How war with Iran impacts Israel’s economy
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Hello and welcome to World Business Report from the BBC World Service. I'm Roger Hearing and on this edition, as the Israel-Iran war continues, how is the conflict and uncertainty affecting Israel's economy? Also Greenland's Minister for Business tells me how she deals with the threats of a takeover by the US. My job is not to panic as you usually say. My job is to figure out what different actors want and what is their aim and end goal.

Also, Thailand moves to liberalise its gambling laws. We've got a special report from there. And we hear from the Cook Islands in the South Pacific, as New Zealand cuts off millions of dollars in aid because of that territory's deals with China.

But first, the latest from Washington is that Donald Trump will decide whether the US gets involved in Israel's war against Iran in the next two weeks. The president's spokesperson, Caroline Leavitt, made it clear that any decision would be the president's alone. I know there has been a lot of speculation amongst all of you in the media regarding the president's decision-making and whether or not the United States will be directly involved. In light of that news, I have a message directly from the president, and I quote...

Based on the fact that there is a substantial chance of negotiations that may or may not take place with Iran in the near future, I will make my decision whether or not to go within the next two weeks.

Well, the Israeli Prime Minister Benjamin Netanyahu said regime change in Iran is not a goal of Israel's military campaign, but it could be a result. Speaking to the BBC, Iran's Deputy Foreign Minister Saeed Qatizadeh insisted that diplomacy was his country's top priority.

Look, we were on diplomacy. We are on diplomacy. But until this aggression continues under this bombardment, under these brutal atrocities that is happening against my country, nobody can go for negotiation. Look, the moment that this aggression stops, of course diplomacy is the first option.

Saeed Katmizadeh there. A lot of the focus in all this has been on the damage Israel has done to Iran, but the war is also harming Israel, and not just in the physical effects of missile strikes, but also the impact of the conflict and instability on Israel's economy. I've been speaking to Anshul Pfeffer, Israel correspondent for The Economist. Israel has already been at war for now for over 20 months since October 7, the Hamas attack.

from Gaza. And according to the Israeli Treasury, that war has cost both indirect and indirect costs around 300 billion shekels, which is about $85 billion.

But the war with Iran is on a different level. Well, I was going to say, I mean, this is this is a situation we've seen, obviously, rockets coming in from Hezbollah to some extent in the earlier part and some from inside Gaza. But this is it seems or appears to be a much more destructive and therefore threatening to business kind of operation.

That's very true. And this war is costly both to wage it. The government economists who I've spoken to have said that just the costs of this type of an air campaign where hundreds of Israeli fighter jets are flying thousands of miles every day back and forth

the type of weaponry being used, guided munitions, both their dropping or launching on Iranian targets, and the cost of Israel's interceptor missiles, the ones which are shooting down around 90% of these Iranian missiles. The direct cost of that, according to the government, is just a billion shekels, just that in a day. And we're not talking about indirect cost to the economy. So there's the, as you mentioned, the destruction that is being done

caused by the relatively small number of missiles, but these are big ballistic missiles, most of them coming through with a ton of explosives in the warhead. That wasn't as much as the government feared that would fall, but that's going to cost a lot of money. And then there's the effect on the economy. This, at least in the first week, hasn't altogether paralyzed the Israeli economy, but it certainly has hit the economic output. Many people are at home because they can't

be in their offices for the missile attacks. There's no schools, keeping more people at home, many more reservists have been called up. These are all working people for various tasks. So from what I'm hearing, and that's another billion shekel a day, or around $280 million, just the indirect costs of the war and the destruction. And one of the main things we're hearing is

Israeli ministers and even from around the prime minister in the last few days is that this is going to be a short war. Now, the reason they're saying that the Israelis have been grumbling for a long time, why hasn't the Netanyahu government ended the war in Gaza? Now, obviously around the world people see the destruction in Gaza and the terrible death there. But Israelis are also seeing the fact that it's

It's bad for the economy, and it's bad just for their own lives. This is a drain, and it's a slow drain on the economy. And I think that's one of the reasons why the Israeli ministers have been saying in various ways to the public,

This war in Iran is a short one. And if this war does end within a week or so, then I think the Israeli economy will bounce back from this. And perhaps there will even be some confidence if the fact that Israel has managed to destroy Iranian nuclear programs and missile programs, it will actually add confidence to the economy. Well, I was going to say confidence is an interesting one because obviously people looking to invest in Israel at the moment, foreign direct investment, is going to be...

scratching their heads about the wisdom, given what they've seen. And, you know, this might come again. It's not guaranteed that this war, once it's over, will end the threat. Well, that's a really good question. But the thing is, Israel has never been in a hospitable neighborhood. There was always the fear of investors always.

And what we've seen for the past, I think by now, quarter of a century, is that they've kind of priced that in. And there have been wars and there have been intifadas in the period in which the Israeli tech economy has been booming and growing at a rate like no other in the world. So I think that if this war does end in two or three weeks with what could be seen as a successful outcome for Israel, it will be good for the Israeli economy ultimately. Indeed. I mean, there's another...

element. Tourism, and we talked about foreign direct investment, tourism is a big part of the Israeli economy, or has been. And again, you know, people struggling to leave Israel right now, on the advice of many of their own countries. I mean, that could be a massive problem. It's a big part, 2.8%, in fact, of Israel's GDP, I think. The tourism industry here has been hit. It's not an economy which is reliant on tourism. It is, like you said, a chunk, but it's

But also for the last 20 months, there hasn't been much tourism. So most of the tourism industry has sort of reverted to internal tourism and Israelis going to Israeli hotels and so on, especially because it's been more difficult for them to travel abroad. That is something which has been hit, but has been compensated by the success of the tech sector and especially the defense tech sector. Anshul Pfeffer, the Israel correspondent for The Economist.

Now, Greenland is unused to being in the international spotlight, but that's where it has been since President Trump declared his determination to make it U.S. territory. It's not technically part of Denmark, but it is an autonomous territory in the Kingdom of Denmark, and its leaders are not keen to join the U.S.

What it does need is investment, and its natural wealth of valuable minerals seems to offer a way forward. Its Minister for Business and Mineral Resources, Naya Natanjalsson, recently urged US and European mining companies to hurry up and invest. Well, now one has. Greenland's agreed a 30-year permit to mine molybdenum – that's a silvery-white metal used primarily to strengthen steel – and it's been awarded to Greenland Resources – that's a company backed by the European Union –

Well, I asked the minister, Naya Nathanielson, about this deal. It's now the second exploitation license we granted within a short period of time. And you can say that the Molitlenum project in Greenland Resources on the Greenlandic East Coast, they just signed a 10-year off-take agreement with the European steel industry. So that is really positive.

Also, we have the graphite project in the southern part of Greenland that just became a strategic project for the European Union. And we just learned that 10 Rees, a rare earth project, is being looked into by Exim Bank, the American Export-Import Bank. So I think there's a lot happening right now, and I'm really pleased about it.

And is it going to bring wealth to ordinary Greenlanders? Is that what this is about? That's the entire purpose. I mean, we don't mind just for our own sake. We mind because we want to bring welfare to the Greenlandic people. We do have very high levels of ESG environment, social and government standards.

which makes us a more expensive jurisdiction, I think, to operate in. But we do have this in order to be sustainable and to make sure that investments and activity in the mineral sector goes to the Greenlandic people. Now, Minister, we were talking about this new deal with a European Union-backed group.

But you have in the past had an agreement on mineral development with the US. In fact, it was signed during Donald Trump's first presidency. Is that going to be renewed? We don't know, of course, yet. We're hoping for it to be renewed in some form or other. Times, of course, have also changed. And maybe the American perspective is a bit different now. They may want to focus on other things such as

critical minerals, which was really not that much in focus in 2019. So I expect that from the American administration side, you're sort of now taking stock of what they need. We are, of course, willing to discuss this. And we've been quite happy about the old agreement. Well, you talked about a different change of perspective, perhaps from Washington. I mean, that's

That's perhaps a tactful way of putting it. Of course, Donald Trump has said that he wants to have Greenland. He wants Greenland to be taken over by the US. Is that not going to threaten this kind of agreement? Well, that's a good question.

I think my job is not to panic, as I usually say. My job is to figure out what different actors want and what is their aim and end goal. And I think Greenland and the U.S. do have similar goals. We want to develop the mineral sector in Greenland, and the U.S. can be helpful in assisting that to become a reality. The U.S. do have a lot of skills and competences we want to learn more from and build on. And the U.S. do have capital that is very much needed in Greenland.

At the same time, we do realize we are part of the American national interest sphere in terms of security and defense. We have an American base in Greenland. We have an 80-year-long relationship with the U.S. in that regard. So we are quite aligned, I think, in the end goals. Of course, we don't want to be annexed or be Americans. And I think when we try to descale a bit and try to take a step back, I think we can agree upon a lot of things. Okay. But I mean, I suppose the threat, even if...

Perhaps you don't see it as a real threat, or maybe you do. Isn't that having an effect on investment? People might think, well, I might put my money into Greenland, but hang on, I might be dealing with the wrong people. Shouldn't I be dealing with Washington, perhaps? Well, of course, I'm worried about that. I've been worried about that since day one, that as long as this sort of rhetoric keeps going on, it will, I think, have an effect on the investment climate. So far, we haven't seen it.

But of course, I think we need to quickly find an agreement in which we can move forward together on a similar ground and have the same perspective on development of Greenland. Now, we've talked about the EU, we've talked about the US as investors in Greenland. What are

What about China? Have they shown interest? Would you want investment from China? The entire world is doing a lot of trade with China. So is Greenland. We do have a lot of export to China that we're really happy about. It's an important market for our fisheries. So in that respect, we really want to continue that growth and export to China.

When it comes to the mineral sector, we don't see a lot of interest from the Chinese. They are active in two licenses. Both these licenses is, by the way, inactive and both are in court right now. So we don't see a lot of activity there. When it comes to the rest of Greenland, we don't see a lot of Chinese interest as well. We have this political standpoint that critical infrastructure should be on Greenlandic hands.

So it's not possible to invest there. So we do have guardrails that make sure that we are the ones making decisions on which investment should move forward in Greenland. And that's the Greenland Minister for Business and Mineral Resources, Naya Nathanielson, speaking to me a little bit earlier.

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You're with World Business Report from the BBC World Service. Let's have a little bit of talk about what's been going on on the financial markets. Troy Hooper, head of pre-event equity capital markets for merger market, joins me now. Troy, thanks for being with us. I suppose we're still also absorbing really what the Fed decided in the US, the Federal Reserve, holding rates where they are, of course, but putting a few interesting lines out about where they think the economy is going.

Yeah, that's right. Thanks for having me, Rahul. So Fed Chairman Jerome Powell, he made it clear that he believes tariffs could be inflationary. So the Fed has decided to take a cautionary approach. They're keeping the federal funds rate unchanged, like you mentioned. And that's the fourth consecutive meeting without a change. Powell noted that while some inflation data has mellowed,

Tariff impacts are still unclear and policymakers need time to assess the effects before they make more cuts. Yeah, yeah. So absorbing what's going on, really. And there was an interesting thing, Troy, actually today, because we come to one of those dates that almost seems to be logged into the calendar now where TikTok gets an extra period to sort itself out before it's closed down because it needs to be sold to a US or at least not a Chinese company.

Yeah, that's right. This marks the third extension since the original deadline, which was back in January. And we've actually had several potential buyers show interest in the forced divestiture. And that includes Microsoft, Amazon, Oracle, Apple, and several different investment groups. And it's possible ByteDance could still retain a minority stake. But the final push will depend on China's approval of the divestment.

And, you know, right now, progress remains stalled largely because of Trump's imposition of new tariffs that derailed some of the earlier negotiations. Well, he certainly seems willing to wait a bit longer to sort out TikTok anyway. And finally, let's talk about Google. Now, they had a setback in their legal action in Europe against a huge fine that they're trying to get a hold of. It basically comes down to an advisor agreeing with the regulators. Just just fill us in on that.

Yeah, so the fine stems from the EU's finding that Google abused its dominance by requiring Android device makers to pre-install Google Search and Google Chrome, which suppressed competition. Like you mentioned, the advisor agreed with the Brussels regulators, and it looks like Google's efforts to overturn that fine aren't looking good at the moment.

Yeah, so they're getting into a difficult situation there and more Google troubles, I think, in Europe are to come. We'll keep that story very much in focus as it develops. But my thanks to you for being with us, Troy. Troy Hooper, the head of pre-event equity capital markets for Merger Market, joining us live here on World Business Report.

Now, Thailand is a country that's long kept a tight lid on gambling, but that could be about to change. The government there is looking at legalising casinos in order to boost tourism. Supporters say it could bring in big money, but critics argue it's a step too far for a country shaped by Buddhist values in which gambling is seen as a vice. Here's Ed Butler. So I come here and I buy my ticket. Yeah.

Along with my fixer, Mao, I've come to one of Bangkok's bustling markets to test my luck at one of the world's most popular national lotteries. The clicking noise is dozens of women stapling their remaining lottery tickets onto display boards. The top prize? Around US$180,000. Mao and I approach one of the vendors.

I see you have a picture of a Buddhist monk there on the wall. Is that for good luck? For blessing and good luck. Yeah. It's not particularly Buddhist, this behaviour though, is it? Nothing to do with the religious. It's about something that you want to take some risks. You want to have some fun.

The state lottery is a legal form of gambling in Thailand. An awful lot of other traditional Thai pastimes aren't. In Mae Sot, a town in the north of the country, there's regular illicit cockfighting, clearly popular with some locals, according to the cafe owner I met who owns some of the fighting roosters.

We have events every week on Fridays and Saturdays here and in another town nearby. Mostly they come to gamble. Some people bet up to $300. You see the jackpot keeps rising if there's no winner. It's usually very popular. Gambling in Thailand takes many other forms too. Thanakorn Kamkris is Secretary-General of the country's Stop Gambling Foundation.

It's about 20 to 30 million people or more than 60% of Thai citizens in Thailand involved with gambling. And

And now they open an online casino game. It's recognised as hard gambling and creates a lot of damage. So why then has Thailand decided to join the list of countries creating new casino complexes? General Tachai Pitanilaput, who runs the Anti-Human Trafficking and Online Scam Centre for the Royal Thai Police, told me that liberalising the country's existing gambling restrictions was overdue. I'm a supporter.

legalization. I think it's difficult to control the online gambling

Is online gambling itself becoming more of a challenge in Thailand? Absolutely.

Well, despite those arguments, there is now a permanent anti-gambling protest outside the parliament building in Bangkok. A Buddhist monk here speaking against the new casino complexes. Many opposition MPs are also concerned. Rangsiman Rome is one of them. The government proposed an entertainment complex like a special area, have casino inside, have hotel, the hall for the concert, have stadium.

Health spa. Health spa. Can be everything that entertain. But the condition is must have casino inside. But the casino, we have many competitor around Thailand. So, you know, it bring me the question that Thailand will end up like Cambodia.

These are countries with a reputation for corruption and money laundering and all kinds of bad things associated with their casinos. Correct. In a statement, the Thai government has said that the new proposed entertainment complexes, if approved, would increase revenue, support investment in Thailand and solve illegal gambling. It said they could boost the country's GDP by as much as 0.8 of 1%.

So I'm looking at a podium now and various women in uniforms are holding up balls with numbers on them. And the first prize is 854-685 and 042-285. I'm sorry, you just missed the first prize in Thailand. 109, which is not... No, I haven't got that either. Maybe next time.

Ed Butler being a bit unsuccessful gambling in Thailand.

Now, the Cook Islands are a small nation in the South Pacific, just over 15,000 inhabitants. They're self-governing but in free association with New Zealand. But that arrangement has now put them at the heart of a row between China and New Zealand. New Zealand's halted aid worth $11 million to the territory in a row over its agreements with Beijing. The Cook Islands signed several deals with China earlier this year covering deep-sea mining, regional cooperation and economic issues.

Wellington said it would resume funding, which is almost 3% of the Cook Islands' annual GDP, only after it took what it called concrete steps to restore trust. In reaction, China has now said its cooperation should not be interfered with. Well, it's all likely to come up when New Zealand's Prime Minister, Christopher Luxon, meets the Chinese President, Xi Jinping, in Beijing on Friday.

Rajneel Kumar is the editor of the Cook Islands News, and I spoke to him earlier. If you talk about the amount in the budget, it presents only 4% of the total budget, but that support, that US$11 million, obviously is the core support budget, which helps in a lot of vital areas such as tourism, health, education and public sector areas.

So in that sense, of course, it's a significant amount of money. And given Cook Islands' status as a developed nation, which means that we don't get aid funding like we used to do pre-2020 when we graduated, it's a huge amount for the Cook Islands. Did it come as a surprise that New Zealand cut it off like this, or were you expecting it?

Well, according to the government, they said they were anticipating it. And New Zealand yesterday said that they had told the Kukala's prime minister about the decision to pause this funding two weeks ago. And according to our prime minister, they had made some provisions in the budget and have allocated money from somewhere else in the areas that funding from New Zealand was supposed to go.

So I think for the people, it might be a surprise. But at government to government level, it was something that the discussions has been ongoing for a while. And it seems like the Kukulis government was aware of this, as alluded to by the Prime Minister Kukulis Mark Brown in Parliament yesterday.

But if you look at it, given the fallout, the public fallout between Cook Islands and New Zealand following the China agreements, it was something that maybe some people saw coming, but not to the extent. Yeah, I mean, it suggests, Rajneel, they're pretty cross. New Zealand is pretty cross with the Cook Islands. And these deals with China, I mean, is there a calculation that actually the money they're going to get from these deals with China are worth falling out with New Zealand?

Well, you know, I mean, in terms of cash, Kukala has just received $4 million, just over $4 million when the agreements were signed in February this year. But the agreements with China has a lot more to do with other arrangements like partnership in infrastructure and other areas such as, you know, trade investment, tourism, ocean science, you know, agriculture, transport and so forth.

So we don't know the actual value of those partnerships that Cook Islands may enter with New Zealand under their strategic partnership. But to answer your question, given the relationship that Cook Islands has with New Zealand, I don't think that

Any other partnership is worth spoiling that because New Zealand and New Zealand have a strong relationship with Mexico and beyond. And it's something that I guess both countries would like to continue and the people years to come. Well, they certainly made a mess of it at the moment, though. I mean, New Zealand is worried about China's influence because China comes to small countries like yours with a lot of money. And New Zealanders are worried this actually will just buy them influence and potentially cause problems for the future.

Well, according to Kugailans, they are mature enough to deal with such diplomatic relationships themselves. And according to the prime minister, they have shown in the past they've had some good arrangements and partnerships with China before. I think China's influence in the region itself has been a concern for the most Western countries. And I think it's something that everyone is aware of.

But Cook Islands is adamant and Cook Islands is confident that they can deal with China in the way that is proper and in the way that is good for the people of the Cook Islands and the way it saves the interest of this nation. Yeah, I mean, is there a feeling there that you're being bullied by these two big nations, New Zealand and China, and you're sort of caught in the middle? Um...

For smaller nations, I think in the Pacific, there has been something that they have been dealing with, the geopolitical powers and geopolitical tensions, obviously with superpowers such as China, US and others having this battle amongst themselves.

over matters. But for smaller countries like Cook Islands and others, the focus has always been what is good for them and what is good for their people. And I think the interest for them is they want to partner with everyone who can provide assistance, especially in light of climate change and the effects that it has caused to these nations. And they can deal with such diplomatic relationships themselves.

like they do with their traditional partners. Rashnil Kumar there, the editor of the Cook Islands News, speaking to me about this row that's erupted between the Cook Islands and New Zealand. We'll see what happens at that meeting with the New Zealand Prime Minister and the Chinese President that's coming up in Beijing on Friday. But that's it from World Business Report from me and the rest of the team. Bye-bye.