Despite the periodic political controversy in the United States surrounding the provision of military aid to Israel, it is quite easy for American politicians to lobby for it on economic grounds, given that the money actually stays in the country, strengthening its defence industry. In Israel, circumstances are the opposite, since local companies not only risk being limited in their production capabilities and, as a result, hiring of personnel, but are also deprived of the opportunity to make a truly significant contribution to ensuring the defence capability of the state and its positioning in the international arena, Elizaveta Yakimova wirtes.
Between the declaration of the Jewish state in May 1948 and the October 7, 2023 attack by the Palestinian group Hamas, the United States transferred an estimated $158 billion in military aid to Israel, making the country the largest recipient among American allies. In recent years, at the instigation of the progressive wing of the Democratic Party, attempts have been made to withdraw this element of support or make its continuation conditional upon the dynamics of the peace process in the Middle East. However, this aspect of the “special relationship” between the US and Israel has a number of deep-seated problems that make us wonder whether it is so appropriate in the context of not only defence capability, but also economic development.
Since the late 1990s, the United States and Israel have moved toward 10-year planning for this component of American support, which is formalised by the Memorandum of Understanding on Foreign Defence Assistance. This approach provides additional security guarantees for Israel and new orders for the military-industrial complex of the United States. At the same time, the Middle Eastern country still derives a certain economic benefit, since funds are transferred at the beginning of the financial year and stored in a bank. The current memorandum was signed in 2016 after three years of negotiations, which were not hampered by the difficulties in personal communication at the highest level between Benjamin Netanyahu and Barack Obama, nor by the White House’s attempts to reduce funding (it cited economic difficulties). It is curious that in the struggle for large allocations, the Israeli side used the impossibility of clear long-term planning for the needs of the IDF as a counterargument. At the same time, 2023 was chosen as the bifurcation point, when the dynamics of regional events become unpredictable.
The memorandum, valid until 2028, provides for the allocation of an unprecedented $38 billion to the White House’s main regional ally. For comparison, according to similar agreements in 2007, Israel was provided $30 billion. The structure of support also changed. Thus, in addition to the three-billion-dollar increase in regular funding, another $5 billion was allocated for the needs of a multi-year missile defence agreement. Previously Israel, under this article, could spend from $400-600 million annually, on average, but without guarantees of a long-term extension of obligations. However, even then the Memorandum had sceptics, according to whom the apparent increase actually made a minor contribution to the modernisation of the IDF due to high defence inflation.
The rise in the price of military-industrial complex products turned out to be not the only difficulty, and perhaps not the main one with the document from an economic point of view. Since the initial goal of the United States was to reduce military spending, the White House achieved it, but in a veiled manner, by introducing a clause on the gradual reduction of the ability to spend American aid on the purchase of products from Israeli defence companies. The first such option was provided to a Middle Eastern state in the late 1980s. At that time, about $400 million was spent domestically; by the end of the 2010s, the amount had increased to 670 million, although its share in the volume of total financing did not change, equal to approximately a quarter. According to the schedule included in the 2016 Memorandum, at the time of its entry into force, Israel had $815.3 million available for domestic purchases. In 2023, this figure was $775.3 million, which provides for a gradual, material reduction in favour of US-based manufacturers. In 2027, it will be possible to use a little more than 250 million under this article; a complete refusal is envisaged only in the final year of the document’s validity. However, some sources claim that no redistribution has been made yet, and its start is scheduled for 2024.
The possibility of spending a portion of American military aid on the purchase of domestically produced equipment played a contradictory role in the construction of the Israeli military-industrial complex. The first example was the unrealized Lavi fighter project, which was closed due to a lack of its own funds for mass production, while the United States offered F-16 aircraft. As part of another package agreement, the White House was counting on Israel to purchase its V-22 Osprey tiltrotor, which has little compatibility with the IDF’s combat missions. The unemployed participants in the Lavi project then joined the ranks of the developers of the Hetz (Arrow) missile defence system. The latter is not only included in the aforementioned US-Israeli missile defence agreements, but also, in its newest version, was first used in combat conditions to repel an attack by the Yemeni Houthis as part of the current round of conflict in the region.
Well-known Israeli military vehicles that were produced with American assistance include Merkava tanks, which received mixed reviews after the Palestinian attack on the southern regions of the country on October 7, 2023, and Namer heavy armoured personnel carriers, which were used by the IDF during the ground operation in Gaza Strip “Iron Swords”. Despite the fact that the latter have generally proven their worth, the disadvantage of the project was its repeated freezing for financial reasons, which ultimately did not allow the production of the number of vehicles initially calculated for the needs of the Israel Defence Forces.
In the future, subject to the implementation of the reductions in domestic Israeli defence procurement laid down in the current memorandum, there is a risk that the main activity of the country’s military-industrial complex will be the production of components for American weapons and military equipment under subcontracts with the developers themselves. The largest Israeli concerns IAI, Rafael and Elbit are already partly doing this. The second problem is the declining role of Israel as an exporter of military products. Certain progress towards this is noticeable in the example of the same Hetz-3 missile defence system acquired by Germany this year, which was preceded not only by coordination with the Budget Committee of the Bundestag, but also by waiting for US approval.
Thus, despite the periodic political controversy in the United States surrounding the provision of military aid to Israel, it is quite easy for American politicians to lobby for it on economic grounds, given that the money actually stays in the country, strengthening its defence industry. In Israel, circumstances are the opposite, since local companies not only risk being limited in their production capabilities and, as a result, hiring of personnel, but are also deprived of the opportunity to make a truly significant contribution to ensuring the defence capability of the state and its positioning in the international arena. The latter fact contradicts the broader concept of security that the Netanyahu government has been trying to build in recent years. Its essence is to strengthen not only the potential of the armed forces, but also the economy, which, in turn, is designed to increase the country’s international clout. At the same time, Israel cannot afford to refuse American military assistance, as it once did with economic aid, since it accounts for 15 to 20% of the country’s total defence budget, according to various estimates. Moreover, it is US support that forms one of the foundations for the acquisition and modernisation of weapons, while its own funds are spent not only on these needs, but also on paying salaries, pensions and for the rehabilitation of military personnel.