US Aid Shift Threatens Future of ’Israeli’ Military Startups

By Staff, Agencies

Recent changes to how US military aid is structured are expected to significantly impact small and startup military firms in "Israel," particularly those lacking US-based subsidiaries.

These changes come as the current Memorandum of Understanding [MoU], signed in 2016 between then-President Obama and Prime Minister Netanyahu, begins to phase out a key provision that previously allowed "Israeli" military companies to convert a portion of aid into local currency for domestic procurement.

While the MoU guarantees $3.3 billion annually in Foreign Military Financing [FMF], along with $500 million for missile defense cooperation, it also includes a clause that gradually eliminates offshore procurement [OSP]—the mechanism that enabled "Israeli" companies to benefit from US aid without purchasing directly from US suppliers. This clause will reach zero by 2028, effectively forcing all future spending to take place solely with US military contractors.

Large military firms like Elbit Systems, Rafael and “Israel” Aerospace Industries, which operate subsidiaries in the US and employ American workers, are better positioned to adapt. These companies anticipated the gradual drop in OSP and invested early in establishing a US presence. However, smaller companies and military startups in "Israel" now face an uphill battle, as they are unable to compete without the option to use aid money domestically.

According to the Stockholm International Peace Research Institute [SIPRI], the US was the second-largest customer for "Israeli" military exports between 2020 and 2024, accounting for 13% of total sales. The disappearance of the OSP clause and the lack of new reciprocal procurement arrangements threaten to shrink that market share significantly.

The next MoU, which would cover the period from 2028 to 2038, will likely be negotiated with the Trump administration. Early signs from Trump’s return to the White House suggest a less favorable environment. For example, when asked whether he would consider waiving tariffs on "Israeli" goods, Trump responded sarcastically, noting that "Israel" already receives $4 billion a year.

These remarks, coupled with Republican opposition to a recent $14 billion aid package for "Israel"—which was approved only as part of a joint package with Ukraine and Taiwan—raise questions about the political support for future standalone aid agreements.

Dr. Kobby Barda, a political historian and geo-strategy expert, warns that signs are troubling. "Twenty-one Republican members voted against aid to 'Israel,' and that's a red flag," he noted. “The ‘Israel’ brand is no longer as positively viewed by many Americans, and that complicates negotiations.”

Although there have been preliminary contacts between senior US and "Israeli" officials regarding a new MoU, no formal negotiations are underway. Given that past MoUs have taken up to three years to finalize, Barda emphasizes the urgency of beginning discussions now, especially as the Trump administration focuses more on tariffs and less on foreign military support.

The "Israeli" Ministry of Military Affairs assumes the next MoU will likely start with a zero-conversion clause from the outset, effectively cutting small "Israeli" firms off from benefiting directly. While there was hope that wartime urgency might prompt Washington to reconsider, optimism is fading under Trump’s more transactional approach.

Still, there are signs of support. The powerful pro-"Israel" lobby AIPAC is expected to play a major role in ensuring a favorable outcome. Having shifted its strategy to openly fund political candidates, AIPAC achieved a 100% success rate in recent elections by backing 98 Democrats and two Republicans.

In the meantime, the clock is ticking. For a new MoU to be signed in 2026–2027, groundwork needs to be laid now. But experts say no meaningful working groups are currently engaged. If no progress is made, many "Israeli" military companies—especially small innovators—may find themselves excluded from one of their most critical export markets.