Baku is drifting away from Israel: Who will seize the market?
Israel is facing growing criticism from Azerbaijan, partly due to the government's recognition of the Armenian genocide. Despite a nice deal closed for Rafael systems, companies fear that the trend of shrinking deals with the strategic client will continue. Among the sources of concern: the onslaught of American companies and an unexplained delay in deciding on a space tender.
The security relationship between Israel and Azerbaijan has for years been a model of shared interests, built in no small part thanks to the chemistry between Prime Minister Benjamin Netanyahu and President Ilham Aliyev. However, in recent months, the winds in Baku have been changing. Alongside advanced negotiations on strategic deals, Israel finds itself under sharp criticism from the Muslim partner that is drawing closer to the Palestinian Authority.
In the Israeli defense industries, the concern is already tangible: the volume of Baku's purchases from Jerusalem is shrinking, while global competition is shifting into high gear.
This diplomatic tension does not remain merely at the level of statements; it is seeping directly into the field and into the massive tenders on the agenda. Now, two significant deals in the fields of missiles and space are putting the future of the security partnership to the test — just as competitors from the USA, South Korea, and Europe identify the opportunity and are pouncing on the Azerbaijani market.
Growing business competition with the Americans
Two significant deals are on the agenda, one as a result of negotiations in the missile field, and one based on a tender in the space field. One deal that was recently closed after prolonged negotiations by the Ministry of Defense with counterparts in Baku is a G2G (government-to-government) deal centered on systems produced by Rafael: the Spike series of tactical missiles and torpedoes.
This is a nice deal estimated at hundreds of millions of dollars, but the challenges on the ground are multiplying — and not only for political reasons. American companies identified Azerbaijan's potential over the past year, and it is not just about giants like Lockheed Martin, Boeing, and RTX. Senior figures in the defense industries identify growing activity in Baku by the American company Ondas. Ondas is led by a series of Israeli senior officials, with the latest to join them just this past week as president and chairman being former Mossad chief Dadi Barnea.
However, the company's activity in Azerbaijan began even earlier — with figures who had already worked with Baku in the business field. Thus, for example, Brig. Gen. (res.) Oshri Lugasi, former Chief Engineering Officer and Engineering Officer of the Northern Command, currently manages the security activity of Ondas, after previously serving as VP of Marketing for Rafael. Beyond that, one of Ondas' senior consultants is Maj. Gen. (res.) Yoav Har-Even, former CEO of Rafael, during whose tenure very many deals were made with Baku.
Although American industries have not yet entered there on a large scale, Ondas has a relative advantage: Israeli employees who have already developed connections, know the local culture, and worked with Azerbaijan in their previous roles. Ondas sees Azerbaijan as an important destination. The company operates in several regions of the world and is examining opportunities in various markets.
The American possibility to sell defense products to Baku opened only about a year ago, with the signing of the framework agreement for peace between Azerbaijan and Armenia — a step that led to the lifting of the American arms embargo.
The competition does not come only from the US, and South Korea is also courting Azerbaijan to sell it frigates. This is a move that will reduce the need for Israeli systems, because the ships are expected to arrive equipped with systems produced in Seoul.
Diplomatic cracks and the rising Turkish front
On the official level, Baku avoids addressing in detail the use of Israeli defense products, but when it has criticism — it makes sure to voice it well. Immediately after the Israeli government's decision to recognize the Armenian genocide, Azerbaijan published a sharp condemnation, blocked the move for official recognition in the Knesset, and did not try to hide it. Hikmet Hajiyev, Aliyev's senior advisor, noted this week that the step caused deep concern in Baku.
According to him, support for the interests of Turkey, which they view as a "sister state," stands at the top of national priorities. "By the president's order, we made it clear to the Israeli side that such a step does not reflect historical reality and is not fair. Israel seriously considered the Azerbaijani position, and we believe that the legislative process has stopped."
Since that government move, which did not become official because state recognition requires Knesset approval, the Azerbaijanis are taking care to convey messages also through bypass channels — and suddenly are engaging a lot in the Palestinian issue. Among other things, Aliyev hosted Palestinian Prime Minister Mohammad Mustafa, expressed "support for a Palestinian state with East Jerusalem as its capital," and pledged to assist the Palestinian embassy in Baku financially. Hajiyev even referred a few days ago to the humanitarian aid that Azerbaijan is transferring to the Palestinians.
For the Azerbaijanis, the rapprochement with the Palestinians serves the close relations with Turkey, based on the concept of "one nation, two states" (Bir millet, iki devlet) due to the shared Turkish roots. Dr. Hay Eitan Cohen Yanarocak, an expert on Turkey at the Moshe Dayan Center at Tel Aviv University and the Jerusalem Institute for Strategy and Security, explains that Azerbaijan is trying "not to become holier than the Pope," but is maneuvering within the boundaries of humanitarian aid and international law.
"In Baku, they assess that these steps will not break the tools with Israel, even if it does not like them, and thus they can broadcast solidarity with Turkish foreign policy," explains Yanarocak. "Baku is aligning with Ankara, strengthening ties with the Palestinians, and making it clear: if Azerbaijan stands at a crossroads and is required to choose between Turkey and Israel — the inclination will clearly be in favor of Turkey."
Alongside this, in Azerbaijan, there is a noticeable gap between the government and public opinion. While senior officials like Hajiyev maintain cautious diplomatic language and avoid touching on particularly sensitive issues, criticism of Israeli military activity is heard well in the local media and in the flood of reactions on social networks, which illustrate how the public is becoming more pro-Turkish. "We hear polite criticism from senior officials in Azerbaijan," says a senior figure in the Israeli defense industries. "For now, it amounts to footnotes, but it is hard to know how long this will last."
Ongoing delay in the satellite tender
On the ground, if in the past Israel supplied Azerbaijan with a wide variety of systems, today the volume of purchases is shrinking — both due to Baku's transition to self-production and due to purchases from other countries, including Turkey. The assessment in Israel is that this trend will continue in the coming years, and the anchors that will survive will be in areas where Azerbaijan cannot find alternatives of similar quality: command and control aircraft, air defense systems, artificial intelligence, and long-range radars.
In the shadow of all these stands a strategic tender that Azerbaijan is delaying in deciding. As revealed in Globes last July, Israel Aerospace Industries (IAI) is included in the list of four final candidates in the tender for the purchase of an advanced communication satellite, in a deal estimated at 300 to 800 million dollars. Baku demands a satellite of the highest level, similar to the Israeli "Dror 1" — one that will provide an answer for national communication for years to come.
IAI's main competitor in the tender is from "Thales Alenia Space" (a collaboration between the French Thales, which holds 67%, and the Italian Leonardo with 33%), alongside Turkish Aerospace Industries (TUSAŞ). The announcement in the tender was expected already about ten months ago, but Baku is delaying the decision for reasons that are unclear.
From an optimistic point of view, a scenario in which IAI wins is definitely reasonable even today, thanks to it being a global technological leader in the space field and its long-standing connection with Baku. In October 2023, for example, the company signed a deal with the "Azercosmos" agency for the sale of two OptSat500-type satellites, in an amount estimated at about 120 million dollars.
On behalf of IAI, it was stated that "the company does not comment on the business activity it conducts with clients." On behalf of the Ministry of Defense, Rafael, and Ondas, no response was provided.
