Israel arms itself to the limit, but runs out of money to manufacture ammunition

JerusalemIsrael is not running out of weapons, but it is running out of financial room to manufacture them at the rate it uses them. This is what the heads of Israel's main defense companies have communicated to the government: they have warned Israeli Prime Minister Benjamin Netanyahu (still in office) that some ammunition production lines could slow down or stop if the executive does not act immediately.

In a letter delivered to Netanyahu at the beginning of September, the heads of the main Israeli defense companies warned that delays in funding threatened the continuity of some ammunition production lines. The industry was demanding the disbursement of 11.5 billion euros committed for military spending. The manufacturers warned that, without new orders and financial commitments, some lines could close within weeks, with consequences for the army's operational capacity.

Pressure also came from the military leadership. The Chief of the General Staff, Lieutenant General Eyal Zamir, sent an urgent letter to the Prime Minister, the Minister of Finance, Bezalel Smotrich; the Minister of Defense, Israel Katz; and the head of the National Security Council, Shmuel Ben-Ezra, in which he demanded an urgent budgetary solution.

The crisis led to concrete movements in September. On September 23, the Knesset Finance Committee, the Parliament, approved a transfer of nearly 4.24 billion euros to reinforce the budgets of the Ministry of Defense and the army. The package included approximately 3.374 billion euros from the general reserve and 861 million euros reallocated from other items. However, this injection did not resolve the underlying problem: the Ministry of Defense continued to demand additional resources to cover the military needs for 2026.

This pressure on public finances is part of an extraordinary increase in military spending since the outbreak of the war in Gaza in 2023. Israel's defense budget has more than tripled in the last three years: when the government initially approved the 2026 state budget, the item allocated to defense stood at around 31.9 billion euros. However, after the budget expansion approved in March, in the context of the war against Iran, it exceeded 40.8 billion euros.

An uncontrolled hole

The conflict adds to a battle that has been fought for months between the ministries of Defense and Finance. Defense is demanding more money to maintain the multiple fronts that are open, replenish ammunition and equipment reserves, and prepare for a possible cancellation of US military aid at the end of 2028, which currently represents about 3.273 billion euros annually. In fact, on the same day as the US midterm elections, Donald Trump announced that Washington had agreed with Tel Aviv to suspend annual economic aid to Israel.

The Ministry of Defense also warns that further delays could cause Israel to lose its place in already saturated US production chains, which could prolong the wait for receiving aircraft and other weapons systems by years. Finance, on the other hand, considers that the military budget has become a black hole over which control has been lost.

The paradox of it all is that Israel has a defense industry in full expansion. The country's four largest companies, Israel Aerospace Industries (IAI), Rafael, Elbit Systems and Tomer, have accumulated an order backlog that is approaching 86.1 billion euros, according to data from the Israeli financial newspaperCalcalist; the factories are working three shifts a day, seven days a week, after years of investments to expand production capacity. But having orders does not mean getting paid on time. According to the same media outlet, the Ministry of Defense has accumulated a debt of about 4.405 billion euros with Rafael, IAI and Elbit. Some companies have had to delay, in turn, payments to their suppliers and subcontractors.

Last month, the budgetary tension remained open. According to the Israeli economic newspaperGlobes, on October 13, the Ministry of Finance was preparing general cuts to public spending to free up resources for Defense, after Netanyahu ordered the budget to be reopened with the goal of increasing military spending. At the same time, the government aspired to promote a rearmament program of about 115 billion euros over several years, but the financing of this plan remains conditioned by political disagreements.

In this context, several Israeli media outlets have asserted that the army is preparing to implement cuts to avoid exceeding the available budget. Among the measures are an immediate reduction in the days of service for reservists, repairs to some tanks and armored vehicles damaged during the war, and reserve forces on the northern and southern fronts.

The dispute over funding comes at a delicate political moment, still without a clear coalition to form the next government. And also while Israel maintains military operations in various theaters, including Iran, Lebanon, Gaza, the West Bank, and the border with Syria, and after months in which the army has warned of a shortage of soldiers. This scenario has a cost that goes far beyond the military budget. In March, in the midst of the war with Iran, the Bank of Israel already warned that the extraordinary increase in defense spending could raise the 2026 deficit to 5.1% of GDP and bring public debt to nearly 70%.