The Israel Netanyahu Made: Why Bibi's Security Doctrine Will Outlast His Tenure

NextFin News - Benjamin Netanyahu may lose the Israeli election on October 27, but the national security state he built over four decades is not on the ballot. A new analysis argues that whether Israelis vote him out this week or years from now, his two defining achievements — pushing Palestinian statehood out of the mainstream and normalizing permanent war against Iran — have hardened into institutional reality. The financial markets have already rendered a verdict on that shift: Israel's benchmark TA-125 index has roughly doubled since the eve of the October 7, 2023 Hamas attacks, defense contractor Elbit Systems has quadrupled since 2021, and the shekel has held its ground even as the country burns through about one billion shekels a day on wars and carries sovereign debt approaching 70 percent of GDP. The question for investors is no longer whether Netanyahu survives politically. It is whether a war economy built on his doctrine can survive without him.

The Doctrine That Outlived Its Architect

The argument, advanced by analyst Dalia Dassa Kaye on election day, is that Netanyahu did something more durable than winning elections. As Israel's longest-serving prime minister, he reset the terms of the country's national security politics so thoroughly that future leaders — including his opponents — will be governed by assumptions he installed. As Kaye puts it, future leaders "will be coloring within lines that Netanyahu has drawn for them." That is a structural claim, not a cyclical one, and the distinction matters for anyone trying to price Israeli assets over the next decade.

A cyclical political shift reverts when the leader leaves office. A structural shift rewrites the rules of the game. Netanyahu's record suggests the latter. Before his first term, the Israeli political spectrum still contained leaders open to territorial compromise: Ehud Barak and Ehud Olmert engaged in serious, U.S.-backed negotiations with the Palestinians, and even the hawkish Ariel Sharon evacuated roughly 9,000 settlers from Gaza in 2005. Today, Kaye writes, the idea of Palestinian statehood is not merely unpopular — it is "not even up for debate." Netanyahu did not invent Israeli skepticism toward Palestinian statehood; Golda Meir famously denied the existence of a distinct Palestinian nation in 1969, and Menachem Begin signed the Camp David accords with Egypt precisely because they did not require him to come to terms with the Palestinians. What changed under Netanyahu is that the position moved from the hard right to the center of gravity.

The mechanism was political as much as military. In 1993, as opposition leader, Netanyahu likened Yitzhak Rabin's Oslo agreement with Yasir Arafat to Neville Chamberlain's appeasement of Hitler. The rhetoric helped create an atmosphere in which territorial compromise was treated as treason — an atmosphere that culminated in Rabin's assassination in 1995. Three decades later, the normalization is visible in the composition of Netanyahu's own government. His coalition includes National Security Minister Itamar Ben-Gvir, who was barred from military service in his youth for involvement with extremist groups, and Finance Minister Bezalel Smotrich, who has called for Israel to "wipe out Gaza" and repeat the Gaza campaign in the West Bank. Defense Minister Israel Katz has made parallel calls to apply the "Gaza model" to the West Bank and southern Lebanon.

The second pillar of the doctrine is the Iran consensus. Netanyahu spent years agitating for military action against Iran's nuclear program, often against the preferences of Washington and parts of his own security establishment. That position is now mainstream across Israel's political and security spectrum. Even Benny Gantz, the former IDF chief of staff and a leading opposition figure, described the Iran agreement as an "achievement" that could postpone Iranian nuclear capabilities by ten to fifteen years.

Some Israeli officials even argued against a U.S. withdrawal from the deal when the Trump administration threatened to do so without first establishing an alternative arrangement.

The War Economy the Market Has Already Priced

If the doctrine has become structural, the economy that funds it has become a fact of life — and the market has adapted with surprising equanimity. The headline numbers are striking. The TA-125, the Tel Aviv Stock Exchange's benchmark of its largest listed companies, has risen approximately 115 percent since the eve of the October 7 attacks, more than doubling in value despite three years of war. As of late October 2026, the index stood around 4,035 points, up roughly 24 percent year over year. Much of that performance has been driven by defense contractors. Elbit Systems, Israel's largest listed defense company and the fifth-largest component of the TA-125 at about 5.1 percent of the index, has seen its shares rise more than fourfold since 2021. By the end of 2025 its order backlog had reached $28.1 billion, of which 72 percent came from overseas customers.

That export orientation is the key to understanding the market's calm. Israel's defense industrial base no longer depends on the domestic budget; it depends on global demand for weapons that have been "battle-tested" in Gaza, Lebanon, and Iran. A government in Jerusalem can tighten fiscal policy while Elbit sells to buyers with large cheque books in Europe and Asia. This is why the index can climb while the underlying economy groans.

And groan it does. The costs of the Netanyahu doctrine are concentrated in the fiscal accounts and in the parts of the market the cap-weighted index does not show. The war is estimated to cost around one billion shekels per day. Between 2023 and 2026, Israel spent an estimated 350 billion shekels — about $118 billion — on wars in Gaza, Lebanon, Syria, and elsewhere, excluding the Iran conflict that began in late February 2026. Defense spending alone accounted for 249 billion shekels, or $84 billion, and its share of the economy almost doubled, from 5.2 percent of GDP in 2023 to more than 8 percent in 2024. The 2026 defense budget totals 142 billion shekels, roughly 8.8 percent of GDP — more than double the level before October 7, 2023. National debt has swelled to about 1.4 trillion shekels, or $480 billion, up from 1.07 trillion shekels, or $365 billion, before the war began.

The ratings agencies are watching. In July 2026, Moody's cut Israel's growth estimate for the year, citing elevated geopolitical risks and fragile ceasefire agreements, while maintaining its Baa1 credit rating with a stable outlook. The Bank of Israel's July forecast projected a 2026 budget deficit of 4.9 percent of GDP and public debt of about 69 percent. Add another 25 billion shekels to the defense budget, the bank warned, and the deficit could reach about 5.5 percent. Moody's has been explicit about the trigger for a downgrade: geopolitical tensions that point to a lasting, significant negative impact on the economy or government finances, slower growth, or a weakening of the judiciary. That last condition — the judiciary — is not incidental. Netanyahu's attacks on Israel's courts were part of the same political project as his security doctrine: concentrating authority in an executive freed from constraint.

The Second-Order Consequence: A Region Arming Itself

Here is the implication the market has not fully priced. Netanyahu's victory on Iran contains the seeds of its own undoing. He spent decades arguing that a nuclear-capable Iran was an existential threat justifying preventive war, and he succeeded in making that view the consensus of the Israeli political class. But the same logic is now spreading across the region, and it is producing exactly the kind of nuclear contest he claimed he was preventing.

On July 22, 2026, the United States and Saudi Arabia announced a nuclear cooperation agreement that would allow Riyadh to build nuclear reactors using U.S. technology and to enrich uranium on its own soil. The deal still requires approval from the U.S. Congress, but its existence signals a fundamental shift: the region is moving toward indigenous nuclear capability, with or without Israeli consent. Naftali Bennett, the former prime minister now challenging Netanyahu in the election, called the agreement a "serious strategic mistake."

Enrichment of nuclear material on Saudi soil could lead to a regional nuclear arms race and a dangerous loss of control.

The irony is sharp. Netanyahu's doctrine held that only military pressure — and, if necessary, military action — could keep Iran from becoming a nuclear threshold state. He applied that doctrine twice in 2025 and 2026, with U.S. participation. The result was not a denuclearized region. It was a Saudi Arabia negotiating the right to enrich uranium, a Gulf quietly hedging against an American security guarantee that proved conditional, and an Israeli political spectrum that now agrees on permanent war footing but disagrees on how to pay for it. The first-order effect of the Iran consensus was Israeli strikes. The second-order effect is regional proliferation. The third-order effect — the one investors should be watching — is that Israel's qualitative military edge, long underwritten by Washington, becomes less valuable in a neighborhood where multiple actors can threaten catastrophic retaliation.

This is where the "enduring doctrine" thesis meets its hardest test. A security strategy built on prevention works only as long as prevention is possible. Once the region crosses into widespread latent nuclear capability, prevention is no longer on the menu, and the doctrine has no successor. That is the gap between what Netanyahu built and what Israel now needs.

The Counter-Thesis: This Is a Netanyahu Bubble, Not a Regime Shift

The strongest argument against the enduring-doctrine view is that the war economy and the security consensus are tethered to Netanyahu personally — to his coalition, his rhetoric, and his survival politics. Remove him, the counter-thesis runs, and the consensus fractures. There is real evidence for this. United Torah Judaism left his coalition in 2025 and has said it will not block an Eisenkot-led government. Polls ahead of the October 27 vote show Netanyahu's Likud trailing former chief of staff Gadi Eisenkot's Yashar party, with projections of roughly 20 to 21 seats for Likud against 22 to 26 for Yashar. No bloc is projected to reach the 61 seats needed for a majority in the 120-member Knesset, which means coalition talks — not the vote itself — will decide who governs. War fatigue is real, economic pressure is mounting, and Netanyahu faces corruption trials and a public that blames him for the security failures of October 7.

But the counter-thesis mistakes the messenger for the message. Even if Netanyahu falls, the structural facts he created do not disappear: an Iran whose nuclear program has been damaged but not eliminated; a Gaza under indefinite Israeli military control; a West Bank settlement project that no mainstream party — left or right — will uproot; and a defense industrial base that now employs tens of thousands and depends on perpetual readiness. Eisenkot is not a dove. He is a former chief of staff whose party leads the polls precisely on security credibility. His campaign is built on competence in war, not withdrawal from it.

The falsifying signal for the enduring-doctrine thesis is specific and observable. If a post-Netanyahu government, within twelve months of taking office, announces a credible track toward Palestinian statehood and simultaneously begins demobilizing reserve forces while cutting defense spending below 6 percent of GDP, then the doctrine was personal after all. Nothing in the current polling or coalition arithmetic points in that direction. The more likely outcome is a government that prosecutes the same wars with cleaner management and slightly less inflammatory rhetoric.

What Comes Next: Three Time Horizons

Short term — the next few months. Expect election volatility and possible coalition deadlock. The market can absorb this because Israeli defense demand is externally funded: 72 percent of Elbit's backlog comes from abroad, and U.S. security assistance remains intact. The TA-125's 24 percent year-over-year gain suggests investors are treating Israeli political risk as noise rather than regime change. The risk here is a hung Knesset that produces weeks of uncertainty, but uncertainty is not the same as deterioration.

Medium term — one to three years. Fiscal pressure becomes the binding constraint. A deficit approaching 5.5 percent of GDP and debt near 70 percent leave limited room for maneuver. Policymakers face a trilemma: raise taxes, cut non-defense spending, or accept a ratings downgrade. Moody's has already flagged the conditions; Fitch has affirmed Israel's A+ rating with a stable outlook but warned on the same trajectory. This is where the war economy's bill comes due, and where a post-Netanyahu government would face its first real test of whether the doctrine is affordable.

Long term — five years and beyond. The structural verdict holds. The baseline of Israeli security thinking has shifted, and no mainstream politician benefits from moving it back. The two-state solution is not merely dormant; it has been pushed out of the operational toolkit of any viable coalition. The Iran threat is now the organizing principle of defense planning across the political spectrum. Future leaders will bring their own styles, but they will govern within the lines Netanyahu drew.

Three scenarios frame the path. The base case is a fragmented election result leading to a unity or narrow coalition, with defense spending staying elevated and the doctrine intact. The upside case — for the peace process, not necessarily for markets — is a landslide anti-Netanyahu majority with 61 or more seats and an explicit mandate to restart negotiations; current polling does not support this trajectory. The downside case is prolonged deadlock combined with escalated fighting in the West Bank or Lebanon, triggering a Moody's or Fitch downgrade and pressure on the shekel.

Netanyahu's real legacy may not be the settlements he expanded or the enemies he struck. It may be something quieter and more durable: he made permanent war feel normal, and markets, like electorates, adapt to what feels normal. The Israel he made can function without him — which is precisely why it may not change without him.

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