Israel’s short bank waiver sparks US alarm

US warns short banking extension risks economic fallout in West Bank, urges minimum one-year financial stability

WASHINGTON:

The United States issued a warning on Thursday regarding Israel’s choice to extend banking co-operation between Israeli and Palestinian banks for just one month, cautioning that this “very short-term” decision would set up “another looming crisis” by 30 November.

Following a statement from the Israeli Finance Minister Bezalel Smotrich’s spokesperson confirming that he would sign an extension for a month after cabinet approval, U.S. officials voiced concerns. U.S. Secretary of State Antony Blinken and Treasury Secretary Janet Yellen emphasised in a joint statement that the limited extension heightened uncertainty, impacting international banks, Israeli companies in the West Bank, and particularly ordinary Palestinians.

They called on Israel to commit to a one-year extension to prevent an economic crisis in the West Bank, warning of potential security consequences for Israel itself. The waiver allows Israeli banks to handle shekel transactions for Palestinian Authority services and wages without risk of facing charges related to money laundering or terrorism financing. Without the waiver, Palestinian banks would be isolated from Israel’s financial network.

According to the World Bank, economic conditions in Palestinian territories are already perilous, with Gaza’s GDP plummeting by 86% year-on-year in early 2024 amid Israel’s ongoing conflict there. The latest violence in the longstanding Israeli-Palestinian conflict erupted on 7 October 2023 when Hamas militants launched an attack on Israel, killing 1,200 and taking approximately 250 hostages, according to Israeli records.

Israel’s counter-assault on Hamas-governed Gaza has resulted in over 43,000 deaths, according to Gaza’s health ministry, while nearly the entire population has been displaced, leading to widespread hunger and allegations of genocide, which Israel has denied.