Eisenkot Tasked with Forming Israeli Government Amid Regional and US Policy Shifts

Israel’s political landscape has shifted as President Isaac Herzog officially tasked Gadi Eisenkot, leader of the centrist Yashar party, with forming the next government. Eisenkot, a former military chief, now has 28 days to secure a coalition to replace Benjamin Netanyahu’s religious-nationalist administration. While Netanyahu’s Likud remains the largest party with 27 seats, Eisenkot secured the backing of 67 Knesset members compared to Netanyahu’s 46. This mandate represents a critical juncture for the Israeli market, as the incoming government must navigate a complex geopolitical environment involving Iran and the implementation of Trump's 20-point plan for Gaza.

The urgency for a stable government is compounded by external pressures. President Herzog noted that the country faces a new political reality following the November 3 midterm elections in the United States, which saw victories for figures critical of US military support for Israel. For venture investors and founders in the Silicon Valley-Israel corridor, this instability poses a risk to the defense-tech and cybersecurity sectors that rely on bilateral cooperation. Herzog emphasized that Israel needs a government capable of negotiating futures with Lebanon and other neighbors while addressing the threat from Iran, which he stated is not waiting a second.

Eisenkot’s path to a 61-seat majority is fraught with contradictions that could impact domestic policy and labor markets. His four-party alliance holds 48 seats, while Netanyahu’s bloc holds 53. To reach a majority, Eisenkot must either rely on the 19 seats held by Arab-led parties or court the ultra-Orthodox parties, United Torah Judaism and Shas. Al Jazeera reports that Eisenkot has ruled out a formal government with Arab-led parties, despite their historic support for him. Conversely, a deal with ultra-Orthodox parties would likely require Eisenkot to abandon campaign promises regarding military conscription for religious students, a move that would maintain the current labor market status quo.

The economic and security implications of this coalition-building are significant. Eisenkot has proposed a national emergency government and even suggested openness to including Netanyahu and Finance Minister Bezalel Smotrich if they prioritize unity. DW reports that Eisenkot has pledged to secure a Gaza Strip without Hamas rule within 18 months, a timeline that contrasts with the current administration's policies. Such a shift would likely involve significant changes in how the region is governed, potentially impacting infrastructure and technocratic oversight as proposed in US-brokered agreements. This transition period is critical for firms operating in the region's defense and reconstruction sectors.

If Eisenkot fails to form a coalition within the initial 28-day window, Herzog can grant a 14-day extension. Failure at that stage would likely see the mandate pass to Netanyahu. Critics, according to Al Jazeera, suggest Netanyahu may attempt to sabotage the confidence vote to remain caretaker prime minister and force another round of elections. For the venture capital ecosystem, prolonged political gridlock and the potential for a sixth election cycle would extend a period of regulatory uncertainty, particularly regarding annexation policies in the West Bank and the stability of the tech-heavy Israeli economy.