Michael Sarel, who recently stepped down as chief economist at Israel’s Treasury Ministry, speaks about the challenges facing Israel’s economy, the political roadblocks that prevent improvements, and the dangers of over-regulation. (Interview by Amnon Lord and Akiva Bigman)

The populism contest [among politicians] is the primary obstacle to a fundamental improvement in Israel’s economic situation. According to Dr. Sarel, since the days of Netanyahu’s reforms in 2003-2005 when he served as Treasury Minister, Israel has not had an economic policy that deals with fundamentally changing the situation but only one dealing with the symptoms of the present one. “Very often, there are very attractive ideas which ostensibly deal with the problems in the economy,” he says, “and they have good visibility. On the macro level they seem to solve the problems, but when you properly examine these cures, you understand that the negative results are greater than the positive ones.”

For more than a year, the Iran-backed Houthis have been launching drones and missiles at ships traversing the Red Sea, as well as at Israeli territory, in support of Hamas. This development has drastically curtailed shipping through the Suez Canal and the Bab al-Mandeb Strait, driving up trade prices. This week, the Trump administration began an extensive bombing campaign against the Houthis in an effort to reopen that crucial waterway. Burcu Ozcelik highlights another benefit of this action:

The administration has a broader geopolitical agenda—one that includes countering China’s economic leverage, particularly Beijing’s reliance on Iranian oil. By targeting the Houthis, the United States is not only safeguarding vital shipping lanes but also exerting pressure on the Iran-China energy nexus, a key component of Beijing’s strategic posture in the region.

China was the primary destination for up to 90 percent of Iran’s oil exports in 2024, underscoring the deepening economic ties between Beijing and Tehran despite U.S. sanctions. By helping fill Iranian coffers, China aids Iran’s Islamic Revolutionary Guard Corps in financing proxies like the Houthis. Since October of last year, notable U.S. Treasury announcements have revealed covert links between China and the Houthis.

Striking the Houthis could trigger broader repercussions—not least by disrupting the flow of Iranian oil to China. While difficult to confirm, it is conceivable and has been reported, that the Houthis may have received financial or other forms of compensation from China (such as Chinese-made military components) in exchange for allowing freedom of passage for China-affiliated vessels in the Red Sea.