“They need our weapons more than we need them”: Israel faces arms export freeze
Spain cancels contracts worth €600 million as global pressure mounts over Gaza.
After the Spanish government canceled another arms deal with Rafael, Israel’s defense industry is warning of being drawn into a dangerous spiral of further suspensions by other countries seeking to pressure Israel to end the war in Gaza. At the same time, the industry is facing a prolonged stalemate in advancing new contracts worth billions of dollars.
The total value of defense deals Spain has canceled in recent months with Rafael and Elbit Systems amounts to roughly €600 million. Last week, Spain’s Ministry of Defense scrapped a contract with Rafael for dozens of Litening 5 targeting pods, used to guide aerial bombs from a distance of up to 100 km, worth more than €200 million. Earlier cancellations included a €250 million order for Rafael’s Spike anti-tank missiles, a €700 million PULS rocket system deal involving Elbit Systems and two Spanish companies (of which Elbit’s share was about €140 million), and a small-caliber ammunition contract with an Elbit subsidiary.
The arms cancellations are part of several confrontational measures by Spanish Prime Minister Pedro Sánchez against Israel, openly aimed at pressuring Jerusalem to halt the Gaza war. In recent weeks, Madrid has also imposed an arms embargo banning ships that assist Israel’s war effort from docking at Spanish ports and restricting the export of key raw materials, forcing local companies to seek alternative suppliers abroad.
Last weekend, Spain and Italy dispatched naval vessels to escort the “Sumud” flotilla that sailed from Barcelona in late August to challenge Israel’s maritime blockade of Gaza. Ironically, the Spanish warship sent on this symbolic mission is itself armed with Rafael-made cannons and defense systems. The joint announcement from Rome and Madrid followed claims by flotilla participants that their ships had been attacked by drones. Israel’s defense establishment has so far refrained from publicly commenting on Spain’s actions or Sánchez’s unprecedentedly hostile rhetoric. A senior Israeli defense industry executive told Calcalist: “After the war, they will come back on all fours. They need our weapons more than we need them. Spain is a small market, but we must remain vigilant about other, larger markets.”
In today’s global arms race, weapons do not sit idle in warehouses. If Spain cancels an order for Spike missiles, they can quickly be sold to another customer. That may provide short-term relief, but insiders warn it is “the consolation of fools.”
The greater concern lies in the long freeze on new deals worth billions. Negotiations have stalled for months, with defense procurement officials in several countries citing public opinion hostile to Israel, fears of domestic unrest, and reluctance to make decisions requiring public justification.
“Israel’s technological superiority is undeniable, and many countries want our systems,” said a senior defense executive. “But they prefer to wait until the Gaza war ends and global attention shifts. Meanwhile, customers can’t wait forever. Some are already exploring alternatives. Defense contracts take years to finalize. If this situation continues, we will see a decline in exports by 2026 and feel the blow fully in 2027. If deterioration is stopped now, demand and Israel’s strong reputation can still carry us. But if recklessness continues, we could face a very different reality.”
In 2024, Israel’s defense exports hit a record $14.8 billion, with half of the contracts signed in Europe. The Defense Ministry has already warned that mounting isolation could erode volumes in the coming years. “Anyone who thinks Israel’s defense giants can survive on orders from the Defense Ministry alone doesn’t understand reality,” another official said. “Maybe Trump will wake up, stop this war, and we’ll salvage something. Right now, our situation is very far from easy. Even our remaining allies feel dragged down with us. Who wants to be friends with a pariah? Israel cannot live as Sparta.”
This growing isolation threatens plans by the Defense Ministry to streamline export oversight while boosting sales, which it views as essential for funding new production infrastructure and future combat systems. Separately, Economy Minister Nir Barkat made a “24-hour lightning trip” to Berlin with Manufacturers’ Association president Ron Tomer, pressing German Economy Minister Katherina Reiche to block EU attempts to suspend sections of trade agreements with Israel. Such a suspension would subject Israeli goods to customs duties in Europe, stripping Israel of preferential trade status.
“Germany’s support is vital in resisting emerging sanctions,” Tomer told Calcalist after the trip. “We received assurances, but political constraints make it hard to know if they will hold.”
A survey by the Manufacturers’ Association of 132 exporters found that half had experienced cancellations or non-renewal of contracts. Of those, 70% cited political reasons, and 84% came from EU member states. More than a third reported shipping difficulties, and nearly a third faced customs delays. “The Israeli brand has been damaged,” Tomer said. “We are in a corner we never thought possible. Still, I remain optimistic, there is nowhere to go but up.”
The crisis deepened further last week when Microsoft announced it was cutting off Unit 8200, Israel’s elite intelligence corps, from parts of its Azure cloud services. The move followed revelations in The Guardian and +972 Magazine that 8200 had used Microsoft’s cloud to store and analyze surveillance data from millions of intercepted Palestinian phone calls, amounting to some 8,000 terabytes.
“We do not provide technology to facilitate mass surveillance of civilians,” Microsoft president and vice chairman Brad Smith said in a statement, noting that the suspension was meant to ensure compliance with the company’s terms of service. The decision came after employee protests at Microsoft offices, including demonstrations in Smith’s office.
A defense source told Calcalist that Microsoft’s move “causes no harm to the IDF’s operational capabilities.”
