Israel’s gross domestic product shrank by nearly 20% in the fourth quarter of 2023, according to official figures.

The contraction was significantly larger than expected — analysts predicted a contraction of around 10% — and reflects the toll of the country’s war against Hamas in Gaza, now entering its fifth month.

The economic data out Monday “pointed primarily to a contraction in private sector consumption and a deep contraction in investment, especially in real estate,” analysts at Goldman Sachs wrote in a research note.

“The deep GDP contraction occurred despite a strong surge in public sector consumption as well as a positive net trade contribution, with the decline in imports outpacing the decline in exports.”

Official figures showed a 26.9% quarter-on-quarter annualized drop in private consumption, and fixed investment plummeting by nearly 68% as residential construction ground to a halt amid a shortage of both Israel workers due to military mobilization and Palestinian workers as the latter group have been mostly barred from entering Israel since Oct. 7.

Before then, more than 150,000 Palestinian workers from the occupied West Bank entered Israel daily for work in a range of sectors, predominantly in construction and agriculture.

Israel’s GDP contraction “was much worse than had been expected and highlights the extent of the hit from the Hamas attacks and the war in Gaza,” Liam Peach, senior emerging markets economist at London-based Capital Economics, said in an analysis note.

“While a recovery looks set to take hold in Q1, GDP growth over 2024 as a whole now looks likely to post one of its weakest rates on record.”

Israel’s high-tech economy is particularly impacted by the fact that it’s mobilized 300,000 of its men and women as military reservists to deploy in both Gaza and on its northern border with Hezbollah in Lebanon.

The mobilization was triggered by the terror attack of Oct. 7 led by Palestinian militant group Hamas that killed roughly 1,200 people in Israel. Israel’s subsequent offensive against the Gaza strip and relentless bombing campaign has killed more than 28,000 people in the blockaded territory, according to Gaza’s Hamas-run health ministry.

Oil prices rose after Britain and the United States carried out military strikes against targets in Houthi-controlled areas of Yemen, as tensions in the Red Sea mount further.

Global benchmark Brent was trading around 4% higher at 6 a.m. ET Friday, $80.55 a barrel, while the U.S. West Texas Intermediate futures climbed 4.22% to $75.07 per barrel.

“These targeted strikes are a clear message that the United States and our partners will not tolerate attacks on our personnel or allow hostile actors to imperil freedom of navigation in one of the world’s most critical commercial routes,” U.S. President Joe Biden said in a statement Thursday evening.

While the U.S. has carried out strikes on Iranian proxies in Syria and Iraq since the outbreak of the Gaza war, this would be the first known strike against the Iran-backed Houthis in Yemen.

The Houthis have been attacking vessels in the Red Sea, targeting global shipping vessels including those from the U.S. and Israel, in retaliation for the war in Gaza that has so far killed nearly 23,000 people in the Palestinian enclave.

Major shipping companies stopped traversing the Suez Canal and Red Sea routes in early December, choosing to reroute via southern Africa instead. That’s resulted in longer and more expensive journeys which pushed up ocean freight rates.

In a televised speech on Thursday, the leader of Yemen’s Houthis, Abdul-Malik al-Houthi, vowed that any American attack on the group will not go without response.

“We will confront the American aggression. Any American aggression will never remain without a response,” he said, cautioning that the response will be greater than “at the level of the recent operation” that the group is carrying out at sea.

In announcing the strikes on Thursday, Biden vowed he “will not hesitate to direct further measures to protect our people and the free flow of international commerce as necessary.”

The U.N.’s highest court is on Thursday hearing South Africa’s accusations of genocide by Israel in its ongoing war in the Gaza Strip.  

The South African government submitted its case to the International Court of Justice, also called the World Court of Hague, on Dec. 29 — nearly three months into a devastating Israeli offensive in the Gaza enclave, which follows the Oct. 7 terror attacks of Palestinian militant group Hamas.

The Israeli offensive has claimed over 23,000 lives in Gaza to date, according to the latest figures from the Palestinian ministry of health.

In its 84-page written filing, South Africa says it “seeks an expedited hearing” and is “making the present application to establish Israel’s responsibility for violations of the Genocide Convention; to hold it fully accountable under international law for those violations; and — most immediately — to have recourse to this Court to ensure the urgent and fullest possible protection for Palestinians in Gaza who remain at grave and immediate risk of continuing and further acts of genocide.”

Israel has dismissed the suit as “blood libel” — a term that describes false and antisemitic accusations of bloodletting levied against Jewish people. Israel is scheduled to respond to the allegations at the ICJ on Friday.

Critics of Israel’s Gaza Strip campaign have questioned the proportionality of its response and the number of civilian casualties as a result of the siege. Israel maintains that it is at war with Hamas, rather than the Palestinian people. It accuses Hamas of weaponizing the civilian population as human shields and deliberately locating its spiderweb of underground tunnels under non-combatant sites in the Gaza territories, such as hospitals and schools.

Belgian Deputy Prime Minister Petra De Sutter on Tuesday telegraphed intentions for her country to echo South Africa’s position.

“I want Belgium to take action at the International Court of Justice, following the lead of South Africa,” she said on social media, pledging to propose this measure with the Belgian government. “Belgium cannot stand by and watch the immense human suffering in Gaza. We must act against the threat of genocide.”

The U.K. has also signaled concerns over the Israeli campaign: “Am I worried that Israel have … has taken action that might be in breach of international law, because this particular premise has been bombed, or whatever … yes, of course I am worried about that,” U.K. Foreign Minister David Cameron said Tuesday.

Ahead of Thursday’s proceedings, Israeli Prime Minister Benjamin Netanyahu once more laid out his country’s aims in the Gaza Strip:

“Israel has no intention of permanently occupying Gaza or displacing its civilian population,” Netanyahu said in a video address released by his office. “Israel is fighting Hamas terrorists, not the Palestinian population, and we are doing so in full compliance with international law.”

He added that once the goals of the Israeli Defense Force offensive against Hamas had been achieved, “Gaza can be demilitarized and deradicalized, therefore creating a possibility of a better future for Israel and Palestinians alike.”

ICJ rulings are “binding upon the parties concerned,” final and hold no right of appeal. While the court lacks the means to directly enforce its decisions, its rulings can deal sharp reputational blows.  

The suit comes as fears have risen over Israel’s long-term intentions to potentially occupy the Gaza Strip following its offensive, with Reuters reporting calls from far-right Israeli Finance Minister Bezalel Smotrich for Palestinians to leave the enclave for elsewhere.  

Israel’s close ally Washington, whose Security Council Spokesperson John Kirby condemned the South African lawsuit as  “meritless, counterproductive, and completely without any basis in fact whatsoever,” has previously rejected a potential Israeli occupation of the Gaza Strip.  

The Israel-Hamas conflict has increasingly seeped into international communities, spilling into protests, a rise in antisemitism worldwide and a nascent Red Sea crisis following the involvement of Yemeni Houthi militants, which share Iranian backing with Hamas.

War-battered Gaza’s already fragile economy lies in ruins, much like its buildings, following more than a month of bombings by Israel after Hamas militants attacked the country in October.

Even before the war, a majority of Gazans had limited access to affordable, nutritious provisions and were deemed food insecure, according to the United Nations World Food Programme, but the situation has now turned dire. About 80% of Gaza residents were reliant on some sort of international aid before the latest escalation.

“Gaza’s economy is 100% dependent on two sources of revenue: foreign aid and access to Israel’s labor market. The latter is now gone, probably forever. The only thing remaining is foreign aid,” Marko Papic, partner and chief strategist at Clocktower Group, told CNBC via email.

Gaza’s unemployment rate, which has traditionally been one of the world’s highest at above 40%, now stands near 100%, with the enclave’s economy effectively “ceasing activity” indefinitely, according to a  report from the Ramallah, West Bank-based Palestine Economic Policy Research Institute.

Over one month into the war, Gazans have lost at least 182,000 jobs, or 61% of the workforce, according to the International Labor Organization. Another U.N. agency, the United Nations Development Programme, has forecast that Gaza’s development would be set back by 16 to 19 years in its assessment based on economic, health and educational indicators.

On Oct. 7, Hamas militants launched a multi-pronged attack by land, sea and air and infiltrated Israel, killing approximately 1,200 people. In retaliation, Israel launched air strikes and a ground invasion into the Gaza Strip, which has so far killed more than 14,500 people in the enclave.

“Even though the Israelis had occupied Gaza starting 1967 well into the 80s, the economy was doing a bit better, but mostly it was doing well, based on having a number of educated people who went outside of Gaza,” said Kevin Klowden, chief global strategist at Santa Monica, California-headquartered think tank Milken Institute.

Gaza was under the control of Egypt from 1948 until mid-1967 before Israel seized it along with the West Bank following its victory in the Six-Day War against a coalition of Arab countries.

“In the first 25 years of [Israeli] occupation, Gaza had both people working inside Israel [and] it had its own local economy … it was an important part of the Palestinian economy,” Raja Khalidi, director-general of the Palestine Economic Policy Research Institute told CNBC via telephone.

Gazans were able to work in Israel, Egypt, the Gulf and other places 50 years back, and there was a strong professional class, university and airport at the time, but with the current conflict the enclave’s economy now is dire, almost nonfunctional, Klowden also said.

Israel had issued about 18,000 permits for Gazans to work and live in the country and its settlements in the West Bank, but they were revoked after the Oct. 7 attack.

According to the United Nations, during the 1970s and 1980s, the Palestinian economy saw relatively strong capital inflows, largely due to remittances from Palestinian workers in Israel and the Gulf countries. 

Things changed after Hamas gained power in Gaza in 2006 when Israel relinquished its control of the enclave. Hamas has not held an election in Gaza since.

Not only did the Palestinians lose out on working in Israel after Hamas took over Gaza, their trade with the Egyptians also dissipated as Egypt views Hamas as a threat, with investments into the Palestinian Authority-governed West Bank no longer flowing into Gaza, Klowden said.

Since 2007, Gaza has been surrounded by concrete walls and barbed wire fences after Israel imposed an air, land and sea blockade on the Gaza Strip, saying the move was necessary to safeguard itself from Hamas’ attacks. The U.N. classifies Israel as an occupier state over the Palestinian territories of the West Bank and Gaza.

“When people ask me what does it take for Gaza to get back to where it was … We want to go back to where it was 20 years ago, not where it was two months ago,” said Khalidi.

The blockade and repeated wars with Israel since 2008 have hollowed out the enclave’s economy, with its anemic economic growth falling far behind that of the West Bank over the last 15 years, according to the International Monetary Fund. 

“It’s not been a situation where there’s been economic hope. And for the last 15 years, essentially, that’s been the situation,” Klowden said. “You have a very young population that doesn’t see hope out of that. It’s very hard to see an economic future out of that.”

As many as 65% of the 2.3 million Palestinians living in the 140-square-mile sliver of land, between Israel and Egypt are under the age of 24.

“Ultimately, some form of a deal to end the conflict will have to be put in place,” said Clocktower Group’s Papic.

“But that deal is likely to have to see Gulf Arab monarchies and Saudi Arabia footing much of the bill for the viability of Gaza in the future.”

Airlines have seen a drop in bookings in the weeks following the start of Israel’s war against Hamas in the Gaza Strip, and some expect it to cut into their future profits.

According to travel analytics firm ForwardKeys, international flight bookings were 20% below 2019 levels in the three weeks following the attack by the Palestinian militant group Hamas against Israel on Oct. 7, and 5 percentage points below the period of three weeks prior to the attack.

The terrorist attack killed some 1,200 people and saw a further roughly 240 taken hostage, triggering the most ferocious Israeli response that the region has ever seen. Israel’s aerial bombing campaign and subsequent ground offensive in Gaza has killed more than 11,000 people, according to health authorities there.

In the days following the attack, major airlines suspended or reduced flights to Israel’s Ben Gurion Airport in Tel Aviv. But air travel demand to and from other countries and regions was noticeably affected, too.

In the three week period before Oct. 7, ticket issuance from the Middle East was just 3% below 2019 levels, according to ForwardKeys data, illustrating the steady recovery of the sector from the Covid-19 pandemic. In the three week period after Oct. 7, by contrast, ticket issuance from the Middle East was 12% lower than 2019 levels, marking a difference of 9 percentage points.

But the biggest drop in terms of international departures was in flight ticket issuance from the Americas, which was actually up 6% from 2019 levels in the three weeks before the attack, and fell to 4% below those levels in the three weeks after, totaling a drop of 10 percentage points.

International arrivals to the Middle East meanwhile plunged by 26 percentage points in that time frame, with the biggest drops by country being Israel, followed by Saudi Arabia, Jordan, and Lebanon. ForwardKeys draws its data from the International Air Transport Association’s industry-wide ticketing database which includes major international carriers, but does not include budget airlines like easyJet or Ryanair.

Stateside, at least one major airline made a profit warning concerning the war.

United Airlines in mid-October said that pricier jet fuel and a halt to its Tel Aviv flights due the Israel-Hamas war would eat into its profits in the last three months of the year. United had more service to Israel than any of the U.S.-based airlines with links from Washington, D.C.; Newark, New Jersey; and San Francisco, accounting for 2% of its capacity.

The fourth-quarter guidance for United was “bleak and worse than our estimates,” Helane Becker, an airline analyst at TD Cowen, wrote in a note following the carrier’s earnings estimate. “Given the projections that this will be a long war we are looking at the lower end of the forecast range and assuming no service by year end.”

The United Arab Emirates’ national airline, Abu Dhabi-based Etihad Airways, continues flying to Israel. It began flying its Abu Dhabi-Tel Aviv route in April of 2021, roughly eight months after the signing of the Abraham Accords, which normalized relations between Israel and the UAE.

“It’s impacting,” Etihad CEO Antonoaldo Neves said of the Israel-Hamas war, speaking to CNBC’s Dan Murphy at the Dubai Airshow on Monday. “Our demand to Israel is still there. But it’s not as big as it was in the past.”

“We keep flying, very safe. I follow up every day, every day. And we just hope it gets over soon. For the sake of everyone involved in this conflict.”

“I’ll not tell you it’s not impacting … And when things are back to normal, I’m sure that everyone’s going to remember that Etihad was not driven only by profits,” Neves said.

“We have our obligation as a transportation company, to be there when we make money and when we make less money. So that’s the approach we take, as long as it’s safe, we’re going to keep flying.”

Dubai’s flagship Emirates Airline, meanwhile, was optimistic about future demand.

“As far as the business is concerned — look, we have been in a part of the world that has seen for the last 35 years a lot of geopolitical issues,” Tim Clark, president of Emirates Airline, told CNBC.

“I won’t be smug and say we’re impervious to issues, because this is a really difficult issue for the Middle East to deal with.”

“But as far as our bookings are concerned, they remain robust,” he said. “We will always get what we call a certain flakiness in the Asian markets where, you know, they get a little bit concerned … But generally, so far, so good, we’re looking very strong.”

Clark pointed to upcoming events that will bring visitors to Dubai like the COP28 climate summit in early December as well as Christmas and New Year.

In a demonstration of its long-term optimism, Emirates Airline on Monday kicked off the first major deal of the 2023 Dubai Airshow with an order for 95 Boeing aircraft at a value of $52 billion.

“A lot of other things are going on in Dubai and Dubai itself is hugely potent city now, global metropolis, which is bringing in business,” he said.

“So with all of that, notwithstanding the difficulties of the Middle East at the moment, I think we will be okay.”

— CNBC’s Leslie Josephs contributed to this report.

Crude oil prices could see a spike on Monday but the overall impact of the attack on Israel by Palestinian militants Hamas will likely be limited, energy experts told CNBC.

That’s provided the conflict does not escalate further, they said.

“We may see a knee-jerk surge in crude prices when markets open on Monday,” Vandana Hari, CEO of Vanda Insights, told CNBC via email.

“There will be some risk premium factored in as a default, until the market is satisfied that the event is not setting off a chain reaction and Mideast oil and gas supplies won’t be affected,” said Hari.

Militants from Hamas — designated by the U.S., European Union and the U.K. as a terrorist organization — infiltrated Israel by land, sea and air on Saturday, during a major Jewish holiday. The incursion came hours after the Islamist militants fired thousands of rockets into Israel from Gaza. 

Civilians including women, children and the elderly have been abducted, and others killed in their homes, Israeli Prime Minister Benjamin Netanyahu said.

Israel has begun the offensive phase, and will “continue with neither limitations nor respite until the objectives are achieved,” Netanyahu said.

He vowed to “exact an immense price from the enemy, within the Gaza Strip as well.” Late Saturday, Israel cut off the supply of electricity, fuel and goods to the narrow strip where 2.3 million Palestinians live.

At the time of publication, there were at least 250 Israelis killed and more than 1,860 injured, including 320 in serious condition, NBC News reported. The Palestinian Healthy Ministry recorded 256 deaths and 1,790 injuries in Gaza.

Both Israel and Palestine are not major oil players, but the conflict sits in a wider key oil producing region, analysts told CNBC, warning that it has the potential to conflagrate further.

Hari noted that while the conflict does not directly impact oil production or supply, it is still “on the doorstep of an important oil-producing and exporting region.”

Israel boasts two oil refineries with a combined capacity of almost 300,000 barrels per day. According to the U.S. Energy Information Administration (EIA), the country has “virtually no crude oil and condensate production.” The Palestinian territories produce no oil, data from EIA shows.

Hari’s sentiments were echoed by other market watchers.

“The impact on the oil price will be limited unless we see the ‘war’ between the two sides expand quickly to a regional war where the U.S. and Iran and other supporters of the parties get directly involved,” Middle East managing director of energy consultancy Facts Global Energy, Iman Nasseri, told CNBC.

Similarly, French businessman and hedge fund manager Pierre Andurand said that since the Levant is not a large oil producing region, the war is unlikely to impact oil supply in the short term. 

“One should not expect a large oil price spike in the coming days. But it could eventually have an impact on supply and prices,” he said in a post on X, the social media platform that was formerly Twitter.

Andurand said global oil inventories are low, and production cuts by OPEC kingpin Saudi Arabia, as well as Russia, will lead to more inventory draws over the next few months.

“The market will eventually have to beg for more Saudi supply, which I believe, will not happen sub $110 Brent.” 

Crude oil prices recently hit their highest level in more than a year before pulling back.

Still, Hari warned that the ongoing Israeli-Palestinian conflict “has the potential to widen into regional hostilities.”

On Sunday, Lebanon’s Hezbollah militant group confirmed it launched attacks on three sites in the Shebaa Farms — a strip of land that sits at the intersection of the Lebanese-Syrian border and the Golan Heights, which is occupied by Israel.

The Israeli Defense Force confirmed it has returned fire and “struck Hezbollah terrorist infrastructure.”