Israel's Waiver Extension: A Looming Financial Crisis?

Israel's brief waiver extension for bank cooperation amid tension with Palestinian banks may lead to a financial crisis by November 30. The U.S. urges a longer-term extension to prevent economic fallout. The ongoing conflict with Hamas escalates the problem, impacting the already struggling Palestinian economy.

Israel has granted a one-month waiver extension for cooperation between Israeli and Palestinian banks, though the short-term measure could lead to a financial crisis by November 30, as warned by the United States on Thursday. This decision came after Israeli Finance Minister Bezalel Smotrich agreed to sign the waiver extension following cabinet approval.

U.S. Secretary of State Antony Blinken and Treasury Secretary Janet Yellen, in a joint statement, emphasized that the brief duration of this extension adds to the uncertainty faced by international banks, Israeli companies in the West Bank, and Palestinian citizens. They stressed the need for Israel to extend these banking relationships for at least a year, citing potential economic repercussions in the Israeli-occupied West Bank if the waiver structures are not maintained.

The waiver permits Israeli banks to process shekel transactions for services and salaries linked to the Palestinian Authority without the legal risks of money laundering and funding extremism. Without the waiver, Palestinian banks face the threat of disconnection from the Israeli financial matrix. The Palestinian economy, already teetering on collapse according to the World Bank, faces additional pressure due to the ongoing conflict between Israel and Hamas, which began on October 7, 2023, following a deadly attack on Israel.

(With inputs from agencies.)