Arms embargo: Will Israeli-owned companies be barred from selling to Israel?

A missile created by Israel’s Rafael Advanced Defense Systems

Oded Yaron writes in Haaretz on 9 October 2024:

Israel’s deteriorating international standing amid the ongoing war, coupled with various countries’ restrictions on arms exports to Israel, could lead to a situation where wholly Israeli-owned foreign defense companies are unable to export weaponry to Israel.

In recent months, several countries have taken both public and discreet measures to avoid being seen as aiding Israel, which stands accused of committing genocide in Gaza. The U.K. has revoked 30 export licenses and implemented changes that will complicate future defense exports to Israel. Germany, a major exporter to Israel (particularly of submarines and corvettes), has effectively restricted defense exports.

While Berlin denied reports of a complete export halt, local media reported a dramatic reduction in licenses being issued, citing a year-long delay in an Israeli request for 10,000 tank shells. On Friday, French President Emmanuel Macron also called for restricting arms exports to Israel.

Over the years, Israeli defense firms have established numerous subsidiaries across Europe, Asia and America. This strategy serves both to market their products and to meet state customers’ requirements for localizing some weapons system development and production through joint ventures with local manufacturers. To take one example, Elbit Systems has set up a joint plant in India with Adani Defense to produce Hermes 900 drones for both India and Israel, the latter’s needs having increased after Hezbollah downed several drones.

Israel Aerospace Industries formed a joint venture in Singapore with ST Engineering to produce and market advanced naval missile systems. “We’re expanding,” the company announced six months ago. “During the last year, some 10 mergers and acquisitions were approved. These deepen our presence in India, Germany, Italy, South Korea and Israel and help us complete the range of products we offer our customers.”

As two of Israel’s three major defense companies – IAI and Rafael – are state-owned, the Government Companies Authority is the official owner of several defense firms worldwide. Given Israel’s worsening international standing, these companies may soon struggle to export defense equipment to Israel.

Germany’s largest defense export to Israel last year was 3,000 anti-tank systems, likely the Matador (known as the Nutcracker in the Israeli military). These versatile weapons can target armored vehicles, bunkers and enemies in buildings. Designed to produce minimal back-blast, the Matador is crucial for urban warfare in Gaza. It’s manufactured by Dynamit Nobel Defense, which Rafael acquired two decades ago.

While Germany denies halting exports, the current delay in approving tank shell procurement raises questions about future orders. For instance, would a Rafael-owned company be prohibited from exporting Matadors to Israel?

A Hermes 900 drone taking off

Canada has also announced a suspension of arms exports to Israel. Foreign. Foreign Minister Mélanie Joly said that 30 licenses have been frozen. “Our policy has been clear… We will not have any form of arms or parts of arms be sent to Gaza,” she said. In 2017, Elbit Systems acquired Canada’s GeoSpectrum Technologies, which develops naval sonar systems used in Elbit’s Seagull Unmanned Surface Vessel. With at least one Seagull supplied to the Israeli navy, it’s uncertain whether Israeli-owned GeoSpectrum will be able to export defense equipment to Israel in the future.

One of the notable changes, though not necessarily the most impactful, is Britain’s announcement that it was canceling and tightening future defense export licenses. Natalie Davidson, an associate professor at Tel Aviv University’s Buchmann Faculty of Law, says the decision is based on British criteria for assessing clear risks of major breaches in international laws of war. Davidson and Dr. Samuel Perlo-Freeman of the Campaign Against Arms Trade in the U.K, say it isn’t a blanket ban but rather a change reflecting concerns about arms and technology sent to Israel being used in Gaza, potentially violating human rights laws.

While headlines focused on the freezing of 30 licenses, the tightening of five Open General Export Licenses is just as significant. In practice, Israel was included in a list of countries – alongside Iran, Russia, and Afghanistan – for which these licenses do not apply. Israel has been added to a list of countries – including Iran, Russia and Afghanistan – for which these licenses don’t apply. Perlo-Freeman explains that OGELs allow unlimited exports of certain low-level components.

Now, companies wishing to export listed components and technologies to Israel must submit individual applications. If there’s concern that the materiel could be used in Gaza and might breach international law, Britain may prohibit its export. The list of affected components is extensive, including printed circuit boards, software, avionics, electronics and simulators.

“I think they do have a process that is administratively very rigorous, if politically lax, so that now they have put in place this new position and rules, they will likely stick to it,” says Perlo-Freeman. “In other words, when companies apply for export licenses to Israel, the export control officials will assess, one: Is this equipment ultimately for the IDF? Two: If so, is the IDF likely to use it in Gaza? If the answer to both these questions is yes, then the government will deny a license. If not, it will most likely be approved unless it is assessed as going against one of the other export license criteria.”

Israeli defense companies own several British firms. Two years ago, Rafael acquired Pearson Engineering, which makes components for armored vehicles and mine-clearing equipment. In November, the Gaza war’s outbreak, Pearson quickly announced, “The IDF doesn’t currently use any Pearson Engineering equipment.”

Elbit Systems has both joint ventures and subsidiaries in the U.K. One is UAV Engines Ltd., which produces engines for drones, including Elbit’s Hermes 450. Perlo-Freeman says that the British government maintains these engines are for onward export, not for use, thus allowing their delivery.

Another Elbit subsidiary in the UK, Instro Precision Ltd., manufactures fire control electro-optical sensors and laser targeting systems. Perlo-Freeman. Describes a “substantial and regular stream of export licenses for export to Israel, almost all involving ‘components for targeting equipment’… for end-customers in Israel.” He believes its future ability to sell to Israel will undoubtedly be affected by Britain’s export policy.

IAI and Rafael declined to comment officially on potential impacts on their subsidiaries’ component supplies due to new defense export restrictions. Defense industry sources suggested the considerations appear political, with UK Prime Minister Keir Starmer “trying to appeal to his base.” Elbit Systems stated, “The decision regarding licenses to Israel is under review but is not expected to materially affect Elbit Systems’ business.”

This article is reproduced in its entirety