Israel

Europe is seeking to strengthen its defence capabilities and reduce its long-standing reliance on the United States. This has encouraged European states to increase defence spending, expand domestic production and diversify their procurement partnerships beyond traditional suppliers. Yet diversification does not necessarily amount to strategic independence. Replacing reliance on one external supplier with reliance on several others may reduce concentration risk without giving European states full control over the technologies on which their defence capabilities depend.   This distinction is becoming increasingly important as modern military systems become more dependent on software, data and interconnected command-and-control architectures. A country may possess the physical hardware of a weapons system while remaining dependent on a foreign supplier for critical software, upgrades, maintenance or technological integration. The question of who controls these underlying technologies can therefore be as important as who manufactures or owns the weapon itself.   The recent Achilles Shield agreement between Greece and Israel provides a useful illustration of this dilemma. The €3 billion agreement will establish a multilayered Greek air and missile defence network incorporating Israeli systems alongside a Greek-controlled command-and-control architecture. However, a dispute over access to the systems' source code has raised questions over the extent of Greece's technological control. The case highlights a broader issue for European defence: can greater diversification deliver genuine independence if critical elements of military capabilities remain technologically dependent on external powers?

In recent years, the Eastern Mediterranean has witnessed growing attention to air defence, maritime security and infrastructure protection. Against this backdrop, on 31 August 2026, Greece and Israel signed an agreement to develop an integrated air and missile defence network, known as ‘Achilles Shield’, at a cost of approximately €3 billion. The project aims to strengthen Greece’s capacity to detect and intercept aerial and missile threats through a unified early warning, command and control system.   The project forms part of the comprehensive modernisation of the Greek armed forces and does not replace Athens’ commitments within the North Atlantic Treaty Organization or its alliances with the United States and the European Union. The decision to establish this system reflects the changing character of regional military threats, particularly the growing reliance on unmanned aircraft and precision missiles, alongside the continuing development of Turkey’s defence industries in reconnaissance and unmanned maritime and aerial systems.   This analysis therefore examines the implications of the Greek–Israeli agreement and its place within military modernisation programmes. It assesses its potential impact on the deterrence balance between Greece and Turkey, as well as its implications for security cooperation and managing regional tensions in the Eastern Mediterranean in the period ahead.

Israel’s 27 October 2026 election is shaping into a contest defined less by a clear ideological choice than by fragmentation, coalition arithmetic, and unresolved national crises. Held in the aftermath of the 7 October 2023 attack, prolonged multi-front conflict, and an unfinished confrontation over the judiciary, the vote will determine not only who governs but also how Israel addresses accountability, military service, state institutions, Gaza’s future, the Palestinian issue, and relations with Washington.   Neither Benjamin Netanyahu’s right-wing bloc nor the opposition led by Gadi Eisenkot appears consistently capable of securing the 61 Knesset seats needed to form a government. The outcome is especially sensitive to smaller parties hovering around the 3.25% electoral threshold: whether these lists enter the Knesset or waste their votes could shift several seats between the rival camps. Arab parties, projected to hold roughly 11–14 seats in several polls, may become decisive coalition actors even as both major blocs remain politically reluctant to openly rely on their support.   Netanyahu’s campaign rests on five interlocking principles: shifting responsibility for 7 October toward the military and intelligence institutions while claiming credit for subsequent security achievements; consolidating right-wing lists to prevent wasted votes; portraying an Arab-supported alternative government as illegitimate; postponing divisive issues such as Haredi conscription and post-war Gaza governance; and turning institutional reforms, media influence, and ties with Washington into electoral assets. The central objective is not necessarily to resolve these contradictions before election day but to keep them from breaking apart his coalition.   Eisenkot’s opposition camp has a credible shared objective—removing Netanyahu and restoring institutional accountability—but remains less unified on the policies that would follow. Its internal divisions are most visible over universal service, religion and state, relations with Haredi parties, the role of Arab parties, and the West Bank. The likely post-election challenge for either side will be translating deliberately vague campaign positions into binding coalition commitments.   The most plausible result is therefore a fragmented Knesset without a stable governing majority. The decisive political struggle may begin after ballots are counted, when both blocs must confront the compromises, they have deferred throughout the campaign.

The Memorandum of Understanding did not constitute a comprehensive or definitive settlement of the nuclear issue. Rather, it served as a temporary truce to freeze military strikes and maritime and nuclear threats, buying time to negotiate a comprehensive agreement that would address the enrichment crisis at its roots. These developments come in the wake of the collapse of the 2015 nuclear agreement following the United States' withdrawal in 2018, which gave Tehran considerable room to expand uranium enrichment, restrict international inspections and accumulate large quantities of uranium enriched to levels approaching those required for the production of a nuclear weapon.   Against this backdrop, the nuclear programme stands out as the Iranian leadership's principal bargaining chip. Although Tehran does not currently possess a nuclear weapon, it has accumulated the technical expertise, established the necessary infrastructure and secured the enriched uranium needed to produce one within a relatively short period should the political decision be taken to do so. This reality underscores that Iran's leverage at the negotiating table is no longer merely theoretical. It is tangible leverage, rooted in Tehran's ability to move rapidly towards weaponisation.   On the operational front, despite US and Israeli strikes targeting nuclear facilities inside Iran, assessments have confirmed only limited damage. Tehran is still strongly believed to retain substantial capacity to continue uranium enrichment. However, experts remain divided over the true extent to which the attacks have set back its nuclear programme. These assessments indicate that military action alone has failed to resolve the nuclear issue, naturally increasing the likelihood of an eventual resumption of negotiations and a return to the diplomatic track.   Against this complex backdrop, a fundamental question remains: will the terms governing the nuclear issue be revised in any future memorandum, or will they remain unchanged from those set out in the "Islamabad Memorandum"? If the parties move towards introducing new amendments, how far can each side go in making concessions to negotiate an end to this chapter?

The geopolitical and security complexities of land borders in the Middle East have created a strategic reality in which Israel effectively functions as an "island economy", despite its physical connection to the continental landmass. This overland isolation has left the Israeli economy with little choice but to rely almost entirely on maritime routes to sustain its trade arteries, secure vital imports and maintain the flow of exports. The sea, therefore, is no longer merely an additional geopolitical and military domain, but has become the lung through which the Israeli economy breathes.   In this context, geography has shifted from a potential defensive shield to a structural vulnerability, with any disruption to freedom of navigation or coastal security posing an existential threat to capital flows and market stability.   This strategic vulnerability is further compounded by the country's demographic and economic geography. The coastal strip constitutes Israel's true centre of gravity, concentrating much of its population, financial centres, logistics infrastructure and principal ports.   This concentration leaves the coastline particularly exposed. Any security disruption in the maritime domain would affect not only shipping, but also the very fabric of everyday life and the core of commercial activity. Non-state armed actors have recognised this dynamic and identified the maritime domain as an opportunity to inflict economic paralysis at extremely low cost, circumventing the need to penetrate Israel's sophisticated air and land defence systems.   The concept of maritime infrastructure is no longer confined to ships and ports, but has expanded to encompass sovereign assets that constitute pillars of contemporary national security. Natural gas fields beneath the Eastern Mediterranean have become a cornerstone of energy independence, with any threat to production platforms or pipelines having immediate repercussions for industrial production costs and electricity grid stability.   In parallel, subsea telecommunications cables have emerged as a lifeline for the digital knowledge economy. The high-tech and financial services sectors depend entirely on these cables' integrity to ensure the global flow of data. Protecting these subsea assets has therefore moved beyond the technical realm to become a core element of the security doctrine aimed at protecting the economy from collapse in times of crisis.   This maritime exposure confronts the military establishment with a dual strategic dilemma: a widening protection gap between the immediate coastline and distant international sea lanes.   At the near-shore tactical level, the challenges associated with protecting coastal installations from unconventional threats, such as explosive-laden boats and drones, are intensifying. Countering these threats entails enormous financial costs, requiring the operation of expensive interception systems and warships against low-cost offensive capabilities available to adversaries.   At the more distant strategic level, the challenge lies in protecting the vital trade routes running through the Red Sea and the Bab el-Mandeb Strait. Any disruption there could choke off the Port of Eilat, disrupt supply chains from Asia, and drive up insurance and shipping costs, dealing a severe blow to investor confidence and the broader business environment.

Negotiations between Washington and Tehran are entering an increasingly complex strategic juncture, with most of the 60-day timeframe established under the "Islamabad Truce" having elapsed without a decisive agreement. This has been accompanied by renewed hostilities and the Strait of Hormuz once again closing to international shipping.   These developments on the ground coincide with intensive international diplomatic efforts to contain the repercussions of an open military conflict that has clearly weighed on regional and global economic growth.   At the heart of this negotiating landscape is the conspicuous absence of the regional proxy issue from both the draft preliminary agreement and the current talks. Rather than signalling that the issue has been sidelined, this absence raises fundamental questions about the future of the complex network that has for decades formed a central pillar of Iran's deterrence doctrine.   Current political dynamics suggest the proxy issue is no longer a secondary matter that can be deferred or ignored. Instead, it has become a structural fault line that cuts across each side's conception of security and stability, as well as the limits of any viable settlement.   Its exclusion from the initial formulations reflects a clear recognition of how difficult it would be to incorporate the issue without directly confronting red lines at the intersection of Iran's deterrence doctrine, the US vision of regional security, and Israel's efforts to translate military pressure into irreversible negotiating gains.   The dilemma takes on even greater significance in light of recent macroeconomic analyses indicating that the costs of proxy involvement have extended well beyond direct military losses, striking at the heart of the global economy. Proxy-related operations along critical maritime corridors, particularly in the Red Sea, have severely disrupted supply chains and inflicted tens of billions of dollars in losses on international trade through unprecedented surges in shipping and insurance costs. They have also created unconventional threats to the security of digital infrastructure, most notably subsea fibre-optic cable networks.   Security experts emphasise that the structural attrition the Axis of Resistance suffered during the intense confrontations of 2024 and 2025 prompted Tehran's leadership to reassess its tactics and instruments, but not to abandon them.   The crisis stems from a fundamental divergence in the actors' perspectives. Iran regards its network of proxies as a forward line of defence and an integral component of its national security, integrating these groups with its missile and drone capabilities. Washington and Tel Aviv, backed by regional powers, by contrast, view dismantling and disarming these groups as a mandatory precondition for any new regional security architecture.   This reality places the proxy issue at a critical intersection between three complex levels: Iran's pursuit of strategic depth for its defence; US efforts to neutralise sources of asymmetric threat; and regional and international concerns that link market stability and freedom of navigation to ending the activities of these groups around maritime chokepoints and in the Eastern Mediterranean. Any settlement that fails to define the place and functions of these proxies would therefore amount to little more than a fragile truce vulnerable to rapid erosion.   This section examines the divergent perspectives of the key actors on the regional proxy crisis. It assesses how these competing positions may clash or converge behind closed doors at the negotiating table. The paper asks a central question: will these discussions translate into strategic trade-offs that underpin a comprehensive and sustainable settlement, or will divergence between the parties' red lines reduce the anticipated agreement to little more than a temporary tactical freeze before an even more violent round of conflict?   This issue was written on August 2, 2026

For more than three decades, Israel maintained a policy of strategic ambiguity towards the Armenian Genocide, deliberately withholding formal recognition despite mounting domestic calls—from parliamentarians and academics alike—for a definitive official position. This reluctance was neither accidental nor driven by historical uncertainty. Rather, it reflected a carefully calibrated strategy aimed at safeguarding a complex web of vital national interests. Official silence helped preserve Israel's close strategic partnerships with both Turkey and Azerbaijan, secure the uninterrupted flow of energy supplies and critical trade routes, and protect its sensitive intelligence footprint along Iran's northern frontier.   That strategic equilibrium was abruptly overturned in June 2026, when the Israeli government formally recognised the Armenian Genocide. The decision triggered an unprecedented backlash from Azerbaijan, which swiftly denounced it as a distortion of historical facts lacking any legal or scholarly foundation, while demanding that Israel immediately reverse its position. At that moment, the contours of a profound strategic contradiction came sharply into focus. Although Israel presented the move as a moral and historical obligation, the broader geopolitical context pointed instead to predominantly political and retaliatory calculations. In a single decision, Tel Aviv opened itself to direct confrontation with Turkey and a quieter, yet strategically significant, rift with Azerbaijan, while simultaneously creating an opportunity for Iran to exploit the emerging fractures and weaken Israel's extensive strategic influence along its northern frontier.

The Al Habtoor Research Centre (AHRC) presents a groundbreaking, equation-based assessment analysing the direct and indirect social and economic resource costs of the 110-day conflict that began on February 28, 2026. Utilising an advanced conflict economics framework—including the Stiglitz-Bilmes convention and counterfactual synthetic controls—this research delivers an unprecedented, exclusive analysis of the financial burdens borne by the belligerents and the wider global economy. The headline finding is one of profound asymmetry, proving that recovery capacity, rather than the size of the initial kinetic blow, dictates the medium-term cost of modern warfare. The largest financial burden fell on the global economy, specifically non-belligerent, bystander oil-importing nations, totalling an estimated $1.41 trillion by 2030. Triggered by the 110-day closure of the Strait of Hormuz, this true burden lies in unproduced global output rather than the temporary oil-price spike, which ultimately nets to zero globally. Among the combatants, Iran absorbed an existential, structural blow equivalent to roughly 81% of its pre-war output, costing $305 billion by 2030, or $720 billion on a purchasing-power parity (PPP) basis. Locked out of international capital markets, its output gap fails to close by the end of the decade, triggering a step down to a permanently lower economic path. In contrast, the United States faces a heavily back-loaded bill ranging from $200 billion to $1.1 trillion by 2030. While structurally insulated from the immediate oil shock due to its net energy exporter status, this massive range in projections depends on whether standard cash-budgeting or full multi-decade liabilities—such as veteran care, war-debt interest, and budget ratchets—are present-valued. Meanwhile, Israel sustained a sharp but recoverable macroeconomic shock of $135 billion by 2030, equal to roughly a quarter of a single year's GDP. Advanced air defense mitigated physical destruction, concentrating the cost instead on reserve mobilisation, interception economics, and a transient output gap. Ultimately, this exclusive analysis details how the poorest bystander nations subsidised the conflict's macro cost, marking the 2026 war as one of the most economically disruptive events of the century.

The Tel Aviv Stock Exchange (TASE) offers one of the most instructive case studies in contemporary political economy. In under three years, it transformed from a compressed, domestically isolated venue into a high-beta financial instrument that prices Middle Eastern geopolitical risk in real time. The period from October 2023 to June 2026 encompassed the gravest security shock in Israel's modern history; yet its benchmark indices delivered record returns, making it the world's fastest-rising equity market in 2024 and 2025, before pivoting abruptly into a sharp correction by mid-2026. This paradoxical trajectory poses a fundamental question: how does capital — foreign and domestic alike — respond when gun barrels intersect with trading screens, and why did the signals emanating from the sovereign bond market diverge so starkly from those of the equity market at the very same moment? This analysis traces the precise correlation between military and diplomatic events on the one hand, and capital flows and the sovereign risk premium on the other, exposing a new financial logic that now governs the pricing of existential risk.   Accordingly, this analysis sets out to disentangle three interlocking layers: first, the mechanics of the initial shock and the manner in which the state intervened to contain capital flight; second, the paradox of the war economy, in which sovereign downgrades coincided with an unprecedented equity rally; and third, the 2026 reversal that repriced geopolitical risk in the wake of diplomatic realignment — culminating in a forward-looking assessment of the market's probable trajectories through 2028.

The Middle East has undergone profound shifts in its security and geopolitical landscape following the major events that began on 7 October 2023 and continued to unfold through 2026. At the heart of these shifts lies a fundamental transformation in Israeli military doctrine. For many years, Israel relied on rapid pre-emptive strikes and advanced technologies to sustain remote defence without requiring permanent control over new territory. However, the unprecedented breaches of its borders have fundamentally altered this strategy. Israel has now moved towards direct physical control over parts of Arab territory and has begun constructing a broad, contiguous belt of buffer zones extending from the Gaza Strip in the south and southern Lebanon in the north to the Syrian Golan Heights.   Historically, buffer zones were understood as demilitarised and relatively calm spaces designed to separate conflicting parties and prevent direct friction. Israel, however, has fundamentally redefined this concept, transforming such zones into instruments of absolute security control. Through this approach, it seeks to create fortified military spaces that provide strategic depth, eliminate cross-border threats and tunnels, and push the battlefield entirely away from its cities and population centres.   Despite the clarity of these objectives, this approach places Israeli military planners in a genuine dilemma. The permanent deployment of large infantry and armoured forces within hostile and volatile areas threatens to turn these belts—intended to serve as secure zones—into arenas of sustained and costly military attrition. Against this backdrop, this analysis raises a central and fundamental question: do these border strips constitute a genuine security buffer capable of ensuring Israel’s long-term survival and security, or have they already become a trap that steadily drains its capabilities day after day?

In recent years, European perceptions of Israel have undergone a noticeable shift, driven primarily by the war on Gaza following the events of 7 October 2023. What began as growing unease has gradually translated into a marked decline in public favourability across Europe, with many viewing Israel’s military response as disproportionately severe. This transformation in public sentiment, however, has not been immediately mirrored at the political level. European leaders have largely maintained a cautious and diplomatic posture, continuing to balance expressions of concern with longstanding commitments to “Israel’s right to self-defence”. That stance has begun to erode more recently. The regional escalation involving Iran has introduced direct economic and strategic pressures on Europe, prompting a more assertive, albeit still measured, response from policymakers. At the same time, political changes within Europe, including the emergence of leaders less firmly aligned with Israel, such as Hungary’s Prime Minister Péter Magyar, signal a gradual recalibration rather than a sudden rupture in policy.   This evolving landscape became particularly visible in late April 2026, when discussions emerged within the European Union around suspending the EU–Israel Association Agreement. Although the proposal did not advance, with key member states such as Germany and Italy blocking consensus, it nonetheless highlighted the extent to which previously unthinkable measures are now part of the policy debate. While the suspension of the agreement would carry significant economic consequences for Israel, its implementation remains constrained by the European Union’s (EU) internal political dynamics. Yet the inability to pursue this option does not imply a lack of leverage. The European Union retains a range of alternative instruments that can be deployed to exert pressure on Israel.

The Israeli political system has undergone profound structural shifts following the launch of Operation Roaring Lion between Israel and Iran in late February 2026. This conflict marks a transition from traditional deterrence policies and proxy warfare to a doctrine of comprehensive confrontation and pre-emptive strikes targeting nuclear and military infrastructure deep inside Iran. These military developments have coincided with the approaching constitutional deadline for the twenty-sixth Knesset elections, due no later than October 2026, amid a politically fragile environment for Prime Minister Benjamin Netanyahu and his governing coalition. The confrontation has unfolded at a time when the executive leadership is experiencing a decline in political support, shaped by the continuing repercussions of intelligence and security failures linked to the events of 7 October 2023.   These challenges are compounded by declining domestic economic indicators, sharp societal divisions over legislation mandating military conscription for ultra-Orthodox Jews, and the ongoing trajectory of judicial proceedings. In this context, analytical evidence suggests that the executive leadership is seeking to leverage the state of national emergency to consolidate cohesion within its right-wing electoral base and to affirm the centrality of the current leadership in managing security threats within a complex parliamentary system. The intersection of protracted military conflicts with democratic electoral cycles imposes complex structural pressures on voting behaviour and the prospects of incumbent leadership. The demands of national mobilisation increasingly intersect with deeply rooted crises of institutional trust in the public consciousness. This analysis examines electoral calculations before and after the outbreak of the confrontation, reviews historical precedents in which extended wars have shaped successive Israeli governments, and analyses the strategic and personal drivers of decision-making, culminating in an assessment of potential trajectories for the reconfiguration of the electoral landscape ahead of the 2026 vote.