Key Highlights

  • Netanyahu's bloc is projected at 54 Knesset seats, 7 short of the 61 needed to govern outright.
  • Eisenkot's bloc stands at 47 seats, while Arab-led parties outside both camps are projected to take 19.
  • The shekel lost about 1 percent against the dollar and the Tel Aviv 35 index slid 2.7 percent on Wednesday.
  • Turnout of 77.7 percent was the highest for a Knesset vote in 27 years, with official results due November 4.

Seven Seats Short, Fourteen Seats Short

Neither side of Israeli politics came out of Tuesday's election with a workable majority, and investors answered on Wednesday by selling the shekel, equities and government bonds. With about 70.7 percent of ballots counted, Israeli media projected 54 of the 120 Knesset seats for Prime Minister Benjamin Netanyahu's alliance of right-wing, far-right and ultra-Orthodox parties. The coalition led by challenger Gadi Eisenkot, a former military chief of staff, was projected at 47.

A government needs 61 seats. That leaves Netanyahu 7 short and Eisenkot 14 short. Pre-election polls had pointed to a tight race, and Eisenkot's camp, which stretches from the center-left to the hard right, ran behind them. The count remains open, and an earlier partial tally put the gap between the two blocs at a slimmer margin.

How the Markets Reacted

The shekel gave up about 1 percent against the US dollar, and the Tel Aviv 35 index traded 2.7 percent lower. Israeli government bonds also weakened, which shows up as higher yields because bond prices and yields move in opposite directions.

The 2-year yield rose 6 basis points, the benchmark 10-year rose 4 and the 30-year rose 2. The steeper move at the short end sits alongside a vote that has set no clear timetable for a new cabinet.

The 19 Seats Outside Both Camps

Arab-led parties, aligned with neither bloc, are projected at 19 seats, a historically strong showing. On paper, Eisenkot's 47 plus those 19 would exceed 61. In practice, many of his allies have ruled out relying on them, and Avigdor Liberman, whose Yisrael Beytenu party is projected at seven to nine seats inside Eisenkot's bloc, refused during the campaign to depend on Arab parties.

Netanyahu and his far-right partners warned on Tuesday of a government shaped by Arab party leaders Mansour Abbas and Ahmad Tibi, remarks opponents called racist. Abbas, who leads Ra'am, said the Arab vote has the power to change the government. An academic who follows Middle Eastern affairs said the pro-Palestinian positions of these parties sit closer to Eisenkot's than to Netanyahu's, though neither man has offered them a role.

A Turnout Not Seen in Decades

About 77.7 percent of eligible voters cast ballots, the highest for a Knesset election in 27 years, according to the Central Elections Committee. Participation was especially strong among Israelis of Palestinian descent, who make up more than a fifth of the population but have historically been left out of cabinets.

The ballot was the first national vote since Hamas's attack of October 7, 2023 and the wars in Gaza, Lebanon and Iran that followed. It was widely read as a verdict on Netanyahu, who has dominated Israeli politics since 2009.

Caretaker Rules and Room to Stall

Once final results are in, the president asks the lawmaker best placed to reach 61 seats to try to form a government. If those efforts fail, another election can follow. Netanyahu stays on as caretaker throughout, whether coalition talks drag on or a new vote is held next year.

Israel held five elections between 2019 and 2022, and earlier deadlocks left Netanyahu in office as rivals failed to assemble coalitions. Two academics offered differing emphases: one said he may use the coming weeks or months to delay government formation, and the other anticipates lengthy negotiations and said it is too early to write him off.

In a speech at Likud headquarters after 3 a.m., Netanyahu called for a right-wing national government and raised the prospect of renewed joint military action against Iran with US President Donald Trump, who had urged Israelis to keep him in power. Eisenkot said Netanyahu lacks a mandate and called on security and civil service chiefs to resist political pressure. Netanyahu faces an International Criminal Court arrest warrant over the Gaza campaign, which he rejects, and corruption charges in Israel, which he dismisses as an establishment plot.

Dates and Signals to Follow

Official results are published on November 4. The final seat totals for each bloc, the size of the Arab-party delegation, Liberman's position and the president's choice of who is asked to form a government frame the next phase. Market gauges include the shekel, the Tel Aviv 35 and the yield curve.