Smotrich cancels key financial protection for Palestinian economy
- Bezalel Smotrich has canceled the indemnity that protected Israeli banks when dealing with Palestinian banks.
- The cancellation follows sanctions imposed on him by several Western nations due to his controversial statements regarding Palestinians.
- This decision could disrupt the Palestinian economy significantly by risking its financial connections with Israeli institutions.
In the recent actions by Israel's Finance Minister Bezalel Smotrich, a significant decision was made that could have a profound impact on the Palestinian economy. On June 11, 2025, Smotrich instructed the Accountant General of the Finance Ministry to cancel the indemnity granted to Israeli banks, which protected them from legal liabilities in their dealings with Palestinian financial institutions in Judea, Samaria, and Gaza. This indemnity has been vital for the functioning of the Palestinian banking system, which heavily relies on transactions in shekels. Removing this safeguard poses risks to the stability of the Palestinian economy, particularly given its historical dependency on Israeli financial ties. The backdrop of these actions includes recent sanctions imposed by five Western nations against Smotrich due to his controversial statements and alleged incitement of violence against Palestinians. Following these sanctions, which influenced Smotrich’s decision-making process, he publicly articulated a long-held ambition to undermine the Palestinian Authority, citing its anti-Israel positions at international forums as justification. The relationship between Israeli and Palestinian banks has been crucial for monetary exchanges, with Palestinian banks processing over NIS 53 billion or approximately $14 billion in 2023 alone. Observers warn that removing the indemnity could lead Israeli banks to withdraw from financial interactions with Palestinian banks, severely hampering the latter's operations and steering the region towards a cash economy. This shift raises concerns that extremist elements may exploit the situation to enhance their activities, and Israeli security officials have expressed fears that such a move would undermine regulatory oversight of financial transactions. As the situation progresses, the Israeli government is expected to deliberate on their response to the sanctions and the implications of Smotrich's latest directives. The fallout from these financial changes could represent a considerable shift in the broader Israeli-Palestinian relations and intensifies the ongoing debate around sovereignty, violence, and the prospect of a two-state solution.