Israeli government redirects 1B shekels from Intel funds for munitions

Israel’s government approved a transfer of roughly NIS 1 billion, approximately $333 million, to the defense budget on August 9. The bulk of the money, some NIS 850 million ($283 million), was pulled from grant allocations originally earmarked for Intel’s semiconductor expansion in Kiryat Gat.

The funds were sitting untouched. Intel froze further construction and investment milestones at the facility back in June 2024 as part of a broader global spending review, and the project hasn’t resumed since.

How Intel’s biggest-ever Israel deal stalled out

The grants trace back to a 2023 agreement between Intel and Israel that was framed at the time as the largest corporate investment in the country’s history. The deal committed Intel to a significant expansion of its high-tech manufacturing footprint in Israel, with the government pledging billions in financial incentives to sweeten the arrangement.

Intel received an initial NIS 1.5 billion ($500 million) in 2024 to cover early project stages. A subsequent NIS 1.3 billion grant that had been slated for 2025 was already canceled. Now NIS 850 million of the remaining allocation has been rerouted to defense.

A separate NIS 1.06 billion ($353 million) grant for 2026 technically remains in the state budget, but it’s contingent on Intel actually resuming its investment activities.

Intel’s long history in Kiryat Gat

Intel’s presence in Kiryat Gat is not new. The facility has received government grants of NIS 1.2 billion in 2014 and NIS 700 million in 2018.

The 2023 expansion agreement was supposed to be the crown jewel of that relationship. Intel would deepen its manufacturing commitment, Israel would cement its position in the global semiconductor supply chain. Then Intel’s global financial picture shifted, as the chipmaker began pulling back on capital spending across multiple geographies as it reassessed its competitive position against rivals like TSMC and Samsung.

Defense spending wins the budget tug-of-war

The reallocation reflects a blunt reality about Israeli fiscal policy in 2026. Israel has been operating under sustained security pressures that have stretched its defense budget considerably, and redirecting unused tech subsidies to munitions procurement came while the alternative was letting the funds sit idle indefinitely while waiting for a multinational corporation to restart a frozen project.

For Intel, the company already received NIS 1.5 billion before the freeze, and its existing operations in Israel continue. The remaining NIS 1.06 billion earmarked for 2026 remains theoretically available if Intel resumes work.

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