Israel Gives Up Little to Get Largest Ever U.S. Arms Deal

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Despite the tensions between President Obama and Israeli Prime Minister Netanyahu, the United States and Israel have finally signed a new Memorandum of Understanding (MoU). After pushing off negotiations until the Iran deal concluded, Netanyahu has “settled” for the largest military aid package to any country in the history of U.S. security assistance. The deal will provide Israel $38 billion over ten years starting in 2019. Although the record deal does contain some significant Israeli concessions compared to the last agreement, little is likely to change.

Early in the negotiations, Prime Minister Netanyahu reportedly wanted as much as $45 billion from this new MoU, but the U.S. administration was unwilling to budge and secured the $38 billion deal instead. This will not make Israel the largest annual recipient of U.S. security aid, but it will be the largest guaranteed package in history with an additional $8 billion from the previous memorandum.

The additional billions, though, come with a cost. First, the United States is going to gradually phase out the unique offshore procurement policy. Since 1984 Israel has been able to spend up to 26.3 percent of the aid package on research, development, and procurement for its domestic arms industry. Israel had been the only country allowed this enormous privilege, but the administration feels its defense industry is now strong enough to support its domestic industry without U.S. assistance. As a result of the policy phase-out, Israel’s industry will lose out on nearly one billion dollars in annual sales.

Despite the concern expressed by some, Israel’s industry seems to be doing quite well. Over the course of President Obama’s two terms, the Stockholm International Peace Research Institute (SIPRI) ranks Israel as the tenth largest exporter of arms in the world with a majority of those sales in sensors for intelligence and surveillance, missiles, and aircraft. Leading recipients include India, Turkey, and Colombia. Recent sales have also included drones to Russia and surveillance equipment to South Sudan.

Maybe even more important though, the administration has received an agreement from Israel to not request more U.S. security aid than the amount allotted in the MoU. Haaretz’ Barak Ravid reported that the restriction does not, however, include cyber defense systems, combating tunnels, and emergencies.

For over two decades, Congress has provided millions in aid per year through the Defense Department’s budget in addition to the MoU packages funded through the State Department’s Foreign Military Financing program. Since FY2000 Congress, on an ad hoc basis, has allocated $4.5 billion for research, development, and procurement in missile defense, all in addition to the $45 billion funded by the State Department package. The new agreement would include $500 million annually for missile defense compared to the 140 percent fluctuation Israel received in missile defense from FY2012 to FY2014.

The administration’s attempt to standardize assistance to Israel instead of the annual haphazard defense appropriations process not only helps U.S. and Israeli officials better prepare security cooperation strategy but also helps U.S. arms manufacturers know what will be in the pipeline.

The feasibility of including all aid in the MoU though, remains in question. According to Josh Rogin of The Washington Post, Senator Lindsay Graham has already pushed back. Graham opined: “I’m offended that the administration would try to take over the appropriations process. If they don’t like what I’m doing, they can veto the bill. We can’t have the executive branch dictating what the legislative branch will do for a decade based on an agreement we are not a party to.” This means the next administration will have a choice on whether to uphold this part of the agreement if Congress decides to allocate additional funds for Israel outside of the MoU.

The move to incorporate missile defense into the MoU and eliminate offshore procurement raises questions about how Israel will pay for co-production missile defense systems like the Iron Dome, David’s Sling, and Arrow. Israeli companies Rafael and Israel Aerospace Industries produce these systems with Boeing and Raytheon. Under the old MoU, the 26.3 percent didn’t include the DoD-funded missile defense. Would U.S. aid now only cover the costs of U.S. manufacturers of this research and procurement? That seems highly unlikely. Despite the gradual annual reduction of offshore procurement, parts of Israel’s defense industry should be secure over the next decade.

The new aid package’s inclusion of Israeli missile defense systems means that over the course of the next 10 years, the overall amount of U.S. security aid to Israel isn’t actually increasing that much. In fact, since FY2014 Israel has averaged $3.7 billion per year in total security aid. So it will be just a slight increase over the next decade. That of course is contingent on Congress not providing additional funds for Israel. And if Senator Graham’s remarks, the near unanimous $225 million in additional Iron Dome funding provided during the latest war with Hamas in 2014, and Haaretz reporting is any indication, more funding is almost certainly to be provided.

Ultimately, the new memorandum, despite its changes, rewards an Israeli government with billions of dollars in aid for the latest arms technology including the new F-35 fighter jet, which no other country in the Middle East can acquire. This agreement demonstrates that the relationship between the two countries is stronger than the animosity between the two leaders. But it won’t move the nearly 70-year-old Arab-Israeli conflict any closer to a peaceful solution.

Seth Binder is the program manager and research associate at the Center for International Policy for the Security Assistance Monitor program and covers the Middle East and North Africa. He is the co-author of “The Moroccan Spring and King Mohammed VI’s Economic Policy Agenda: Evaluating the First Dozen Years,” a chapter in The Birth of the Arab Citizen and the Changing of the Middle East.