Wars are incredibly expensive not just in lives but in money, and the economic toll can be the deciding factor in whether conflicts endure. It might sound paradoxical, but the two wars that currently rack up the highest price tags are Ukraine and the Israeli occupation of Gaza. They are fought by nations with considerable wealth and, as a consequence, they ripple through the global economy and threaten world stability more than most others. Global military spending rose by about nine percent last year, reaching a record 2.2 trillion dollars and highlighting growing insecurity across the planet. This data comes from the 65th Military Balance report produced by the International Institute for Strategic Studies IISS. About half of that spending comes from NATO member states. Projections from the IISS suggest a new record is likely this year.
During the ongoing Gaza conflict the Israeli economy has contracted by almost 19.4 percent in the latest quarter. The mobilization of three hundred thousand reservists over several months has driven domestic demand down by more than 25 percent, imports by about 42 percent, and public spending up by roughly 88 percent. These are official figures from Israels Ministry of Economy and indicate a serious fiscal hole for the state, which has operated as a militarized power and relied on American budget support since its founding despite notable technological development.
Estimates from the IISS put Russia’s losses in the war at around three thousand tanks since the February 2022 invasion of Ukraine. Moscow increased military spending by nearly 30 percent last year as frontline operations continued, and current estimates place military expenditure at around 108 billion dollars, roughly seven and a half percent of GDP. This level compares to the prewar American defense footprint and helps explain the broader alliance dynamics. Ukraine has been able to offset some losses with higher quality equipment supplied by the United States and European partners. Excluding the United States, NATO members have collectively raised their defense outlays by roughly 32 percent since 2014 when Crimea was invaded. Ten European Union states now spend about two percent of their GDP on defense. France and Germany have announced long term plans to boost military spending, while Germany remains under the two percent benchmark. Spain allocates around 1.26 percent of GDP to defense. The United States continues to bear the largest share of NATO defense expenditure. At a Berlin Security Conference held earlier this month, Chancellor Olaf Scholz proposed greater European autonomy in arms production and defense to back Ukraine more effectively.
The United States Senate, led by the Democrats, approved a package of approximately 88.5 billion euros or 95.3 billion dollars for Ukraine, Israel and Taiwan. The final passage of the package faces scrutiny in the Republican controlled House of Representatives, where additional immigration controls on the Mexican border have been demanded. Former President Trump has signaled opposition to moving forward with the aid. The European Union is under pressure to step up its support for Ukraine in light of these developments.
In both Ukraine and Israel the fiscal strain opens room for political leverage. Washington now holds greater influence to push for a ceasefire and, ideally, a peace agreement. In a conflict involving nuclear powers there can be no true triumph for either side. Ukraine may need to accept a ceasefire that could involve concessions such as the removal of certain territories, while Israel might pursue a two-state solution as part of a broader peace framework.
US Secretary of State Antony Blinken has embarked on multiple trips to the Middle East to discuss a postwar Gaza plan that envisions the creation of a Palestinian state with a firm timetable for implementation. The plan reportedly involves coordination with Egypt, Jordan, Qatar, Saudi Arabia, the United Arab Emirates, and a Palestinian negotiating team. It outlines a practical path toward a neighboring Palestinian state alongside Israel, with a plan to end the Israeli occupation of the West Bank and obtain early recognition of a Palestinian state by the United States. The proposal is framed as a roadmap for peace within a war economy.