The United States and Israel are close to clinching a massive 10-year arms deal, but Washington is pushing to scrap a coveted provision that has allowed Israel to pump hundreds of millions of dollars directly into its defense industry.
If successful, the administration’s push to remove the clause would inflict some real pain on Israel’s growing security sector, which already exports more arms overseas than almost any other country apart from the United States. On the flip side, the change would mean a potential windfall for American defense contractors scrambling to sell their wares abroad to make up for declining sales at home. The Middle East and Asia are now driving growth for major U.S. contractors, with about a quarter of revenue coming from international sales, compared with 15 percent in 2008.
The proposed shift “could be very good news for the U.S. defense industry,” said Loren Thompson, a longtime consultant for American military contractors, because “domestic defense spending is flat as a pancake and Israel is a consumer of high-end military technology.”
The issue has been a sticking point in the talks over the new military aid package because it could deprive Israel’s security firms of roughly $10 billion over the next decade, a vast sum for a crucial sector of the country’s economy. The deal, which doesn’t involve the direct transfer of military hardware but instead a commitment from Washington to finance Israel’s weapons buying, illustrates how the two countries’ security ties remain strong enough to transcend the tensions that have plagued relations between U.S. President Barack Obama and Israeli Prime Minister Benjamin Netanyahu.
Under the change proposed by the White House, Israel would have to spend all the funds it receives in the arms package on U.S.-made weapons instead of being allowed to spend a portion of it on Israeli-manufactured arms and fuel. That would mean American aerospace giants such as Lockheed Martin, which builds the F-35 fighter jet, and Raytheon, which sells precision-guided missiles and sensors to U.S. partners worldwide, would stand to benefit.
The rationale for setting aside a chunk of U.S. money for Israeli-made arms dates back to the 1980s, when the country was trying to build up its own defense sector. But, since then, Israel’s security firms have flourished and in some cases now compete with U.S. defense contractors in global markets, selling $5.7 billion worth of weaponry in 2015, with sophisticated radars, electronic systems, drones, and missiles topping the list of high-end exports. That was almost double the $3 billion worth of equipment it exported in 2003.