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Why the Netanyahu election win matters

The victory of Benjamin Netanyahu's Likud party in Israel's general election will have knock-on effects on the business, political and investment landscape of Israel and the Middle East, analysts told CNBC Wednesday.

With 99.5 percent of votes counted, Netanyahu's party Likud had won up to 30 seats in the 120-member Knesset, comfortably defeating the Zionist Union opposition, led by Isaac Herzog, on 24 seats, Israel's Central Election Committee and Israeli media said, according to a Reuters report. A united list of Arab parties came in third.

Talks have now started between Likud and other parties to form a coalition government.

Some were surprised at the result as voter polls had given Herzog's center-left Zionist Union alliance the lead as voters had appeared to focus on Israel's economic woes, rather than security issues on which incumbent Netanyahu took a stronger line.


Political ties

Professor Eytan Gilboa, director of School of International Communication at the Bar-Ilan University in Tel Aviv, told CNBC that the reaction from the political and business world to Netanyahu's victory would depend on what form the new coalition government will take.

"It depends on the coalition, on the government, on the people who are going to serve as ministers - especially those who are going to serve as treasury and foreign affairs ministers. We are going to see a very different and new government," he believed, however.

Relations between Netanyahu and its long-time ally, the U.S., have become strained over recent years over the lack of progress in Arab-Israeli peace talks and what the West see as Netanyahu's increasingly uncompromising stance.

Indeed, just days before the election, Netanyahu reiterated to voters that there would be no "concessions" or "retreats" over Israel's position towards Palestine, no two-state solution and he pledged to keep on building settlements on occupied land.

Read MoreIsraeli elections: What you need to know

David Hartwell, managing editor of Middle East Insider magazine, told CNBC Wednesday that Netanyahu's victory made the prospects for the stalled Arab-Israeli peace process "pretty bleak."

"Negotiations have been pretty dead since they collapsed last year and in the last few days (before the election) we've seen Netanyahu's visible lurch to the right so it all adds up to pretty bleak prospects for peace in the region."

Israeli Prime Minister and Likud Party leader Benjamin Netanyahu greets supporters after the first results of the Israeli general election.
Salih Zeki Fazlioglu | Anadolu Agency | Getty Images
Israeli Prime Minister and Likud Party leader Benjamin Netanyahu greets supporters after the first results of the Israeli general election.

He added that it would also be interesting to see how negotiations over Iran's nuclear program, which Netanyahu vehemently criticised during a visit to the U.S. Congress last month, would fare.

"The relationship between Obama and Netanyahu is as bad as it has ever been," Hartwell said. "There's a view in the White house that Israel has been actively working to undermine Iran negotiations so it's going to be interesting to see what happens over that….Netanyahu basically has to try to convince the U.S. and Europe why he's right over Iran and they're all wrong."

Meanwhile, Professor Gilboa said that the health of future foreign relations between Israel and the rest of the world would depend on whether both sides were willing to cooperate.

"(Future relations) depend on the U.S. and how the Obama administration -- as well as some governments in Europe – who had hoped for his removal from power, will approach him. The people made a decision here and both Netanyahu and countries abroad will have to learn how to cooperate and sort out difference and problems of recent years."

Economic solutions?

As Netanyahu was set to begin his fourth term in office, opponent Herzog conceded defeat and said he had called Netanyahu to congratulate to congratulate him. Election victory is the easy part, however, with economic issues and the high cost of living still high on the public's agenda and taxation and regulation hot topics for business leaders.

Stefan Borgas, president and chief executive of Israeli chemicals company ICL, told CNBC that he hoped the new government would work to make life easier for industry.

"We are concerned about the taxation burden, the regulatory uncertainty and the frequent change of laws that we have, especially in this country so we will do our best to explain it to the new government and new ministers and try to create some stability for industry," he said, adding that businesses needed to be able to plan ahead over the long-term.

Not everyone was convinced that economic problems could be resolved so easily. Middle East risk expert Hartwell told CNBC that Netanyahu still hasn't come up with any solutions to Israeli's domestic issues, such as the widening income gap and inequality. He believed that mass protests could resurface if those problems were not tackled.

"If those issues are not addressed then it is very likely that we could see mass protests over resources, such as housing. There is a well of resentment building up that the cost of Netanyahu's security policies, such as the cost of the army, are a drain on the wider economy."

- CNBC's Hadley Gamble contributed reporting to this story.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld