Last week, this newsletter took a look at some of the Israeli economy’s surprising signs of strength, including a growing tech sector attracting foreign investment, and a major source of offshore natural gas about to be exploited. Naomi Feldman takes a more comprehensive look at the country’s economic and fiscal health:

The first quarter of 2024 saw the economy bounce back to a large extent after the shock of October 7, 2023. But recent indicators now suggest a slowdown in economic growth during the second quarter of 2024 and beyond.

Wars are expensive. Given the government’s rising revenue demands, it has turned to its two main revenue-raising tools: selling bonds (debt) and taxation. The ongoing geopolitical uncertainty contributes to Israel’s currently high risk premium, meaning that investors require a higher rate of return for investing in Israeli bonds, which raises borrowing costs and potentially further impacting economic growth and stability moving forward.

Israel has been in similar situations in the past and has taken the necessary economic steps to right the fiscal path. By leveraging its experience and resilience, there is hope that the country can navigate these challenges and emerge stronger, with renewed opportunities for growth and economic prosperity.

Small in area and population and rich in natural gas, Qatar plays an outsize role in the Middle East. While its support keeps Hamas in business, it also has vital relations with Israel that are much better than those enjoyed by many other Arab countries. Doha’s relationship with Washington, though more complex, isn’t so different. Yoel Guzansky offers a comprehensive examination of Israel’s Qatar dilemma:

At first glance, Qatar’s foreign policy seems filled with contradictions. Since 1995, it has pursued a strategy of diplomatic hedging—building relationships with multiple, often competing, actors. Qatar’s vast wealth and close ties with the United States have enabled it to maneuver independently on the international stage, maintaining relations with rival factions, including those that are direct adversaries.

Qatar plays an active role in international diplomacy, engaging in conflict mediation in over twenty regions worldwide. While not all of its mediation efforts have been successful, they have helped boost its international prestige, which it considers vital for its survival among larger and more powerful neighbors. Qatar has participated in mediation efforts in Venezuela, Lebanon, Iran, Afghanistan, and other conflict zones, reinforcing its image as a neutral broker.

Israel’s stated objective of removing Hamas from power in Gaza is fundamentally at odds with Qatar’s interest in keeping Hamas as the governing force. In theory, if the Israeli hostages would to be released, Israel could break free from its dependence on Qatari mediation. However, it is likely that even after such a development, Qatar will continue positioning itself as a mediator—particularly in enforcing agreements and shaping Gaza’s reconstruction efforts.

Qatar’s position is strengthened further by its good relations with the U.S. Yet, Guzansky notes, it has weaknesses as well that Israel could exploit:

Qatar is highly sensitive to its global image and prides itself on maintaining a neutral diplomatic posture. If Israel chooses to undermine Qatar’s reputation, it could target specific aspects of Qatari activity that are problematic from an Israeli perspective.