US Senate Vote on Settlements Could Impact Israeli Economy

A proposed bill in the US Senate concerning Israeli settlements, while unlikely to pass in its current form, could have significant future economic repercussions for Israel, according to Dr. Bella Barnea-Barquet. She warns that the legislation, which targets activities beyond the "green line," could indirectly affect Israeli banks, exporters, and companies by imposing a "tax of compliance" rather than an outright boycott.

The bill's potential impact stems from the increasing scrutiny of Israeli actions in the West Bank by the Democratic party. Although the Republican-controlled Congress may not pass the bill, a significant number of Democrats have supported measures against Israeli security aid and investigations into events in Judea and Samaria, indicating a broader trend in US policy. Barnea-Barquet emphasizes that the issue reflects a wider diplomatic challenge for Israel in Washington, exacerbated by perceived a lack of governance in the West Bank.

Barnea-Barquet explains that the economic fallout could extend beyond direct involvement in settlements. Major Israeli banks and infrastructure, communication, and insurance companies operate on both sides of the green line. The proposed sanctions could target the expansion of existing settlements, not just new construction, and the involvement of the dollar system would create systemic issues for the entire banking sector. She likens the potential impact to companies leaving Russia after 2022, not necessarily due to direct legal mandates but due to fear of repercussions and the immense fines associated with non-compliance.

This "tax of compliance" would manifest as rigorous due diligence on all transactions, with a constant question about "ties to settlements." Compliance departments in international banks often err on the side of caution, refusing any transaction with potential risk. Barnea-Barquet cites the 2024 sanctions on individual settlers, where some Israeli banks froze accounts beyond the US Treasury's requirements, demonstrating how fear of sanctions can lead to overcompliance. The proposed bill, with a potential effective date of September 30, 2026, could mean that companies involved in tenders today might be deemed non-compliant in the future.

Furthermore, Barnea-Barquet suggests that European countries might align with US actions, creating a unified Western front against Israeli settlement activities. She urges Israel to view this not as a mere congressional vote but as a significant regulatory risk, requiring immediate mapping of exposures by banks and companies, and a recognition by the government that every decision on the ground is being monitored in Washington.