Europe Becomes Top Customer for Israeli Arms, Shifting Focus from US

Israeli defense exports reached a record $19.2 billion in 2025, with Europe now the primary market, accounting for 36% of sales, while North America received only 13%. This shift indicates that while capital and attention remain focused on the U.S., the actual market has moved to Europe. The nature of U.S. business is also misleading; a $1.25 billion contract for Tamir interceptors with Rafael and Raytheon in November was for production in Arkansas, but the customer was Israel, with Israeli technology and demand driving the project. Similarly, 751 of 900 million dollars in revenue for Israel Aerospace Industries (IAI) from North America came from its aviation division, involving conversions, maintenance, and components for U.S. aircraft, rather than direct adoption of Israeli systems by the Pentagon. In contrast, approximately $1.28 billion of Europe's $1.57 billion in revenue for IAI originated from its military divisions. Elbit, despite building a significant market in the U.S., generated $2.14 billion in Europe compared to $1.66 billion in North America.

The 2016 aid memo solidified a direction of $3.3 billion annually in military aid and $500 million for missile defense, with spending gradually shifting to the U.S. By February 2026, Washington formalized this policy, viewing arms transfers as a tool to advance U.S. foreign policy and leverage foreign investment for U.S. production capacity. The article argues that Israel funded this U.S. policy as if it were its own, with the Ministry of Defense making it the default path and company managements approving subsidiaries and production transfers without U.S. customer justification, prioritizing presence over demand and return. More concerning is the stifling of alternatives, such as independent development or European partnerships, which are halted before reaching the Ministry of Defense due to an anticipated rejection, creating an institutional fear that prevents challenging dependence on the U.S.

The prevailing notion that America represents strategy and Europe a market is outdated. Geographic realities and shared threats from Iran and Russia tie Israel and Europe to the same security system, as seen with Germany's purchase of Arrow 3, Finland's selection of David's Sling over Barak MX, and Slovakia's acquisition of Barak MX, all requiring U.S. approval. While Europe is integrating Israeli technology into its own defense industry, Israel has not yet translated the European market into its own industrial depth. European political realities, including Spain's ban on defense trade, France's restrictions at Eurosatory, and Italy's suspension of cooperation, necessitate deeper integration. The solution is not just marketing but creating strategic partnerships that foster local presence, production, and capital, with Greece and Cyprus potentially serving as key hubs.

The article emphasizes that European markets must serve Israel's interests, even during wartime, by financing capacity that wouldn't be logical to maintain in Israel during peacetime. Contracts should pre-determine Israeli priority, reserved output, and diversion capabilities. With Europe rapidly integrating Ukraine into its defense industry, bringing fresh operational experience and rapid development cycles, Israeli companies must embed themselves in European production now. Otherwise, Europe will build alternatives, leaving Israel behind. Shi Gal, founder and CEO of Line of State, previously served as VP of Communications, Government, and Community Relations at IAI.