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Iran to profit from Israel's submarine deal

Shabnam von Hein
December 21, 2016

Israel is purchasing German submarines to protect itself against its archenemy Iran. However, the Islamic Republic stands to profit from the deal financially.

Deutschland Lieferung von Dolphin U-Booten an Israel
Image: picture-alliance/dpa

In a cabinet meeting in late November, Israeli Prime Minister Benjamin Netanyahu emphasized that the new submarines were absolutely necessary to ensure Israel's existence. The Dolphin-class submarines, made by Germany's ThyssenKrupp Marine Systems (TKMS), are to conduct reconnaissance missions off the coast of Iran. They could also see action should there ever be a military conflict between the two countries. 

Israel feels threatened by Iran, and Iran refuses to acknowledge the existence of the state of Israel. Netanyahu is up in arms about the nuclear deal between Iran and the UN Security Council and Germany, which US President Barack Obama has said will make the world a safer place. The Israeli prime minister is convinced that Iran remains dedicated to becoming a nuclear power. Israel's new Dolphin-class submarines could also be retrofitted to carry nuclear warheads. "These are strategic weapons systems that ensure the future and, I tell you, the very existence of the state of Israel for decades to come," stressed Netanyahu.

Iran: A major investor

But one country will profit from the deal immediately: Iran. Israel's archenemy is one of ThyssenKrupp's investors, and it has been so since 1974.

Benjamin Netanjahu Kabinett
Netanyahu: The submarines ensure 'the very existence of the state of Israel'Image: picture-alliance/dpa/Ronen Zvulun/Pool

During the shah era, the governments of Iran and Israel were the best of friends. Both were also allies of the United States. With its coffers overflowing after the oil crisis of the early 1970s, Iran went on an international shopping spree. At the time, Iran invested $400 million (383 million euros) in Germany's Krupp corporation, purchasing 25 percent of its shares. 

After the Islamic revolution in 1979, Iran entered a long war with Iraq. Iran needed cash, and sold off a portion of its shares. Yet it still held about 8 percent of the company's equity share.

$100 million in profits?

In 2003, that share shrunk further: Mohammed ElBaradei, then director general of the International Atomic Energy Agency (IAEA), published a report accusing Iran of hiding certain nuclear materials and activities. Under pressure from the US, the conglomerate ThyssenKrupp eventually bought back shares from Iran. The company saw to it that Iranian investments made up less than 5 percent of its equity share. To do so, ThyssenKrupp paid Iran 406 million euros, which was three times market value at the time.

Currently, Iran is thought to hold about 4.5 percent of the company's total shares. Responding to a DW inquiry, ThyssenKrupp said that neither Iran, nor any other investor, had the right to information or influence regarding sales decisions at the company. ThyssenKrupp says that investors receive only dividends.

The three new submarines to be built for Israel will carry a price tag of 1.2 billion euros. It is unclear how much profit Iran will see from the deal. The Israeli newspaper "Haaretz" estimates that Iran has made roughly $100 million dollars in profits from its investment in ThyssenKrupp over the last 10 years. No one wants to talk about the investment in Tehran.

Deutschland U-Boot Werft ThyssenKrupp Marine Systems Kiel
ThyssenKrupp Marine Systems is delivering the submarines to Israel for 1.2 billion euros ($1.25 billion) Image: picture-alliance/dpa/C. Charisius

Controversial in Israel and Germany

Israel already has five Dolphin-class submarines, and another is scheduled to be delivered in 2017. The country's former defense minister, Moshe Yaalon, says Israel does not need any more submarines. "I was strongly opposed to the purchase of three new submarines," he said in November. Yaalon resigned in May, after a spat with Netanyahu.

Meanwhile, Israel's attorney general has called for an investigation of the deal, which is shrouded in accusations of cronyism: Netanyahu's personal legal adviser also represents an Israeli businessman that works for ThyssenKrupp as a sales partner. He could stand to make millions in profits should the deal go through. It remains unclear whether there is any substance to the corruption allegations. Netanyahu claims to have known nothing of the connections. The investigation is ongoing.

The fact that the Dolphin-class submarines could also be outfitted with nuclear warheads - a touchy issue in the turbulent Middle East - has sparked debate over the deal in Germany as well. Israel has never admitted that it possesses nuclear weapons, but experts estimate that it has between 100 and 200 nuclear warheads and missiles.

Iranian hardliners oppose the nuclear deal

Israel's interest in purchasing three new submarines has given hardliners in Tehran one more reason to criticize the nuclear deal and accuse the reform-minded government of Hassan Rouhani of failure. The "Fars News Agency," a news outlet with close ties to Iran's Revolutionary Guard, claims that Israel is preparing for a potential nuclear war with Iran.

US-Präsidentschaftskandidat Donald Trump mit Benjamin Netanjahu
Netanyahu and Trump both strongly oppose Iran obtaining nuclear weaponsImage: Picture-alliance/dpa/K. Gideon

The powerful Revolutionary Guard was strictly opposed to the nuclear deal. It was reported that Iran had enough nuclear material to build an atomic bomb before the deal was signed. The agreement stipulates that this material is to be reduced to just a fraction of that necessary to make an atomic weapon. This limitation will remain in place for 15 years.

And that is exactly where hardliners see Rouhani's failure. Netanyahu's intention of meeting future American president Donald Trump to discuss ending the agreement seems to suit the wishes of Iran's hardliners. That will bring difficulties for the current reform-minded administration in Tehran ahead of next May's Iranian presidential elections, and possibly thwart its plans to further open the country.

"There are a number of ways to annul the deal," says Netanyahu. During the recent US presidential election, Donald Trump called the deal - which was signed in July 2015, after years of negotiations - a "catastrophe."