The reported understanding between the United States and Iran is creating new security and economic uncertainty for Israel, with immediate effects on the shekel, market sentiment and, ultimately, defense spending. The article says the deal does not address Iran’s missiles, does not satisfy Israel on the nuclear issue, and is likely to strengthen Iran economically while increasing Israel’s defense bill.
One early sign is the shekel’s weakening against the dollar, from 2.8 shekels to the dollar to 3 shekels. That move is unusual because the S&P 500 rose between June 10 and June 18, a period when the shekel would normally strengthen. The decline became more visible after June 14, the date of the agreement announcement, suggesting lower demand for shekels and higher foreign-currency exposure by institutional investors. Their FX exposure fell from 23.9% at the end of 2024 to 19.1% in March 2026, but recent events appear to have reversed part of that trend. Market participants also see a modest rise in Israel’s risk premium since June 14.
The article says the weaker shekel is good for exporters and the high-tech sector, but the reason behind it is not. It reflects three economic channels, a broader deterioration in sentiment toward Israel, more concrete fears of renewed fighting and reserve-duty disruptions, and higher state risk that pushes up borrowing costs for companies because corporate rates track Israel’s sovereign rates.
Attention is now on the defense budget talks between the Finance Ministry and the Defense Ministry. The defense establishment has not yet asked for more money because of the emerging U.S.-Iran deal, saying the existing 350 billion shekel, 10-year plan still fits the new reality. But the plan is now treated as almost final, as Israel prepares for a recurring war with Iran. National Security Council chief Shmuel Ben Ezra is described as central to shaping the new budget and trying to merge the 350 billion shekel force-buildup plan with the 2026 and 2027 current budgets.
The ministries still need to settle 2026, where they are split by about 40 billion shekels, between 144 and 184 billion shekels. The article says they are close to an agreement and the Finance Ministry wants to avoid reopening the budget in the Knesset unless there is an unexpected security escalation. For 2027, the bigger question is the budget base and how much the military will get from the 350 billion shekel plan. Even if defense spending does not reach 140 billion shekels that year, the article says the long-term direction is clear, a much larger defense budget, driven by active fronts in Iran, Lebanon, Syria, Gaza and the West Bank, plus the growing cost of operating alone.
