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The Wages of Genocide: Prospects for Israel’s War Economy

Middle East & North Africa

In early February, Moody’s took the unprecedented step of downgrading the credit rating of the Israeli state. In a corresponding move a few days later, the agency also dropped the deposit rating for the country’s five largest commercial banks, all of whom had seen their stock prices stumble on the back of a foreign investor sell-off.

Coming just a few days before reporting revealed that the contraction of the Israeli economy post-October 7th had been double what the country’s central bank had projected—on an annualized basis, the last quarter of 2023 recorded a 21% drop in GDP—Moody’s decisions garnered considerable attention. Implications for Israel’s tech industry stood out as perhaps most pronounced. In normal times, the much-lauded sector employs one of every seven Israelis and generates roughly half of the country’s exports, a fifth of GDP, and more than a quarter of income tax revenues. Sustaining this performance, however, has always hinged on the sector’s access to foreign capital. This is so despite the robustness of Tel Aviv’s venture capital community, as these investors raise virtually all their funding (75-80%) on the capital markets of the United States.1 As such, Moody’s downgrade posed a non-insignificant problem by way of threatening to increase the cost of tech fundraising going forward. Nor had things been going especially well in the industry prior to the rating agency’s scold. In late 2022, tech investment slowed to a crawl on the back of the Federal Reserve’s interest rate hikes and the Netanyahu government’s judicial reform initiatives. The slump then continued across 2023 before steepening in the fall. By year’s end, tech investment wound up down 20% compared to 2022’s already weak numbers, foreign investment had slid by 29%2, and startup exits—an indicator encapsulating when a startup either sells shares on a stock exchange or is acquired by a larger firm—had dropped 56%.3 Data for 2024, meanwhile, shows investment flows at a nine year low and the number of active investment entities in-country fifty percent below the level of just three years ago.4

Israel’s growth model being tethered to tech, these developments present major troubles. The troubles are only heightened, moreover, by a spanner being thrown into the works of Netanyahu’s plans to pivot the economy away from the technologists, whose political loyalties he doubts, and toward commodity production: In March, mindful of Houthi missiles as much as political fallout, Abu Dhabi’s ADNOC and British Petroleum paused discussions concerning a planned 50% acquisition of Israel’s primary natural gas producer, NewMed Energy.5 All of which begs questions of the viability of the Israeli economy and with it, the country’s capacity to continue its criminal assault on Gaza. By dint of Netanyahu’s judicial maneuvers alone, economists at Israel’s Ministry of Finance had projected the economy was to henceforth lose between $15 and $25 billion in growth per year.6 A 2015 RAND study on the economic losses Israel stands to suffer from a localized but lengthy military campaign against Palestine, meanwhile, puts forth a figure of $400 billion spread over ten years.7 Data released by the Ministry of Finance shows Operation Iron Sword currently costing the economy $269 million a day. (A region-wide war, of course, would be far, far more costly).

Bracketing, then, whether Israeli society, conditioned to expect basic material comforts, can actually stomach a return to a war economy like that of the 1970s (when military spending represented 30% GDP), how might economic realities impinge upon the course presently being charted by Israel’s political and military leadership? What does the international political economy of Israel’s genocidal ventures look like, and can this configuration hold across more distant time horizons?

This might seem moot in light of the latest ceasefire proposals put forth by the United States. For a number of reasons, however, it isn’t. In the first instance, lest the White House is actually prepared to cut the flow of arms, it strikes as unlikely that the Israelis will agree to the deal presented by Joe Biden at the end of May 2024. Secondly, given the current configuration of power in Israeli politics, even if a ceasefire is to be reached in the days to come, it strikes as unlikely that Israel’s war-making—in Gaza and further afield—is over. As such, the problematique being engaged here is still clarifying of both the present and future. Insofar as it also allows us to better understand what has already happened, this problematique offers service to the historical record as well.

Sources of the War Economy’s Medium-term Resilience

Despite the headwinds blowing, there is little grounds in thinking economic pressures could hasten the end of Israel’s genocide in the short to medium term. This can be attributed to the deepness of Israel’s capital markets and its war chest of foreign currency reserves, on the one hand, and the Israeli state and economy’s external relations on the other. 

Deep capital markets and abundant reserves

The deepness of Israel’s capital markets pertains in that it allows the ruling coalition to fund much of its violent designs locally: For 2024, ~70% of the $60 billion that the state intends to issue in debts will be sold on domestic markets and denominated in the New Israeli Shekel (NIS). What is more, due to demand from local financial institutions being high, the coalition government is being spared having to pay big interest rates on these local debts: the interest attached to NIS treasuries are higher, though not excessively so, than those presently attached to the T-bills issued by the United States. During the first five months of this year, these conditions allowed the Israeli Ministry of Finance to sell bonds collectively worth NIS 67.5 billion ($18 billion) without incurring burdensome repayment costs. As such, though the Governor of the Bank of Israel regularly warns against undue borrowing—and though some indicators, like the price charged to insure against a state default, do signal market unease—for now at least, the evidence suggests the state can do so without inviting too much financial pain. This redounds onto the genocide because it affords the country’s leadership greater autonomy than might otherwise be the case in dealing with external parties, on whom they need not fully rely for cash.

Israel’s accumulation of foreign currency reserves over the past two decades has a similarly insulating effect. Just $27 billion as of 2005, the value of reserves held at the Bank of Israel topped $200 billion at the start of this year. These assets not only generate investment returns for the state, but allow the central bank to defend the shekel in foreign exchange markets.8 The latter helps keep inflation low, thereby buttressing the macrostability of the war economy. To one degree or another, this stability also reduces the leverage external actors can bring to bear on the war cabinet.

Of course, administering violence of genocidal proportions requires volumes of munitions far beyond what Israeli manufacturers, having pivoted their businesses toward high-end products, are presently capable of producing. Indeed, without unceasing flows of artillery shells, missiles, warheads, and the like—almost all of which originate in the United States (or from a US-owned weapons cache located in Israel itself9) and Germany—the current campaigns on Gaza and southern Lebanon would swiftly run aground. Likewise, without the cloud services provided by Google and Microsoft and alleged WhatsApp data sharing from Meta10, it can be trusted that Israel’s AI-led mass assassination project would break down in short order.11

Such examples, of which there are legion, provide a grim segue to the second and perhaps most important factor underlying the medium-term resilience of the Israeli economy: robust external relations. In furnishing supports of an extensive and diverse type—everything from financing and investment flows to trade, logistical support, and reserve labor armies (see: India’s pledge of 50-100,000 workers to replace West Bank Palestinians)—it is these relations which ultimately make Israel’s genocide possible across more distal time horizons.

External Relations

When it comes to financing and investment, the discussion of external relations necessarily begins with the United States. As a brief review makes plain, a vast constellation of American public and private actors are presently financially buttressing the Israeli state, military, and economy. Concerning funding for the Israeli state, flows from the US federal government are most substantial. In relative terms, the standard annual grant sent to Israel from the US’ Foreign Military Financing program—$3.3 billion a year since the Obama administration—typically covers 15% of Israel’s defense expenditures. Expectantly, with Israel’s defense expenditures budgeted to increase by nearly $15 billion in 2024, this free credit line from the US federal government was made much higher this year. The National Security Act of 2024, signed into law in April, directed a full $13 billion into Israel’s interest-bearing account at the Federal Reserve.12 Of this sum, $5.2 billion was earmarked for replenishing the Iron Dome, Iron Beam, and David’s Sling defense systems, $4.4 billion for restocking depleted munitions stocks, and $3.5 billion for advanced weapons systems.

But it is not the US federal government alone that is injecting financing into the Israeli state’s coffers. State, county, and even municipal governments from across the United States are also opening up the checkbook for Israel in a major way. The channel through which they are providing financing is overseen by the Development Corporation for Israel, a US-registered entity that acts as the local broker and underwriter for Israel’s Ministry of Finance. The Development Corporation for Israel has, since 1951, issued what are called “Israel Bonds” within the US market. Though rarely in the public eye, these debt instruments, which are denominated in US Dollars and designated to provide general budget support, typically represent 12-15% of Israel’s total external debt. As such, they constitute a substantial source of credit and hard currency for the state.

Since October 7th, the Development Corporation of Israel has scaled the sale of Israel Bonds considerably, in part by deepening its partnerships with a rightwing organization called the American Legislative Exchange Council (ALEC).13 For the past two decades, ALEC has been one of the most influential behind-the-scenes forces in American politics: Its business is typically to author draft laws on topics from abortion to the Boycott, Divestment, and Sanctions movement and then disseminate these legislative templates to allies in state houses of government, where they are passed into law. Rallying to the cause of Israel this fall, ALEC diversified its operations by mobilizing its State Financial Officers Foundation to drive the purchase of Israel Bonds by the managers of public pension funds and state and municipal treasury departments. The fruits of these labors have been rather staggering: $1.7 billion in bond purchases in just six months.14 More than presenting substantial material and symbolic value for Israel, these purchases constitute a statement of intent of grave importance from America’s wider state apparatus: Swayed by ignorance, special interests, and institutional capture, local public institutions, like the federal government, are showing themselves ready to invest meaningful sums in Israel’s genocidal ventures, now and into the future. Perhaps Joe Biden’s speech on May 31st, 2024 represents a pivot in these regards. At the time of writing, though, that seems like wishful thinking.

The same, sadly, can be said of private persons and financial institutions in the United States: these actors too have extended and/or facilitated a great deal of credit for the Israeli state since it commenced indiscriminately destroying Gaza. Some parties have done so by purchasing the Israel bonds just discussed—$1.3 billion worth as of this spring. In the immediate aftermath of the Iron Swords Operation, American banks also arranged private bond sales on the behalf of the Israeli state, the yields of which are not publicly disclosed.15 Most salient, however, were the deeds of this past March, when two American investment banks—Bank of America and Goldman Sachs—acted as underwriters for Israel’s first international bond sale post-October 7th. Working alongside Deutsche Bank and BNP Paribas, these financiers managed to corral levels of investor demand from around the world sufficient to make the bond sale the largest in Israeli history: $8 billion worth of Eurobonds ended up sold on the day.16 Though precise holdings of Israel’s Eurobonds cannot be verified, note that other American financial institutions are referenced by Israeli authorities as ranking among the chief buyers. Nor, of course, haveprivate American contributions to Israel’s war economy stopped with financing. Notwithstanding the general withdrawal of tech investment, a number of American firms continue to put significant capital into Israel amidst the state’s engagement in genocide. Across the past six months, Nvidia, the Santa Clara-based global leader in chips production and artificial intelligence computing, has plowed big money into acquisitions of Israeli firms.17 In December, blessed by a massive $3.2 billion grant and heavily reduced tax rate (7.5% instead of 23%), Intel, the largest private employer in the country, agreed to construct a new plant for semiconductors. A month later, Palantir Technologies, the oft-maligned artificial intelligence modeling firm founded by Peter Thiel and led by Alex Karp, announced a new strategic partnership with Israel’s Defense Ministry.

As intimated by Deutsche Bank and BNP Paribas’ participation in Israel’s March Eurobond issuance, Europe has played a non-insignificant role on the financial side of things, too. Apart from underwriting and purchasing Israeli sovereign debt, the largest financial supports out of Europe are presently coming from supranational entities. The Luxembourg-based European Investment Bank—jointly owned by the European Union’s twenty-seven member states—has maintained plans for puting $900 million into the Israeli economy.18 At a smaller scale, the European Investment Council recently stepped up its investments into Israel’s startup ecosystem as well.19 Since October 7th, meanwhile, the EU’s primary vehicle for financing research and innovation—the Horizon Europe Program—has authorized nearly a hundred grants to Israeli firms and institutions.20

Naturally, making a far bigger difference to the Israeli economy when it comes to Europe have been exchanges of goods and services. Still Israel’s biggest trade partner, the uninterrupted flow of exports to the European market across late 2023 were essential to the 5.1% current account surplus Israel ran in the final quarter of the year. And though there has since been talk in European capitols about reviewing the EU’s Association Agreement with Israel, early data releases for 2024 show Europe continuing to provide a steady source of demand for Israeli products: For the first three months of the year, the Bank of Israel reported more than $4.6 billion of exports to the member states of the EU, a sum roughly in line with what has been seen the past few years. In a time of uncertainty and undoubted vulnerability, Europe’s undiminishing demand for Israel’s goods and services is indeed serving as a ballast.

Israel’s (covert and overt) maintenance of external relations with non-western economies has also buttressed the viability of the war economy. If not quite at pre-October 7th volumes (and if undoubtedly reduced due to the Houthis interventions, which forced shipping lines to suspend direct trade with Israel), data reported by the Bank of Israel documents imports from China still being substantial. Inclusive of both final goods and inputs for industry, they totaled $10 billion during the first three months of 2024. This being the case, though Chinese investment in Israel remains depressed—largely as a result of pressure the United States has imposed on Tel Aviv21—Chinese products endure as one the lifebloods of Israel’s day-to-day economy. India’s contributions, which include importing large amounts of Israeli arms22 and exporting cheap workers to refill workplaces emptied of Palestinians, are hardly negligible themselves. The land bridge that Israeli media has reported on, meanwhile, may not function precisely as described.23 That said, goods are clearly being moved into Israel via the Gulf and Jordan, helping keep shelves stocked. And then there is Turkey’s ambiguous relation with Israel to consider. Though the Ministry of Trade in Ankara instituted progressively all-encompassing bans on trade with Israel starting at the beginning of April, there are grounds in thinking the measure not entirely ingenuous. In the first instance, the policy provides a three month reprieve allowing firms to fulfill existing orders via third countries. As such, it is unlikely to cause an immediate supply squeeze. In the second, the commercial ties between Turkey’s steel and aluminum producers and Israel are deep and long-standing24, and the former’s reliance on the Israeli market well known. The prospect of Turkish suppliers finding a workaround for delivering inputs critical not only to Israel’s built environment but to its arms industry—perhaps by way of transshipment in Slovenia—should therefore not be discounted.

With the full picture now in view, the consequence of the three factors identified at the outset is easily discerned. Able to draw on deep capital markets, hard currency reserves, and robust relations with external economic partners, Israel faces no immediate material limits in conducting its genocide. Unless the policy of the external partners in question should change, in the most basic sense, Israel will be free to continue the unconscionable slaughter for some time yet.

Hope in the long-term?

In the long-term—a time horizon that is relevant due to both the coalition government’s obvious unwillingness to relent the assault on Gaza, and the settler movement’s larger intentions for territorial expansion—there are variables working against Israel’s war economy. These include the disinvestment trend touched on earlier, which recent government interventions will be unlikely to reverse. They also include fiscal pressures stemming from the calling up of reserves. Perhaps more salient, though, are the social tensions that Israel’s prosecution of genocide will heighten in the months and years ahead.

Israel has long since stood as the most unequal country in the OECD. More sophisticated measures presently estimate the country’s poverty rate at 27.8%25, with a third of the country food insecure.26 For all the mythology that has surrounded the startup nation, it is furthermore the case that growth and productivity gains over the past two decades are actually relatively weak27, and that the accumulation of human capital is alternatively stagnating or declining via brain drain.28 Into this mix is to now be added austerity. Indeed, after running sizable deficits throughout the course of its campaign on Gaza, Israel will accelerate the withdrawal of its welfare state by cutting social and educational spending just as it squeezes poor households through increases to the regressive consumer taxes. Given the cleavages already open within Israeli society—between the few that have cashed in on the tech and property boom and the many who have not; between religious communities exempt from military service and those tasked with risking their lives to advance their visions of conquest; between a settler community given special dispensation by the state and all the rest forced to rely on food banks for their sustenance—higher degree of social strain are certainly coming down the line. And in one way or another, that can only but redound negatively onto the coherence of the state project—and onto the capacity of the current government to pursue its destructive plots.

For Palestine and for Palestinians in Gaza most especially, of course, urgency is the word. The time it will take for social dynamics to play their way out within Israeli society—the time it will take for Israel’s capacity for war to be corroded from within—is simply too long to wait. As such, for anyone hoping to bring this genocide to an end, a point of emphasis must be to isolate the Israeli economy in each and every domain possible. Until the country’s robust external relations are weakened if not severed, the engines of Israel’s violence will keep firing without so much as a sputter. To clog them to the point that the bombs stop falling, the existing circuitry of finance and trade must be disrupted.

1Israel Innovation Authority, “State of the High-Tech Industry in Israel 2023”, Annual Report (June 2023).

2Adrian Filut, “Economic concerns mount as Israel faces drop in foreign investment and services export,” Ctech (March 18, 2024).

3Sharon Wrobel, “Israeli tech exits slump 56% in 2023, deal flow drops to lowest level in a decade”, The Times of Israel (December 6, 2023).

4Danny Biran, Assaf Patir, and Almog Grisariu, “Israeli High-Tech in the Shadow of Six Months of War”, Report: Resilient, Innovative & Sustainable Economy (April 2024).

5Staff Writer, “BP, UAE suspend USD 2 bn gas dCeal in Israel amid Gaza war”, EnergyWorld (March 15, 2024).

6Nimrod Flaschenberg, “Israel’s economy was Netanyahu’s crown jewel. Can apartheid survive without it?” +972 Magazine (March 27, 2023).

7C. Ross Anthony et al. The Costs o the Israeli-Palestinian Conflict (Rand Corporation: 2015).

8Galit Alstein, “Israel’s $48 billion war leaves it at mercy of bond markets”, Bloomberg (November 22, 2023).

9Connor Echols, “Bombs, guns, treasure: What Israel wants, the US gives”, The New Arab (March 12, 2024).

10Paul Biggar, “Meta and Lavender”, Blog: blog.paulbiggar.com

11Yuval Abraham, “’Lavender’: The AI machine directing Israel’s bombing spree in Gaza”, +972 Magazine (April 3, 2024).

12Congressional Research Service, “FY2024 National Security Supplemental Funding: Defense Appropriations”, Insight (April 25, 2024).

13Munira Lokhandwala and Molly Gott, “U.S. State and Local Treasuries hold at least $1.6 billion in Israel bonds”, LittleSis (February 5, 2024).

14Sharon Wrobel, “Bucking boycotts, Israel bonds sells record $3b since start of Hamas war”, The Times of Israel (April 17, 2024).

15Galit Alstein, “Israel sells record $1 billion retail-like bonds since war began”, Bloomberg (November 7, 2023).

16Steven Scheer, “Israel sells record $8 billion in bonds despite Oct 7 attacks, downgrade”, Reuters (March 6, 2024).

17Meir Orbach, “Nvidia continues Israel shopping spree with acquisition of Deci”, Ctech (April 25, 2024).

18Sharon Wrobel, “EU financial arm to invest €900m in Israel, including Western galilee desalination”,

19 Staff Writer, “EU fund joins $20 million investment in Israeli AI startup”, NoCamels (March 20, 2024).

20David Cronin, “EU signs huge number of science grants for Israel amid Gaza genocide”, Electronic Intifada (April 9, 2024).

21John Calabrese, “Israel and China: A time for choosing”, Analysis: Middle East Institute (March 20, 2024).

22Jack Dutton, “Israel’s military exports to India booming, ‘unaffected’ by war in Gaza” Al-Monitor (February 24, 2024).

23Sharon Wrobel, “Houthi bypass: Quietly, goods forge overland path to Israel via Saudi Arabia, Jordan”, The Times of Israel (February 14, 2024).

24Cihan Tugal, “Can the Turkish regime absorb the opposition to Israel’s war”, Analysis: Noria Research (March 13, 2024).

25LATET, “Alternative Poverty Report: 20th Edition”, Report (2022).

26Bar Peleg, “Israel’s poverty rate is among the highest in the developed world, new report shows”, Haaretz (December 28, 2023).

27Adam Tooze, “Chartbook 231: Israel’s national security neoliberalism at breaking point?”, Chartbook (August 6, 2023).

28Gilad Brand, “Growth in the Israeli economy” in State of the Nation Report: State, Economy and Policy (2016): 29-62. Jeremy Levin and Ron Cohen, “Israel’s new far-right government is already chilling innovation and causing brain drain”, Forward (January 31, 2023).