Officials from Israel and Germany have signed a contract worth nearly €4 billion for the purchase of the Arrow 3 long-range air defence system, which was developed by Israeli and American engineers. This is Israel’s largest defence contract ever, and it comes as Germany seeks to enhance its missile defence capabilities amid fears of a new cold war with Russia.

Defence Minister Yoav Gallant hailed the agreement as a major accomplishment for the defence industry and a momentous occasion for both countries. The agreement, which includes €560 million approved by the German parliament, will allow Israel to begin production of Arrow 3 batteries designed to intercept and destroy ballistic missiles and long-range threats. These batteries, manufactured primarily by Israel Aerospace Industries, are anticipated to be shipped to Germany by the end of 2025.

While the entire transaction is valued at close to €4 billion, IAI CEO Boaz Levy cited a reduced figure of $3.5 billion, as reported by the Israeli Defence Ministry.

Gallant and his German counterpart, Boris Pistorius, also inked a separate agreement to strengthen defence cooperation between the two nations. However, the deal will not be finalised until October, when Germany’s parliamentary budget committee is expected to ratify the acquisition.

The Arrow 3 system is intended to intercept spaceborne missiles such as ballistic rockets, warheads, and satellites. It is a component of the German-led European Sky Shield Initiative, which seeks to strengthen Europe’s air defences in response to Russian actions in Ukraine. The system is anticipated to defend the entirety of Germany and possibly more.

The exact number of batteries included in the deal remains undisclosed, but the German government has allocated €5 billion from a special fund created to increase defence expenditure in response to Russia’s invasion of Ukraine in 2022. Eighteen nations have joined the European Sky Shield Initiative, emphasising the significance of NATO-compatible defence systems.

Concerns have been raised about the Arrow system’s efficacy against immediate missile threats, such as Russia’s nuclear-capable Iskander cruise missiles, in addition to its high price tag. Israeli defence officials, however, defended the system as a deterrent against future aggression.

Gallant emphasised the shared threats that both Europe and Israel confront, focusing on Iran’s regional influence. In light of the potential expiration of Iran’s missile embargo in October 2023, he emphasised the importance of international action to resolve these challenges.

This sale represents the first deployment of the Arrow 3 system beyond the borders of Israel and the United States, marking a milestone in the growing defence cooperation between Israel and Germany.

Photo credit: Gil Cohen-Magen / AFP Arrow 3 (right) missile defence systems at Hatzor Israeli Air Force Base.