The Media Line: Tel Aviv Stocks Surge as War With Iran Fuels Investor Optimism 

Tel Aviv Stocks Surge as War With Iran Fuels Investor Optimism 

Economic expert, Professor Ilan Alon, tells TML: “In general, war isn’t a good thing for the economy. … But investors appear to believe that if Israel wins, uncertainty in the market will decline and will be beneficial for Israel.” 

By Keren Setton/The Media Line 

The Tel Aviv Stock Exchange (TASE) rose on Tuesday, and the screens continued to be green, three days into the Israeli-American war on Iran that plunged the region into instability. 

Shares of defense, energy, and financial companies led the gains. The Israeli currency, the shekel, jumped 1.5% versus the dollar, close to the 30-year high it reached last month. 

The green screens at the stock exchange reflected investor expectations that the confrontation with Iran could ultimately bring greater geopolitical stability, something that has been lacking for decades. 

“What we saw yesterday was euphoria, a situation in which investors are valuing only the best-case scenario, without taking into consideration any other possibility,” Dr. Gali Ingber, head of finance studies at Israel’s College of Management Academic Studies, told The Media Line. 

Other stock markets dropped on Monday in response to the war, and oil prices increased, fueling inflation concerns. 

“The rise in TASE is because of the belief that the war will have a positive impact on Israel’s risk premium,” Ingber explained. 

The Volatility Index, VIX, otherwise known as the “fear index” in different stock exchanges, surged at the beginning of the week as uncertainty about the war gripped global investors. Gold also gained strength as investors prefer to move to safe-haven assets at times of instability. But not in Tel Aviv. 

“Israel is an anomaly,” Professor Ilan Alon, an economics expert from Ariel University, told The Media Line. “In most wars, there is usually a withdrawal of investments.” 

The rally also reflects the unique structure of Israel’s economy. Institutional investors dominate trading on the Tel Aviv exchange, with local pension and long-term savings funds continuing to deploy capital even during periods of conflict. Unlike foreign markets that may react swiftly to geopolitical shocks, Israeli institutional investors often take a longer view, betting on structural strength in technology, defense exports, and energy development. This has proven itself in the past. 

“In general, war isn’t a good thing for the economy,” Alon continued. “War requires resources and reduces productivity. But investors appear to believe that if Israel wins, uncertainty in the market will decline and will be beneficial for Israel.” 

“If the war drags on, or changes course, this could easily be reversed,” he added. 

The TASE has been on a strong upward trajectory since the middle of the war that began on Oct. 7, 2023, a war that initially shocked Israel and began at one of its weakest moments. 

According to Ingber, the turning point came about a year after the war began, when the momentum changed in favor of Israel, which appeared to recover from the initial alarm of the war. A series of successes, mainly in Israel’s war against the Lebanon-based Hezbollah terrorist organization, changed the sentiment among investors. 

During Israel’s last direct confrontation with Iran last June, Israeli equities rose even as fighting was ongoing, reflecting investor expectations that the operation would ultimately reduce the Iranian threat. 

For decades, the regime in Tehran cultivated a web of proxies, which it named the “Axis of Resistance,” aimed at threatening Israel on its borders. From Hezbollah in Lebanon, Hamas and Islamic Jihad in Gaza, militias in Iraq and Syria, and the Houthis in Yemen, the web surrounded Israel with hostile forces while Iran avoided a direct confrontation with Israel. Alongside this proxy architecture, Iran invested heavily in an expansive missile and drone program, supplying precision-guided munitions and unmanned aerial vehicles (UAVs) to its proxies while steadily improving its own long-range strike capabilities. 

For this reason, Israel has considered Iran the driver of instability in the Middle East, in addition to Tehran’s nuclear aspirations and its ballistic missile arsenal. 

The war quickly escalated into a regional confrontation, as Israel systematically dismantled much of that proxy network. It also led to several direct confrontations with Iran, in which Israel dealt blows to Tehran’s ballistic missile stockpiles and nuclear program. That shift fueled optimism that the region may be entering a more stable phase, and for investors, a signal to spend. 

Throughout the war, Israel’s standing on the international political stage deteriorated. As the war in Gaza drew criticism, allegations of war crimes and indictments in international courts followed, and the Jewish state found itself increasingly isolated. Investors ignored that. 

“The stock market is very different than the political market,” said Alon. “Investors want big returns. China is a great example of a communist dictatorship that enjoys a lot of investments.” 

For many Israelis, however, the soaring market is disconnected from their daily reality. Israel remains one of the most expensive countries in the OECD, with high housing prices and a stubbornly elevated cost of living. Structural reforms, from reducing bureaucracy to increasing competition and dismantling monopolies, are necessary if market strength is to translate into broader prosperity. 

“Israelis experience a high cost of living, but on the other hand, the data on the economy is very positive,” said Ingber. “After over two years of war, and despite very negative outlooks on the future of the economy after such a war, the Israeli economy proved incredible, actually inexplicable, resilience.” 

Still, markets are pricing in a decisive outcome. 

If investors are correct and the war significantly weakens Iran’s regional reach and long-range capabilities, Israel could enter a period of reduced security risk, lower borrowing costs, and further rejuvenated foreign capital inflows. But if the conflict expands or drags on, the current optimism could quickly give way to volatility. 

For now, the green screens in Tel Aviv reflect a bet not just on military success, but on the possibility that a decades-long confrontation may be approaching a turning point.