Israeli defense firms are exploring options for setting up manufacturing plants in Cyprus, Cypriot news site *Philenews* reports. This option is particularly attractive due to the island's physical proximity to Israel, the fact that the neighboring island is an EU member state and the flourishing Israel-Greece-Cyprus defense pact.
A growing physical presence in Europe, whether in Cyprus or in countries like Germany, is critical for Israeli defense companies’ participation in the EU SAFE program. This program facilitates the financing of defense deals worth up to €150 billion, provided that 65% of the deal’s value involves procurement from EU member states or Ukraine. "Philenews" reports that the interest shown by major defense companies in setting up production lines in Cyprus was a key topic during President Isaac Herzog’s visit to Cyprus last Thursday.
Sources familiar with the matter told the Cypriot media outlet that, alongside manufacturing operations, the Israeli companies aim to establish management headquarters on the island. For Nicosia, hosting strategic infrastructure for companies such as Elbit, Israel Aerospace Industries (IAI), and Rafael offers a dual benefit: an economic boost through job creation and tax revenue, and the strengthening of advanced defense capabilitiesat a time of a growing threat posed by Turkey in general, and President Recep Tayyip Erdo?an in particular.
Defense deals despite political tension
For political reasons, formal diplomatic relations between Israel and some EU countries are strained. But Europe has been unable to find viable alternatives to Israeli defense products. *Politico* noted that within the framework of defense ties between Israeli defense firms and European nations, Elbit’s C4I and Cyber Division won a €25 million contract in the Netherlands last year to supply battle management systems. Meanwhile, in Spain, one of the most anti-Israel countries in Europe, the regional government of Madrid received assistance in January from Israel’s National Cyber Directorate to protect critical infrastructure.
Germany, of course, stands out among all EU nations. First, there is the Arrow 3 deal, comprising an initial 2023 agreement worth $3.5 billion and a follow-on deal - revealed by *Globes*- worth a further $3.1 billion. Rafael recently finalized a deal with the state of Lower Saxony and Aurelius- a multinational investment fund founded in Israel - to acquire a Volkswagen plant in Osnabrück, where components for the Iron Dome system will be manufactured.
"Philenews" reportds that the discussions held by President Herzog with his Cypriot counterpart, Nikos Christodoulides, on the establishment of Israeli defense manufacturing facilities in Cyprus draws inspiration from examples in other European countries. For instance, Romania has become a key European production hub for Elbit, accounting for some 1,000 direct jobs (engineers and technicians) and over 2,500 indirect jobs (local suppliers).
Meanwhile Greece recently signed the "Achilles Shield" deal, involving the sale of three Israeli air defense systems to Greece for €3.1 billion ($3.6 billion). This agreement, which involves delivery of Rafael’s David’s Sling and Spyder systems, as well as IAI’s Barak MX, within 35-months, incorporates integration of Greek companies, with their share valued at about €700 million (22.5% of the total contract).
Published by Globes, Israel business news - en.globes.co.il - on September 14, 2026.
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