Economists Warn Sanctions on Settlements Could Cripple Israel's Economy

Sixty-one senior economists, academics, and former officials from Israel's Treasury and Bank of Israel have signed a letter warning that international actions against Israeli settlements could have severe repercussions for the entire Israeli economy. The letter, published by the Economists Forum, states that the failure to prevent "Jewish terrorism" against Palestinians in the West Bank is causing significant diplomatic damage and international isolation, leading to a heavy economic price for all citizens.

The immediate catalyst for the warning appears to be recent riots and attacks by lawbreakers in the West Bank, which targeted a Washington Post photographer and European diplomats. These incidents have sparked outrage and concern among Israeli representatives abroad, with some calling them "strategic failures" that would normally lead to the arrest of perpetrators.

The economists argue that the current situation, characterized by what they perceive as the government's "aggressive policy," particularly concerning Gaza post-October 7, is being interpreted internationally as tacit government support for the violence. They fear this will lead to an expansion of sanctions beyond settlement-related entities to encompass Israel's financial system.

Specific measures mentioned include potential import bans from settlements by the UK, import restrictions in the Netherlands, and similar intentions from France and Canada. In the US, Democratic senators have proposed legislation for sanctions against those involved in settlement construction. The UN has also expanded its blacklist of companies linked to settlements to 214 firms from 11 countries, including all major Israeli banks and the food company Tnuva.

The primary concern is that sanctions could escalate to include construction and infrastructure companies, banks, insurance firms, and other financial institutions. The economists highlight that unlike physical products, which are easier to trace, credit systems, payment networks, insurance, and supply chains are deeply integrated into the entire Israeli economy. This integration could lead to a "chilling effect," where foreign banks, retailers, and multinational corporations reduce ties with Israeli companies to avoid legal and regulatory risks, even if their direct connection to settlements is unclear.

Such an escalation, particularly if it affects a significant portion of Europe and spreads throughout the economy, could worsen the macroeconomic damage exponentially. The letter also points to existing impacts on academia, culture, sports, and even the defense industry, citing difficulties in acquiring parts for the new INS Drakon submarine. The economists stress that the sanctions will likely lead to a significant increase in the cost of living, urging immediate action to prevent further damage while it is still possible.