Israel Deals Itself a Weak Hand in Military Aid Talks With U.S.

Netanyahu realizes he could have won more aid funds if Israel hadn't waited until after the Iran nuclear agreement.

Obama and Netanyahu during their meeting at the White House, September 30, 2013.
Bloomberg

Since late last year, the United States and Israel have been engaged in stubborn, nerve-wracking negotiations on a renewal of an agreement providing multi-year military assistance to Israel for the next decade. Israel is seeking a sharper boost in assistance than the United States is prepared to finance.

U.S. Congressional sources have said recently that at first, Israel was asking for $4 to $5 billion per year, which over the duration of the agreement, from 2019 to 2028, amounts to up to $50 billion. The current military aid agreement between the two countries, for 2009 to 2018, is based on a memorandum of understanding signed by President George W. Bush and provides a total of $30 billion, at an average of $3 billion per year.

Based on revised assessments of the past several weeks, the United States has managed to reduce Israel’s demands, to somewhere between the $37.5 billion that the United States is proposing over 10 years and the $40 billion being requested by Israel. One way or another, that’s $3.75 to $4 billion per year, amounting annually to $750 million to $1 billion more than the current agreement.

The American taxpayer currently funds more than 20 percent of Israel’s defense budget. This year’s overall government budget is 59.1 billion shekels, or $15.6 billion, and more than 12 billion shekels of that comes from American economic assistance.

At the end of last year, when Defense Minister Moshe Ya’alon and Finance Minister Moshe Kahlon were dealing with negotiations over an increase in the defense budget for the next five years, Kahlon assumed that there would be an increase in American military assistance. If it were to increase by $1 billion a year, it would free up major sums to fund civilian budget lines.

Israel argues that American assistance has eroded in real terms over the years and therefore should be revised. Israel also maintains that the security threats that it is facing have grown in recent years, due to the nuclear agreement with Iran, for example. Over the last several years, 16 percent of the Israeli government’s budget has been allocated to defense while in the past, the proportion funded by U.S. assistance was higher.

Last year, before the major powers including the United States sealed an agreement with Iran on its nuclear program, U.S. President Barack Obama tried to come to an understanding with Prime Minister Benjamin Netanyahu, the centerpiece of which would have been generous compensation for the Iranian agreement in the form of defense assistance to Israel. The compensation would have been part of the new military assistance pact and would have come in return for a halt to the strenuous objection to the nuclear agreement that Netanyahu had been expressing.

Netanyahu says no

The prime minister refused the deal and the message was conveyed by the Prime Minister’s Office at the time that Israel would prefer to come to an agreement on the future aid package with Obama’s successor at the White House. The opportunity was lost.

Members of the United States House and Senate actually tried to convince Netanyahu to go ahead and sign an agreement with the Obama administration. They told the Israelis with whom they spoke that Israel would not get a better deal from the next American administration. The next president will also only take office in January of next year and security assistance to Israel will presumably not be one of the first issues that he or she will deal with. Furthermore it’s impossible to gauge what the new administration’s stance on the subject will be.

In light of the uncertainty and expected delay, it is now clear to the prime minister and his associates that they made a mistake. The extent of the assistance will be decided with the current U.S. administration, since Netanyahu and Kahlon are now eager to come to an agreement with Obama. It will be billions of shekels lower than what could have been obtained prior to the Iranian nuclear pact.

At a White House meeting in November of last year between Obama and Netanyahu, the two announced the opening of negotiations on the new memorandum of understanding for the period of 2019 to 2028. In March of this year, Defense Minister Ya’alon also met with his American counterpart, Ashton Carter. A month earlier an American delegation headed by U.S. diplomat Yael Lempert, who was previously stationed at the American embassy in Cairo, visited Israel to discuss the new agreement. She is considered an expert on the region and is in charge of policy regarding Israel and Egypt at the U.S. National Security Council.

The head of the Israeli team at the talks is reserve Brig. Gen. Jacob Nagel, the deputy head of the Israeli National Security Council. He is coordinating the activity of a working group that includes representatives from the Prime Minister’s Office, the Defense Ministry, the Israel Defense Forces and the finance and foreign ministries.

The focus of the talks, of course, is the size of the financial assistance. But no less important are the conditions to which the use of the funds will be subject. There is a blackout on the details of the Israeli team’s work and Nagel would not meet in advance of this article to discuss the matter.

The talks between the two countries are stalled at the moment. Fully 83 of the 100 members of the U.S. Senate from both parties recently released a letter expressing support for a new rather generous agreement, but it’s hard to imagine that the letter will influence the policy makers at the White House.

Over the past several months, the United States has insisted that any sum decided on be final and not supplemented later. In addition, the Americans are demanding that Israel not attempt to bypass the White House via the Congress in the future with military assistance requests beyond what is agreed upon now.

Israel is unenthusiastic about the new condition. The current agreement with the United States commits Israel to spend 73.5 percent of the American assistance in the United States, with American defense contractors. The balance can be spent in Israel. The agreement serves U.S. defense firms well but hurts their Israeli counterparts. An effort by Israel to increase the portion that can be spent in Israel has met with an American refusal, meaning that just 26.5 percent of the aid under the agreement in force now can be spent in Israel until it expires at the end of 2018.

And with respect to the new agreement under negotiation, the Americans are demanding that the portion of the assistance that can be spent in Israel be gradually reduced over the years to zero. The demand has engendered major anger among Israeli defense suppliers (including, for example, the companies that manufacture uniforms and boots for the IDF). The Americans have reiterated their commitment to Israel’s defense, but have warned that the United States has budgetary problems of its own.

More than $100 billion

Since the United States first began providing military assistance to Israel in 1962, it has funneled slightly more than $100 billion to the country, and that’s in addition to Washington’s civilian assistance. In recent decades, the military aid has been a constant $3 billion or so a year. During Obama’s years in office, the United States has also provided billions of dollars on advanced projects of importance to Israel such as anti-missile systems, including Iron Dome, David’s Sling and the Arrow system.

Since the end of World War II, on a cumulative basis, Israel has received more American financial assistance than any other country, according to Congressional reports. In recent years, Israel has received 55 percent of America’s foreign military aid. (The United States also invests huge sums in its regional and global military alliances and in military operations, it should be noted). Egypt ranks second behind Israel, and the 55 percent to Israel does not include special military assistance that the United States also provides to Israel on occasion.

With U.S. presidential elections in another six months and Obama leaving the White House in another eight months, the staff of the Prime Minister’s Office will make every effort to wrap up an agreement with the Obama administration by the end of the summer. So, as far as Israel is concerned, a lot is now riding on the outgoing president.