costs is crucial for long-term recovery.
Economics of War is distrubing, leaving scars that extend beyond the battlefield. Policymakers must weigh the costs of conflict against the imperatives of peace. As we analyze the economics of war, let us hope for stability and prosperity in these regions, fostering growth and well-being for all.
