Possible severing of Israeli-Palestinian banking ties stirs worries
Possible severing of Israeli-Palestinian banking ties stirs worries
Israel’s finance minister, Bezalel Smotrich, has said his country may effectively sever the links between the Palestinian and Israeli banking systems. U.S. Treasury Secretary Janet Yellen, along with many other officials, have said that would be disastrous.
“These banking channels are critical for processing transactions that enable almost $8 billion a year in imports from Israel, including electricity, water, fuel and food, as well as facilitating almost $2 billion a year in exports, on which Palestinian livelihoods depend,” she said.
Economist Samir Hulileh is chair of the Palestine Exchange, the Palestinian stock exchange. He also imports materials for his real estate business, including cement, iron, tiles and electrical appliances.
All of that comes through Israel, as do most imports into the West Bank and Gaza Strip. “Fifty-five, maybe 57% of our imports come from Israel,” he said.
That includes water and electricity. Ninety percent of Palestinian exports go to Israel. So while they’re politically at odds, the Palestinian and Israeli economies are very closely intertwined.
“We depend on Israel in imports and exports. We depend on Israel in labor employment,” said Naser Abdelkarim, a professor at the Graduate School of Business and Finance at Arab American University in Ramallah, West Bank.
Before Hamas attacked Israel on Oct. 7, 180,000 Palestinians in the West Bank were working daily in Israel or in settlements. That number has since come down to around 40,000.
Certain taxes for the Palestinian Authority, amounting to more than half of the PA’s revenue, also have to go through Israel. “So these huge economic ties resulted in huge banking ties,” Abdelkarim said.
To the point that the primary currency in the West Bank and Gaza is the Israeli shekel. And any time shekels need to move between Israel and the West Bank and Gaza — any time paychecks are wired or bills are paid or taxes are collected — an Israeli bank works with a Palestinian bank to make that happen, with a condition.
“They’re willing to do so only if they get indemnity from the government of Israel,” said Nadine Baudot-Trajtenberg, former deputy governor of the Bank of Israel and current vice chair of Esh Bank.
Commercial banks in Israel will work with banks in the West Bank and Gaza only if they get legal protection. “These commercial banks were afraid that they might be exposed to financial flows, which hide some money laundering going on or some terror financing,” she said.
So the government of Israel — and the U.S. government — provide waivers periodically that protect these banks from being sued. Until now. Israel’s finance minister, Smotrich, is threatening to let its waiver expire.
“Not only does that cripple Palestinians’ ability to engage with the rest of the world, it cripples their ability to engage with Israel,” said Jon Alterman, who directs the Middle East program at the Center for Strategic and International Studies.
As a result, he added, the already weak Palestinian Authority, with most of its revenue off-limits, could collapse, sending the West Bank into chaos.
The waiver expires July 1.
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