The Israeli economy now requires permanent war to function.

The Israeli economy now requires permanent war to function. This is not an exaggeration or a metaphor. Their defense sector is the only growth industry left.

Israel has entered a new era of territorial expansionism and military aggression beyond the borders of historic Palestine. Its belligerent actions have accelerated across Jordan, Lebanon, Syria, Yemen, Iran, Qatar, Libya, and most recently, Somaliland. These developments aren’t due to a change in Israeli strategic ambitions, but rather to the loosening of constraints that had kept it bounded before October 2023.

This expansionist turn reflects a structural recalibration of risk, leverage, and international tolerance rather than a sudden ideological shift. But it is also due to the way Israel’s economy is now structured: the military industry has been carrying the economy ever since Israel experienced a level of global isolation that decimated most other sectors over the past two years. The result? Israel now has an additional structural incentive to be in a perpetual state of war.

Prime Minister Benjamin Netanyahu gave voice to this reality when he announced that Israel would need to become a “super Sparta” — a highly militarized warrior state with a self-sufficient military industry, capable of defying international pressure and arms embargoes because it no longer has to rely on American military beneficence.

A crucial recent strategic declaration sharpens this trajectory. In January 2026, Prime Minister Benjamin Netanyahu announced his intention to end U.S. military aid to Israel within roughly a decade, framing this as a path toward military-industrial self-sufficiency and strategic autarky. This announcement signals that Israel is no longer content to remain subordinate to the U.S., instead seeking to operate as its strategic partner in the region at a time when the U.S.’s national security strategy is shifting attention from the Middle East to the Western Hemisphere.

Netanyahu’s declaration amplifies the urgency of the export-led growth model, which is largely based on arms and defense-linked industries. The problem is, if Israel is to replace $3.8 billion in annual U.S. military aid, it must dramatically scale up its domestic production and export capacity.

The Israeli state is attempting to institutionalize this export surge through policy, committing roughly NIS 350 billion (equivalent to $100–108 billion) over the coming decade to expand an independent domestic arms industry. Economically, this means that military production will become central to Israel’s long-term industrial strategy, diverting capital, labor, and state support toward weapons manufacturing rather than civilian recovery, a strategy that is untenable during wartime. This also embeds Israeli firms deeper into global security supply chains, even as the state itself becomes diplomatically isolated.

The new era of Israeli expansionism and the war economy that fuels it