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Western officials warn of ‘catastrophe’ if Israel cuts off Palestinian banks

May 23, 2024 at 1:14 pm

A burned Israeli 100 shekel banknote found in the rubble of destroyed buildings following Israeli airstrikes in a residential area west of Gaza City, Gaza, on 5 November 2023 [Ahmad Salem/Bloomberg via Getty Images]

Western officials have warned of an “economic catastrophe” in the occupied West Bank if Israel does not extend guarantees to Israeli banks that deal with Palestinian banks against potential litigations.

On Wednesday, Israeli Finance Minister, Bezalel Smotrich, demanded Prime Minister, Benjamin Netanyahu, impose a series of “punitive measures” against the Palestinian Authority (PA) including halting the transfer of tax revenues as well as not extending guarantees to Israeli banks that deal with Palestinian financial institutions.

This came after Ireland, Norway and Spain announced that they would recognise the State of Palestine and the International Criminal Court (ICC) requested arrest warrants to be issued against Netanyahu and Defence Minister Yoav Gallant on charges of “war crimes” and “crimes against humanity”.

The Israeli government grants immunity from prosecution to Bank Hapoalim and Bank Discount against allegations of financing terrorism. The two banks implement the relationship between Palestinian banks and the Israeli banking system, as well as financial transactions between Palestinian banks and countries around the world.

The Israeli finance minister commits to protecting the two Israeli banks and compensating them for any penalties that could be imposed on them if claims are brought against them in other countries for dealing with Palestinian banks.

These guarantees are renewed annually.

The Financial Times said the guarantees, which are set to expire on 1 July, allow payments for vital services and salaries tied to the Palestinian Authority (PA), and facilitate the import of essentials such as food, water and electricity into the occupied Palestinian territories.

READ: War, lack of electricity mean banks can’t operate in Gaza, Palestine Monetary Authority says

Without this exemption, Israeli banks will stop dealing with Palestinian financial institutions, and the Palestinian economy will effectively stop over time, according to three Western officials.

The newspaper quoted a US official as saying: “The point that we’re making . . . is that you shouldn’t be threatening people’s access to food, electricity and water at a moment like this, especially in the West Bank.”

Not renewing the waiver “will be to the detriment not only of Palestinian interests but also to Israel’s and the region’s security and stability,” the official added.

Adding that Washington is leading efforts to ensure the waiver is renewed, soliciting allies to exert pressure on Netanyahu’s government. The matter is expected to be discussed at the upcoming G7 finance ministers meeting this week in Italy.

US Treasury Secretary Janet L. Yellen yesterday warned Israel against cutting off ties between Palestinian and Israeli banks, arguing that such a move would further destabilise the economy of the West Bank at a time when Palestinians are already facing dire economic conditions.

Yellen added that the banking channels were critical for processing transactions that allow $8 billion a year of imports of food, fuel and electricity from Israel and $2 billion of Palestinian exports.