U.S. Aid to Israel 2025: Cost-Benefit ROI Analysis & Future Rebalancing
U.S. has long allied with Israel, but the benefits relative to contributions are outsized in favor of Israel
Few bilateral partnerships have drawn as much scrutiny as the United States–Israel alliance. In raw financial terms, Washington provides upwards of $3.8 billion in annual military aid (much of which flows back to American factories).
Meanwhile, Israel offers intelligence support, regional security cooperation, and a unique defense R&D pipeline. Yet the data also show significant intangible costs, including reputational challenges, possible “entrapment” in regional conflicts, and heightened terrorist or militia blowback.
My aim was to evaluate the historical relationship between Israel & the United States in attempt to estimate: (1) benefits (both direct & indirect); (2) drawbacks (both direct & indirect); and (3) overall fairness (i.e. determine whether the relationship is overly lopsided as to warrant adjustments).
Why did I write this? Am I anti-Israel and/or anti-Jew? Nope. I despise the moronic conspiracy theorists who blame everything bad in the world on Jews… these people are mentally challenged.
However, I am an advocate for the U.S. evaluating its alliances to ensure that the relationships stay reasonably fair (win-win) and don’t get overly lopsided (i.e. borderline exploitation of the U.S.)
My research suggests that while it’s likely smart for the U.S. to maintain its strong alliance with Israel, Israel should be contributing a bit more to the relationship.
I.) U.S. & Israel Alliance: Historical Timeline & Evolution
Want to learn how U.S. & Israel became allies and how their alliance evolved over time (1948 to 2025)? Read this section. If you don’t really care about how the alliance came to be and the logic behind it, skip to the next section.
The Formative Years: U.S. & Israel Alliance (1948–1960s)
Israel’s Independence & Initial U.S. Recognition (1948)
On May 14, 1948, Israel declared independence. The U.S. (under President Truman) recognized the new state almost immediately, influenced by a combination of post-Holocaust sympathy, domestic political considerations, and moral/strategic interest in balancing Soviet inroads in the region.
Early Aid: U.S. assistance was minimal in the first decade—mainly small loans, humanitarian support, and private fundraising in the American Jewish community.
Relationship with Other Arms Suppliers (France & Britain)
Throughout the 1950s, France was Israel’s main source of advanced weaponry (e.g., Mirage jets).
The U.S. maintained an arms embargo for part of this period, cautious about alienating Arab states and risking Soviet gains in the region.
A limited policy of “balancing” emerged: Washington provided some economic assistance to Israel but also courted Arab governments, especially in the wake of the Suez Crisis (1956).
Shift to a More Favorable U.S. Posture
By the early 1960s, geopolitics began tilting: the Soviets were deepening their ties with Egypt (Nasser) and Syria.
President Kennedy authorized the first direct sales of defensive weaponry (Hawk anti-aircraft missiles) to Israel in 1962, signaling a slow departure from earlier neutrality.
The 1967 War & Aftermath
Six-Day War (June 1967)
Israel’s lightning victory over Egypt, Syria, and Jordan revealed a potent, Western-aligned military force in the Middle East.
U.S. Realization: Israel could serve as an indirect regional surrogate to contain Soviet-backed regimes. Israel’s capture of Soviet-made equipment provided intelligence windfalls.
Diplomatic Ties: The U.S. became more supportive diplomatically as it recognized Israel’s strategic value, though the relationship was still not as “all-in” as it would become in the 1970s.
Emerging Military Aid
Post-1967, the U.S. began providing more advanced aircraft (e.g., A-4 Skyhawks) under the Johnson Administration.
Israel’s Lobbying: U.S.-based advocates for Israel argued that military aid was vital to maintain regional stability (the “Qualitative Military Edge,” or QME concept started to crystallize).
The Pivotal 1970s: Yom Kippur War & the Oil Embargo
Yom Kippur War (October 1973)
A surprise attack by Egypt and Syria (backed by Soviet-supplied arms) led to Israel’s initial setbacks, followed by a U.S.-organized airlift of critical materiel.
Impact: This emergency resupply was decisive for Israel’s war effort, but it also provoked Arab OPEC countries to impose the 1973 oil embargo on the U.S. and other Israel-supporting states.
Oil Shock: A Key Indirect Cost
The embargo quadrupled global oil prices, causing a ripple effect across the U.S. economy—leading to stagflation, recession, and a transformation in American energy policy.
Strategic Trade-Off: Despite these costs, Washington concluded that supporting Israel was central to checking Soviet influence and maintaining a reliable pro-Western ally.
Post-War Deepening of Military Aid
The 1973 war catalyzed Congress to boost annual military and economic support.
Camp David Accords (1978–79): Brokered by the U.S., leading to Egypt–Israel peace. The U.S. began massive aid packages to both countries, solidifying Israel (and Egypt) as top recipients of U.S. foreign assistance.
The 1980s: Cold War Collaboration & Strategic Cooperation
Formalizing the “Special Relationship”
Strategic Cooperation Agreement (1981) under Reagan: institutionalized intelligence sharing and joint military exercises.
Israel provided the U.S. with Soviet-made weapon systems captured from Arab states, offering valuable data for the Pentagon.
Rise of Annual Aid Appropriations
By the mid-1980s, U.S. aid topped $3 billion per year, splitting between economic aid (which was gradually phased out in the 1990s) and military aid (which continued to rise).
Transition to Grant-Based FMF: Grants replaced loans, easing Israel’s debt burden and guaranteeing a steady flow of advanced arms from American manufacturers.
First U.S.–Israel Free Trade Agreement (1985)
The first FTA the U.S. ever signed, underscoring growing commercial ties.
Economic Impact: Spurred tech-sector cooperation, paving the way for joint R&D frameworks like the BIRD Foundation in areas from software to healthcare.
The 1990s: Post–Cold War Adjustments and the Oslo Process
Shifting Geopolitics
Collapse of the Soviet Union (1991) removed the “superpower proxy” logic that had undergirded much of Israel’s value to the U.S.
Nonetheless, American policymakers still viewed Israel as a stabilizing ally in a volatile region.
Oslo Accords (1993–95)
Initial hope for a comprehensive peace with Palestinians; the U.S. increased diplomatic involvement.
Economic vs. Military Aid: The U.S. phased out direct economic assistance to Israel, retaining or increasing military grants (FMF).
Strategic Benefits: Collaboration on missile defense emerged, with the Arrow program getting joint funding.
Widening Technology Cooperation
Israel’s growing hi-tech economy merged well with Silicon Valley ventures.
BIRD Foundation Expansions: Boost in commercial R&D projects, forging stronger private-sector links.
Early 2000s: 9/11 & the War on Terror
Post-9/11 Security Landscape
Al-Qaeda’s attacks brought the U.S. and Israel closer on counterterrorism strategies, as Israel had decades of experience with militant groups.
Significant Intel-Sharing: Unit 8200 provided tips on global jihadist networks, including those threatening U.S. or allied interests.
2007 MOU (“MOU-1”)
Committed $30 billion over a decade in U.S. military aid.
Missile Defense Programs: Collaborative R&D on Iron Dome, David’s Sling, Arrow-2/3. The U.S. gained partial rights to co-production and technology transfer.
Intensified Diplomatic Ties & Strains
U.S. veto power at the UN was frequently exercised to shield Israel from Security Council resolutions on Gaza/settlements.
Critics: Growing debate on whether unconditional U.S. support complicated broader Middle East policy, especially in Iraq and Afghanistan.
Early 2010s to 2016: Obama to the Second MOU
Evolving U.S. Public Opinion
While Congress stayed strongly pro-Israel, polls indicated some partisan and generational splits—particularly among Democrats and younger Americans who questioned settlement policies and Gaza operations.
Obama-Netanyahu Tensions
Diplomatic friction over the Iran nuclear deal (JCPOA) and Palestinian statehood issues.
Despite Tensions, the 2016 MOU (“MOU-2”) was signed: $38 billion over 10 years (2019–2028). Notably, it phased out Israel’s ability to spend part of the FMF on Israeli-made equipment, pushing toward 100% U.S.-sourced procurement.
Missile-Defense Milestones
Iron Dome’s Success in intercepting short-range rockets.
U.S. Army’s Adoption: Several Iron Dome batteries purchased for testing in U.S. territory (e.g., Guam) to protect against cruise and drone threats.
2017-2021 (Trump 1.0): Hard Pivots & Headline Wins
December 6, 2017: The Trump administration recognized Jerusalem as Israel’s capital and officially opened the U.S. embassy there on May 14, 2018. This delivered a huge symbolic victory for Israel, firmly entrenching U.S. acceptance of its claim to the entire city. However, it alienated Palestinian Authority leadership and triggered protests across Arab capitals.
May 8, 2018: The U.S. withdrew from the Iran-JCPOA nuclear deal—Israel’s top strategic objective since 2015. While the move was a major diplomatic win for Israel, it created a deep rift with European allies and led Iran to resume 20% uranium enrichment, intensifying tensions across the Gulf.
August 31, 2018: The administration cut 100% of U.S. funding to UNRWA, an agency long criticized by Israel. While this undercut a key institution supporting Palestinian refugees, it also removed an important U.S. lever over humanitarian conditions in Gaza and the West Bank, prompting the EU to step in with replacement funding.
March 25, 2019: The U.S. proclaimed Israeli sovereignty over the Golan Heights, granting formal American recognition to a de-facto Israeli hold since 1981. This move broke with long-standing UN designations of the territory as “occupied,” and drew formal protests from Syria and Lebanon.
September 15, 2020: The Trump administration brokered the Abraham Accords—normalization agreements between Israel and the UAE, Bahrain, later joined by Morocco and Sudan. These were the first Arab-Israeli normalizations since 1994, unlocking Gulf-Israeli trade and joint air-defense drills. However, the Palestinians were effectively sidelined in the process, and Iran and its proxies framed the agreements as a new “U.S.–Israel axis.”
Aid dynamics: Throughout Trump’s term, the $38 billion 2016 MOU remained fully funded. Notably, in FY-2020, the administration rushed an extra $1 billion for Iron Dome following the May Gaza flare-up—underscoring that even amid symbolic and strategic pivots, the core financial commitment to Israeli defense remained flat and intact.
2021-2024: Biden’s Interlude: Restore Balance, But Not the Cheque Size
April 7, 2021: The Biden administration restored $235 million in Palestinian aid, including $150 million to UNRWA, framing the move as a step to “re-open the two-state door.” This marked a symbolic reversal from Trump-era cuts but left overall financial commitments modest.
2021–22: The U.S. re-entered indirect Vienna talks aimed at reviving the JCPOA nuclear deal. However, no agreement was reached. In the interim, Iran’s enrichment levels increased, and key Gulf partners began hedging between Washington and other global powers.
October 2023 through 2024: Amid the Gaza war, Biden authorized emergency resupply of Iron Dome interceptors to Israel. Yet, the administration also twice paused shipments of 2,000-pound bombs and JDAM kits due to mounting civilian-casualty concerns—the first such pause occurring on April 30, 2024, affecting 3,500 munitions.
Domestic optics shifted markedly. According to a Pew survey published April 8, 2025, 53% of Americans now view Israel unfavorably — the first net-negative result in polling history. This shift fueled growing momentum within the Democratic Party to tie future Foreign Military Financing (FMF) to humanitarian conditions.
Net effect: Military aid to Israel remained on autopilot, honoring the 2016 MOU. However, Biden re-introduced conditionality as a live political debate and signaled that future offensive-weapons sales could hinge on Israel’s civilian-harm metrics during operations.
2023-2025: Gaza War, Red Sea Escalations, & More
October 2023 Gaza Conflict
Major Hamas–Israel confrontation. The U.S. launched emergency security packages, vetoed multiple U.N. resolutions, and faced rising global criticism.
Domestic Polarization: Protests on U.S. campuses and city streets, splits within Congress over unconditional resupply.
Houthi Red Sea Campaign
Yemeni Houthis (backed by Iran) escalated drone and missile attacks on shipping lanes, explicitly citing U.S. backing of Israel’s Gaza operations.
U.S. Naval Task Force: Incurred billions in operational costs, spiking shipping insurance, and intensifying debate on “blowback costs.”
Renewed Calls for “Modernizing” the Aid Relationship
Policymakers propose conditioning a portion of FMF on adherence to international humanitarian law, or converting some grants into repayable credits.
Israel’s Strategic Dilemma: Keen to preserve the unconditional U.S. support that historically underpinned its qualitative military edge.
2025 (Trump 2.0): So Far…
In early 2025, the Trump administration re-froze all U.S. funding to UNRWA and withdrew from the U.N. Human Rights Council.
The Arab League issued a formal condemnation, the EU pledged gap funding to sustain aid operations, and the moves reignited campus protests across the United States.
At a February 5, 2025 press conference, Trump floated the idea of a U.S. “security administration” to “take over Gaza and rehabilitate it” with Israeli backing.
U.S. x Israel: Recap of Alliance
Marginal Ally to Cornerstone: The alliance evolved from cautious arms-length support in the 1940s–50s to a full-spectrum strategic partnership by the 1970s, eventually culminating in massive annual aid packages and robust defense-industrial integration.
Cold War vs. Post–Cold War vs. “Great-Power Competition”: The alliance was once viewed through a U.S.–USSR proxy lens; today, it involves complexities of Iran’s regional ambitions, China’s techno-economic infiltration, and Russia’s military presence in Syria.
Financial vs. Reputational Trade-Offs: Periodic crises (1973 oil embargo, 2023 Gaza–Red Sea flare) highlight how supporting Israel can trigger secondary financial shocks and political fallout for the U.S.—yet each time, policymakers have recommitted to the alliance on strategic grounds.
Takeaways:
Foundational Shifts: Over 75+ years, the U.S. has steadily ramped up its support—from small-scale loans in 1948 to the multi-billion-dollar defense grants of today—due initially to Cold War considerations and now to a mix of shared security goals, tech cooperation, and domestic political factors.
Recurrent Crises and Aid Spurts: Major wars (1967, 1973) and peace agreements (Camp David, Oslo) repeatedly reshaped aid flows and solidified U.S. engagement.
Modern Tensions: While aid remains robust, rising blowback costs and partisan divides in the U.S. create pressure for new conditions or cost-sharing mechanisms.
II.) The Mechanics of U.S. Aid to Israel (How It Works)
This section covers how the streams of U.S. financial and military support to Israel work in practice, who administers them, and where the money ultimately ends up. If you don’t care to understand how the process works, skip ahead to the next section.
A.) The Multi-Year Memoranda of Understanding (MOUs)
A “Memorandum of Understanding” (MOU) is not a formal treaty but a high-level executive arrangement outlining multi-year aid commitments.
These MOUs stabilize the alliance by setting predictable, long-term funding levels that Congress typically honors via annual appropriations.
Key Historical MOUs
2007 MOU (often called “MOU-1”): Committed $30 billion over ten years (FY2009–18).
2016 MOU (or “MOU-2”): Raised that pledge to $38 billion over FY2019–28.
Includes $3.3 billion/year in Foreign Military Financing (FMF).
Plus $500 million/year for joint missile-defense programs.
Sunset and Renewal: Each MOU tends to come with a built-in timeline; near its expiration, negotiations begin for the next decade’s package.
Legislative Backing
Though the MOUs are “executive agreements,” Congress must authorize and appropriate the funds annually.
Strong bipartisan support has made it rare for the final appropriations to fall below MOU levels—if anything, Congress often exceeds them (especially during crises).
B.) Foreign Military Financing (FMF) Grants
FMF is a grant program managed primarily by the State Department’s Political-Military Affairs bureau, in coordination with the Defense Security Cooperation Agency (DSCA).
Israel receives the largest FMF allocation of any single country—historically over half of the total FMF budget worldwide.
“Boomerang” Spending Provisions
Offshore Procurement (OSP): Historically, Israel could spend a portion of FMF on its own domestic defense industry. Under the 2016 MOU, OSP is gradually phased out, so nearly 100% of FMF must now be spent on U.S.-made equipment by FY2028.
Implication: Much of the $3.3 bn is effectively funneled back into U.S. defense contractors, supporting American jobs and manufacturing lines (e.g., Boeing’s F-15 assembly in St. Louis, Lockheed’s F-35 line in Fort Worth).
Typical Uses of FMF in Israel
Major Platforms: Fighter jets (F-15IA, F-35I “Adir”), advanced munitions (precision-guided bombs, air-to-ground missiles).
System Upgrades: Radar, avionics, cyber-defense tools.
Maintenance & Sustainment: Spare parts, logistics support, training.
Annual Appropriation vs. Congressional Supplements
In non-crisis years, Israel gets its MOU baseline (e.g., $3.3 bn in FMF).
In crisis periods—such as major conflicts with Hamas/Hezbollah—Congress often authorizes additional funds for munitions replenishment.
C.) Missile-Defense R&D & Co-Production
Dedicated $500 Million/Year
Under the current MOU, $500 million is earmarked specifically for joint missile-defense R&D programs:
Iron Dome (short-range rocket interception).
David’s Sling (medium-range).
Arrow-2/3 (long-range ballistic missile defense).
Co-Development & Co-Production Agreements
U.S. firms (e.g., RTX/Raytheon, Lockheed Martin) partner with Israeli companies (e.g., Rafael, IAI).
Split Production: Some interceptors (e.g., Iron Dome’s Tamir missiles) are jointly manufactured in both the U.S. and Israel.
Technology Transfer: The U.S. gains partial rights to key innovations (e.g., guidance algorithms), which can then be adapted for U.S. Army use (e.g., Iron Dome batteries tested for Guam).
Advantages to Each Side
Israel: Sustains R&D with external funding, ensures a robust supply chain.
U.S.: Access to cutting-edge missile-defense tech, job creation, and the option to deploy proven systems more rapidly.
D.) The War-Reserve Stockpile (WRSA-I)
Concept and Origins
WRSA-I (War Reserve Stockpile for Allies–Israel) is a U.S.-owned munitions stockpile located on Israeli soil.
Established so that the U.S. military has a forward-deployed reserve of ammunition and equipment in a strategic location.
Access for Israel
In emergencies, Israel can request permission from the U.S. to draw from this stockpile. This arrangement effectively grants Israel rapid access to certain U.S. ordnance.
U.S. officials retain final authority on when Israel can tap WRSA-I; typically, permission has been granted during conflicts in Lebanon or Gaza.
Financial and Strategic Implications
For the U.S.:
Pre-positioned resources reduce logistical timelines if CENTCOM needs to deploy forces in the region.
It incurs upkeep costs for storing and maintaining the stockpile.
For Israel:
Acts as an emergency backup supply, reducing the risk of running out of key munitions (e.g., artillery shells, precision bombs).
Critics argue Israel should share more of the maintenance cost, as it directly benefits.
E.) Additional Mechanisms of Support
Emergency Supplemental Appropriations
Beyond the MOU framework, Congress occasionally passes supplemental bills—for instance, to replenish Iron Dome interceptors after large-scale rocket exchanges.
Recent example: During the 2023–25 Gaza conflict, the U.S. allocated billions in emergency security assistance that partially funded Israel’s air-defense restocks.
Loan Guarantees
Separate from direct FMF grants, the U.S. has historically offered loan guarantees allowing Israel to borrow at lower interest rates. Israel rarely defaults on these, and the guarantees enhance its global credit standing.
Diplomatic “Veto Capital”
Although not a direct budgetary line, U.S. vetoes at the U.N. Security Council constitute an in-kind form of support, shielding Israel from resolutions related to Gaza, settlements, etc.
Each veto can impose an opportunity cost on U.S. diplomacy elsewhere, but it’s arguably part of the “aid architecture.”
Where the Money Actually Goes
U.S. Defense Manufacturers: A large chunk of the $3.8 bn (FMF + missile-defense) returns to American companies like Boeing, Lockheed Martin, General Dynamics, RTX.
Employment Effects: Defense-plant workers across multiple states (Missouri, Texas, Arkansas, Arizona) depend on these contracts.
Israeli Defense Industry: A smaller but still notable portion, especially before OSP fully phases out, supports Israeli firms (e.g., Elbit, Rafael). The result is a uniquely intertwined supply chain.
Research Labs & Joint Programs: BIRD (Binational Industrial Research and Development) grants fund joint civilian ventures in energy, healthcare, software, etc. The synergy between U.S. and Israeli tech ecosystems often extends beyond pure “defense” lines to commercial innovation.
Conditionalities & Constraints
Buy-American Clauses: By FY2028, Israel must spend nearly 100% of FMF on U.S. goods/services. This ensures Congress sees direct domestic economic benefits.
End-Use Monitoring: U.S. arms export laws impose checks on how Israel can deploy or re-export American-made weaponry. However, critics argue enforcement is often lax.
Potential for Future Conditional Aid: Emerging proposals suggest tying a slice of FMF to compliance with international humanitarian law (IHL) or to restricting settlement expansion. While not yet formalized, these debates highlight how the “mechanics” of aid may evolve if domestic U.S. opinion continues to shift.
Takeaways:
FMF & Missile-Defense R&D form the backbone of U.S. military support to Israel. The lion’s share of these funds—by design—flows back into the American defense-industrial base.
The War-Reserve Stockpile represents a strategic asset for both countries, though its funding and upkeep fall predominantly on the U.S. budget.
Aid Is Not Pure “Cash Out”: While the annual headline figure is $3.8 billion, close to 80–100% of that eventually lands in U.S. factories, making the net outflow from Washington significantly lower.
III.) Quantifying the Net Benefits for the United States (U.S.)
This section aims to quantify the net benefits for the United States attributable to its alliance with Israel — covering both the easily measured (e.g. arms-sales profits, jobs, etc.) and the harder-to-measure (international blowback, reputational drag, etc.).
The U.S. Cost-Benefit Ledger
To understand whether the United States truly “gains” from its support of Israel, we split the assessment into four buckets:
Direct Benefits: Arms sales, industrial activity, R&D spin-ins, forward-deployed stockpiles.
Indirect (Intangible) Benefits: Intelligence sharing, battlefield data, strategic leverage vs. adversaries.
Direct Costs: Budgetary outlays that do not “boomerang” back to the U.S. defense sector (the net taxpayer burden).
Indirect (Intangible) Costs: Diplomatic friction, reputational harm, militant/terror blowback, extra force protection.
By synthesizing these components, we can approximate both (a) total net benefit or cost and (b) a return-on-investment (ROI) ratio:
ROI = Benefits / Contributions
Direct Benefits to the U.S.
Arms Sales and Industrial Stimulus
FMF “Boomerang”: Because ~80% of FMF if already obligated to U.S. plants, the ledger counts only the net ~$0.7B outflow; most of the grant boomerangs back as F-35I airframes and JDAM kits.
Typical Annual Figure: Of the $3.3 bn in FMF, around $2.6–2.8 bn is spent on American platforms and spare parts.
Profit Margins: Defense contractors (e.g., Boeing, Lockheed Martin, RTX) often earn 10–15% profit on these deals.
Jobs: Estimates vary, but GAO and industry analyses often cite 15,000–20,000 defense-industry jobs tied (directly or indirectly) to Israeli procurement.
Non-FMF Purchases: Israel also buys additional weaponry beyond the MOU allocations (e.g., big “cash” deals for specialized arms). These create extra revenue streams for U.S. firms.
R&D Collaborations and Technology “Spin-Ins”
Missile-Defense Co-Development: U.S. funding of Iron Dome, David’s Sling, and Arrow programs includes design input from American engineers—yielding partial U.S. intellectual property (IP) rights.
Commercial Spinoffs: Some radar or interception technologies eventually feed into U.S. Army systems (e.g., Iron Dome batteries tested for Guam).
Trophy APS (Active Protection System): An Israeli-developed system that the U.S. tested and integrated on M1 Abrams tanks.
Binational R&D (BIRD/BARD): Joint ventures in robotics, cybersecurity, medical devices, etc. Since 1977, BIRD alone has generated $10+ billion in commercial revenues across various U.S. and Israeli startups.
Intelligence & Real-World Battle Testing
High-Value Intelligence: Israeli SIGINT (Unit 8200) has provided tips foiling terror plots (e.g., 2017 ISIS attempt in Australia). U.S. officials often equate such intel to a “priceless resource” or put a multi-hundred-million-dollar “replacement value” on them annually.
Soviet/Eastern Bloc Hardware Insights: In earlier decades (1967–73), captured Soviet-made MiGs and missile systems were shared with the U.S., giving American engineers and pilots valuable data.
Combat Data: Live testing of American-made munitions and interceptors in Israel’s frequent conflicts yields performance metrics under real combat conditions. The Pentagon leverages these lessons to improve U.S. systems.
Forward-Deployment Advantages
War Reserve Stockpile (WRSA-I): Let’s CENTCOM draw on a ~$1B munitions cache without a trans-Atlantic airlift.
Regional Footprint: Israel occasionally permits certain U.S. training and exercise needs—less than a full base, but helpful for airborne or missile-defensive drills.
Indirect (Intangible) Benefits for the U.S.
Geostrategic Leverage & Cold-War Legacy
Cold-War Containment: Historically, Israel served as an outpost against Soviet penetration in the Middle East. That rationale shifted but never fully disappeared; now it’s about checking Iranian and Russian interests in the region.
Technology Leadership: Israel is a top-tier cybersecurity and drone-technology hub. By aligning with Israel, the U.S. gains first look at emergent dual-use tech that might otherwise go to Russia or China.
Domestic Political Support
Evangelical and Pro-Israel Advocacy: Significant blocs of voters and major donors in the U.S. strongly back the alliance. Maintaining the relationship can translate into political capital for members of Congress.
Moral and Cultural Narratives: Many Americans historically see Israel as a “democracy in a hostile region,” which resonates with U.S. ideological values.
Direct Costs for the U.S.
Actual Net Budget Outlays
Headline vs. Net: While $3.8 bn/year is the public figure, the “real” net transfer is more like $0.8–1.0 bn once you subtract the part that flows back to U.S. contractors.
Breakdown:
$3.3 bn FMF → 80–100% spent on U.S. kit. ~$0.6–0.7 bn remains a net outflow.
$0.5 bn missile-defense R&D → roughly half is co-produced in the U.S.; another chunk funds Israeli prototypes, so net outflow might be ~$150–200 million.
Extra overhead (U.S. diplomatic “veto capital,” administrative costs, etc.) adds $100–200 million.
Result: Each year, taxpayers effectively subsidize around $1 bn in real terms.
Congressional Supplements & Crisis Support
Supplementals: In wartime (Lebanon, Gaza, or 2023–25 crises), Congress sometimes approves add-ons—e.g., an extra $1–2 bn to replenish Iron Dome interceptors.
Emergency Shipments from WRSA-I: The munitions themselves belong to the U.S. until transferred; that triggers procurement costs to replace them.
Indirect (Intangible) Costs for the U.S.
Diplomatic & Reputational Drag
UN Vetoes: The U.S. has vetoed 35+ Security Council resolutions on Israel/Palestine since 1972. Each veto can drain U.S. leverage on other global issues (negotiating votes with allies, forging coalitions, etc.).
Arab & Muslim Public Opinion: Surveys routinely show strong majorities in the Middle East see the U.S. as biased toward Israel, complicating U.S. partnerships (e.g., in Iraq, the Gulf, North Africa).
Blowback & Regional Entanglement
1973 OPEC Embargo: The benchmark case of aid-related blowback. Triggered by the U.S. airlift to Israel; contributed to quadrupled oil prices, energy crises, and longer-term stagflation.
Post-9/11 Militant Grievances: Al-Qaeda, ISIS propaganda frequently cites U.S. support for Israel as proof of “Western crusader” hostility.
2023–25 Red Sea Crisis: Houthi attacks on shipping—explicitly referencing U.S. backing of Israel’s Gaza operations—have forced the Navy to mount multi-billion-dollar convoy operations and missile interceptions. Shipping insurance and freight rates soared; the IMF calculates a 0.1%-0.2% bump in U.S. inflation if the conflict persists.
Domestic Political Polarization
Increasing Criticism: Pew polls show more than half of Americans (especially younger cohorts) now hold unfavorable views of Israel’s policies, fueling calls for conditionality on aid.
Opportunity Costs: Congressional time and political capital spent defending unconditional aid can clash with other legislative priorities, especially in crisis years.
U.S. ROI Calculations: Israel Alliance
Included below is a simplified breakdown for a “typical” non-crisis year (e.g., 2018 or 2022), vs. a high-blowback crisis year (e.g., 1973 or 2024):
Steady-State ROI: Benefits ≈ $4-5B total / Costs ≈ $2-3B total = 1.5–2.5:1. Can appear quite favorable on paper.
Crisis-Year ROI: Benefits ≈ $4-5B / Costs ≈ $6-17B. (Potential Negative: blowback surges can erase or exceed the gains.)
Long-Historical View (1948–2025)
In many modelings, the U.S. likely nets a positive sum over the entire period — on the order of tens or hundreds of billions — unless you weight the 1970s oil shock and recurring Red Sea–type episodes very heavily.
Even in a “best-case” approach, the U.S. margin is modest compared to Israel’s massive net gain.
Overall Assessment of the U.S. Ledger
In Most Peacetime Years
The U.S. sees a decent ROI (2:1 or 3:1) because the net financial outlay is small (much “aid” boomerangs to U.S. industry), and the intelligence + R&D benefits are tangible.
Politically, the alliance has historically been popular enough, so domestic costs are limited to moderate diplomatic friction.
In Crisis Years
Oil embargoes, terror backlashes, or shipping disruptions can impose large second-order costs on the U.S. economy and foreign policy.
Over multiple decades, these “spike” events can significantly reduce—or even negate—the overall net surplus.
Why the U.S. Stays Committed
Absolute Scale: $1 bn net outflow is minuscule against an $800+ bn defense budget or $30+ trillion economy.
Security & Tech Gains: Hard to replicate cheaply elsewhere.
Domestic Political Constituencies: Backed by durable evangelical and AIPAC clout, Congress keeps the aid line intact.
Implications for Rebalancing
If policymakers want to sustain a positive ROI even in crisis years, they may push for partial cost-sharing (e.g., Israel co-funding War-Reserve Stockpile), or condition slices of FMF on humanitarian compliance to reduce blowback.
Takeaways:
Regular Years: U.S. typically earns a net benefit from the relationship, thanks to arms-sales revenue, job creation, intelligence, and R&D.
Crisis Spikes: Large events (1973 oil embargo, 2023–25 Red Sea war) can impose multi-billion-dollar indirect costs, risking an overall negative ROI in those specific periods.
Long-Term Net: Likely still positive for the U.S. over 77+ years, but far less lucrative than it is for Israel. The mismatch is most apparent in ROI terms and in blowback externalities that disproportionately affect U.S. power projection.
IV.) Quantifying the Net Benefits for Israel
This section aims to quantify the net benefits for Israel derived from maintaining an alliance with the United States. It focuses on what Israel contributes (directly & indirectly), what it costs them (directly & indirectly), and the net benefit.
Israel’s Costs vs. Benefits
From Israel’s standpoint, the U.S. alliance is indispensable. Although it does come with certain strings and alignment pressures, the payoff—financial, strategic, and diplomatic—is huge.
We can categorize Israel’s inputs and outputs similarly to the U.S. ledger:
Israel’s “Contributions” (Direct & Indirect):
Intelligence sharing (especially Unit 8200).
Policy alignment with U.S. preferences (e.g., limiting major arms sales to China).
Tolerating (to some extent) U.S. oversight on how American-supplied weapons are used.
Occasional co-development costs (e.g., Israeli R&D investment on missile-defense prototypes).
Israel’s Gains:
Annual military aid and R&D funds.
Preferential access to cutting-edge U.S. weaponry (Qualitative Military Edge, or “QME”).
Diplomatic cover (U.N. Security Council vetoes, “Great Power” shield).
Broad recognition and legitimacy that come from U.S. support.
Improved economic integration (free-trade agreement, venture capital inflows).
Because of Israel’s relatively small GDP compared to the United States, these gains have an outsized impact on its economy and security posture.
Direct Benefits to Israel
The $3.8 Billion Aid Package
Core FMF (Foreign Military Financing): $3.3 bn/year. ~80–100% eventually pays for U.S.-manufactured arms, but Israel receives them effectively without major budget strain—it’s “free” in net terms from Israel’s budget perspective.
Missile-Defense R&D: An additional $500 m/year that boosts Arrow, David’s Sling, and Iron Dome. This effectively subsidizes Israel’s development costs for systems that it can operationalize first and sometimes market abroad (with U.S. permission or co-production agreements).
Supplementals: In conflict scenarios (e.g., Gaza operations), Congress often adds extra allocations for replenishing Iron Dome interceptors or advanced munitions.
Net Impact: These sources provide a vital percentage of Israel’s annual defense expenditures—some estimates put it at 15–20% of Israel’s defense budget underwritten by the U.S.
Discounted Procurement and Priority Access
“Qualitative Military Edge” (QME): By law, the U.S. ensures Israel can buy advanced technologies before or in greater quantity than its neighbors.
Discounted Pricing on Some Platforms: Israel often negotiates FMS (Foreign Military Sales) prices at or near the lower bound, saving hundreds of millions compared to standard export customers.
Faster Delivery Slots: Israel can sometimes jump the queue for high-demand items (e.g., F-35 production slots), accelerating its force modernization.
Diplomatic & Political Shield
U.N. Security Council Vetoes: U.S. vetoes or threats of veto often block resolutions that could impose sanctions or international legal proceedings on Israel.
Strategic Umbrella: While not a formal defense treaty, Washington’s strong declarative commitment to Israel’s security deters various actors (e.g., Iranian proxies, Syrian forces) from escalatory moves.
Free Trade Agreement (1985): Boosts Israeli exports to the U.S. and encourages bilateral investments, helping Israel’s hi-tech sector flourish.
Indirect (Intangible) Benefits to Israel
Global Legitimacy and Alliance Network
International Perception: Being a key ally of the world’s foremost superpower underscores Israel’s political legitimacy, making it less of an isolated state.
Expanding Arab Ties (Abraham Accords): The U.S. push for broader peace deals (UAE, Bahrain, Morocco) rests partly on Washington’s readiness to support Israel militarily, thus reducing Arab states’ security concerns.
Technological “Echo Chamber”
R&D Synergy: Continuing BIRD grants launched in the 1990s now channel dual-use R&D: cyber, sensors, drones — into both Tel-Aviv and Silicon Valley.
Civilian Tech Spillover: Military innovations in cybersecurity, sensors, and drones quickly migrate to Israel’s startup ecosystem, fueling the country’s robust innovation economy.
Reduced Risk of International Sanctions
U.S. Veto = Political Insurance: Israel faces numerous U.N. resolutions on settlement expansions, potential war-crimes investigations, etc. Without U.S. backing, it might have encountered economic sanctions or more stringent international isolation.
Israel’s Contributions (“Costs”)
Despite how it may appear, Israel doesn’t get a free pass on everything. Some intangible and tangible “costs” or constraints exist.
Intelligence Sharing
Unit 8200 devotes resources to gather and share data relevant to U.S. interests (e.g., terror plots, Syrian or Iranian intel).
However, Israel would likely collect much of this intel anyway for its own security, so the “cost” is relatively small in net terms.
Policy Alignment
The U.S. sometimes exerts pressure on Israel not to sell advanced arms to certain countries (notably China).
Israel must consider U.S. reaction before major military operations (though historically, the U.S. rarely halts aid in protest).
End-Use Monitoring & Potential Constraints
Israel is supposed to abide by U.S. end-use requirements for American-made weapons. In practice, oversight can be loose, but Israel does occasionally face U.S. caution (e.g., restricting certain types of cluster munitions).
Opportunity Cost of Reliance
Israel’s own defense industry is robust but still shaped by the “must-buy-American” rule for much of the MOU.
This can crowd out purely local R&D or lead to over-reliance on U.S. supply chains in certain niches.
Relative Scale: These “costs” for Israel are modest compared to the deep monetary and strategic value it receives annually.
Estimating Israel’s ROI
Monetary Valuation
Annual Inflows:
$3.3 bn in FMF + $0.5 bn in missile-defense R&D = $3.8B.
Plus indirect “discount” on arms pricing (often valued at $1B or more) and the deterrence factor of a superpower alliance.
U.N. Veto Cover: Hard to price, but experts sometimes equate blocked sanctions with saving billions in lost trade, aid, or potential boycotts.
War-Reserve Stockpile Access: Potentially $1 bn+ worth of munitions available on short notice.
Conservatively, many analyses peg Israel’s “annual benefit” at $7–8B (even though only $3.8B is the direct check from the MOU), because the intangible elements (diplomatic shield, deterrent effect, discounted arms) roughly double the face value of aid.
Israel’s Inputs
Annual “Cost”: Intelligence sharing, compliance with U.S. end-use rules, partial local R&D matching, plus any policy constraints—often estimated at $0.3–0.5B “in-kind” or opportunity cost. This figure is tiny relative to the billions in aid and benefits.
ROI Ratio
By dividing the total benefits ($7–8B or more) by the contributions ($0.3–$0.5B), we get:
Over the full historical period (1948–2025), the cumulative ROI for Israel is typically 20-30:1 — enormously higher than the U.S. ratio.
Strategic Benefit of U.S. Support for Israel
Existential Security Guarantee: From Israel’s perspective, having near-automatic U.S. backing in every major conflict is arguably the linchpin of its national security. The IDF’s qualitative edge depends on consistent technology inflows.
Nuclear Opacity & Non-Proliferation Calculus: Israel’s undeclared nuclear arsenal is tolerated by Washington, partly because of the alliance’s stability. Without U.S. cover, Israel might face greater pressure to disarm or be forced into more overt deterrence postures.
Economic Confidence & Global Market Access: International investors see U.S. support as a de facto guarantee that Israel will remain secure, boosting foreign direct investment (FDI) in high-tech and real estate.
Potential Downsides for Israel
Perceived Dependency: Over-reliance on U.S. funding may hinder long-term defense-sector self-sufficiency. In crises where U.S. conditions might suddenly tighten, Israel’s room for independent action could be constrained.
Conditionality Threat: Growing voices in the U.S. call for tying FMF to humanitarian metrics or a freeze on West Bank settlement expansions. This could put political strains on future Israeli governments.
Limitations on Arms Exports: Israel’s profitable military export market (e.g., UAVs, missile tech) sometimes collides with U.S. export-controls (e.g., China, certain African states). Complying with U.S. restrictions can limit Israel’s arms-sales revenue.
Risk of Shifting U.S. Public Opinion: A scenario in which U.S. domestic polarization deepens could eventually reduce unconditional Congressional support, threatening the lion’s share of Israel’s defense budget supplementation.
Overall Assessment of Israel’s Gains
Net Advantage: Unquestionably massive. Even the intangible factors—U.N. vetoes, great-power umbrella—magnify the face-value $3.8B figure.
Historical ROI: Approaching 20–30:1 over the decades, far surpassing the U.S. ROI, which might top out at 2–3:1 in typical peacetime years and can dip below 1:1 in crisis years.
Crucial Lifeline: From Israel’s perspective, the alliance has always been more than a net “plus”—it has been foundational to national survival and regional security dominance.
Takeaways:
Israel’s Benefits: Dwarf its contributions by a factor of at least 15–25:1, illustrating how central U.S. aid is to Israel’s defense posture and international standing.
Contributions: Like intel sharing, policy alignment do exist but are comparatively minimal in cost relative to the billions in military and diplomatic value gained.
Future Risks: Center on conditionality and the possibility that a shift in U.S. public sentiment could require Israel to concede more or pay back a portion of what has historically been near-unconditional support.
V.) Adjusting for Country Size & GDP: Israel vs. U.S. ROI Benefits
When analyzing the U.S.-Israel alliance, many don’t care about adjusting for specific variables like economy, population size, etc. — they just want to know whether the U.S. is contributing more than it gains from the relationship… that’s one way to look at it.
Others want to know who gains more from the relationship after adjusting for underlying capability. For example, we know that the U.S. is a larger country with a more potent economy… but we can adjust for Israel’s capability relative to their economy and population size and determine if the U.S. should demand more from them.
“Capability-Weighted ROI”
We want to avoid the simple pitfall of saying, “The U.S. invests $2B, Israel invests $0.4B — Israel invests less,” because Israel is far smaller. So we do:
Capability Metric: We’ll use GDP for each country (though you could also fold in population or other factors).
Relative Contribution = Net Contribution (Cost) / GDP.
Relative Benefit = Net Benefit / GDP.
Capability-Weighted ROI = Relative Benefit / Relative Contribution.
This effectively asks: “How big is the gain as a share of your economy, divided by how big is the cost as a share of your economy?”
That ratio is a fair gauge of whether the alliance is a bigger “win” for the smaller partner or the larger partner, once we scale for ability.
Estimating Each Side’s “Net Cost” vs. “Net Benefit”
Below is a typical-year (i.e., not a full-blown crisis) scenario. The numbers are approximate but reflect widely cited analyses.
United States
GDP: ~$30 trillion
Net Contribution (Cost)
Real Out-of-Pocket Aid: $1B (since most of the $3.8B recycles to U.S. factories).
Opportunity / Blowback Overhead: $1B for modest diplomatic overhead, partial Mideast force posture, etc.
Total: $2B
Net Benefit
Arms-Sales Profits & R&D Gains: $2–$3B value.
Intel: Possibly $0.2–$0.3B “replacement value.”
Strategic / Stockpile: Another $0.2–$0.3B intangible.
Total: $3–$4B (midpoint: $3.5B).
Israel
GDP: ~$550B
Net Contribution (Cost)
Intel-Sharing & Local R&D: Some say $0.3B
Export / Policy Constraints: Could add $0.1–$0.2B more.
Total: ~$0.4B
Net Benefit
$3.8B “Headline Aid” (FMF + missile-defense).
U.S. Veto Shield, Discounted Arms: Often valued at an extra $3–$4B in intangible/deterrence.
Total: $7–$8B (midpoint: $7.5B).
Relative Contributions vs. Relative Benefits: Who gets the better deal?
Israel invests a bigger slice of its smaller economy (0.073% vs. the U.S. 0.0067%), so you might say, “Israel can’t ‘afford’ huge contributions.”
Even so, the benefit for Israel dwarfs that extra fractional investment — 1.36% of GDP is 18× bigger than 0.073%, whereas for the U.S. it’s only a 1.75× multiple.
Israel invests 11× as large a fraction of its economy (0.073% vs. 0.0067%) but gets 116× as large a fraction of payoff (1.36% vs. 0.0117%), leading to a ~19:1 ROI, which far exceeds America’s ~1.75:1.
Even after you factor in that Israel “has less to give,” it’s still true that the arrangement is far more profitable for Israel’s economy than it is for America’s, proportionally speaking.
Why?
Israel’s Gains are “existential” and massive relative to a $550B economy. $7.5B in annual net value amounts to about 1.36% of GDP—very large for national defense/spending.
U.S. Gains (1.75:1 ratio) are still a net positive, but on a $30 trillion GDP base, the 0.01–0.02% bump is modest. That’s one reason Congress has historically tolerated it: it’s tiny in absolute impact on the broader American economy.
United States
Relative Contribution = $2B / $30,000B GDP = 0.0067%
Relative Benefit = $3.5B benefit / $30,000B GDP = 0.0117%
Capability-Weighted ROI = 0.0117% / 0.0067% = 1.75 to 1.
(Interpretation: The U.S. invests about 0.0067% of its entire economy and gets back about 0.0117% in strategic/economic returns. That’s a ratio of ~1.75:1.)
Israel
Relative Contribution = $0.4B / $550B GDP = 0.073%
Relative Benefit = $7.5B benefit / $550B GDP = 1.36%
Capability-Weighted ROI = 1.36% / 0.073% = 18.6 to 1.
(Interpretation: Israel invests about 0.07% of its entire economy—far more per unit GDP than the U.S.—but gains 1.36% of its GDP in total benefits, giving it a ratio near 19:1.)
Is It “Unfair?”
Both Sides = “Winners”: The U.S. invests a tiny share of its vast GDP, gets a mild but positive return. Israel invests a somewhat bigger share of its modest GDP, gets a huge return.
Israel’s ROI is ~19:1, whereas America’s is ~1.75:1. A difference of about 10–11×.
Fairness is subjective. Numerically, once you “level the playing field” for the fact that Israel is smaller and less capable, Israel still emerges with a far higher “bang for each unit of GDP” it contributes.
From a vantage of “Should the ROI be equal for it to be fair?” The answer is:
It’s not equal; it’s extremely skewed in Israel’s favor. But from the vantage of “The U.S. invests a trivial fraction of its capacity and still gets some benefit,” it may still be tolerable, though many critics see that gap as reason to rebalance.
Bottom-Line:
After controlling for each side’s underlying economic ability (GDP), Israel’s ratio of benefit to cost is about 19:1, whereas the U.S.’s ratio is about 1.75:1.
Hence: Even acknowledging that Israel “can’t afford” to invest as many absolute dollars as the U.S., it still ends up reaping a far higher reward proportionally.
Outcome: The relationship remains a net positive for both, but numerically it’s far more profitable for Israel, even after factoring in its smaller economy and more limited capabilities.
VI.) Counterfactuals: What if the U.S. Never Allied Closely with Israel?
Analyzing “what could have been” helps isolate the unique costs and benefits the U.S.–Israel alliance brings. By comparing alternative policy paths, we see if the U.S. might have done better or worse economically, diplomatically, or strategically had it not embraced Israel so strongly—especially during pivotal moments like the 1973 Yom Kippur War or the 2023–25 Gaza conflict.
Historical Periods Where Alternatives Might Have Emerged
Post-1948 Recognition: The Truman administration could have maintained strict neutrality, offering minimal assistance to Israel and courting Arab states for oil security and anti-communist alliances.
1967/1973 Wars: Instead of airlifting supplies to Israel in 1973, Washington could have withheld direct intervention, potentially avoiding the ensuing oil embargo. Alternatively, the U.S. might have tried to play “peace broker” without choosing sides, or could have demanded heavier conditions for aid.
Cold-War Realignment: The U.S. might have relied more on Iran (pre-1979 Revolution), Saudi Arabia, and Turkey for regional containment of the Soviet Union. Israel could have ended up closer to France, the UK, or even forging ad-hoc partnerships with China.
End of Cold War (1991): With the Soviet collapse, the U.S. might have declared “mission accomplished” on the strategic logic of backing Israel and dramatically scaled back aid.
Post-9/11 “War on Terror”: Washington could have minimized the Israeli dimension—attempting to distance itself from the Israeli-Palestinian issue to reduce al-Qaeda/ISIS grievances.
Potential Advantages for the U.S. in a “No-Alliance” (or Less Allied) World
Less Blowback, Lower “Security Tax”: The 1973 oil embargo might have been shorter or less severe if the U.S. did not openly resupply Israel. Energy costs could have stayed lower, mitigating the 1970s stagflation. Groups like Hamas, Hezbollah, or Iranian proxies might be less motivated to target U.S. forces if Washington maintained neutrality.
Reduced Diplomatic Friction: The U.S. would likely cast fewer U.N. vetoes, preserving political capital for other global negotiations. Potentially smoother relations with Arab League states, maybe quicker trade or security pacts with Gulf monarchies.
Budgetary Savings: Absent the multi-billion-dollar aid package, the U.S. Treasury would have more fiscal room—though in practice, such savings might have been reallocated to other global commitments.
No Inherited Technology Constraints: The U.S. might focus more on homegrown or NATO-partnered missile defenses rather than co-developing with Israel. Possibly fewer export-control headaches over Israeli arms sales to China or other contested markets.
Potential Drawbacks or Costs for the U.S. in a “No-Alliance” World
Lost Arms Sales & R&D Opportunities: Israel is a major purchaser of U.S. aircraft, missiles, and defense components. Without that relationship, U.S. defense firms could lose billions in revenue, and thousands of jobs might vanish or shift. Co-developed technologies (Iron Dome, Trophy APS) might not exist in their current, mature forms—or would cost the U.S. more to develop independently.
Weakened Middle East Leverage: A non-aligned or Soviet-aligned Israel (especially in earlier decades) could have complicated U.S. strategies in the region. The U.S. might have had to compensate by pouring more resources into Iran, Turkey, or Gulf states. Israel’s high-end intelligence on regional terror networks, and historical Soviet hardware, would have been off-limits or less accessible.
Cold-War Domino Effects: Without strong U.S. support, Israel might have turned elsewhere—e.g., deeper French alliance, or in an extreme scenario, dealing with the Soviet bloc if Western backing was too weak. That would have forced the U.S. to redouble efforts (and expenditures) in neighboring states.
Non-Proliferation Instability: Lacking American “cover,” Israel might have brandished its undeclared nuclear arsenal more openly—potentially provoking Arab states to escalate their own nuclear programs faster. The U.S. would then face a more volatile proliferation landscape.
Domestic Political Dynamics: Over the decades, pro-Israel sentiment has been politically significant in the U.S. Congress and among key donor constituencies. A “hands-off” stance might create internal political rifts or lead to other forms of domestic dispute over foreign policy priorities.
Post-2025 Hypotheticals: If the Alliance Erodes
Alternatives for Israel: Israel could deepen ties with emerging powers (China, India), or pivot more toward Europe for weapons and diplomatic cover. This might free it from some U.S. restrictions but reduce automatic U.N. vetoes. Risk: A more self-reliant Israeli defense posture could accelerate arms exports to recoup costs, possibly clashing with U.S. strategic interests (e.g., advanced drones sold to countries under U.S. sanctions).
New Middle Eastern Alignments: Saudi Arabia might come to see the U.S. as less reliable—accelerating the Kingdom’s own pivot to China or Russia for arms. Gulf states might fill the vacuum and attempt to coordinate a defense bloc with or against Iran, minus an overt American or Israeli axis.
U.S. Focus on Asia-Pacific: Freed from some Middle East entanglements, the U.S. might devote more bandwidth to confronting China in the Indo-Pacific. But it would lose the “test-bed” advantage of Israeli battle labs and the intelligence synergy in dealing with Iran-backed militias.
Likely Net Assessment of the “No-Alliance” Scenario
Financially: The U.S. might save about $1B in real net outflow yearly and avoid some blowback costs tied specifically to Israel. But it would lose billions in arms-sales profits, technology co-development, and strategic intelligence. Over 70+ years, the “lost arms market” plus the cost of alternative ways to maintain regional influence would probably neutralize much of that “saved” aid.
Strategically: Washington would face pressure to expand or create new bases/bilateral pacts with other Middle East players (Saudi Arabia, Jordan, etc.), each with its own costs and controversies. The region might be less stable if Israel felt more threatened and acted unilaterally (including potential nuclear brinkmanship).
Global Perception: The U.S. could dodge some accusations of bias and reduce certain anti-U.S. sentiments. However, the animus from extremist groups partially also derives from U.S. presence in Gulf states (Saudi, Bahrain) and broader foreign policy—so not all blowback disappears.
Realistically:
In absolute dollar terms, the U.S. might or might not come out ahead, depending on how one values the intangible security benefits vs. intangible blowback.
Politically and strategically, a strong case exists that the U.S. would likely have replaced the Israeli partnership with equally expensive or complex relationships (e.g., with Arab states, Turkey, or post-1979 Iran had it remained an ally).
Israel, on the other hand, gains far more from the alliance than any plausible alternative could offer—meaning it would likely have struggled to secure an equivalent level of diplomatic cover and military hardware had the U.S. not stepped in.
Takeaways:
Trade-Offs are Unavoidable: Shifting alliances would not eliminate blowback or costs; they would redistribute them differently among other regional partners.
“Hypothetical Neutrality” is a Challenge: The Middle East’s history suggests that any superpower eventually picks sides to protect economic (oil, shipping lanes) or security interests.
Net “Wash” for the U.S. in Many Models: The positives lost (arms sales, advanced R&D, a forward outpost) might match or exceed the blowback savings.
Existential for Israel: Alternative patrons like the USSR, France, or China would never have provided the same depth and consistency of support that the U.S. did from the 1970s onward.
VII.) U.S. Aid to Israel: Potential Rebalancing Strategies & Modifications
Israel clearly reaps a disproportionate magnitude of benefit from its alliance with the U.S. Even after controlling for underlying capabilities (economy, population size, etc.) — Israel gains far more than the U.S.
Why Consider Rebalancing?
As our calculations revealed, the U.S. typically reaps modest net benefit from the alliance, but Israel benefits by a factor of 15–25:1 relative to its “inputs.”
In normal years, that asymmetry might be tolerable because the net out-of-pocket cost to the U.S. is comparatively small.
However, several trends now make rebalancing more urgent:
Growing Domestic Criticism in the U.S.: Polling indicates younger Americans are skeptical of unconditional support for Israel, especially during repeated Gaza conflicts. A bipartisan push (albeit more pronounced on the left) calls for tying military aid to humanitarian or diplomatic benchmarks.
Spike in Blowback Costs: The 2023–25 Red Sea crisis demonstrates how quickly blowback expenses (naval escorts, shipping detours) can dwarf the usual industrial gains from arms sales. If the U.S. can reduce the perceived cause of blowback (e.g., unconditional backing for high-civilian-casualty campaigns), it might avoid crisis-mode costs.
Perception of “Blank Check”: Critics argue the unconditional nature of the MOU emboldens certain Israeli policies (settlement expansion, more frequent Gaza operations) that, in turn, feed into blowback. A small portion of withheld or conditional funding could act as leverage to encourage restraint—or at least to protect the U.S. diplomatically.
Historical Precedent for Conditional Aid: The U.S. has tied conditions to aid with other partners (e.g., Egypt, Pakistan). While the politics differ, it shows that “rebalancing” is not without precedent.
Potential Adjustments to Aid Structures
Listed below are key proposals often discussed by policymakers, analysts, and academics to make the U.S.–Israel arrangement more balanced without dismantling the alliance.
A.) Converting a Slice of Grants into Repayable Credits
Instead of giving 100% of the $3.3 bn FMF as grants, convert 15–20% into zero-interest loans, repayable starting 10 years later.
Why?
Reduces the immediate net outflow for U.S. taxpayers by several hundred million dollars a year.
Maintains Israel’s ability to purchase U.S. equipment (the credit is still earmarked for U.S. defense goods).
Delays repayment until Israel’s GDP has grown further, easing short-term stress on the Israeli defense budget.
Precedent: The U.S. has extended similar loan guarantees and partial-financing deals to allies like Taiwan, Poland, and Egypt in the past.
B.) Accelerating the “100% Buy-American” Rule & Earmarking for SMEs
Fast-track the existing MOU’s plan so that 100% of FMF must be spent in the U.S. by, say, FY2026 (instead of FY2028). Also, earmark a portion (e.g., 10%) specifically for small/medium-sized American defense suppliers.
Why? Maximizes the “boomerang” effect for U.S. manufacturers, increasing the number of local Congressional districts that see direct benefits. Helps lock in broader political support by spreading out subcontracts beyond the major primes (Boeing, Lockheed, etc.).
Impact on Israel: Israel already phasing out offshore procurement, so this speeds up an existing process. Might reduce domestic Israeli defense-industry jobs, but the IDF still gets advanced U.S. platforms.
C.) Tying Aid to Clear Humanitarian or Settlement Benchmarks
Embed an automatic 5% annual “haircut” if independent monitors find that IDF operations in the West Bank/Gaza exceed civilian-harm thresholds, or if settlement construction surpasses a set baseline.
Why? Addresses the reputational cost that triggers blowback from regional militias or global protests. Imposes a predictable, rule-based mechanism that doesn’t rely on messy, last-minute political showdowns in Congress.
Feasibility: Politically sensitive, but growing U.S. debate suggests partial conditionality is no longer off the table. Israel might resist, yet might also prefer a codified formula over sudden, politicized aid freezes.
D.) Joint “Security of Sea-Lanes Fund” with Pre-Payments from Israel
A new pool of money earmarked for Red Sea / Persian Gulf protection. Israel contributes a set percentage (e.g., 10%) of each large arms deal into this fund to help finance future U.S. naval convoy missions.
Why? Directly offsets the blowback costs that arise when U.S. carriers and destroyers deploy to protect shipping after pro-Israel operations anger hostile groups. Shared financial responsibility aligns with the notion that both sides benefit from secure maritime routes.
Impact: Israel pays upfront, but in return, it ensures the U.S. will maintain robust freedom-of-navigation operations that also protect Israeli-bound shipping.
E.) Cost-Sharing for the War-Reserve Stockpile (WRSA-I)
Require Israel to shoulder, say, 50% of the annual storage and maintenance costs for U.S. munitions pre-positioned on Israeli territory.
Why? Israel gains a real benefit—emergency access to U.S. ammo. Sharing upkeep signals “skin in the game.” Saves the Pentagon $100–150 million per year, which can be reallocated to other priorities.
Precedent: Allied host-nation support in places like Japan or South Korea, where local governments share base costs.
F.) Additional Measures Israel Could Afford, Given Its High ROI
Israel invests about 0.07% of its GDP ($400 million) in intangible or direct “costs” (intel sharing, partial constraints on arms exports), but reaps ~1.36% of GDP ($7.5 billion) in benefits—a 19:1 ratio.
Doubling its contribution to 0.14% of GDP ($800 million) would still leave Israel’s net benefit above 1% of GDP—i.e., it might drop from 19:1 to maybe 12–15:1, which is still extremely advantageous.
Practical Examples:
Paying More into WRSA-I: Beyond 50% cost-sharing, Israel could also fund periodic stock replenishments.
Partial Loan Conversions: Israel might proactively accept a bigger slice (say 25%) as repayable credits, reducing the U.S. annual cost.
Maritime & Red Sea Patrols: Israel contributes $150–$200 million annually to offset blowback-driven naval deployments.
Expanded R&D Partnerships with Greater U.S. IP Benefit: Israel could grant the U.S. a larger share of export licensing fees or technology spinoffs from jointly funded programs.
Would These Measures Hurt Israel “Significantly”?
Probably not. Even an extra $200 million here or $100 million there is <0.1% of Israel’s $550B GDP. Its ROI might drop slightly from 19:1 to 15:1 — still enviably high.
The biggest obstacle is political: Israel worries that once it concedes additional cost-sharing, the U.S. might attach further strings (e.g., settlement constraints, IHL compliance triggers), or that domestic constituencies will protest any “voluntary giveaways.”
Projected Outcomes of Rebalancing Measures
Improved U.S. ROI in Crisis Years: If some portion of the net outflow is replaced by repayable credits or if blowback triggers partial cost-shares, the U.S. can avoid going “negative” in years like 1973 or 2023–25.
Maintenance of Israel’s QME: None of these proposals eliminate the baseline $3.3B or hamper co-production of missile defenses; Israel still retains advanced U.S. weaponry and a superpower deterrent guarantee.
Domestic Political Benefits: (A) U.S. Lawmakers: More visible job creation in their districts (100% “buy-American” rule). Increased accountability on human-rights or humanitarian issues for constituents demanding more oversight. (B) Israeli Leaders: Continued strategic alliance, but with clarity on specific conditions—potentially less prone to abrupt political fights in Congress if a crisis emerges. If Israel voluntarily cost-shares, it might forestall even stricter conditionality.
Reduced Risk of Severe Blowback: Tying a small percentage of aid to civilian-harm standards might reduce the very actions that enrage regional groups, thus lowering the odds of rocket/drone barrages or shipping-lane attacks.
Possible Israeli Objections & U.S. Responses
Objection #1: “Conditional or loan-based aid undermines Israel’s security independence.”
Response: “Israel’s QME is preserved; the overall $3.8 bn figure stays the same. The difference is only partial repayment or compliance triggers that help manage blowback.”
Objection #2: “Co-funding WRSA-I and maritime patrols is an unfair extra burden on Israel.”
Response: “In return, Israel gets guaranteed access to advanced U.S. munitions and shipping protection. Both parties benefit, so cost-sharing is logical — and you can afford it without major harm (less than 0.1% of GDP).”
Objection #3: “Paying more means surrendering leverage if the U.S. later imposes more demands.”
Response: “Voluntary partial cost-sharing could avert a harsher backlash. Proactive steps might be better than forced conditions later.”
Political Feasibility & Timing
Congressional Appetite: Momentum in certain circles (especially among younger Democrats) favors conditionality and cost-sharing. Any major shifts, however, require bipartisan agreement. Defense-industry lobbyists may support faster “buy-American” acceleration but resist moves that shrink total arms purchases.
Israeli Receptiveness: Politically sensitive. If faced with the possibility of an outright cut, many Israeli policymakers might prefer partial reforms. Over time, Israeli leaders may see that small cost-shares and limited conditionality are more stable than risking major backlash in Congress.
MOU Renewal Window: The current 2016 MOU (FY2019–28) ends in 2028, meaning negotiations for the next multi-year package (FY2029–38) will likely begin around 2026–27. This is a prime opportunity to embed rebalancing measures without abruptly reneging on existing commitments.
Beyond Aid: Deeper R&D & Economic Partnerships
Another angle to “rebalance” is to pivot some of the relationship away from pure grants and into co-investment.
Expanded BIRD/BARD Grants: Doubling the budgets for binational R&D in civilian technologies (AI, clean energy, biotech), but requiring a 1:1 Israeli match. Fosters mutual growth while not inflating direct military grants.
Venture Capital Collaboration: Encouraging more cross-border venture funds that invest in U.S. and Israeli start-ups jointly. Leverages Israel’s high-tech ecosystem while directly benefiting U.S. investors and job creation in emerging tech hubs.
Energy Innovation: Joint projects on desalination, battery storage, and solar/hydrogen — areas where Israel is active, but which also matter for U.S. climate goals. Shifts the political narrative from “unconditional military subsidy” to “joint science and technology synergy.”
Estimated Impact of Rebalancing
Economic & Industrial: These measures could save the U.S. anywhere from $500 million to $1+ billion annually in net costs, or at least re-route some of those funds toward advanced R&D with direct U.S. export potential.
Diplomatic & Reputational: Demonstrating that aid has performance-based or humanitarian-based clauses could ease friction with Arab/Muslim-majority states and reassure domestic critics who see the alliance as too unconditional.
Sustainability: By making the alliance less a “blank check” and more about mutual accountability, rebalancing could prolong domestic U.S. political support for Israel through future crises.
Takeaways:
Proposed Tweaks: Partial loans, cost-sharing on stockpiles, tying a modest fraction of funds to humanitarian norms—keep the alliance robust yet better align costs and benefits.
Israel Maintains QME: None of these reforms deny Israel the advanced arms it views as essential for its defense.
Crisis-Resilience: By curbing blowback triggers and distributing more of the financial burden, rebalancing can ensure the U.S. doesn’t see its ROI collapse in future crises.
Israel Can Afford It: Even doubling Israel’s contribution to 0.14% of GDP would drop its ROI only from 19:1 to ~15:1—still extremely advantageous.
Negotiation Window: The next MOU (FY2029–38) is the natural juncture to embed new arrangements that reflect modern realities and political pressures.
Final Take: U.S. & Israel Alliance
Despite the occasional crisis-driven negative ROI for the U.S., the U.S.-Israel bond has endured for over 7 decades — testament to shared strategic interests, overlapping values (though debated), and strong domestic constituencies on both sides.
The alliance still remains a net positive for Washington in long-run averages, albeit much more profitable for Israel.
However, escalating blowback costs and shifting American public opinion mean that fine-tuning the arrangement is both prudent and potentially beneficial for both partners.
Simple reforms — like partial repayable credits, cost-sharing on war stockpiles, and transparent humanitarian benchmarks — could preserve Israel’s security edge while raising or stabilizing the U.S. payoff, making the relationship more resilient and publicly defensible in the decades to come.
I certainly wouldn’t advocate for bailing on our relationship with Israel like extremists on the ends of the political horseshoe (woke left & woke right), but it would be smart to carve out conditions to ensure the U.S. gets a bit more ROI from the alliance.
References:
CRS Reports: U.S. Foreign Aid to Israel
Washington Post: Biden administration blacklists NSO Group over Pegasus spyware
Jewish Policy Center: Testing U.S.-Israel Alliance: Chinese and Haifa's Port
Pew Research Center: US views of Israel and Israel-Hamas war early in Trump’s second term
Common Dreams: ‘Very Bad Sign for Democracy’: AIPAC Has Spent Over $100 Million
MR Online: Trump’s attacks on Yemen will cost U.S. taxpayers billions
UN Press: Wars in Gaza, Ukraine Dominate Security Council’s 2023 Agenda
Federal Reserve History: Oil Shock of 1973–74
Chicago Council on Global Affairs: American Evangelicals’ Unique Support for Israel
Just Security: NSO Group Faces Setbacks in Attempts to Avoid US Lawsuits
Binding Hook: The story behind the uncovering of the Pegasus spyware scandal
Breaking Defense: Israel Rejects US Plan To Inspect Chinese Harbor at Haifa
Reuters: Israel favors upgrading US free-trade deal, economy minister says
U.S. Department of State: 2024 Investment Climate Statements – Israel
Carnegie Endowment for International Peace: The Abraham Accords After Gaza: A Change of Context
Atlantic Council: In a normalization agreement with Israel, Saudi Arabia should settle for nothing less than Palestinian statehood
Center for Arms Control and Non-Proliferation: Israel – Country Profile
Federation of American Scientists: Israel: Background and U.S. Relations
House of Commons Library: UK and international response to Houthis in the Red Sea 2024/25
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The Defense Post: US Says Hit Over 1,000 Targets in Yemen Since Mid-March
Responsible Statecraft: The cost of US fighting Houthis in the Red Sea just went up
The Guardian: UK launches Yemen airstrikes, joining US campaign against Houthi rebels
War on the Rocks: How the Biden Administration Won Tactically but Failed Strategically in the Red Sea
Task & Purpose: Navy fired more air-defense missiles in 15 months than in 30 years
Brown University – Costs of War: United States Spending on Israel’s Military Operations and Related U.S. Operations in the Region, Oct 2023–Sep 2024
Wikipedia: Red Sea crisis
New Zealand Herald: Israel-Hamas war: What to know about US military support for Israel after a year of war
U.S. Army: 94th Army Air and Missile Defense Command Deploys Iron Dome to Guam for Operational Testing
Associated Press: Biden order attaches human-rights conditions to US military aid, easing Democratic rift over Israel
Defense News: Can Biden’s new arms policy lead to real accountability for Israel?
U.S. Department of Defense: Department of Defense Releases the President’s Fiscal Year 2025 Defense Budget
Financial Times: Arab world directs anger at US and the West for Gaza devastation
Arab Center Washington DC: Arab Public Opinion about Israel’s War on Gaza
USAFacts: How much aid does the US give to Israel?
Center for Civilians in Conflict: Law and Policy Guide to US Arms Transfers to Israel