US Treasury Secretary Janet Yellen has warned Israel not to sever its banks ties to Palestinian lenders, saying such a move would take essential services and sources of revenue from the Palestinian Authority, thereby "threatening the economic stability" of the occupied West Bank.
Israel has been threatening to cancel a vital waiver that expires July 1 between Israeli and Palestinian banks that allows Israeli banks to process shekel payments for vital services and PA salaries. The waiver also facilitates the import of essential goods such as food, water and electricity into the occupied Palestinian territories.
Israel’s far-right Finance Minister Bezalel Smotrich has said that he cannot renew the annual waiver when it expires. Off the record Wednesday, US officials warned that the waiver's termination would close down much of the Palestinian economy in the West Bank.
The issue will be discussed at a meeting of G7 finance ministers and central bank governors in Stresa, Italy, this week.
Speaking at a press conference on Thursday ahead of the meetings, Yellen said, “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. 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."
The former chair of the Federal Reserve added, “We and our partners need to do everything possible to increase humanitarian assistance to Palestinians in Gaza, to curtail violence in the West Bank and to stabilize the West Bank’s economy.”
Smotrich rejected Yellen’s request in a post on X, saying that he could not sign the renewal of the waiver because Palestinians are still funding “terrorism” and Israeli banks can be sued for violating anti-terrorism financing laws.
“The financial system of the Palestinian Authority is infected with terrorism up to its neck," Smotrich wrote, adding that critics of the policy were "hypocrites."
Yellen also said that the Treasury had issued public guidance and conducted outreach to humanitarian groups to make sure that US sanctions do not stand in the way of humanitarian assistance to Palestinians in Gaza.
“And my team and I have also engaged directly with the Israeli government to urge action that would bolster the Palestinian economy and, I believe, Israel’s own security,” she added.
Smotrich has been a supporter of the expansion of Israeli settlements in the occupied West Bank. Political tensions between Israel’s far right and the West have risen in recent months after the United States, European Union and United Kingdom imposed sanctions on Israeli settlers in the West Bank.
