The Cost to America of Supporting Israel

By Ingrid Rimland


July 19, 2003


The DailyStar - 03/07/2003

Alfred Lilienthal posed the question of what the cost of supporting Israel was to the US 40 years ago, when the price tag for Americans was low. Today the answer is knowable and daunting - the figure comes to at least $1.6 trillion through the end of 2002. That is some three times the much-publicized cost of the Vietnam War (all figures are expressed in current dollars, corrected for inflation). The overall cost to the US of all aspects of conflicts in the Middle East is even higher - more than $2.6 trillion. But the multi-dimensioned costs of supporting and protecting Israel make up nearly two-thirds of the total.

Direct aid to Israel, as reported in the US budget, is but the tip of a very much larger iceberg. Since 1978 the annual figure has hovered around $3 billion per year, partly military "loans" and partly economic or budgetary support. It has added up. That cumulative cost, even though it is only part of the whole story, is $250 billion. Theoretically Israel was to have repaid much of the money, but the loans were forgiven when Israel could not pay, so that technically Israel has never defaulted, even though the monies were never repaid.

Increasingly, however, official US aid has been hidden or redefined. Camouflage has been necessary. The budgeted aid loomed embarrassingly large as part of total US foreign aid. Increasing the figure would have made it even more conspicuous. There were already adverse comments and criticism, from Congressmen and also from black leaders who contrasted US largesse to high-income Israelis with skimpier programs for US blacks. Thus, more and more of the aid was concealed in other accounts. For example, Kissinger arranged that the US build and fill a strategic oil stockpile for Israel - this cost about $3 billion - but the appropriation was classified as a "prepositioning" project for the US Department of Defense, and thus buried in its budget. "Loan guarantees" are a new device for hiding aid. Israel borrows from third parties - the first tranche was $10 billion - and the US guarantees the loan. Even before the intifada undermined Israel's economy, there was little prospect that it could repay the loans, but the burden on the US taxpayer was deferred for years and therefore never recognized. An additional $9 billion in such guarantees is now in process.

Other devices evolved. Israel was permitted to "purchase" US weaponry which was deemed to be surplus at very large discounts, some of which the Israelis sold on to Iran at much higher prices. US companies have been forced to buy Israeli goods - thanks to the activities of close collaborators such as Douglas Feith and Richard Perle, who controlled the key offices in the Defense Department. US firms resent these obligations - US jobs are lost - but are cowed into silence. The annual burden may well exceed $3 billion - details are very sensitive and thus kept secret. Under the Free Trade Agreement Israel is allowed to export to the US freely, even though US exports to Israel are very much constrained. That trade-aid deficit, a loss to the US, now hovers around $9 billion per year.

Private Jewish aid from the US has contributed another $50-plus billion to the burden. Much of this is a "tax expenditure," because the donations are tax deductible in the US, but the whole amount is a deadweight cost to the US economy, since Israel tends to use aid money not to purchase from the US, but, instead, buys from the EU. The donations stem overwhelmingly from the loyal diaspora in the US, but many of the Israel bonds are held by public and union pension funds, who were pressured into buying the bonds in spite of the fiduciary restrictions against such low-grade investments.

Indirect "official" aid is also large, in the sense that US aid to Egypt and Jordan is the price the US pays for both countries' peace treaties with Israel. This is protection money. The US Congress justifies that budgeted aid in terms of their compliance with the agreements, and both Egypt and Jordan have been given to understand that the flow of US aid can and will be terminated if they are not sufficiently docile. Turkey, too, now comes under this category, although the US has forced other donors to share - unwillingly - by using its political influence in the International Monetary Fund and the International Bank for Reconstruction and Development to grant large loans. Other items are the US' share in peacekeeping operations or conditional support for regimes in Central Asia or Latin America, which is tied to their backing Israel in the UN or their contracting with Israeli firms - a form of export subsidy by the US for Israel.

There is a long and elusive history of this form of aid. A bizarre instance was the $3 billion-$5 billion in US aid to the Romanian dictator Ceausescu in the 1980s, which financed emigration of Romanian Jews to Israel. Ceausescu's appalling despotism was discovered in the US media only after the bargain was complete and most of the Jews had left.

Two further large elements in the cost are "consequential" - i.e., they were incurred because of US support for Israel, but are not support to Israel as such. Together they cost the US more than $1 trillion. The first component is the high cost of the 1973 Arab-Israeli war. The second is the very expensive program which the US undertook in order to protect Israel from a second use of the "Arab oil weapon." Both started in October of 1973 Israel was in danger of losing the war with its neighbors. President Nixon rescued the Israelis with a massive airlift of US equipment and materiel. However, the Arab riposte cost the US dearly. Arab oil producers countered with an oil embargo. Oil imports into the US dropped precipitately - the resulting sharp recession cost the US over $500 billion in lost GDP and another $500 billion or so in the form of higher oil prices. That double whammy was unleashed by the crisis and the embargo.

Lastly, "Project Independence" was launched. Terrified by the success of the Arab embargo, Israelis and American Jews embarked upon a nearly hysterical campaign to subsidize almost every conceivable form of energy or conservation in order to reduce US oil imports and to reduce Israel's vulnerability to Arab pressure upon the US. Cost - borne by the US - was no object. The project was spectacularly expensive, but not otherwise strategically fruitful. Massive, hidden subsidies were contrived, but little effect resulted from at least $500 billion in extra costs. Today the US imports more than twice as much oil as it did in 1973, and the economy, in spite of those outlays, is more vulnerable. Only the $150 billion spent for the strategic petroleum reserve offers such protection for the Israelis against another Arab oil weapon.

The price tag for US support of Israel has already been high - in terms of direct, indirect, and consequential costs, as well as hundreds of thousands of lost US jobs. The newest bill for post-Sept. 11 costs may dwarf those to date - depending on the real cause of the new terrorism. Is anti-American terrorism the consequence of US support for Israel? Americans are left to wonder. But if one recognizes that correlation, then the costs to the US of the latest Arab counterattacks will prove to be even greater than those of the oil embargo 30 years ago. Conflict in the Middle East and protecting Israel has become very expensive for the US - and indeed for all concerned.


Tom Stauffer is a former nuclear engineer and a specialist in Middle Eastern energy economics. He wrote this commentary for The Daily Star




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