Israel’s Finance Minister Cancels Banking Waiver for Palestinians After Sanctions by Western Allies
Israel’s far-right Finance Minister Bezalel Smotrich has revoked a critical banking waiver that enables Palestinian financial institutions to operate, a move that could trigger severe economic disruption in the occupied West Bank.
The cancellation came just hours after five Western nations — Australia, Canada, New Zealand, Norway, and the United Kingdom — jointly announced sanctions against Smotrich and fellow far-right figure Itamar Ben-Gvir for inciting violence against Palestinians.
In a statement issued Tuesday, Smotrich’s office said he had instructed the Accountant General, CPA Yali Rothenberg, to terminate the government’s indemnity protection for Israeli banks working with Palestinian counterparts. Without this legal shield, Israeli banks may cease all cooperation with Palestinian financial institutions, potentially severing the Palestinian economy from essential banking services.
The Palestinian Authority (PA), which lacks its own currency or central bank, depends on the Israeli banking system to conduct financial transactions. Most trade in the West Bank and Gaza is conducted in Israeli shekels. The waiver has historically protected Israeli banks from legal liabilities arising from these transactions.
Experts and officials warn that the waiver’s removal could devastate the fragile Palestinian economy.
“This decision threatens to plunge the West Bank into a financial and humanitarian crisis,” said a senior Palestinian official, who spoke on condition of anonymity. “It is collective punishment of our people.”
U.S. Treasury Secretary Janet Yellen previously warned in 2024 that severing ties between Israeli and Palestinian banks would risk “a humanitarian crisis.” G7 nations and the United Nations have also raised alarms about the consequences of ending the arrangement.
Smotrich linked the move directly to the Palestinian Authority’s international advocacy against Israeli settlements, accusing the PA of orchestrating a “delegitimisation campaign” against Israel. His office framed the waiver cancellation as a response to this diplomatic pressure.
The timing also coincided with the sanctions announced by Western governments, though Smotrich’s office did not acknowledge a direct connection.
The finance minister has long called for punitive measures against the PA. In July 2024, after several European countries recognised Palestinian statehood, Smotrich responded by authorising the recognition of five illegal Israeli settlements in the West Bank. He vowed at the time:
“For every country that unilaterally recognises a Palestinian state, we will establish a settlement.”
He has also threatened to push for the annexation of the occupied West Bank if the International Court of Justice rules Israeli settlements illegal.
Critics say the waiver’s termination violates international law and risks isolating Palestinians from the global financial system.
The UN has cautioned that cutting off Palestinian banks without due process would breach the principles of international humanitarian and financial law.
Israeli Prime Minister Benjamin Netanyahu’s government has previously extended the waiver under international pressure, but Smotrich and Ben-Gvir — both known for extreme-right positions — have opposed its renewal. Ben-Gvir has publicly stated that the Palestinian Authority should be dismantled and its financial systems collapsed.
Following a previous vote in November 2024, Ben-Gvir posted on X (formerly Twitter) that he had a “principled objection” to protecting Israeli banks that cooperate with Palestinian institutions. He has been convicted in Israeli courts for supporting a terrorist organisation and possessing its propaganda.
While the sanctions from Western governments were focused on incitement to violence, analysts suggest the cancellation of the banking waiver is part of a broader pattern of retaliation by Israel’s far-right ministers.
With input from Al Jazeera
