Europe Faces Difficult Test Between Boycotting Israel or Its Defense Interests

SadaNews - Amid scenes of destruction and hunger in Gaza, and the attack that took place this week in Qatar, frustrated European leaders are hinting at imposing sanctions on Israel and reevaluating their relationship with their traditional ally.

However, despite the rising anger, including moves toward recognizing a Palestinian state and imposing some limited restrictions on arms sales, one area remains untouched: the Israeli defense sector, valued at billions of dollars. The armies of Europe are the largest buyers of Israeli weapons and defense systems, with purchases reaching $8 billion last year, accounting for just over half of Israel's exports, and demand is expected to increase.

Europe's Dependence on Israeli Weapons

Pressured by U.S. President Donald Trump, NATO countries in Europe committed to raising their defense spending to 5% of GDP annually by 2035, up from the 2% that has been in place since 2014. This commitment gained importance after the Russian war in Ukraine erupted in 2022, a goal that seems difficult to achieve without relying on Israel, whose three major defense companies are considered a vital part of Europe’s economies and military supply chains.

Elad Krauss, head of research at Meitav Brokerage Services based in Tel Aviv, said: "Morale toward Israel may be negative, but clients in Europe and elsewhere are looking to buy the best products available, and it cannot be ignored that Israeli systems have proven effective in the field." He added, "It will be difficult to pressure Israel through its defense industries amid growing global demand."

The Gaza Defense Dilemma

The three giant Israeli defense companies, Elbit Systems, Rafael Advanced Defense Systems, and Israel Aerospace Industries, do not only sell to Europe but have field operations through subsidiaries and partnerships with local institutions. Regardless of the anti-Israel public sentiment, the continent is likely to continue purchasing its products, according to two senior officials in the Israeli defense sector who spoke on condition of anonymity.

This dependence complicates Europe’s efforts to persuade Israel to end or at least suspend its military campaign in Gaza, which erupted following a deadly attack launched by Hamas from the Palestinian enclave in October 2023. Since then, Israeli operations have destroyed much of the territory, leading to the near-total displacement of its two million inhabitants, while a UN-backed agency announced a famine in parts of the area after a three-month Israeli blockade on aid.

Protests Against Israel

Demonstrations have erupted across the West in protest of Israel's conduct in the war, some of which specifically targeted the country’s defense companies. European facilities owned by these companies have been vandalized, including an Elbit factory in the German city of Ulm.

In the United Kingdom, incidents targeting Elbit operations were attributed to the group Palestinian Action, which the government of Prime Minister Keir Starmer classified as a terrorist organization in July, prompting the Israeli company to keep some of its locations within the EU secret.

Elbit manages a network of 40 subsidiaries worldwide, at least half of which are in Europe, according to a spokesperson. The company’s facilities in the UK, Netherlands, and Romania have recently expanded in response to rising demand. The Haifa-based company employs about 2,000 workers on the continent, accounting for 10% of its total workforce, and operates a flight school in Greece to train students from several European countries.

Israeli Company Sales

Last year, Elbit’s sales to Europe doubled compared to 2021, reaching $1.8 billion. In August, the company announced its largest deal in history, a $1.6 billion contract with an unnamed European country extending over five years.

The state-owned company Rafael, known for its Iron Dome and Iron Beam laser-based missile defense systems, manufactures and sells missiles through its joint German venture, Euro Spike GmbH, in collaboration with Diehl Defense and Rheinmetall Group.

Last year, Rafael’s revenues were almost equally distributed between the domestic and global markets, with Europe accounting for 45% of its international sales. The company is working to establish additional joint ventures in Germany, including Euro Dome for the Iron Dome system and Euro Spyder for the short- to long-range mobile air defense system, according to one defense official.

Limited European Restrictions

For its part, the German Chancellor Friedrich Merz’s decision last month to ban the shipment of weapons that could be used in Gaza highlighted the extent of European opposition to Israeli operations. However, these restrictions, which included tank parts and some defense equipment, were limited to exports only, not extending to imports or other areas of cooperation. Their impact diminished this week following the announcement of German plans to purchase three Heron drones from Israel worth nearly one billion euros ($1.2 billion).

Pressure on Arms Deals

Nevertheless, some opposition movements to the arms trade boom have emerged. Two Israeli officials told Bloomberg that several European foreign ministries recently requested procurement managers to delay purchases from Israel until a ceasefire in Gaza. The UK also barred Israeli government officials from attending a major defense exhibition in London this month, while Israeli weapons manufacturers were prevented from participating in one of the world's largest airshows scheduled to take place in the UAE in November.

An Israeli Defense Ministry official, who spoke on condition of anonymity because he is not authorized to speak publicly on these matters, said his European counterparts are urging him to end the war to make it easier for companies to continue their business operations.

In a related context, a senior executive at one of the largest Israeli defense companies, who requested anonymity, emphasized that an increasing number of European clients prefer to keep discussions about future orders confidential. However, another executive asserted that long-term procurement processes would not be affected by what he termed a temporary issue.

Expansion of Israeli Aerospace Industries

Israel Aerospace Industries, which is state-owned and a co-developer and manufacturer of the Arrow air defense system, derived two-thirds of its revenue last year from foreign sales. The company secured its largest deal in history in 2023, when it sold the Arrow 3 system to Germany for about $4.3 billion.

Like Elbit and Rafael, Israel Aerospace Industries is seeking to enhance its presence in Europe. Last year, it acquired the Greek company Intracom Defense "to enhance its commercial capabilities in Greece and Europe," according to a company statement.

CEO Yoav Turgeman told the Israeli economic newspaper Calcalist on August 28: "Despite global anger against Israel, the orders for Rafael’s products have been increasing year after year. No project or order has been canceled, and even if some have slowed down a bit, I believe that once the war in Gaza is over, we will return to normalcy very quickly."