08/23/2012 11:39 pm ET Updated Oct 23, 2012

Israeli Experts: Attacking Iran Will Ravage Israeli Economy

A couple of years before Binyamin Netanyahu was elected prime minister of Israel in 2009, I participated in a small meeting with him as a staffer for Israel Policy Forum, an organization that lobbied for the "two-state" solution.

Netanyahu was ebullient. He seemed certain that he would soon be prime minister and was bursting with plans he had developed for his return to the job he had in the late 1990s. All of those plans were about the economy (standard Milton Friedman boilerplate).

In those heady days before the worldwide economic crash of 2008, Netanyahu said he was looking forward to sustained economic growth of 8 percent, a very impressive figure. He said that Israel would soon be in the same economic category as the so-called Asian Tiger economies of South Korea, Taiwan, Hong Kong and Singapore.

Netanyahu spoke for 10 minutes and devoted not a single word to security issues. It was all economics without even a reference to the Palestinians, Iranians or effects of the occupation.

When he opened up for questions, the leader of our delegation asked if his sunny view of the future allowed for the possibility of war or another intifada. He shrugged at that, merely noting that obviously security developments would have an effect. But he didn't foresee any problems that would alter his forecast.

Netanyahu seemed utterly sincere. He clearly believed that Israel's security situation was fine, that there were no obvious threats looming. As for Iran, a standard component of Netanyahu speeches then as now, he didn't even bother with his usual gloom and doom in this intimate setting with people he knew well. He talked about the economy because that is what he was focused on. He wanted to dismantle the remnants of the Labor Party-created welfare state and let business run the show.

That is, in fact, what he has done as prime minister (which is one reason why Israel is now, for the first time, the scene of mass protests against growing economic inequality).

Given his focus on the economy, it is odd that Netanyahu seems oblivious to the likely economic effects of an attack on Iran.

According to an August 20 report issued by BDI, the largest business information consulting group in Israel, the cost to the Israeli economy would be $41.75 billion, a fifth of its total GDP. BDI extrapolates that estimate from the cost of the 2006 Lebanon war, which cost Israel 1.8 percent of GDP.

The Israeli business newspaper Globes describes the BDI findings:

In the event of a war on the same scale, with the same duration and damage, then it is possible to expect NIS 16 billion in damage [$3.98 billion]," estimates BDI. "However, most of the damage in the Second Lebanon War occurred in the north, which produces only 20 percent of Israel's GDP. It is reasonable to assume that in the event of a war, it will also include the center of the country, which produces about 70 percent of Israel's GDP. In 2011, GDP totaled NIS 870 billion [$217 billion], and the cost of such a war is estimated at three times the cost of the last war, or NIS 47 billion [$11.8 billion].

"This amount is not the final figure," BDI warns, because it only covers the direct cost to the economy of a war. "There is damage which is difficult to estimate, such as the loss of foreign customers and the collapse of businesses (especially small businesses), which could be permanent. A conservative estimate of the collapse of 10 percent of small businesses (an average turnover of NIS 20 million [$4.98 million]) as the result of a war (due to the slowdown, lack of financial depth, drop in demand), we estimate the loss of GDP at NIS 24 billion [$5.98 billion] a year for 3-5 years, in addition to the direct damage.

Incredible, isn't it? Is it any wonder that opposition to an attack within Israel's own security establishment has dramatically grown as Netanyahu and his Defense Minister Ehud Barak continue to beat the drums of war ever louder and louder. Even President Shimon Peres, constitutionally prevented from direct involvement in political decision, is openly opposed and making no secret of it.

Israel simply afford to go to war. It would be one thing if every possible alternative to war had been explored and Israel was forced to choose between war or extinction. Given that choice, Israel would actually have none; it would have to fight.

But the opposite is the case. Israel has convinced the United States and our European allies that Iran must either accept Netanyahu's position (zero enrichment of uranium) or face attack. As far as incrementally lifting sanctions in exchange for Iranian concessions (like keeping enrichment well-below weapons grade levels), Netanyahu is absolutely opposed which means that the Obama administration must fall in line (and, with us, the Europeans). In other words, the United States and our allies are demanding that Iran meet 100 percent of Israel's demands while offering Iran nothing in return. (Meanwhile Israel's uninspected nuclear arsenal goes mentioned).

Simply put, the idea of Israel bombing Iran, rather than permitting the United States to initiate unconditional and comprehensive negotiations with Iran is insane. What kind of leadership would risk one-fifth of its GDP (not to mention its people) rather than negotiate? That is especially true when there is absolutely no consensus in Israel favoring war.

It is time for the United State to act like Israel's ally, rather than Netanyahu's, and prevent any attack on Iran. In fact, I believe that is precisely what Obama is quietly doing. He just needs to make sure that Netanyahu gets the message: the light is red, not green and not amber. Red. If Obama cares about the security of Israel more than pleasing a few hawkish (on Israel) donors, that is the message he must deliver.