For years, American military assistance and access to international financial markets have been central to Israel’s economic and military position. Now, an Israeli economic analysis is raising an uncomfortable question: What happens if Washington becomes less willing to pay, while Western governments and international investors become less willing to do business?
The warning comes from Israeli financial newspaper Calcalist, which examined the potential consequences of declining US military assistance, Western financial sanctions and growing international distrust of Israel’s economic direction.
Its assessment challenges Prime Minister Benjamin Netanyahu’s suggestions that Israel could eventually dispense with American military funding or use blockchain technology to circumvent international financial restrictions.
The deeper concern is not simply that sanctions might be imposed. It is that businesses and investors could begin distancing themselves from Israel long before any formal restrictions take effect.
With the current US military assistance agreement scheduled to expire in 2028, the Israeli government faces the prospect of simultaneously funding a larger defence budget, protecting civilian spending and maintaining investor confidence in an increasingly uncertain international environment.
The $3.8 Billion Question Netanyahu Cannot Ignore
In January, Netanyahu told The Economist that he wanted Israel to gradually eliminate its dependence on American military assistance over the following decade.
He argued that the Israeli economy had developed sufficiently to make such independence possible.
Yet Calcalist questioned whether Netanyahu’s ambitions reflect economic confidence or an attempt to prepare for a changing political reality in Washington.
The Israeli prime minister has himself acknowledged that “the United States may have changed”, a remark the publication interpreted against signs of declining American enthusiasm for maintaining existing levels of assistance.
The implications extend beyond diplomatic relations.
Under a ten-year agreement signed in 2016, Israel receives approximately $3.8 billion annually in American security assistance. The arrangement, which expires in 2028, helps finance major military acquisitions, including F-35 fighter aircraft, Apache attack helicopters and missile interception systems.
The Israeli Defence Ministry is seeking a framework to renew the agreement. But if negotiations fail, the consequences for Israel’s military budget could be substantial.
According to Calcalist’s calculations, the absence of a renewed agreement could remove more than 11 billion shekels annually from the Israeli military’s procurement budget.
That would leave Netanyahu’s government confronting a difficult budgetary question: How does Israel maintain its planned military expansion without the American funding that has helped sustain it?
The issue becomes particularly pressing as the government moves towards increasing defence expenditure.
Replacing the lost assistance through domestic resources could require diverting funds from other parts of the national budget. Civilian services, already subjected to spending reductions during the years of war, could face further pressure.
In practical terms, reduced American assistance could ultimately translate into fewer resources for public services and additional strain on living standards.
For an Israeli government seeking to expand military capabilities while maintaining economic stability, the cost of greater military independence could prove considerably higher than Netanyahu’s rhetoric suggests.
Netanyahu Has a Blockchain Solution. Israeli Economists Are Not Convinced
The prospect of losing American military funding is only one of the financial challenges examined by Calcalist.
Another, potentially more disruptive scenario involves Western governments imposing financial sanctions that restrict Israeli banks’ access to international banking infrastructure.
During a television interview, Netanyahu raised the possibility of using blockchain technology to circumvent such restrictions.
For Calcalist, the statement itself was revealing.
The publication argued that discussing blockchain as a means of avoiding sanctions suggests growing concern about the possibility of Israel becoming increasingly isolated from the international financial system.
One particularly serious scenario would involve restrictions on Israeli banks’ access to SWIFT, the global financial messaging network used by banks to communicate instructions for international transactions.
SWIFT plays an essential role in cross-border banking, facilitating the secure exchange of financial information required for international payments and transfers.
The consequences of exclusion are not merely theoretical.
Following Russia’s invasion of Ukraine in 2022, Western governments imposed restrictions on selected Russian banks’ access to SWIFT as part of their broader sanctions against Moscow.
Calcalist warned that comparable measures against Israeli financial institutions could disrupt international transactions, complicate money transfers and interfere with trade and investment.
Restrictions could also accelerate capital outflows, adding further pressure to the Israeli economy.
Blockchain systems may enable certain forms of digital transactions, but the publication rejected the suggestion that the technology could serve as a comprehensive replacement for access to established global banking networks.
International trade, investment and financial stability depend on more than the technical ability to transfer digital assets.
They also depend on the willingness of banks, companies, governments and investors to maintain financial relationships.
The author warned that presenting blockchain as a solution could divert attention from the underlying economic consequences of policies that risk exposing Israel to international sanctions.
The Damage Could Begin Before a Single Sanction Is Imposed
Perhaps the most consequential argument in the Israeli economic analysis concerns the way financial uncertainty can affect an economy before any government formally acts.
International companies do not necessarily wait for sanctions to be announced before reassessing their exposure to political and regulatory risks.
The possibility of future restrictions may itself encourage businesses to relocate activities, restructure their operations or register companies outside Israel.
Calcalist pointed to an existing trend among entrepreneurs choosing to register businesses in the United States rather than Israel.
The publication linked this development to the Israeli government’s judicial and regulatory changes in recent years, alongside the consequences of the war.
Such decisions could become more widespread if international businesses begin to regard Israel as a market exposed to heightened financial uncertainty.
The potential damage would reach beyond individual companies.
Reduced investment could discourage multinational corporations from expanding research and development centres in Israel, weakening economic activity and affecting gross domestic product.
Lower business activity and reduced investment could, in turn, diminish government tax revenues at precisely the time when the state is seeking additional resources to finance growing military expenditure.
The warning presents a financial problem that cannot be resolved simply by increasing defence spending or adopting alternative payment technologies.
If investors increasingly question the stability of Israel’s international economic relationships, their decisions could begin reshaping the country’s investment landscape before sanctions become a legal reality.
Could Netanyahu’s Policies Make Israel More Expensive to Finance?
The economic concerns raised by Calcalist are closely connected to Israel’s diplomatic and political direction.
The publication warned that continuing the current government’s policies after the elections could intensify existing pressures, particularly if American assistance declines while Israel’s international relationships deteriorate further.
It also questioned the consequences of government policies pursued in recent years, including the war that followed the events of 7 October 2023.
The analysis linked Israel’s declining international standing, along with what it characterised as failures by the Israeli Foreign Ministry in addressing the repercussions of the war, to the possibility of mounting economic pressure.
The resulting risks are interconnected.
Reduced American military assistance would place additional demands on Israel’s domestic budget. Financial sanctions could complicate banking relationships and cross-border trade. Fears of future restrictions could encourage companies and investors to move capital and business activity elsewhere.
Each development could reinforce the others.
A decline in investment would threaten tax revenues, even as the government faces pressure to increase military spending. Attempts to cover funding shortfalls could then place further strain on civilian budgets and living standards.
In that scenario, Israel’s challenge would not be confined to replacing one American assistance agreement. It would involve protecting the broader economic relationships on which its financial stability depends.
The Financial Cost of International Isolation
Calcalist’s analysis ultimately draws a distinction between technological capability and economic security.
Israel may have the means to develop alternative financial technologies, but blockchain cannot independently restore international banking access, reverse declining investor confidence or compensate for the withdrawal of substantial foreign military assistance.
Nor would avoiding formal sanctions necessarily eliminate the economic consequences of growing international uncertainty.
The newspaper’s warning is that the threat of isolation can begin affecting investment decisions, corporate activity and public finances before the restrictions themselves arrive.
With the American military assistance agreement approaching its 2028 expiry date, Netanyahu’s government faces a financial dilemma that could become more difficult if current policies continue.
The question is no longer solely whether Israel can afford to operate without American military assistance. It is whether its economy can absorb the combined costs of greater military spending, declining international confidence and the possibility of financial isolation.
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