Israel’s Defense Exports Reach Record High Amid Challenges
Overview of Defense Exports
In 2014, Israel achieved a new record in defense exports, reaching approximately $14.795 billion. This marks a significant increase of about 11.7% compared to 2023 and indicates a doubling of exports over the past five years. Despite challenges, including withdrawal from prestigious exhibitions, Israel’s defense industry has shown remarkable resilience.
Shifts in Global Demand
The main catalyst for this surge has been Europe, where increasing security budgets, spurred by the Russia-Ukraine war, have led to a substantial rise in demand. While European defense purchases surged from 35% to 54% of Israel’s exports, countries within the Abraham Accords also demonstrated recovery, climbing from a drastic drop of 24% to 3% in 2023, back to 12%. Conversely, demand from the Asia-Pacific region saw a significant decline, dropping from 48% to 23%.
Challenges in the Asia-Pacific Market
“There are difficulties in the Asia-Pacific region, but we are making efforts to adapt to market needs,” stated Brigadier General (Res.) Yair Koles, head of the Defense Export Division (SIBAT) at the Ministry of Defense. Many countries, including India, the largest recipient of Israeli defense exports, now demand local production as part of any deal, requiring Israeli industries to adjust their strategies.
Financing and Structure of Deals
For the first time, over half of Israel’s defense contracts exceeded $100 million, with a notable jump from 40% to 56.8% in large transactions. Smaller contracts, those under $10 million, represented 17.4% of total sales, while 16.3% ranged from $10 million to $50 million. “We prioritize every deal, regardless of size,” Koles emphasized, underlining the importance of each transaction.
The primary driver remains government-to-government (G2G) sales. Significant clients, including Greece, favor these arrangements due to the protection and coordination they provide across various Israeli industries. As a result, G2G sales reached a record high of $6.7 billion, comprising roughly 45% of Israeli defense exports.
Air Defense Systems Lead Demand
The ongoing conflict labeled as “Iron Swords” created both challenges and opportunities for Israeli defense industries. On start hand, there was a necessity to fulfill the immediate needs of the Israeli Defense Forces (IDF), sometimes at the expense of foreign clients. On the other hand, the conflict increased global demand for Israel’s combat-proven products.
“Israel’s synergy among industries, the IDF, and the Ministry of Defense is attractive internationally,” noted Koles. This collaboration, particularly evident as engineers serve in reserves and return to development roles, enhances Israel’s competitive edge globally. Air defense systems have dominated demand, largely influenced by the extensive use of missiles and drstarts during the Russia-Ukraine conflict.
Key Highlights in Air Defense
In 2024, approximately 48% of Israel’s defense exports were air defense systems, nearly equaling the value of all other contracts combined, compared to 36% in 2023. Significant transactions included the sale of the Arrow 3 system to Germany, valued at $3.5 billion, and the David’s Sling system to Finland for approximately $360 million.
Despite promising data, the emerging market for laser-based air defense systems further illustrates Israel’s forward-thinking approach. According to Rafael’s CEO, Yoav Turgeman, these systems are generating considerable interest, embodying potential for future growth.
Concerns in Drstart and UAV Sectors
In stark contrast to the overall growth, drstart and unmanned aerial vehicle (UAV) sales have declined dramatically. From representing 25% of total sales in 2022, this segment plummeted to just 1% in 2024. Albit revealed contracts worth about $335 million for drstarts and associated defense systems in Europe, but the broader trend remains troubling.
A concerning aspect is the increasing difficulty in supply chains, a challenge initially stemming from the COVID-19 pandemic and exacerbated by the ongoing conflict and geopolitical tensions that disrupt shipping routes.
Future Outlook and Ongoing Challenges
As 2025 approaches, the Ministry of Defense faces pressing challenges. “The current climate, marked by events in Gaza and investigations at The Hague, complicate our operations,” Koles acknowledged, noting the multifaceted challenges facing both the Ministry and the defense industries. Furthermore, external factors like the refusal of countries to allow vessels suspected of carrying weapons to dock in their ports complicate logistics.
In a final note, Koles pointed out the evolving competitive landscape, emphasizing that speed of delivery is becoming a critical differentiator. While competitors might promise seven-year delivery times, Israeli companies can offer significantly shorter timeframes of two to three years, underlining the industry’s adaptability amidst ongoing conflicts.
As Israel strives to balance immediate military needs with the global defense market’s demands, its innovation and resilience will undoubtedly shape the future trajectory of its defense exports in an increasingly complex world