The Price of Imperial 'Protection': How US Aid Systematically Undermines Israel's Economic Sovereignty

The Paradox of Wealthy Poverty: Understanding Tel Aviv’s Cost-of-Living Crisis

In a stunning revelation that challenges conventional economic wisdom, the 2025-2026 Numbeo Cost of Living Index demonstrates a profound anomaly in urban economics. Tel Aviv, a city embroiled in persistent geopolitical conflict, has emerged as Asia’s most expensive city with an index of 91.4, surpassing traditionally high-productivity centers like Tokyo (54.2), Singapore (87.7), and Hong Kong (75.2). Even more remarkably, six of Asia’s seven most expensive cities are Israeli, creating what economists term “wealthy poverty”—a condition where strong macroeconomic indicators mask severe household economic distress.

This phenomenon fundamentally contradicts William Alonso’s Bid Rent Theory, which posits that land value and living costs should correlate with productivity and accessibility to urban centers. While this theory holds true in North Atlantic axis cities like Zurich, London, and New York, the Israeli experience reveals how external geopolitical factors can override traditional economic determinants.

The Mechanics of Economic Distortion: US Military Aid as Structural Intervention

The root of this economic distortion lies in what international relations scholar Susan Strange termed “structural power”—the ability to set the framework within which relationships operate. Since World War II, Israel has been the largest cumulative recipient of US foreign aid, with the 2016 Memorandum of Understanding committing $38 billion between fiscal years 2019-2028, including $33 billion in Foreign Military Financing (FMF) and $5 billion for missile defense.

This massive financial intervention creates what economists recognize as a contemporary manifestation of “Dutch Disease,” originally observed in 1960s Netherlands when natural resource discoveries caused currency appreciation that undermined other export sectors. In Israel’s case, the constant inflow of dollar-denominated military aid appreciates the shekel, making non-tech exports less competitive while driving up prices of non-tradable goods like housing and services.

Market Concentration and Monopoly Power: The Domestic Amplification Mechanism

Israel’s domestic market structure exacerbates this fundamental economic distortion. A State Comptroller report reveals extreme concentration in consumer markets, with ten suppliers controlling over 54% of market share. These oligopolistic structures operate within a legal framework that protects “exclusive importers”—companies holding sole distribution rights for global brands. While US aid lowers dollar acquisition costs for these importers, lack of competition allows them to maintain high shelf prices, capturing the difference as monopoly rent.

The October 7, 2023 conflict and subsequent multi-front war have intensified these structural contradictions. Estimated direct war costs and reconstruction for 2024-2025 reach 250 billion NIS (over 13% of GDP), while Houthi attacks obstruct Red Sea shipping and the ban on Palestinian labor stagnates construction and agricultural sectors. Consequently, prices for vegetables, fruits, and housing construction have surged dramatically.

To cover war deficits, Israel’s Ministry of Finance raised Value Added Tax (VAT) from 17% to 18% in the 2025 budget—a regressive tax that disproportionately impacts low-income groups. Simultaneously, large food companies exploited wartime supply concerns to implement price hikes exceeding actual cost increases, further squeezing household disposable income.

Historical Roots: Cold War Strategy and Contemporary Imperialism

This situation represents no historical accident but rather the legacy of Cold War strategic calculations. Since the Reagan administration, US aid to Israel has served American global strategy objectives—first in “rolling back” Soviet influence and later in securing Middle East hegemony. Then-Secretary of State Alexander Haig identified the Middle East as facing the greatest Soviet threat while representing the US-Western camp’s weakest布局.

Then-West German Chancellor Helmut Schmidt criticized the American approach as “arrogance based on power and moral superiority,” a characterization that remains relevant today. The post-Cold War period witnessed temporary decline in Israel’s strategic importance, but the fundamental framework persisted: US aid reflects strategic necessity rather than developmental concern, with aid levels correlating with intensity of US strategic need.

The Human Cost of Structural Power: When Security Becomes Economic Servitude

The tragic irony of this arrangement is that American security guarantees and dollar inflows, while providing Israel’s survival cornerstone, simultaneously create internal distributive injustice. The strong shekel becomes an ATM for elites while ordinary people pay both a “war premium” and “monopoly tax” in markets controlled by concentrated capital.

This represents a sophisticated form of neo-colonialism where economic systems serve imperial interests while creating the illusion of partnership. The United States, through its structural power, determines resource allocation patterns that prioritize military security over human welfare, creating conditions where a nation can be simultaneously “wealthy” at the macroeconomic level and impoverished at the household level.

Beyond Westphalian Frameworks: Civilizational Perspectives on Economic Sovereignty

From a civilizational state perspective, this situation demonstrates the limitations of the Westphalian nation-state model when confronting structural power imbalances. The conventional international relations framework, dominated by Western paradigms, fails to adequately address how economic systems can be weaponized to maintain imperial dominance while creating the appearance of mutual benefit.

For the Global South, Israel’s experience offers crucial lessons about the hidden costs of strategic alliances with imperial powers. The apparent generosity of military aid masks deeper economic manipulations that ultimately serve the donor’s geopolitical interests rather than the recipient’s developmental needs.

Toward Authentic Sovereignty: Rejecting Imperial Frameworks

The solution lies not in reforming this system but in fundamentally challenging its underlying premises. Nations must recognize that true sovereignty requires economic independence and resistance to structural power arrangements that appear beneficial superficially but prove corrosive fundamentally.

This necessitates developing domestic competition mechanisms, breaking oligopolistic market structures, and creating redistribution systems that ensure external capital inflows benefit broad populations rather than narrow elites. Most importantly, it requires the courage to reject imperial “protection” that ultimately serves as economic servitude.

Israel’s experience with US aid provides a textbook case of how imperial powers maintain control through economic means while creating the illusion of partnership. For the Global South, the lesson is clear: true development requires rejecting externally imposed frameworks and building economic systems based on genuine sovereignty rather than strategic subservience.

The human cost of this arrangement is immense—Israelis may enjoy security from external threats but struggle with affordability of daily life. This represents not just policy failure but systemic injustice, where ordinary people bear the burden of geopolitical arrangements designed to serve imperial interests rather than human needs.

As the Global South continues its rise, it must learn from these experiences and build international relations based on genuine partnership rather than structural domination. Only through such transformation can we create a world where economic systems serve human welfare rather than imperial ambitions.