‘They’ll come crawling back’: Israeli weapons industry enters crisis after latest deal cancellations

Israel has been hit with a global wave of hostile diplomatic moves in recent months. While the recognitions of a “State of Palestine” has been garnering headlines, arms embargoes have followed in their wake.

One poster child for both of these parallel tracks is the Spanish government, which is pursuing an embargo while being dependent on Israeli technology.

Spain recognized 'Palestine' already last year, and in recent months, has cancelled several arms deals totaling some €600 million ($US700 million) with Israeli firms.

Last week, the Spanish Defense Ministry cancelled a €200 million (about $235 million) order for dozens of Litening 5 laser-guidance pods for Eurofighter jets with the Israeli company Rafael.

Other cancelled deals would have provided the Spanish military with new Spike anti-tank missiles, a PULS rocket system, and small-caliber ammunition, causing concern that Spain is harming itself more than it does Israel.

“Spain is shooting itself in the foot,” Ángel Mas, president of the Spanish pro-Israel NGO Acción y Comunicación sobre Oriente Medio (ACOM), told The Media Line.

“You cannot maintain deterrence against Morocco while cutting off the very technology that keeps you safe, especially when Rabat is buying the same Israeli systems you are now discarding,” he warned.

“The armed forces are worried about maintenance and spare parts,” Jesús M. Pérez Triana, a Spanish security and defense analyst told The Media Line.

“If the Spike missiles or communications systems lack support, the deployments in places like the Baltics could be compromised.”

The de facto embargo on Israeli arms comes at a critical time for European security, as NATO and the EU are scrambling to confront the growing Russian threat on their eastern border. Meanwhile, Spain is meant to be a security bulwark for NATO’s southern flank and its Mediterranean Frontier.

According to Triana, Spain’s NATO troops in Latvia and Slovakia rely on equipment that is integrated with Israeli technology.

“In the past, a ban on Israeli ammunition had to be quietly reversed because Spanish handguns were only compatible with Israeli-made rounds,” he added. “Now we risk repeating the same mistake with radios, targeting pods or missile systems.”

Meanwhile, Morocco, which hasn’t canceled its peace agreement with Israel despite the war, continues to buy Israeli systems, like the PULS rocket system that was spurned by Spain.

“Deterrence is not a slogan,” warned Mas. “If you deliberately create a capability gap, you invite your adversary to be more assertive.”

In addition, Spain’s cancellation of valid orders could be followed by damage claims, causing new financial troubles. “This embargo may end up being purely symbolic,” Triana warned, “because Spain might still pay for the canceled contracts while scrambling to buy the same technology through third countries with a European label.”

A recent incident ironically underlined Spain’s dependence on Israel.

When Italy and Spain decided to send naval vessels to escort the “Sumud” flotilla, which aims to breach Israel’s naval blockade of Gaza, the Spanish warship that was sent was equipped with Israeli, Rafael-made cannons and defense systems.

But Spain is not the whole story. A senior Israeli defense industry executive told the financial newspaper Calcalist, “After the war, they will come back on all fours. They need our weapons more than we need them. Spain is a small market, but we must remain vigilant about other, larger markets.”

“Israel’s technological superiority is undeniable, and many countries want our systems,” a senior defense executive agreed.

But he also warned, “They prefer to wait until the Gaza war ends and global attention shifts. Meanwhile, customers can’t wait forever. Some are already exploring alternatives. Defense contracts take years to finalize. If this situation continues, we will see a decline in exports by 2026 and feel the blow fully in 2027. If deterioration is stopped now, demand and Israel’s strong reputation can still carry us. But if recklessness continues, we could face a very different reality.”

According to Ynet News, Israel’s defense exports stood at a record high $14.8 billion in 2024, half of that coming from Europe.

“Israel is a small, open economy, and it depends heavily on its commercial relationships,” explained Yossi Spiegel, professor at Tel Aviv University, told The Media Line. “If we lose Europe as a trading partner, it would be a disaster of great scale.”

“The danger is not Spain alone, but the precedent it sets inside Europe.” He pointed to countries such as Belgium, Ireland, the Netherlands and even larger economies like Germany and France as potential followers if political momentum gathers.”

“Israel should have done more to prevent this situation,” Spiegel said. “When partners see no clear political strategy beyond military action, they will eventually react with measures like these.”