Analysis
Netanyahu is preparing Israelis for isolation instead of preventing it
His remarks on US military aid and potential Western sanctions point to a future in which Israel could face greater economic pressure, reduced investment and painful choices between defense spending and civilian services.
Two statements Benjamin Netanyahu made in an interview with Roi Katz on Channel 10 may offer a glimpse of where the Israeli economy is headed if the government maintains its current course after October 27. Neither is reassuring. Together, they point to the risk of greater international isolation and an economic crisis with far-reaching consequences.
The first concerns the prospect of ending US military aid. This is not a new idea. In a January interview with The Economist, Netanyahu said Israel’s economy had developed to the point where it would no longer need such assistance, adding that he was “interested in phasing out the aid in ten years.”
Even then, the claim seemed detached from economic reality. Netanyahu’s latest remarks suggest that the prospect of ending American aid has less to do with Israel’s growing economic strength than with Washington’s declining willingness to provide it.
“The U.S. has changed,” Netanyahu told Katz. That raises an uncomfortable question: How did the United States under Donald Trump, a president Netanyahu has consistently supported, become less willing to provide military assistance to Israel?
That question belongs before the State Commission of Inquiry that must be established to investigate the October 7 massacre and the subsequent war. The erosion of American support cannot be separated from the policies pursued by the Israeli government in recent years.
The sums involved are substantial. The most recent US-Israel aid agreement, signed in 2016, provides $3.8 billion in annual security assistance over ten years. The money helps fund purchases of military equipment, including Apache helicopters, F-35 fighter jets and missile interception systems.
The agreement expires in 2028. Despite efforts led by Defense Ministry Director-General Amir Baram to secure a renewal or some form of continued assistance, Netanyahu’s latest comments suggest that he does not expect those efforts to succeed.
If the agreement is not renewed, Israel would need to replace more than NIS 11 billion a year in military assistance. Where would that money come from? And at a time when Netanyahu is promising higher defense spending, how much further would civilian expenditure have to be cut to cover the shortfall? Public services and other civilian budgets have already come under significant pressure during the war.
The second, more alarming issue is Netanyahu’s response to the possibility of Western sanctions against Israel. His suggestion that blockchain technology could help the country circumvent restrictions appears to contemplate an extreme scenario in which Israel is cut off from SWIFT, the international financial messaging network used by banks to communicate cross-border payment instructions.
Such a move would represent a severe escalation in the economic pressure on Israel. Following Russia’s invasion of Ukraine in 2022, Western governments imposed sanctions on major Russian banks, including restrictions on their access to SWIFT. The measures were part of a broader effort to constrain Russia’s financial and economic activity.
A similar scenario involving Israel would carry potentially devastating consequences. Disruptions to international payments could undermine trade, deter investment and accelerate capital flight. The damage could far exceed the economic implications of Netanyahu’s proposed “Spartan economy,” making that vision seem almost trivial by comparison.
Blockchain, however, is no magic solution. Digital currencies and distributed-ledger systems cannot guarantee access to international banks, suppliers, customers or investors when governments and financial institutions are required to comply with sanctions. Presenting them as a way to circumvent restrictions risks obscuring the scale of the danger rather than offering a credible answer to it.
The damage may begin well before any sanctions are imposed. Netanyahu’s remarks send a troubling signal to international companies and entrepreneurs: Israel itself is preparing for the possibility that it could become disconnected from the global economy.
As Calcalist has reported, more Israeli entrepreneurs have been choosing to incorporate their companies in the United States rather than in Israel in recent years. The trend has been driven in part by the government’s push for a judicial overhaul and the prolonged war.
The prospect of further international isolation could accelerate that shift, discouraging investors from committing capital in Israel and making global corporations more hesitant to expand their local research and development operations.
If the government continues on this course after the election, the combination of deteriorating international relations, uncertainty over American military assistance and growing concerns about sanctions could set off a downward spiral that would be difficult to reverse. The consequences would reach far beyond the defense establishment, affecting economic growth, tax revenues, civilian public spending and the standard of living.
The central question is no longer simply whether Israel can manage without American aid or whether blockchain can provide a workaround for sanctions. It is whether the government understands the economic costs of a policy trajectory that risks making Israel more isolated, less attractive to investors and increasingly dependent on resources that may not be available.
