Norway’s sovereign wealth fund, the world’s largest, has intensified its divestment from Israeli companies and, most recently, from the American construction giant Caterpillar, marking a pivotal moment in the growing campaign to economically isolate Israel over its ongoing military actions in Gaza and the West Bank. The move has not only drawn sharp criticism from Israeli and American officials but has also triggered a diplomatic spat with U.S. lawmakers threatening economic repercussions against Norway.
Norway’s Government Pension Fund Global, which once had investments in Israel estimated at $1.9 billion, has been gradually pulling out of Israeli markets in response to what it describes as mounting evidence of genocide and human rights violations in Gaza. This divestment is part of a broader shift in Norwegian policy, which has seen the country take a leading role among European nations—alongside Spain, Ireland, and Slovenia—in criticizing Israel’s military campaign and supporting international legal efforts to hold Israeli leaders accountable. In May 2024, Norway formally recognized the state of Palestine and actively contributed to the International Court of Justice’s investigation into alleged genocide.
The Norwegian fund’s latest decision to exclude Caterpillar, a U.S.-based construction equipment manufacturer, was based on an ethics council review that found, “There is no doubt that Caterpillar’s products are being used to commit extensive and systematic violations of international humanitarian law.” The council’s findings specifically cited the use of Caterpillar bulldozers by Israeli authorities in the “widespread unlawful destruction of Palestinian property,” echoing long-standing concerns raised by the Boycott, Divestment, and Sanctions (BDS) movement.
This move, however, quickly drew the ire of U.S. Senator Lindsey Graham, who took to social media to condemn Norway’s actions. “Your BS decision will not go unanswered,” Graham wrote on X (formerly Twitter). He went on to threaten that he would seek to “put tariffs on countries who refuse to do business with great American companies” or refuse visas to those “punishing U.S. companies for geopolitical differences.” In a pointed message to Norwegian officials, he added, “If you cannot do business with Caterpillar because Israel uses their products, maybe it’s time you’re made aware that doing business or visiting America is a privilege, not a right.”
Graham’s response is emblematic of the broader American political establishment’s unwavering support for Israel, even as international scrutiny of Israel’s actions in Gaza intensifies. In June 2025, Graham summed up his foreign policy philosophy with the declaration, “God blesses those who bless Israel.” According to reports from the Middle East Monitor, Graham has been a consistent advocate for Israel, reportedly receiving significant backing from pro-Israel lobbying groups throughout his political career.
Norway’s financial and diplomatic actions come at a time when Israel’s economy is already under severe strain. The initial shock to the Israeli economy stemmed from deep political instability under Prime Minister Benjamin Netanyahu, whose controversial efforts to overhaul the judiciary eroded investor confidence and sparked widespread domestic unrest. The outbreak of war in Gaza on October 7, 2023, only accelerated the economic downturn, pushing an already fragile system toward crisis.
According to the Israeli Ministry of Finance, foreign direct investments in Israel fell by an estimated 28% in the first half of 2024 compared to the same period in 2023. While some reports suggested a partial recovery, analysts noted that much of the renewed investment was driven not by global confidence but by a surge in U.S. financial support. The World Bank estimated Israel’s Gross Domestic Product at around $540 billion by the end of 2024, but the ongoing conflict has taken a considerable toll. As reported by the Israeli business newspaper Calcalist, the cost of the war on Gaza reached more than $67.5 billion by January 2025, covering expenses up to the end of the previous year.
The economic contraction has continued into 2025, with the Israeli Central Bureau of Statistics reporting that the economy shrank by another 3.5% between April and June. Even with unprecedented U.S. financial backing, including annual aid and emergency supplemental appropriations, the outlook remains grim. The United States has long provided Israel with $3.8 billion in annual aid under a 10-year Memorandum of Understanding signed in 2016, along with valuable loan guarantees that help Israel borrow at lower interest rates. In April 2024, a U.S. emergency supplemental appropriations act allocated an additional $26.4 billion for Israel, ostensibly for defense but, in practice, also helping to sustain the broader Israeli economy and its military industry.
This American support has been crucial in preventing a total collapse, but it has not stopped the exodus of foreign investors concerned about reputational risks and ethical considerations. As the Norwegian fund’s actions illustrate, a growing number of institutional investors are reevaluating their relationships with companies and markets linked to alleged human rights abuses. Norway’s decision to divest from Caterpillar followed a thorough ethics review, with the council concluding that continued investment would be inconsistent with the fund’s commitment to international law and humanitarian principles.
The backlash from U.S. politicians like Graham highlights the increasingly contentious intersection of business, ethics, and geopolitics. Graham’s threats to impose tariffs or restrict visas for Norwegians reflect a willingness among some American lawmakers to use economic leverage to defend both U.S. corporate interests and the U.S.-Israel alliance. This is not the first time Graham has wielded such threats; in November 2024, he warned that countries complying with International Criminal Court arrest warrants against Israeli Prime Minister Netanyahu would face “draconian sanctions.” “If you help the ICC, we’re going to crush the economy,” he said, making clear the potential consequences for those challenging U.S. and Israeli interests on the international stage.
For Norway and other European countries taking similar stances, the risks are not insignificant. Yet, their actions signal a growing willingness to prioritize ethical investment and international law over traditional alliances and economic considerations. The Norwegian government’s recognition of Palestine, support for legal proceedings at the International Court of Justice, and ongoing divestment from companies implicated in violations all reflect a coherent strategy to pressure Israel and its backers to change course.
Meanwhile, the economic and diplomatic fallout continues to ripple outward. Israel faces mounting financial pressures, with its economy shrinking and its international reputation increasingly tarnished. The U.S. remains a steadfast supporter, but even American aid may not be enough to offset the cumulative impact of international divestment and legal challenges.
As the situation evolves, the world will be watching to see whether Norway’s bold moves inspire further action from other nations and institutions—or whether the backlash from powerful allies like the United States will succeed in blunting the momentum for change. One thing is clear: the intersection of ethics, economics, and geopolitics has rarely been more fraught or consequential.