geopolitical risk ratings firm

Israel – Coalition Weathering the Storm Intact

A 50-day Israeli military operation in the Hamas-ruled Gaza Strip ended in late August with a cease-fire agreement that will bring at least a temporary reprieve from the violence. Hamas’ stockpile of rockets – estimated by Israeli intelligence before the conflict to number around 10,000—is believed to have been reduced by as much as two-thirds, and several senior Hamas commanders were killed in Israeli strikes. However, many Israelis are frustrated that the operation failed to produce a decisive victory, despite Israel’s overwhelming military superiority and the high cost of the operation, measured in lives, money, and damage to the country’s standing in the international community.
The cessation of hostilities has cleared the way for Fatah and Hamas to proceed with plans to form a unity government. Although the arrangement would theoretically entail joint rule of both the West Bank and Gaza, Hamas is expected to maintain de facto military control over the latter, a prospect that will contribute to a high risk of further confrontation with Israel and pose a significant obstacle to restarting broader peace negotiations.
In any case, the Israeli government’s recent decision to move ahead with the expansion of settlements near Bethlehem suggests that moving forward on that front in not among Prime Minister Binyamin Netanyahu’s top priorities at the moment. Indeed, US criticism over the move, which touched off an unusually abrasive exchange of pointed barbs, appears to have boosted domestic support for the prime minister, whose approval rating jumped back above 50% in early October.
The military conflict aggravated tensions within Netanyahu’s diverse coalition government, but his Likud party continues to hold a comfortable lead in polls of voter preferences, and as long as that remains the case, none of the other parties in the government has much to gain by forcing an early election.
A separate threat to the unity of the government was at least temporarily held at bay thanks to a compromise that ended a budget standoff between the prime minister and Finance Minister Yair Lapid. Following tense negotiations, the Cabinet approved a budget for 2015 that includes no new taxes and boosts defense spending by roughly $1.6 billion, or about one-half of the increase sought by the military establishment. However, the Gaza conflict has further weakened an already slowing economy, and there is a strong possibility that the 2015 deficit target of 3.4% of GDP will be exceeded. In the event of a renewed security threat, Lapid could come under renewed pressure for tax hikes to pay for increased military spending, a development that would revive the risk of Yesh Atid’s departure from the governing coalition.


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