Israel threatens economic retaliation as Palestinians seek unilateral statehood
Moves by several European countries to recognize Palestinian statehood have emboldened Palestinian leader Mahmoud Abbas to push for unilateral statehood at the UN, but risk an Israeli backlash that would likely bankrupt the Palestinian Authority.
Israeli Finance Minister Bezalel Smotrich
An associate of Abbas told The Press Service of Israel, “Abu Mazen’s goal is to gain full membership in the United Nations, even at the cost of a head-on confrontation with the United States and the people of Israel,” adding that the PA leader “took good advantage of the Israeli political weakness as a result of the war in the Gaza Strip.”
According to the Palestinian Authority’s Ministry of Foreign Affairs, 147 of the UN’s 193 member states now support Palestinian statehood, On Monday, Norway, Ireland and Spain announced that they will jointly make their recognition official on May 28 while Colombia said it will open an embassy in Ramallah. Moreover, six Arab foreign ministers are demanding that the United States pressure Israel to accept a road map leading to a Palestinian state within three years.
However, Ramallah is deeply concerned about a financial backlash from Israel, specifically a threat by Finance Minister Bezalel Smotrich to sever all ties between the Israeli and Palestinian banking systems. A waiver allowing Israeli banks to process shekel payments for Palestinian Authority salaries and services expires on July 1 and Smotrich suggested he will not renew the indemnity.
Smotrich also called on Prime Minister Benjamin Netanyahu to cancel a mechanism for indirect Israeli financial transfers to the PA known as the Norwegian outline. This mechanism was created in January to prevent the Palestinian Authority from transferring funds to Hamas.
“The Palestinian Authority is now at the closest point to a final economic collapse,” a senior Palestinian Authority official told TPS-IL.
He said that Arab countries are not prepared to provide financial aid to Ramallah, except for Algeria, which recently agreed to transfer a total of $55 million. That sum, according to the source, will only pay a small part of the salaries of PA employees and police officers.
The official also told TPS-IL that the Palestinian Monetary Commission is trying to formulate a plan to base itself on the Jordanian dinar.
But a Palestinian economist told TPS-IL, “The Palestinian market relies on the Israeli shekel and the Palestinian Authority will not be able to formulate alternatives to Israeli currency.”
Cutting banking ties would raise new tensions with the Biden administration.
“I’m particularly concerned by Israel’s threats to take action that would lead to Palestinian banks being cut off from their Israeli correspondent banks,” said US Treasury Secretary Janet Yellen on Thursday.
“These banking channels are critical for processing transactions that enable almost $8 billion a year in imports from Israel, including electricity, water, fuel, and food, as well as facilitating almost $2 billion a year in exports on which Palestinian livelihoods depend. Israel’s withholding of revenues that it collects on behalf of the Palestinian Authority also threatens economic stability in the West Bank,” Yellen added.
Smotrich also said that if the Palestinian statehood push continues, Israel should annex parts of Judea and Samaria, accelerate building plans there, block countries recognizing Palestinian statehood from transferring money to the PA, and impose sanctions on senior PA officials.
Israel’s position is that Palestinian statehood should come from direct peace negotiations without preconditions.
