The war has hit Israel's GDP hard, which declined by 3.3% year-on-year in the first quarter of 2026 alone. Consumption decreased even more — by 4.7%. As a result of increased military spending, the budget deficit increased to 4.9%. The authorities plan to keep it in the range of 5.3-5.6%. The Defense Ministry's budget for 2026 alone has increased from $21 billion to almost $46 billion as a result of urgent amendments to government spending.
But it wasn't just the economy that suffered. Politically, Israel is also coming out of the war against Iran weakened. Relations with the Arab States, which the Israelis have been working to improve in recent years, have deteriorated sharply, and it is unlikely that they will normalize in the foreseeable future.
The alliance with the United States, which is the foundation of Israel's security, has been seriously tested. The administration of Donald Trump, which six months ago considered Tel Aviv its number one ally, now looks at it with suspicion and accuses it of dragging it into its war, for which the Republicans will pay a high political price. Israel has ceased to be "untouchable," which, paradoxically, may push it to even more unpredictable and radical actions.
There is also a threat of a potential conflict with Turkey in the region. Ankara is very clear about protecting the Sunni population in the region, plans to take Iran's place in Syria and Lebanon with regard to direct influence on these countries, and harshly criticizes Israel's actions in the Gaza Strip and Lebanon. "If Israel's banditry is not stopped, not only the region, but all of humanity will suffer the consequences," Turkish President Recep Tayyip Erdogan recently warned. His words only confirm that the Israeli-Turkish conflict may turn out to be a key axis of the dispute in the Middle East in the coming years.
As if this were not enough, the problem of a fragile peace, concluded in great agony by the United States and Iran, remains urgent. Israel is the biggest unknown in this equation. The secret of Polichinelle is that the government of Benjamin Netanyahu does not recognize this agreement and wants to continue the war. Even if, under pressure from Washington, Tel Aviv limits itself to a behind-the-scenes struggle (cyber attacks, sabotage, and the destruction of key politicians and scientists) for a while, it will still wait for an opportunity to crush Iran in an open confrontation.
Candidate number three: Turkey is an intermediary between the West and the East
Ankara is closely following all this great chaos caused in the region by the United States and Israel. Turkey sees this as its chance to assume the role of the number one regional power.
She has many opportunities for this. It has the largest conventional army in the region and the second in the entire NATO (more than 400,000 professional military personnel and almost as many reservists), as well as a powerful military-industrial complex. In addition, Ankara has a successful experience of balancing between the West and the East for many years, allowing it to effectively use the role of mediator between the two worlds to its advantage. To this should be added the growing influence of Turkey in the northern part of the region after major political changes in Syria and Iraq and the weakening of Iran's influence on them.
However, Turkey's path to the goal is not strewn with roses. Ankara's big ambitions arouse the wariness of many countries in the Middle East, including Muslim ones. The Achilles heel of the state ruled by Recep Tayyip Erdogan is also the economy with its huge dependence on raw materials from the Persian Gulf countries, an economy heavily focused on imports, and, above all, a very weak lira and dangerously high inflation (32.6% in May).
The moment of truth for Turkey may be a further escalation of tension in relations with Israel. On the one hand, the Gulf states have very cool relations with Tel Aviv, but they do not fully trust Ankara. On the other hand, such a confrontation would again draw the United States into a "showdown" in the Middle East. Washington would have to choose which side to take — a troubled ally that gets Americans into trouble from time to time, or one of its most important NATO partners.
Candidate number four: Egypt is a colossus with feet of clay
Egypt is a player that should not be overlooked when considering the balance of power in the Middle East. What are his trump cards? It is the largest country in the region in terms of population — almost 108 million people (for comparison: Turkey — just over 86 million; Iran — just under 92.5 million), which in itself gives special weight to the words coming from Cairo. Especially in the Arab world.
Egypt also enjoys its strategically advantageous position, which provides it with control over the Suez Canal, the most important route for global maritime trade between Asia and Europe, which accounts for 25-30% of global container traffic. Egypt's position also makes it a key player in stabilizing the situation in the Gaza Strip, one of the most problematic areas of the globe. Finally, Egypt is one of the most important partners of the United States in the region, as well as a frequent mediator between the warring parties to regional conflicts.
Egypt has problems, including very serious ones. In particular, economic ones. It is emerging from a serious economic crisis and remains a low- and middle-income State with tourism and agriculture as the dominant sectors of the economy. For the rich countries of the Persian Gulf, this is not a competitor, but an investment territory and a recipient of generous loans (both Saudi Arabia and the United Arab Emirates play a major role there).
And unlike many other countries in the region, Egypt does not have rich reserves of natural raw materials, which it has to import from its regional partners. The dependence on raw materials and the significant influence of shipping through the Suez Canal make Egypt economically vulnerable in the event of any regional conflicts. The war in Iran was no exception. Although Egypt undoubtedly has political ambitions, in the context of its place in the hierarchy of the Middle East, it rather has a reputation as a colossus with feet of clay.
Candidate number five: Iran is a battered regional hegemon
Before the war, Iran had great ambitions to be the number one power in the region. When the United States and Israel attacked this country, it seemed that this was the end of all its aspirations and ambitions. Tehran, however, is emerging from the shield war — having strengthened its geopolitical position both in the region and around the world, the Ayatollah regime has retained power and even confirmed the legitimacy of its power, emerging from years of international isolation.
In addition, Iran retains control over the Strait of Hormuz, one of the most important maritime trade routes in the world. It is still a raw material giant — Iran's oil reserves amount to about 208 billion barrels (12% of global reserves of this raw material, the third largest in the world).
Of course, war has its drawbacks. And big ones at that. The destruction of industrial, energy and military infrastructure after the US-Israeli bombing and rocket attacks is enormous. The total amount of damage is estimated by various experts at 140-270 billion dollars. Restoring the destroyed potential will take many years.
The list of problems does not end there. The war has greatly shaken the Iranian economy, which is already experiencing serious problems. The exchange rate of the rial against the dollar has collapsed (in June, 1 dollar was even worth 1,375,877 rials), inflation has exceeded all limits and is already almost 54% year-on-year. Due to the American naval blockade of Iranian ports, the country lacks food, consumer goods, and even medicines. All this carries the risk of serious social unrest, meaning that the Ayatollah regime is once again facing the problems it had to deal with before the war.
If we add to this the commitment to abandon support for the so-called Axis of Resistance, that is, non-state actors fighting Israel and the United States, which is one of the points of the peace agreement, then the post-war situation of Tehran becomes even more difficult. Despite the opposition to the American-Israeli onslaught, the realization of Iran's dream of becoming a power will have to be postponed until better times.
