Israeli Finance Minister Bezalel Smotrich has cancelled a waiver that allows Palestinian banks to operate, hours after five Western governments announced sanctions against him and fellow ultra-nationalist Minister Itamar Ben-Gvir for inciting violence against Palestinians in the occupied West Bank. The decision has raised concerns about the potential devastating consequences for the Palestinian economy, which relies heavily on the Israeli banking system.
The waiver, which protects Israeli banks from potential legal action related to transactions with Palestinian banks, is crucial for the Palestinian financial system. Without it, Palestinian banks may struggle to operate, and the economy could face significant disruptions. Smotrich’s office linked the decision to the Palestinian Authority’s international advocacy against Israeli settlements in the occupied territories, describing it as a “delegitimisation campaign against the State of Israel internationally”.
The sanctions announced against Smotrich and Ben-Gvir were for their “incitement of violence” against Palestinians. However, Smotrich has a history of blaming the Palestinian Authority and punishing Palestinians in retaliation for international condemnation of Israel’s occupation. In July 2024, he announced that Israel would “recognise” five illegal Israeli settlements in the occupied West Bank after five countries recognised Palestinian statehood, stating that “for every country that unilaterally recognises a Palestinian state, we will establish a settlement”.
The potential collapse of the Palestinian financial system has raised alarm bells internationally. Janet Yellen, the US Treasury Secretary, warned last year that cutting Palestinian banks off from Israeli counterparts would create a humanitarian crisis. The UN has also warned that unilaterally cutting off Palestinian banks from the global banking system would be a violation of international law.
The decision to cancel the waiver is seen as a further escalation of tensions between Israel and the Palestinian Authority. The Palestinian economy is already struggling, and the loss of access to the Israeli banking system could have severe consequences for the Palestinian people. As Smotrich continues to implement policies that punish Palestinians, the international community is watching closely to see how the situation unfolds.