Analysis | As Gaza War Crimes Allegations Intensify: Is Israel's Export Arms Industry Facing a Crisis?

On the international stage, allegations that Israel is committing war crimes in Gaza are increasing. As momentum around these claims builds, concerns grow about their impact on the Israeli arms industry and its ability to export weapons to foreign countries. Is the Israeli arms industry facing an unprecedented crisis?

The current situation in Gaza

In recent months, the situation in Gaza has deteriorated significantly due to intense fighting between Israel and Hamas. Israeli attacks in Gaza have caused significant destruction and damage to the civilian population. According to UN reports, since the current war began in October 2023, tens of thousands of Palestinians have been killed or injured, including women and children. The attacks also affected UNRWA humanitarian facilities, which have provided shelter to more than 1.7 million refugees affected by the fighting.

The humanitarian situation in Gaza continues to deteriorate, with severe shortages of food, water, electricity and health services. Reports indicate that only four of 22 UNRWA clinics are currently operational, due to ongoing fighting. Food and water shortages have created a profound humanitarian crisis, with food prices rising dramatically and a population facing hunger and food insecurity. Additionally, Gaza's critical infrastructure has been severely damaged, making it difficult for the local population to function on a daily basis.

Growing allegations of war crimes committed by Israel could lead to increased international pressure on the country, which could impact Israel's arms industry. Growing international criticism of Israel and the possibility of sanctions could hamper Israel's ability to export weapons and continue to operate in global markets.

Dependence of Israeli arms industries on exports

Israeli arms industries constitute a central part of the Israeli national economy. Israel is considered one of the world leaders in the field of exports of security products, with Israeli weapons systems and security technologies being sold to a wide range of countries around the world. This export is an essential component of the country's revenue and the continued technological development of security industries.

In recent years, Israeli security industries have exported advanced weapons systems to many countries, including the United States, India, Germany and others. According to Defense Ministry reports, Israeli security exports have reached billions of dollars annually, with security exports totaling more than $12.5 billion in 2022.

Major exports include advanced weapon systems, electronic warfare technologies, air defense systems and other technological solutions. Revenues from arms exports constitute a significant component of Israeli GDP. These exports allow arms industries to invest in research and development and maintain Israel's technological leadership in the security sector. Additionally, the arms industry employs thousands of workers and creates job opportunities.

Relying on foreign markets is one of the main challenges for Israeli arms industries. Political or economic changes in destination countries can have a significant impact on exports. For example, Israel's relations with India, one of its major arms industry customers, could change due to international pressure or changes in India's foreign policy.

As allegations of war crimes in Gaza intensify, there are growing concerns that international pressure and potential sanctions could harm Israeli arms industries. Voices are already being raised on the international scene to demand sanctions against Israel, which could have an impact on arms sales and revenues from this industry. Furthermore, there are concerns that political and social events in the international arena could affect relations with major arms export destinations, thereby leading to significant economic losses.

Act in accordance with international law

The Israeli government and arms industry understand the seriousness of the situation and efforts are being made to defend the nation's international reputation. Official sources say Israel is acting in accordance with international law and that the war crimes allegations are part of a delegitimization campaign.

However, the French government's decision to exclude Israeli industries from the popular Eurosatory arms fair could be the start of a snowball effect. Meanwhile, at the ILA exhibition in Germany, Israeli security industries are present, and senior German and other officials visit Israeli pavilions, conveying the status quo.

Despite German support, Israeli security marketers understand the shift that is beginning to take place in Europe. Despite the European need for security technology due to concerns over Putin, European customers will prefer local or American products over Israeli products. Part of the decision is based on economic or geopolitical considerations, but part of it has to do with the fact that no procurement manager wants to deal with a country accused of war crimes. European defense companies are exploiting the situation to circumvent Israeli proposals, without the need to prove their superiority in experiments and tests.

The atmosphere in Israeli defense industries is such that, at least in the short term, the European arms market is closing. In light of these developments, Israeli industries will prefer to invest in the US market and attempt to enter as OEM suppliers of US products that will sell more easily in the European market. This is a known method that companies like Elbit, for example, have been using for years. It now seems that more and more companies are using this method.

The economic impact

The impact of the allegations against Israel could harm Israel's international relations, particularly with Western countries that attach great importance to human rights and international law. In the long term, there may be opportunities to forge new alliances with new states, but this would require strategic and perceptual changes. In the short to medium term, there could be a reduction in arms sales and contract losses. In the meantime, it can be assumed that Israel will strive to maintain transparency in its security activities in Gaza, while strengthening cooperation with friendly countries and international organizations.