Israeli arms exports to get lift from Ukraine war and rising global tensions

Al-Monitor Pro Members

David Rosenberg

Israeli reporter specializing in business, economics and politics

June 28, 2023

Israel exported a record $12.5 billion in arms last year, the Defense Ministry said June 14, and that growth is likely to continue over the next several years. Israel is well-positioned to take advantage of growing global defense spending in the wake of the Ukraine war and due to growing tensions in the Gulf and with China. That is because Israeli weapons manufacturing is heavily weighted toward drones, missiles, electronic warfare and air defense systems, all of which have played a major role in the Ukraine conflict. Israel’s cutting-edge cyberhacking technology remains dogged by controversy due to customer abuse, but demand remains brisk for other cyberwarfare segments. In addition, the government is doing more than ever to encourage exports, cutting red tape and entering into more government-to-government deals. Increased exports are critical to the country’s defense industry, which sells as much as 80% of its products and services abroad.

Scenario 1: Israeli defense exports continue to grow, led by Europe

Regardless of how the war in Ukraine develops, European countries, especially those closed to Russia, will remain committed to increased defense spending. But orders and deliveries will take time to materialize as budgets need to be approved and allocated — for example, Germany first mulled buying Arrow 3 in March 2022, allocations were approved 16 months later, a deal is expected to be signed later this year and delivery in the fourth quarter of 2025. Orders from the original Abraham Accord partners will continue apace, with more demand coming from Saudi Arabia after it normalizes relations with Israel. The Asian market continues to grow as India, Japan and other countries boost defense spending to match Chinese increases and due to anxiety over Beijing’s regional ambitions in Taiwan and elsewhere. Privatization turns the IAI into a more efficient and aggressive player.

Scenario 2: Global defense spending growth stalls

A resolution to the Ukraine war seen by Europe as favorable alleviates pressure to increase defense spending or restock inventories quickly. Fanned by controversial policies of Israel’s right-wing government, political resistance to buying Israeli arms, which had dissipated after the war broke out, re-emerges and loses sales for Israel. In the Arab world, efforts to normalize relations with Saudi Arabia fail or do not develop into more than a cold peace that precludes arms deals. Efforts to reduce tensions with Iran are successful, leading other Gulf powers to reconsider some of their defense spending. Security tensions in Asia also dissipate as China pulls back from threats over Taiwan and/or slower economic growth causes it to rein in its own defense spending. The IAI privatization is put off indefinitely.

David Rosenberg has more than 30 years experience reporting, commenting and speaking on business, economics and politics in Israel and the Middle East. He has worked for Reuters, The Jerusalem Post and Dow Jones, and was bureau chief for Israel for Bloomberg News. He is the author of two books (Cloning Silicon Valley, 2001, and Israel’s Technology Economy, 2018) and has been published in The Wall Street Journal and Foreign Policy. He now writes commentary for the Haaretz daily.