By Tariq Dana
Abstract: This study posits that war economy is fundamental to Israel, critically examining four key aspects that sustain it: the deep-rooted extremist militarism within the Israeli state and society, the distinctive US military patronage, the routinized testing of advanced military and security technologies on Palestinians, and the use of international arms trade and militarized diplomacy as a geopolitical strategy. It traces the roots of this war economy to the period of pre-state Zionist colonization, emphasizing its centrality to Israel's settler-colonial identity. The research underscores the interaction of these elements, demonstrating their collective role in Israel's militarized structures and functions, which result in fatal consequences not only for the Palestinians but also for regional and global peace and stability.
Citation: Dana, Tariq, 2024. “Merchants of Death: Israel's Permanent War Economy,” Security in Context Policy Paper 24-02. January 2024, Security in Context.
The 2023 Israeli genocidal assault on Gaza, marked by its unprecedented scale of destruction and the apocalyptic humanitarian crisis it spawned, casts a revealing light on the chilling nature of Israel’s war economy system. This is no temporary defense mechanism activated in response to wartime context; rather, the war economy has been at the very core of Israel’s settler-colonial identity since the early years of the Zionist colonization of Palestine. Indeed, war economy is foundational to the Israeli colonial-state/settler-society project, serving as a defining feature for the militarized social contract. It also serves as a central instrument to achieve a variety of material and ideological ends. It fuels the infrastructure of occupation, enables territorial expansion, facilitates the erasure of Palestinian presence, generates massive revenues, and supports Israel’s geopolitical ambitions. In contrast with war economies that arise fleetingly in other countries during wartime, Israel’s war economy constitutes a permanent, all-encompassing system that upholds the colonial status quo domestically while augmenting Israel’s outreach globally.
The ongoing war in Gaza reveals how Israel's war economy is built upon four essential pillars, each significant in comprehending how this system is being fed and sustained, with far-reaching implications for the Palestinians and beyond. These pillars include:
First, the palpable rise of extremist forms of militarism within Israeli socio-political discourse. This is evidenced in the proliferation of genocidal rhetoric among politicians calling for a ‘second Nakba’1 or even dropping nuclear bombs on Gaza. Such violent fantasies are steadily gaining traction amongst the Israeli public, with recent surveys showing substantial segments of Jewish Israelis endorsing these extreme positions, confirming the internalization of maximalist, dehumanizing military options as legitimate policy.
Second, is the unfaltering US diplomatic and material support to Israel before and during this latest onslaught, which effectively bankrolled the bombardment and thwarted ceasefire efforts. The US House of Representatives rapidly approved an additional $14.5 billion in financial assistance to Israel. Meanwhile, The Biden Administration activated emergency protocols to rush weapons shipments to Tel Aviv, bypassing a standard required 15-day period of congressional review. Additionally, on December 9, 2023, the US singlehandedly obstructed a UN Security Council resolution calling for a humanitarian pause. Through these actions, Washington both directly fueled Israel’s destructive capacity in Gaza and shielded its actions from international accountability.
Third, Israel’s testing of advanced weapons, including the unprecedented use of AI-powered autonomous weapons systems on the civilian population, reflects a longstanding pattern of using besieged Gaza as an open-air laboratory to test cutting-edge, lethal technologies. Investigations have revealed how technology and weapons manufacturers exploit the captive population of Gaza to refine their systems ahead of international sales, using recurrent sieges as marketing opportunities.2
Finally, Israeli military companies can anticipate a surge in new international contracts and partnerships on the back of this devastation, as previous assaults rapidly unlocked major new deals. But beyond immediate financial windfalls, these arms networks also serve Israel’s soft power interests by providing diplomatic backchannels and de facto alliances with countries otherwise hesitant to formally engage with Israel. Essentially, proliferating arms and military technologies serve as both “hard power” force multipliers and “soft power” political bridges, further entrenching the functionality of Israel’s war economy.
The pre-state Zionist war economy
The origins of Israel's war economy are deeply rooted in the pre-state Zionist colonization of Palestine, where military force was seen as essential for the establishment of a Jewish homeland in Palestine. Influential Zionist leaders such as Ze'ev Jabotinsky, David Ben-Gurion, and Chaim Weizmann were pivotal in shaping this militaristic approach. Jabotinsky's "Iron Wall" doctrine argued for formidable military capabilities to protect the Zionist project, while Ben-Gurion asserted the policy of military supremacy as the doctrinal underpinning for the Jewish state-building. In addition, Weizmann focused on integrating advanced science and technology into their military vision while emphasizing Western patronage for the Zionist cause.
The Zionist colonization of Palestine was accompanied by militarized institution-building. This process encompassed five key realms that would later become the cornerstones of Israel’s war economy.
First, at the forefront was the establishment of the Israeli army in 1948, which originated from various Zionist militias such as the Haganah, Lehi, and Irgun, which committed the ethnic cleansing of Palestinian communities during the Nakba. These militias acquired advanced weaponry through a combination of European imports, the appropriation of arms from British military bases in Palestine, and local weapons production. Second, arms manufacturing emerged through clandestine workshops, informally known as TAAS during the 1920s and 1930s, which supplied Zionist militias with light arms and ammunition. TAAS eventually evolved into the state-controlled Israel Military Industries (IMI). Third was emphasis on integrating intelligence and military technology. The Haganah's information branch, Shai, engaged in espionage and intelligence gathering, while the Science Corps, later rebranded as Rafael Advanced Defense Systems Ltd., spearheaded the development of arms technology. This initiative marked the beginning of a symbiotic relationship between Israel's technology sector and its military strategy. Fourth, the role of civilian institutions in this militarized framework was substantial. Universities and hospitals, such as the Hebrew University of Jerusalem, the Technion, and Hadassah Hospital, were deeply involved in supporting the Zionist militias, contributing to the broader effort of establishing a military foundation for the future state. Finally, the role of external support, particularly from the British colonial administration between 1921 and 1948, was crucial in this phase. The British provided both political and military cover, enabling the Zionists to cultivate and strengthen their military infrastructure. These realms were instrumental in paving the way for the establishment and subsequent growth of Israel's war economy, which effectively merged military, intelligence, and civilian efforts into an expansive military-industrial complex.
The evolution of Israel’s war economy and military-industrial complex
With Israel's creation in 1948, the military infrastructure established during the pre-state period became institutionalized. The Israeli army quickly ascended as a primary force in shaping the settler-colonial state's identity and strategic direction. Centralized state planning coordinated the burgeoning military-industrial complex, aligning public, private, and labor sectors to meet military demands. This period marked the embedding of military considerations within the broader societal fabric, influencing economic policies, social structures, and the growth of the middle class.
The ascent of the military in Israel significantly influenced its economic landscape. Israeli policies increasingly centered on a military-focused economic model, which necessitated high military spending and substantial foreign aid to maintain war preparedness. A considerable portion of Israel's GNP was allocated to military expenditures, growing from 10% in the early years to 20% by 1968.3 This economic strategy led to a symbiotic cycle where military requirements began to dictate industrial priorities, intertwining military needs with industrial development. As the industrial sector evolved to meet these military demands, this relationship fostered a feedback loop, further entrenching military objectives within the industrial fabric and amplifying the military's influence on Israel's overall economic and industrial trajectory.
The commanding heights of military production were dominated by state-owned entities such as Israel Military Industries (IMI) and Israel Aerospace Industries (IAI), which spearheaded military industrialization and significantly contributed to public revenue, employment, and economic growth. In the 1960s, the private sector began to emerge, with companies such as Elbit Systems Ltd. carving out niches in areas like electronic warfare and intelligence technologies, though still within a state-guided framework.4 Another aspect of Israel's military-industrial complex was the role of the Histadrut labor federation, which invested heavily in military firms, creating a network that integrated workers and unions into the military-industrial complex.
Up until 1967, Israel's military-industrial base remained dependent on Western military assistance, especially from France and later the United States. This support served dual strategic purposes for Western powers: countering Arab nationalism and communism during the Cold War and establishing Israel as a regional proxy aligned with Western interests. Between 1967 and the 1980s, Israel expanded and modernized its military sector. By the 1973 Arab-Israeli War, Israel’s military expenditure reached a historic high of 31% of GDP. This shift had profound implications, particularly in the labor market, where military employment surged. By the 1980s, around half of the Israeli workforce was engaged, directly or indirectly, with the military industry.5 Concurrently, the allocation of resources for military purposes was starkly evident in research and development funding (R&D), with the military sector receiving approximately 65% of the expenditure, in contrast to just 13% that was allocated for civilian industries. As the US-Israeli alliance strengthened, Israel became structurally dependent on American military and technological support, as noted by the U.S. Government Accountability Office report.
The mid-1980s saw Israel shift towards a neoliberal economy, with widespread privatization of many state-controlled industries. However, the Israeli state retained significant control over military enterprises and instances of privatization in the military sector. They were also selective in underlining a strategic orchestration of market principles within the confines of a war economy.
In the post-9/11 era, Israel has positioned itself as a global exemplar in urban militarism and securitization, leveraging its experience in the Palestinian territories.6 Israeli security companies have thrived by exporting combat-tested technologies, aligning with the US-led "War on Terror" and emerging paradigms of counterinsurgency and surveillance. Israel's rebranding as an expert in urban warfare and counterterrorism techniques has not only been a market-driven phenomenon, but also a strategic realignment of its colonial experience in Palestine with a contemporary global security paradigm.
Militarism and nationalism
Israel's social and national identity is deeply rooted in a unique blend of militarism and nationalism. The army, far more than just a military force, significantly influences the economic, social, and cultural aspects of wider Israeli society. The interweaving of civilian and military life is further exemplified by Israel's conscription system. Nearly all Jewish Israeli citizens participate in mandatory military service, and the reserve system keeps them involved in military activities until the age of 40.
This influence extends beyond traditional civil-military boundaries, playing a key role in political socialization, impacting diverse areas such as education, media, economic development, and the integration of Jewish immigrants. Militarism is not just a logistical necessity, but an ideological cornerstone of Israeli nationalism firmly entrenched in the collective consciousness of Israeli Jews.7 Israel is one of the world's most militarized nations.
For example, militarism is integral to education and academia, where institutional cultures normalize and perpetuate militaristic attitudes from early childhood. Universities play a significant role in this ecosystem, actively participating in the development of combat technologies and training military talent. Specialized programs such as Talpiot and Havatzalot prepare students for careers in military and security tech startups, thereby directly supporting the war economy.
Israel's high-tech industry, significantly shaped by its military incubators, stands as a key pillar of its economy, accounting for 18.1% of the GDP and employing around 14% of the workforce. This industry benefits significantly from its military connections, including procurement deals, collaborative projects, and investments spurred by the technology's dual-use potential, nurturing a vibrant ecosystem that includes both emerging startups and established military and security companies.
US military patronage
At the heart of the US-Israel relationship lies a patron-client dynamic, where Israel supports the United States’ strategic interests in the Middle East in exchange for significant economic, military, and diplomatic backing. This relationship forms a mutually reinforcing sub-imperial stewardship between the two countries.
Central to this partnership is the US aid that underpins Israel's military infrastructure. From 1949 to 2022, Israel received over $158 billion in US military aid. This aid accounts for a significant portion of Israel's budget, comprising 3% of the total state budget, about 1% of its GDP, 20% of the defense budget, 40% of the army's budget, and nearly all of the procurement budget. US aid often increases during crises, as seen during the second intifada and the 2023 war on Gaza. This assistance is primarily provided through the Foreign Military Financing (FMF) program and joint project funding from the US Department of Defense. A unique aspect of this aid to Israel is the provision allowing 25-30% of these funds to be spent on domestic arms purchases, a stark contrast to the standard condition for other recipients to buy US-made products exclusively.8 A Congressional report highlights how this aid has “helped transform Israel’s armed forces into one of the most technologically sophisticated militaries in the world.” A crucial driving force of this aid is the US policy of maintaining Israel's Qualitative Military Edge (QME), ensuring its military superiority over other regional actors.
The US-Israeli strategic alliance has its roots in Israel's creation in 1948. However, it was the geopolitical climate of the post-1967 war that markedly deepened this relationship. The Nixon administration viewed Israel as a vital counter to pan-Arabism and Soviet influence in the region, significantly elevating U.S. support. This shift is evidenced by the dramatic increase in U.S. military aid, soaring from $360 million in 1968 to $1.15 billion, culminating in an 800 percent increase to approximately $2.2 billion on the eve of the 1973 Arab-Israeli war.9
The Reagan administration further cemented these ties by classifying Israel as a "major non-NATO ally.”10 This period saw significant U.S. contributions to Israel's military-technological capacities, particularly through joint research and development initiatives. This partnership not only spurred technological advancements, but also led to Israel's structural dependence on US military technology. This reliance is evident in major projects like the Arrow anti-ballistic missile system, the Lavi fighter jet, the Merkava tank, and the Iron Dome missile defense system, all of which either incorporated US-made parts or were joint production endeavors heavily financed by the United States.
In 2016, under the Obama administration, U.S. military aid to Israel reached an unprecedented level because of a landmark agreement that significantly boosted assistance. This deal raised annual U.S. military aid from $3.1 billion to $3.8 billion over a decade (2019-2028), totaling $38 billion. It was described by the Obama Administration as the “single largest pledge of bilateral military assistance in U.S. history.” This funding represents over one-fifth of Israel's total defense budget.
Reliance on U.S. military systems has profoundly influenced the competitive landscape for Israeli military firms. Israeli companies often act as subcontractors, focusing on specialized electronic components that enhance US-manufactured systems, including GPS, navigation technologies, training programs, optical equipment, and cybersecurity solutions. This relationship reflects a power dynamic where US firms dictate the terms, making Israel the subordinate player within the broader US military-industrial complex.
Palestine as a laboratory
Israel is a major producer and exporter of lethal technologies. It uses these technologies in regions such as Gaza, the West Bank, Lebanon, and Syria, then exports them as “battle-tested.” The term 'battle-tested' suggests effectiveness proven in actual combat—a commercially appealing claim—but in this case, it comes from brutal practices of testing lethal technologies on a captive civilian population.11
Israel's colonial domination over Palestinians is underpinned by a deliberate pacification strategy within its counterinsurgency doctrine. This strategy employs disproportionate force to suppress aspirations for national rights, with the occupied territories, particularly Gaza, serving as practical testing grounds for military and security technologies.
A key product of Israel's war economy is unmanned aerial vehicles (UAVs), or drones. Israel is a major player in drone technology, responsible for over 60% of global drone exports as of 2017. Predictions suggest that by 2025, unmanned systems will constitute a third of Israel's military hardware.
The development of Israeli drone technology is closely linked to operational trials in Palestinian territories. Drones are deployed during virtually all of Israel’s military campaigns and are employed to constantly surveil Gaza. Israeli wars in Gaza have been particularly characterized by extensive drone use, resulting in numerous assaults, missile strikes, and extrajudicial killings. These actions have caused widespread destruction of civilian infrastructure, including homes, public buildings, hospitals, and schools, raising serious ethical and humanitarian concerns.
Gaza fulfills a dual role in Israel's war economy, where acts of colonial violence and warfare are repurposed for operational and commercial purposes. Firstly, Gaza has become the world’s largest laboratory for drone assassinations and mass killing,” highlighting its role in the biopolitical experimentation of new technologies of death. Palestinians as human test subjects represent a disturbing form of commercialized cruelty. The use of drones in Gaza for surveillance, targeting, and executing strikes transcends military engagement, morphing into violent collective punishment and ethnic cleansing. Secondly, Gaza acts as a "showroom" for Israeli military companies, allowing them to demonstrate their new products.12
In every Israeli military offensive against Gaza from 2008 to 2023, drones have been central to its strategy. Models such as the Hermes from Elbit Systems and the Heron Eitan from Israeli Aerospace Industries, equipped with advanced features like self-guiding Spike missiles, have been key to these aggressions. Each Gaza offensive has acted as a testing ground and a development platform for these drones, leading to their refinement and commercial sale.
A good example of this dynamic is the operational deployment of the Hermes 900 drone during Israel’s 2014 "Protective Edge" military offensive in Gaza, which resulted in 2,000 Palestinians being killed, including more than 500 children. This offensive, which demonstrated the lethal capability of these drones, led to a surge in the fortunes of drone manufacturers, with companies such as Elbit Systems experiencing significant growth in market value. The war's profitability was noted in the Israeli daily Haaretz as a boon for the defense industry, underlining the intertwining of testing new weapons through constant military operations and commercial interests in Israel's war economy.
Arms export as diplomacy
Israel has emerged as a major arms exporter in recent decades, selling 70%-80% of its military systems overseas. These arms exports represent around 25% of Israel's total industrial exports, indicating their crucial role in its external trade and revenue. Between 2014 and 2018, Israel was the world’s 8th largest weapons exporter, accounting for 3.1% of global arms exports.13 Israeli arms sales have seen consistent growth, particularly after the 2020 Abraham Accords, leading to an expansion into new Arab state markets. Military exports reached record highs of $11.3 billion in 2021 and $12.5 billion in 2022, with a significant portion of sales to Arab partners.
Traditionally, state-owned enterprises have been central to Israel's arms exports. However, there's been an increasing contribution from private security companies, many founded by former military personnel. These companies, including Magal Security Systems, Ispra, Comverse, RADA Electronic Industries, and Check Point, often have headquarters in Israel with subsidiaries in the United States and other countries. The exact number of these companies is hard to determine as they are frequently categorized as high-tech firms.
Beyond financial profitability, Israel’s arms exports function as a strategic tool in its foreign policy as a form of “weapon diplomacy” focused on two primary goals: fostering normalization and strengthening alliances.
Firstly, arms exports are a means for Israel to broaden its international relationships, especially with governments that previously avoided open diplomatic ties. A recent manifestation of this strategy is Israel's evolving military-security trade with some Gulf Arab states, transitioning from covert relationships to more overt partnerships through the Abraham Accords. These Accords, facilitating $3 billion in Israeli military and security technology transfers, signify a shift in regional politics, with Israel using its military prowess to establish diplomatic relations and enhance its geopolitical influence.
Second, Israel employs arms exports to support allied regimes facing internal challenges or external threats, often aligning with its geopolitical interests. During the 1970s and 1980s, military juntas in Latin and Central America were major recipients of Israeli military exports, absorbing a significant portion of these sales. Israel supported right-wing military dictatorships and movements complicit in atrocities, including apartheid South Africa to whom it offered the sale of nuclear weapons.
In the post-Cold War era, Israel's arms and security technologies have been repeatedly linked to conflicts and war crimes. During the Rwandan Genocide in 1994, for example, Israeli military firms were implicated in selling military equipment, including radar, vehicles, and assault rifles, to Rwandan extremists involved in the massacre of Tutsis. Further instances include Sudan in 2013, where Israeli arms ended up with the South Sudan militias, used to execute people and destroy entire villages. More recently, in the ethnic cleansing of the Rohingya minority in Myanmar during 2016-2017, Israeli rifles and rockets were used by the Myanmar military. Israel's military technologies have also been linked to regimes engaged in suppressing dissent such as the recent Pegasus and other cyber-spying products sold by Israeli firms to UAE and Saudi Arabia to target dissidents abroad and at home.
Conclusion: Israel’s instruments of war and the threat to Palestine and beyond
The 2023 Israeli genocidal assault on Gaza epitomizes the persistent violence and displacement inherent in Israel's settler colonialism. Far from being an isolated incident, this genocidal attack is part of a historical pattern established since the 1948 Nakba, and the subsequent myriad wars and violent conflicts. Underpinning these acts is the Israeli war economy, which not only facilitates but also profits from the settler-colonial endeavor.
These far-reaching consequences of Israel’s war economy go beyond the Palestinian context, posing significant threats to regional stability, world peace, and the international norms of self-determination and justice. Looking ahead, resisting Israeli settler colonialism and the production and export of its instruments of repression and destruction should be a matter of serious international concern, not just a Palestinian issue.
1: The term "Nakba" is Arabic for "catastrophe" is used by Palestinians and others to describe the series of ethnic cleansing operations by Zionist militias in 1948 that resulted in the displacement of the majority of the Palestinian population from their homes and lands and the subsequent creation of Israel upon the ruins of Palestinian towns and villages. For further details, see for example, Bishara, A. (2022). Palestine: Matters of Truth and Justice. Hurst Publishers., Pappe, I. (2007). The ethnic cleansing of Palestine. Simon and Schuster.
2: See for example: Loewenstein, A. (2023). The Palestine Laboratory: How Israel Exports the Technology of Occupation Around the World. Verso Books. Dana, T. (2020). A cruel innovation: Israeli experiments on Gaza’s great march of return. Sociology of Islam, 8(2), 175-198. Zureik, E., Lyon, D., & Abu-Laban, Y. (Eds.). (2011). Surveillance and Control in Israel/Palestine. Routledge.
3: Carmi, S., & Rosenfeld, H. (1989). The emergence of militaristic nationalism in Israel. International Journal of Politics, Culture, and Society, 3, 5-49.
4: Hever, Shir (2017). The Privatization of Israeli Security. London: Pluto Press.
5: Mintz, A. (1985). The military-industrial complex: American concepts and Israeli realities. Journal of Conflict Resolution, 29(4), 623-639.
6: Zureik, E., Lyon, D., & Abu-Laban, Y. (Eds.). (2011). Surveillance and Control in Israel/Palestine. Routledge.
7: See for example: Bresheeth-Zabner, H. (2020). An Army Like No Other: How the Israel Defense Forces Made a Nation. Verso Books. Kimmerling, B. (2001). The invention and decline of Israeliness: State, society, and the military. Univ of California Press.
8: Hever, S. (2018). The privatization of Israeli security. London: Pluto Press.
9: Wenger, M. (1990). US Aid to Israel: From Handshake to Embrace. Middle East Report, (164/165), 14-15.
10: Cobban, H. (1989). The US-Israeli Relationship in the Reagan Era. Journal of Conflict Studies, 9(2), 5-7.
11: Loewenstein, A. (2023). The Palestine Laboratory: How Israel Exports the Technology of Occupation Around the World. Verso Books.
12: Musleh, A. H. (2018). Designing in Real-Time: An Introduction to Weapons Design in the Settler-Colonial Present of Palestine. Design and Culture, 10(1), 33-54.
13: Wezeman, P. D., et al. (2020). Trends in International Arms Transfers, 2019. SIPRI Fact Sheet. Stockholm International Peace Research Institute. March 2020.
14: Bahbah, B., & Butler, L. (1986). Israel and Latin America. In Israel and Latin America: The Military Connection. Palgrave Macmillan UK.