Yves here. Satyajit Das continues his series on Israel and the Middle East by focusing on October 7 and its aftermath.
By Satyajit Das, a former banker and author of numerous works on derivatives and several general titles: Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006 and 2010), Extreme Money: The Masters of the Universe and the Cult of Risk (2011), Fortune’s Fool: Australia’s Choices (2022). His latest book is on ecotourism and man’s relationship with wild animals – Wild Quests (2024)
This is the second of a three-part series examining the unfolding events in the Middle East.
On 18 May 24 former Mossad deputy director turned opposition member of parliament Ram Ben-Barak succinctly summarised Israel’s position: “This is a war without aim and we are unequivocally losing it. We are forced to go back and fight again in the same areas, losing soldiers, losing in the international arena, destroying relations with the US, the economy is collapsing”.
Military Weakness
The 7 October attack, like the Yom Kipper war, highlighted surprising Israeli intelligence failures. Israel’s Western allies, especially the US, were similarly caught off guard. A central factor could be hubris – the belief that Palestinians were incapable in undertaking such an operation. In a Foreign Affairs essay that went to print on 2 October 2023, US National Security Advisor Jake Sullivan wrote: “Although the Middle East remains beset with perennial challenges, the region is quieter than it has been for decades”. The text was subsequently altered in the light of subsequent events.
After 9 months of combat, the IDF has not been able to able to eliminate Hamas, control territory or secure the release of most hostages. It has been forced to use heavy weapons and F16 aircraft to bomb Palestinian refugee camps, schools and hospitals. It has carried out of targeted assassination of militia leaders, which history shows is likely to only be a temporary setback in the absence of a wider political strategy.
Hezbollah’s shelling of northern Israel has forced evacuation of residents. Israel’s threat to open a second front in Lebanon against better equipped and battle hardened opponents is risky given its failure in the 2006 war. Iran’s missile response to Israel provocative bombing of Iranian consular premises, despite advance warning, penetrated Israeli defences and damaged highly defended sites and required US and allied support to repulse.
One factor is that the IDF has a relatively small active-duty component, estimated at some 125,000 troops, of whom roughly two-thirds are conscripts supported by reservists. While adequate for actions against civilians, unarmed or lightly armed enemies, its capabilities against well-trained and equipped armies is uncertain. Another factor is that Israel, like the US, are geared for waging short, high intensity warfare dominated by airpower. Hamas, Hezbollah and Iran are set up to wage attritional wars. They are adept at using ‘swarming’ asymmetric warfare emphasising cheap drones negating the advantage of better equipped military forces. Israel is also heavily dependent on foreign weapons.
A multi-front war in Gaza, the West Bank and Lebanon would be difficult. The problem is increasingly compounded by better equipped opposition, operating under the Resistance Axis’ Unity of Fronts banner, capable of striking across the region. Smuggling of sophisticated weapons from Jordan to the West Bank is evident. Other regional enemies, such as the Houthis, have acquired items such as hypersonic missiles which have been used against merchant shipping and the US naval craft in the Red Sea. The erosion of Israeli and American military deterrence is evident.
Israel is highly militarised with many of its politicians being former defence personnel. The inability of the once all-powerful IDF to defend the country has deepened fears and social and political differences within Israel.
Social and Political Tensions
Over the last few decades, Israeli society has splintered. Some want a secular, democratic, liberal and pluralist nation. Other desire a theocratic, exclusively Jewish state -Judea – which stretches across the entirety of Palestine.
These radically different views of Israel are driven by ethnicity, religion and history. Mizrahi, which means Eastern in Hebrew, Jews make up about 40 to 45 percent of the country’s total population. Often combined with Sephardi (who trace their heritage to the medieval Iberian Peninsula), Mizrahi hail from Jewish communities in the Middle East and North Africa. Ashkenazi Jews, who trace their ancestry to Central and Eastern Europe, make up about 32 percent of the population. Israeli Arabs constitute around 20 percent of Israel’s population, an indigenous minority within an ethnic state forcible founded on their land. Immigration, especially from the Soviet Union, has contributed to variances in tradition and attitudes. There are differences in interpretation and observance of rabbinical law, covering the full spectrum from ultra-secular to the Haredi – the ultra-orthodox.
Economic inequality reinforces differences. The Ashkenazi are generally better educated and enjoy higher living standards. The Mizrahi resent the fact that they are looked down upon. The Ashkenazi begrudge benefits enjoyed by the ultra-orthodox such as exemption from military service, now controversially voided by the courts.
These factions shape Israeli politics. A proliferation of smaller parties, grounded in ethnicity and religion, has superseded the previous major left and right groups which have fractured. This has led to political instability with a succession of inconclusive elections (5 in 4 years) and shaky, shifting coalitions which have generally been short-lived.
Israel has drifted towards to a xenophobic, authoritarian theocracy. Institutions and the rule of law are under stress. In July 2024. far-right and ultra-orthodox protesters, including some politicians, stormed two army bases in Israel after the military police detained soldiers over alleged serious abuse of a Palestinian prisoner. Knesset members argued that rape and torture were legitimate punishment for Palestinian detainees. The military warned of a descent into anarchy. Yair Lapid, head of Israel’s largest opposition party, said the country was “not on the edge of the abyss, we are in the abyss”.
Central to the fracture is the controversial figure of Prime Minister Binyamin Netanyahu, Israel’s longest serving leader. He has exploited the divisions skilfully, not out of ideological belief but to hold on to power to gain parliamentary immunity from indictment on charges of fraud, bribery, and breach of trust. Former Head of Israel’s domestic security force Shin Bet Ami Ayalon described the Prime Minister in January 2024 as “a person who will sell out everyone and everything in order to stay in power…”
Mizrahi support is crucial to Netanyahu, allowing them to displace the Ashkenazi elite who favour a secular Israel. The Mizrahi see themselves as the true representatives of Judaism, with an Old Testament agenda of expanding Israel’s boundaries, eliminating Palestinians, building the Third Temple where the Al-Aqsa Mosque stands and replacing secular law with Halachic Law.
Netanyahu thrives on Israeli anxiety, victimhood and embrace of trauma as defining identity. He has repeatedly warned of the existential threat from Arabs. He has fanned regional tensions with attacks on and targeted assassinations of military and civilians in Syria, Iraq and Iran. As ‘Mr. Security’, he promotes himself as the only one who can guarantee Israel’s survival. This plays to Israeli Jewish perception that strong leaders are required. The Al-Aqsa Flood attacks provide the excuse for tall-out war against Hamas in Gaza, irrespective of the consequences. Israeli political leaders now resort to lurid, apocalyptic Biblical imagery painting the Palestinians as the children of darkness to be vanquished by the chosen people.
Foreign allies associate these developments with the noxious Netanyahu, believing that new leadership will alter the dynamics. This wishful thinking ignores the underlying social and political environment which makes a negotiated solution and two-state solution unlikely.
Economic Stress
Along with death and destruction, the Gaza war has wrought massive economic damage.
Gaza’s economy has ceased to function. The restoration of infrastructure will cost at least $40-50 billion. The West bank economy, dependent on Palestinians who work in Israel, is also in freefall.
Israel too has suffered significant economic losses. Economic activity has shrunk, by perhaps 20 percent on an annualised basis. Sectors such as construction, manufacturing, consumer goods, tourism and hospitality have all contracted, especially in the North and South. Causes include physical damage from the war and the loss of cheap Palestinian labour. Export-based technology industry have been disrupted by callup of reservists for military service. Foreign investment has been interrupted by the war and uncertainty.
The war has accelerated the flight of capital and talent already underway because of the shift to a more theocratic Jewish state. Some of the economic and financial elite, mainly Ashkenazi, have relocated business operations and moved their capital abroad. More than half a million Israelis have left the country since October 2023. These individuals and businesses make up a large proportion of the tax base.
Government expenditure has increased. The cost of the war is estimated to be around $70 billion. There are plans to raise annual military spending from 4 to 6-7 percent of GDP by the end of the decade. Northern border skirmishes have necessitated evacuation of around 60,000 Israelis resulting in economic dislocation and relocation costs. Expenditure on West Bank settlements and ultra-orthodox communities places growing strain on finances. Israel’s national debt is projected to rise from 60 to 67 percent of GDP by 2025. Its credit rating has been downgraded. Expansion of the war would add to the strains.
Focused solely on the war and the need to maintain support from religious parties, the Israeli government has no plan to improve its financial position. It is likely to become more dependent on American financial aid and the diaspora.
Pariah State
Over time, Israel has dissipated the sympathy engendered by the Holocaust and the excitement around the creation of a Jewish state.
Many of the world’s 1.9 billion Muslims (24 percent of the global population) see Israel’s action against Palestinians as a war against Islam. Progressives see it as colonial oppression. For many, its close relationship with America breeds distrust. There is disquiet about Israel’s mendacity about human rights and illegal settlements as well as its disregard for international laws, such as UN resolutions and accords. Branding of justified criticism as anti-Semitism and arrogant assertions of moral superiority is increasingly rejected.
Israel main support now comes from the US, the UK and some European nations. Most of world is now aligned, to varying degrees, with the Palestinians. As of June 2024, 146 of the 193 member states (75 percent) of all UN members recognised the State of Palestine as a sovereign state. An overwhelming majority of UN members and the Security Council also support an immediate ceasefire.
Israel’s position may be weakened by several developments.
One is the decisions of the International Court of Justice (“ICJ”) and the International Criminal Court (“ICC”). The ICJ found that Israel may be committing genocide and ordered a halt to its offensive in Rafah. The ICC issuedindictments against the leaders of Israel and Hamas for war crimes. In a separate decision the ICJ ruled that Israel’s 57-year-old occupation of East Jerusalem and the West Bank was illegal under international law and its conduct towards Palestinians living under its military’s control violated their rights. The UN’s highest Court ruled that Israeli policy in the West Bank -the creation and support of sprawling settlements to the application of discriminatory laws and of Israeli sovereignty over East Jerusalem- was illegal.
Most countries and global civil society have reacted negatively to Israel’s rejection of and refusal to comply with these rulings. Israel’s assertion of special immunity from any accusation of genocide or war crimes, which was only applicable to non-Jews, shocked most. Prime Minister Netanyahu’s assertion that the Jewish people could not be illegal occupiers in their own land, referring to it by its biblical name of Judea and Samaria was rejected.
The international community largely blame Israel for stalling ceasefire proposals using unacceptable conditions, such as its right to resume the war after an exchange of hostages. Its actions – the bombing of Iran’s consulate in Syria and targeted killings of opponents such as Ismail Haniyeh, the political leader of Hamas, in Iran in blatant violation of international law – are calculated to make any negotiated settlement difficult. As Qatar’s Prime Minister and Minister Of Foreign Affairs Sheikh Mohammed bin Jassim Al Thani stated: “… political assassinations and intentional escalation against civilians in Gaza at every stage of the negotiation prompts the question: How can negotiations take place in which one party kills its negotiator at the same time?”
Changes in the political calculus also affect Israel’s standing. While there is backing among the political and economic establishments in supporting countries, Israel has alienated voters, especially younger constituencies, many of whom have protested against the Gaza war in North America, Europe and Australasia. A recent poll of British 18-24 year-olds found that 54 percent agreed that that the State of Israel should not exist while 21 percent disagreed with this statement.
This has electoral consequences. Muslim voters in key states, who oppose the Biden Administration’s support of Israel, may prove important in the US elections. In the July 2024 UK election, differences over the war led a significant bloc of voters to reject the victorious Labour party. Independent candidates ran on a pro-Gaza ticket with five emerging victorious. In Australia, Senator Fatima Payman defected from the ruling Labour party unable to support her party’s position on Palestine. A Muslim voting bloc is likely to target Labour seats in areas with large Islamic populations challenging its bid for re-election.
The shift in Europe to the far right and far left, affects support for Israel. Many of these parties, such as Germany’s AFD, France’s RN, Italy’s far right and Britain’s Reform, have historically supported persecution of Jews as conspiratorial parasites and medieval usurers.
Israel’s pariah status is likely to grow. Resentment of Jews globally will rise. Congregation in clannish enclaves and over-emphasis of their separateness and status now attracts suspicion. There is scrutiny of their disproportionate power due to dominance of finance, professions and politics. Many see them as over-represented and over-articulate.
One manifestation of these tendencies is increased pressure for further isolation of Israel through boycotts, sanctions and divestment. These were among the key demands of protestors. The decisions of international courtsmay force countries to implement measures against Israel under existing national legislation. Similar actions led to the economic, social and cultural isolation of apartheid South Africa and the end of white-domination. Aware of this risk, the US and UK, are trying to stave off the push for international sanctions. It is worth noting that the both countries, after initial resistance, ultimately joined the international boycott and placed various trade sanctions on South Africa.
The American Pillar
But what really matters is American financial, military and diplomatic backing of Israel.
Since its founding, Israel, despite its high income status, has been the largest cumulative recipient of US foreign aid– $310 billion (adjusted for inflation) in total economic and military assistance. Annual assistance runs at around $1,300 per citizen. Actual assistance may be significantly greater especially since the start of the Gaza war. Since 1972, the United States has also extended various loan guarantees to Israel.
99 percent of Israeli weapons are from the US (69 percent) and Germany (30 percent). The American objective has been to allow the Jewish state to have a military advantage over other regional actors. This assistance is interesting as Israel is the world’s ninth largest weapons exporter.
American diplomatic support is important. The Biden Administration has vetoed several UN resolutions calling for a ceasefire in Gaza. It has repeatedly marshalled support for Israel while refusing to draw any ‘red lines’ on Israel’s conduct in Gaza.
Continuation of this assistance is not assured. America is heavily indebted, its budget and trade deficits large, and the advantage of the dollar being a reserve currency which provides flexibility of action is declining. The US annual interest expense on government debt now exceeds $1 trillion, 5 percent higher than its defence budget. As Niall Ferguson has pointed out, Hapsburg Spain, Bourbon France, the Ottoman and British Empire spent more on debt service foreshadowing their decline. As Julius Caesar alleged held: “Soldiers and money: if you lack one, you’ll soon lack the other”.
US military capability, like Israel’s, is built on expensive high-tech weapons and sometimes ineffective under battlefield condition. The troubled F35 aircraft and naval programs highlight a bloated grifting military-industrial complex. It struggles to attract suitable personnel. The embarrassing failure of the $300 million pier to deliver aid to Gaza points to serious shortcomings. The inability to secure red Sea shipping lanes from Houthi attacks despite the commitment of significant forces and money reinforce weaknesses.
The US faces challenges in different theatres – Europe/ Ukraine, Taiwan and the Middle East. A recent book The Boiling Moat suggested that the US and its Taiwanese and Japanese allies might repel a Chinese invasion but at a cost of tens of thousands of service members, dozens of ships, hundreds of aircraft, and lots of other equipment. It is unlikely it has the ability to supply or operate on multiple fronts meaning any assistance to Israel would come at the cost of other clients. In 1966 after he left Cuba to participate in revolutionary struggles in other parts of the world, Che Guevara urged the creation of “two, three … many Vietnams” to weaken the US, the very situation it has now created.
US politicians are out of step with US voters who overwhelmingly want a ceasefire in Gaza. The divergence between ‘elected’ and ‘electors’ is reminiscent of the late sixties divide over Vietnam. Consistent with global trends, younger American are less willing to back Israel as evidenced by nationwide protests.
US electoral considerations, as in other parts of the world, may reduce assistance for Israel. A meaningful share of Democratic voters, especially younger ones, wrote ‘uncommitted’ on their primary ballots and may not vote at all on account of the Biden Administration’s unwavering support of Israel.
One factor is changes within the American Jewish diaspora, whose agendas and interests are different to that of Israel. They must live in a multi-cultural society with non-Jews. Alongside their global peers, many feel less connected to Israel and are more sympathetic to the Palestinian cause. Traditional blind support is difficult given the fissiparous Israeli body politic and the positions of the far right Mizrahi. A majority of the American diaspora now oppose or have private reservations about Israel’s direction. Their uncritical identification with Israel cannot be assumed. The loss of the diaspora may result in significant loss of immunity against criticism of its actions and ability to command American support.
Concern about Jewish interference in US politics is rising. The influence of American Israel Public Affairs Committee (AIPAC) over US politics has been well documented by John Mearsheimer in his 2007 book The Israel Lobby and U.S. Foreign Policy. He argued that AIPAC has a “stranglehold on the U.S. Congress“, through the “ability to reward legislators and congressional candidates who support its agenda, and to punish those who challenge it“. It showed how the Israel lobby distorts US Middle East foreign policy undermining American national interest.
But the power of the Jewish-Israel lobby may be in decline. There is resistance to AICPA’s skilful distortion of legitimate criticism into anti-Semitism and anything less than unquestioning support as conspiracy against Israel. There are alarms about how AICPA operatives have consistently sought to silence or discredit Israel sceptics or critics. The $15 million funding to defeat Congressman Jamaal Bowman in the primaries for his position on the Gaza war is not an isolated example. Prominent Jewish-American citizens working with Israeli intelligence agencies funded attacks on peaceful student demonstrators against the Gaza war.
There is resentment of Israeli arrogance. Few remember the attack in international waters on the USS Liberty by the Israeli Air Force and Navy on 8 June 1967, during the Six-Day War which killed 34 Americans. Despite Israeli apologies and official inquiries finding that it was a mistake, survivors of the attack maintain that the attack was deliberate. Prime Minister Netanyahu once boasted that he was not afraid to challenge US Presidents as Israel through its AICPA proxy and prominent members of the diaspora could force US policy changes. Since the start of the current war, Netanyahu has constantly trampled over an enfeebled President Biden and his envoys.
America must balance its support for Israel with its damaged global standing with important emerging economies such as China, Brazil, India and others. The Trump administration’s decision to move its embassy from Tel Aviv to Jerusalem and formally recognize the city as Israel’s capital, since accepted by President Biden, outraged the UN Security Council, with fourteen out of fifteen members voting to condemn the move.
President Biden’s attempt to equate Russia’s attack on Ukraine and Al Aqsa Flood was not well-received. America’s veto of the UN ceasefire resolution suggested to many that Ukrainian lives were more valuable than Palestinian ones.
America’s condemnation of the ICJ and ICC decision and continued policy of ignoring Israel’s actions has undermined its relationship with the global South and allies. The hysterical letter by 12 Republican Senatorsthreatening the ICC Chief Prosecutor, his family and staff with severe consequences was unhelpful. Arab public opinion always cautious about the US is now overwhelmingly anti-American. The State Department’s Middle East experts are in open rebellion pointing out how America’s diplomatic cover for and continuous flow of money and arms to Israel has made it undeniably complicity in the killings and forced starvation of a besieged Palestinian population in Gaza.
A change in US administration has implications for the America-Israel relationship. High levels of support for the Jewish state is inconsistent with the GOP’s ‘America First’ platform; greater isolationism, reduced military spending to support allies, attracting petrostate investment, reducing immigration and preventing foreign interference in elections.
Should he regain the Presidency, Donald Trump’s volatile relationship with Prime Minister Netanyahu may become central. While initially allied, tensions arose during the first Trump administration when Netanyahu publicly argued that Trump’s Middle East plan gave a green light to Israel to annex the West Bank and Golan Heights which an angry Trump denied agreeing to. The presumptive Republican presidential nominee has found himself increasingly at odds with his party’s unwavering loyalty to Israel.
These pressures mean that American financial, military and diplomatic backing of Israel is vulnerable. As various countries such as South Vietnam, Egypt and Afghanistan can attest, America supports you until it doesn’t! A defiant Prime Minister Netanyahu has shrugged off this contingency stating that Israel will fight with its nails if necessary. Reliance on this strategy, even against lightly armed opponents, is risky.
A corner solution in mathematics and economics occurs when the chooser is either unwilling or unable to make a trade-off. Israel’s military, economic, social and political problems as well as it declining standing internationally and with crucial allies such as the US has narrowed its options.
© 2024 Satyajit Das All Rights Reserved
These piece are co-published by the New Indian Express Online and NakedCapitalism.com
Satyajit Das is a former banker and author of numerous works on derivatives and several general titles: Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006 and 2010), Extreme Money: The Masters of the Universe and the Cult of Risk (2011), A Banquet of Consequences RELOADED (2021) and Fortune’s Fool: Australia’s Choices (2022). His latest book is on ecotourism and man’s relationship with wild animals – Wild Quests (2024)
