Why Israel’s Economy Is Thriving Now

It’s the most intriguing economic story that no one is watching.

Over the last two months, international markets have been roiled by the U.S. campaign against Iran, which has sent energy prices soaring and injected tremendous volatility into global supply chains on everything from oil to fertilizer. Against this backdrop, many countries have struggled to maintain their economic dynamism—and even their solvency. One, however, hasn’t.

Earlier this week, the Times of Israel reported that the shekel, Israel’s national currency, had strengthened significantly and was now trading at less than three to the American dollar. That historic benchmark hasn’t been met since the mid 1990s, when optimism over the unfolding Oslo peace process and an anticipated post-Cold War “peace dividend” fueled global growth and enthusiasm.

What accounts for this surge now? One factor is growing investor confidence. The past year of conflict with Iran, first in the form of the June 2025 Twelve-day War and more recently in last month’s “Operation Roaring Lion,” has served as a showroom of sorts for Israel’s cutting-edge defense technology, and people are taking notice. The country’s high tech and defense sectors have long been the engine of the so-called “Startup Nation.” But over the past several months, potential consumers have been given a front row seat to the battlefield effectiveness of Israeli interceptors, drones and long-range strike capabilities. This has translated into capital inflows and purchase orders that have greatly bolstered the Israeli economy.

Moreover, additional innovations are now in the pipeline. This includes advances in laser defense that, once mature, promise to drastically reduce the costs associated with intercepting adversary missiles—potentially from tens or hundreds of thousands of dollars per “shot” to just a few. And in time, such systems could do the same for other nations that face ballistic missile threats as well.

Another relevant factor is the inherent optimism of Israelis themselves. Despite a constant state of geopolitical siege, Israel has long ranked as one of the happiest places to live on Earth—a reflection of the country’s rugged, resilient individualism. That mindset is paying dividends now, as Israelis begin to look beyond the past two-and-a-half years of war with Hamas, Hezbollah and other radical actors—and toward a potential regional realignment in which the existential threat posed by Iran is lessened, if not eliminated entirely, and peace with Lebanon, once a pipe dream, suddenly seems like a real possibility.

As always, though, there are winners and losers in this economic picture. Smaller businesses in Israel are being disadvantaged by the strengthening shekel. “A dollar exchange rate below NIS 3 is a death blow to export profitability,” Israel Manufacturers’ Association President Avraham Novogrocki has explained to the Times of Israel. “A cumulative change of about 20% in the exchange rate completely erases profit margins and pushes factories to the brink of closure.” A more moderate, sustainable exchange rate, Novogrocki and others caution, would support the country’s economic growth far better.

Overall, however, the strengthening shekel stands as a powerful testament to how both foreign investors and Israelis themselves view the country’s long-term prospects. After two-and-a-half years of conflict, massive political shifts and a profoundly reshuffled regional strategic deck, Israel seems like an increasingly good bet to many.