Israeli Rearmament Under Test Due to Gaza Fallout and War Costs

SadaNews - The pressure from operations extending from Gaza to Iran has strained Israeli military equipment, yet its options for renewing its arsenal are limited. The growing criticisms of its campaign in Gaza and scrutiny from some of its partners are prompting a reduction in the supply of weapons to it, while the United States - its main supplier - struggles to increase defense industrial production.

All this indicates that Israel may increase its investments in its defense industry to rearm. However, this is costly and will put further pressure on government budgets that have swollen due to additional defense spending.

Israel has a strong domestic defense industry, but it relies on foreign arms imports, especially advanced aircraft and munitions.

The United States is the largest arms supplier to Israel, having provided 66% of Israeli arms imports from 2020 to 2024 and $3.8 billion in military aid. Missile defense systems, armored vehicles, precision munitions, and advanced fighter jets are among the major exports. The U.S. has supplied additional weapons since the Hamas attack on Israel on October 7, 2023, ranging from 155mm munitions to "F-15" aircraft.

Other important arms suppliers include Germany, Italy, and the United Kingdom. Germany sold submarines to Israel, while the UK provided aircraft, ships, and ground vehicles. All three countries have supplied artillery and ammunition.

Reactions to the Gaza War

Since the Gaza war, some countries have begun to impose conditions on arms flows to Israel or suspend them altogether. Spain announced that it suspended all arms shipments after October 7. Canada pledged to halve its arms shipments to Israel, but it is unclear whether the government has committed to that.

The UK revoked a small number of export licenses for military equipment to Israel in 2024, including components for aircraft, helicopters, and drones. Notably, British components used in the "F-35" were exempted from this export ban.

Italy executed contracts signed prior to October 7 but conditioned not using the equipment in Gaza, then suspended the remaining exports. The Netherlands withdrew export licenses for ship components. Germany, a close ally and the second largest supplier of military equipment to Israel, announced that it would stop sending military equipment to Israel for use in Gaza; it is unclear which specific weapons have been withheld, but some of the equipment provided by Germany to Israel, such as munitions, armored vehicles, weapon spare parts, and naval assets, is relevant to operations in Gaza.

Wars and More Wars

Israel has been fighting a multi-front war for nearly two years. The war in Gaza has mostly been ground-based, involving Israeli Defense Forces soldiers on the ground. Meanwhile, the campaigns in Iran and Syria have been aerial, while its operations in Lebanon have combined both types.

The expansion of operations and the increased pace have stressed Israeli aircraft and ground vehicles, consuming munitions and explosives in large quantities. In 2024, the Israeli Defense Forces reported a shortage of tanks and munitions. During the latest round of Iranian missile salvos, Israel's key interceptor missiles for air defense ran out, leading to resource conservation and reliance on American air defenses.

While Israel's arsenal may not be exhausted yet, it needs to renew key capabilities to support operations and prepare for future attacks, especially as another round of fighting with Iran may be imminent. This includes rebuilding domestically produced interceptor missiles for its multi-layered air defense; a costly and time-consuming endeavor.

Some U.S.-made munitions are reaching their production caps, and some of the munitions used - such as the one-ton bombs that could be used for strikes in Lebanon - are low-volume items. Other suppliers, including Germany, which previously sold Israel "Patriot" missiles for defense, may not be an option if restrictions on arms persist.

Moreover, repairing damaged assets and maintaining heavily used equipment is equally important. A decrease in spare parts and components for weapon systems from Germany, the UK, and other countries may slow the efforts to keep Israeli military equipment operational.

Can Israel Afford the Reconstruction Costs?

If countries continue to restrict arms transfers to Israel, it may increase investment in its domestic defense industry to fill critical gaps. Israel may be able to afford these efforts, but they will impact public finances already strained by the exorbitant costs of the ongoing war.

Israel is not on the brink of an economic crisis, as it possesses large foreign reserves, access to financial markets, and support from the United States. However, the ongoing war comes at a cost that includes increased defense spending, pulling soldiers out of the labor market, damage to and repair of infrastructure, population outflows and displacements, school closures, and ongoing uncertainty.

The potential for increased sanctions and divestments, as seen when the Norwegian sovereign wealth fund divested from 11 Israeli companies, could lead to supply disruptions, capital flight, and the need to secure more expensive imports from other countries.

Rising Financial Pressures

Each of these elements is small in itself but could accumulate over time, while a 1.5% increase in GDP and continued high defense spending are already putting pressure on Israel's finances.

Financial pressures likely mean that Israel will have to choose between increasing investment in defense production or in research and development. The ongoing orders from the Israeli government to support its defense industry and the need to rearm the Israeli Defense Forces indicate a focus on weapon production rather than development.

Israeli defense firms are likely to focus on renewing tanks, armored vehicles, and air defense missiles. Israel is also likely to invest in new air defense technologies, such as next-generation laser systems that are cheaper and can operate faster than the existing ones in Israel's air defense network. Laser weapons provide a lower cost per intercept compared to traditional missile defense.

The endeavor to rebuild the Israeli military will be costly. It does not seem likely that Israel will scale back its war efforts anytime soon and is preparing for a final assault on Gaza City, so these are costs it may be willing to pay. Over time, it will become increasingly difficult for Israel to rebuild its offensive and defensive capabilities in a timely manner.