Israel's financial markets are experiencing a sharp decline as negotiations between the United States and Iran progress toward a peace agreement. Stocks and currency, which surged during the war due to expectations of improved security, are now retreating amid fears that a peace deal could weaken Israel's strategic position.
According to Bloomberg, the Tel Aviv 35 (TA-35) index, Israel's benchmark stock index, has dropped more than 12% against the dollar this month, marking the largest decline among major global stock indices. This is projected to be the steepest monthly drop since the onset of the Gaza war following Hamas's attacks on Israel in October 2023.
The Israeli shekel has also weakened, falling about 5% against the dollar since the start of the US-Iran negotiations this month, the largest decline among major currencies tracked by Bloomberg.
During the war, Israeli assets had remained strong. From November 2023 to early June 2026, the shekel appreciated by 42% against the dollar, and the stock market nearly quadrupled in value. Investors anticipated that Israel's security environment would improve and that its technology-driven economy would grow post-war.
However, as peace talks between the US and Iran gain momentum, market sentiment has shifted. Investors are concerned that the agreement may not sufficiently weaken Iran and its allied forces, potentially limiting Israel's military options.
In a report, Israel's largest bank, Hapoalim, stated, "The emerging agreement between the US and Iran is perceived by local investors as failing to improve Israel's long-term security conditions." The bank also noted that the deal does not meet the high expectations set for military operations against Iran.
One of the key issues in the negotiations is Lebanon. Israel has established a buffer zone approximately 10 kilometers wide along its border with Lebanon to counter the Iranian-backed militant group Hezbollah. On June 22, Prime Minister Netanyahu stated, "We will maintain control over areas in Lebanon, Syria, and Gaza as necessary for civilian protection."
Israel's lack of direct involvement in the US-Iran negotiations adds to the uncertainty. While Israel began military operations against Iran in February 2026 alongside the US, subsequent peace talks have been primarily conducted between the US, Iran, and mediating countries. Each time attacks occur in Lebanon, Iran has raised the possibility of halting negotiations, which has heightened tensions between President Donald Trump and Netanyahu.
Analysts suggest that the deterioration of relations between Trump and Netanyahu has contributed to the shekel's weakness. Piotr Matis of Interch Capital Markets noted, "The worsening relationship between President Trump and Prime Minister Netanyahu may have prompted profit-taking on the shekel."
Some experts view the current decline as a short-term profit-taking opportunity rather than a structural crisis. Ronen Menachem, chief market economist at Mizrahi Tefahot Bank, stated, "Given the significant rise in Israeli assets over the past year, the recent situation may have provided an opportunity for profit-taking."
Conversely, there are analyses suggesting that the market is beginning to reflect the ongoing costs of war and security uncertainties. Raphael Gozlan, chief economist at IBI Investment House, remarked, "The market reflects that the war with Iran and its proxies is not permanently over, and this will impose burdens on the economy."
* This article has been translated by AI.
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