Angst over Gaza set aside as Netanyahu's critics back him over Iran

Benjamin Netanyahu's decision to launch a military assault on Iran has garnered widespread support across the Israeli political spectrum, temporarily uniting the nation despite previous divisions over the Gaza war; even staunch critics like Avigdor Lieberman and Benny Gantz have voiced their support, viewing the action as necessary to curb Iran's nuclear ambitions. This unity has translated into political gains for Netanyahu, as opposition parties voted against a no-confidence motion, although a poll indicates a significant divide between Jewish and Arab Israelis regarding the operation. While the long-term consequences and success of the operation remain to be seen, it has momentarily shifted the political landscape in Netanyahu's favor.

Analysis

The Israeli military operation against Iran has significantly reshaped the domestic political landscape, fostering a notable, albeit potentially temporary, national unity around Prime Minister Benjamin Netanyahu. This cohesion is underscored by public declarations of support from key political opponents, such as Avigdor Lieberman and Benny Gantz, and is reflected in polling data where 83% of Jewish Israelis endorse the military action against Iran's nuclear program, according to a Hebrew University poll. This surge in support has yielded immediate political dividends for Netanyahu, notably the opposition's decision to vote against a no-confidence motion, a sharp reversal from their stance just a week prior. The conflict has reportedly involved Israeli strikes damaging Iranian military and nuclear sites and killing senior Iranian military leaders alongside 224 Iranian civilians, while Iranian retaliatory missile strikes have resulted in 24 civilian deaths in Israel. This development contrasts sharply with the deep societal divisions over the protracted Gaza war and Netanyahu's preceding low approval ratings. However, the unity is not universal, as only 12% of Israel's Arab minority supports the assault on Iran, highlighting a significant internal fault line. The current political climate, while beneficial for Netanyahu, remains contingent on the perceived success and duration of the Iranian campaign and does not nullify underlying political vulnerabilities.

Key Decisions for Investors

• Investors should monitor the sustainability of Israel's current national unity concerning the Iran conflict, as its potential fracturing could reintroduce domestic political volatility and impact fiscal and security policies.
• While the immediate market impact of this specific political shift is assessed as low (market impact score 0.1), the escalation in direct military engagement between Israel and Iran significantly heightens regional geopolitical risk, warranting caution for assets sensitive to Middle Eastern instability.
• Re-evaluate risk exposure in portfolios with significant ties to the Israeli economy or regional security dynamics, considering the potential for protracted conflict and its secondary economic effects, despite the current internal political accord.