The Bank of Israel issued a warning on Wednesday about the potential effects of Operation Roaring Lion on the Israeli economy, saying that the war would require “a sharp revision of the state budget for 2026.” But, for many experts, the conflict provides proof of Israel’s potential as a long-term investment.

The warning was centered around the Finance Ministry’s announcement that it would allocate an additional NIS 32 billion in defense and NIS 13 billion in “civilian needs in the event of the prolongation of the war.”

Bank of Israel’s assessment points out that this would drive the debt to almost 70% of the GDP, which is 10% more than what most developed economies currently have. According to the bank statement, this could impact Israel’s economy in the post-war recovery.

BoI further warns that these new increments will need to be taken into account for the upcoming budget project, which is still pending approval at the Knesset, and that it will impact “no war-related programs.”

“It is important to avoid at this stage budgeting new programs and decisions that are not required for the war effort, and in particular those that do not contribute to long-term growth,” the bank said, and urged the government to revise the so called “coalition budgets” (which are funds allocated to different members of the coalition in order to maintain the government’s support) and avoid expanding tax brackets in the near future.

Ron Senator, co-founder and managing partner at Sphere Funds hedge fund, told The Jerusalem Post that he agrees with the bank’s warning, explaining that the role of central banks is to analyse the short-term situation and the possible risks to the economy. But for him, this doesn’t impact Israel’s potential.

“While the Bank of Israel is right to monitor potential risks, long-term investors increasingly look at the underlying strengths of the Israeli economy and recognize that the country continues to generate opportunities even in a complex environment,” he said.

“Long-term investors increasingly look at the underlying strengths of the Israeli economy and recognize that the country continues to generate opportunities even in a complex environment,” Senator added.

The Bank of Israel asked for a revision of the 2026 state budget, which is yet to be approved by the government. According to the bank’s estimate, the current war will increase Israel’s deficit and debt-to-GDP ratio, two risk factors that could affect the economy in the short term.

The bank also warned of high global volatility, with markets – especially the energy sector – on high alert due to the current conflict. The possible closure of the Strait of Hormuz in Iran also heightened tensions in an already difficult situation.

“As we have seen many times in the past, markets initially react to uncertainty, but over time they tend to focus on economic fundamentals. Israel’s structural advantages in defense tech, innovation, cybersecurity, advanced technology, and human capital remain very strong,” he added.

For Senator, Israel’s main selling point these days is that it has built a highly adaptable economy that performs under pressure.

“Israel’s economy continued to grow, the technology and adjacent sectors kept attracting global capital, and the Tel Aviv Stock Exchange delivered a strong performance relative to many developed markets,” he told the Post.

This correlates with analyses from before and during the war, which found that returns on the Tel Aviv Stock Exchange (TASE) were higher than those an investor could have made on Wall Street.

A February report from TASE revealed that Israeli companies grew more when listed on the Tel Aviv market than in American markets, with double-listed companies growing at 68% in the local market and 55% in the US.

“Another factor is that some of the recent geopolitical developments have actually reinforced Israel’s strategic position. Events that highlighted Israel’s technological and operational capabilities have gradually shifted investor perception,” he added.

And while the potential is mainly pushed by Israel’s record-breaking defense exports, which were valued at $14.7 billion according to the Defense Ministry, for Senator, this represents the possibility for every sector to grab innovations from the military and create new civilian applications.

Historically, according to Senator, many of Israel’s most successful civilian technologies emerged from the defense ecosystem. He explained that cybersecurity, advanced communications systems, sensors, and artificial intelligence (AI) have deep roots in technologies initially developed for defense.

“When global demand for defense technology increases, the entire innovation ecosystem expands around it. Engineers, research institutions, venture capital, and technology entrepreneurs operate within a shared ecosystem that benefits from this momentum,” he explained.

Israel’s companies are gaining international recognition at a rapid pace, he pointed out.

“For many years, Israeli assets traded with a structural geopolitical discount compared to other developed markets. What we have seen recently is the beginning of a gradual shift in that perception.” According to Senator’s analysis, the “historical discount” that characterized the Israeli market has been rapidly narrowing in recent years, while the Israeli economy remains resilient.

“The combination of improving perception and strong fundamentals is what makes this moment particularly interesting for long-term investors,” he explained.

But to truly materialize this situation, Israel would need to fully integrate into the regional economy of the Middle East, something that has been underway since the signing of the Abraham Accords: “If the regional dynamics ultimately lead to deeper diplomatic and economic frameworks, including a potential expansion of the Abraham Accords, the impact on regional trade, infrastructure investment, and technology collaboration could be substantial.”

For the Tel Aviv Stock Exchange, that could translate into greater liquidity, higher foreign ownership, and stronger growth prospects across sectors such as energy infrastructure, technology, logistics, and defense systems.

Even with all of this, international investors interested in Israel are not “losing an opportunity to wait for the dust to settle,” he said, suggesting that they should investigate the region and its complexities before deciding to invest in Israel’s markets.

“For international investors who take the time to understand the complexity of the region, Israel increasingly appears not only as a story of resilience but also as a compelling long-term investment opportunity,” he concluded.