Israeli financial markets took a hit on Wednesday following an inconclusive election outcome. With more than 66% of votes tallied, partial results showed Prime Minister Benjamin Netanyahu's bloc likely securing 56 seats, while his main rival, Gadi Eisenkot, was projected to win 48 seats in the 120-seat Knesset. Arab-led parties, not aligned with either major bloc, were expected to gain 16 seats.
The political uncertainty had swift economic consequences. The Israeli shekel fell 1% against the U. S. dollar, and the Tel Aviv 35 stock index dropped 2.7%. Israeli government bonds also faced selling pressure, pushing yields higher across the spectrum. Yields on the 2-year bond increased by 6 basis points, the benchmark 10-year bond rose by 4 basis points, and the 30-year bond saw a 2 basis point increase.
This election, the first since the October 7, 2023, Hamas attack and subsequent conflicts involving Gaza, Lebanon, and Iran, was largely seen as a referendum on Netanyahu's enduring influence in Israeli politics. As outright majorities are rare, forming a coalition is crucial for government formation. The president generally invites a Knesset member, typically the one most likely to form a 61-seat majority, to try to assemble a government. If no coalition is formed, another election might be called.
Gadi Eisenkot, a former military chief of staff, claimed victory based on preliminary results showing his bloc slightly ahead. He argued these results should give him the first chance to form a government. "The initial exit poll results indicate a complete lack of confidence in Netanyahu and his October 7 government, " Eisenkot posted on X. However, these exit polls are not definitive, with final results expected on November 4.
The election saw a 77.7% voter turnout, the highest in a Knesset election in 27 years, according to the Central Elections Committee. This high participation underscores the electorate's deep engagement in a vote potentially reshaping the country's political scene.
Netanyahu's tenure has drawn international scrutiny, including an International Criminal Court arrest warrant over his actions in Gaza, which he has dismissed. Critics cite his ongoing corruption trial, controversial judicial reforms, and management of the Gaza conflict as reasons for his unfitness for office. Despite these issues, Netanyahu remains a formidable political figure, becoming Israel's longest-serving prime minister due to previous electoral deadlocks.
The strong performance of Arab-led parties is a key element in coalition discussions. Mansour Abbas, leader of the Ra'am party, said their vote would "change the government." Meanwhile, Ahmad Tibi of the Joint List had previously outlined strategies to prevent Netanyahu from retaining power. The Arab parties' pro-Palestinian stance aligns them more with Eisenkot than with Netanyahu, although neither leader has explicitly stated they would include Arab parties in their coalition.
However, Avigdor Liberman, leader of Yisrael Beytenu, which is projected to win seven to nine seats and is currently part of Eisenkot's opposition bloc, has refused to rely on Arab parties during the campaign. This stance complicates Eisenkot's path to forming a government, as he may struggle to secure a majority without the inclusion of Arab and left-wing parties.
During the campaign, Netanyahu and his far-right allies warned of high Arab voter turnout, which opponents criticized as racist. "If we don't wake up now, we'll find ourselves with a government of Mansour Abbas and Ahmed Tibi, " Netanyahu cautioned, noting long queues at polling stations in Arab communities.
Even if Eisenkot potentially secures more seats, Netanyahu might use the coming weeks or months to his advantage, possibly stalling the formation of a new government. Amin Saikal, an adjunct senior fellow at Singapore's S. Rajaratnam School of International Studies, observed that Netanyahu will "fight for his political survival."
Israel has seen five elections between 2019 and 2022, reflecting its political volatility. P. R. Kumaraswamy, an emeritus professor of Middle Eastern Studies at Jawaharlal Nehru University, expects a lengthy negotiation process following the final results. "It is too early to write him off, " he remarked regarding Netanyahu's political future.
