Israel is fighting a new war on the financial front – and it is not ready - opinion

In May 2022, a few months after Russia invaded Ukraine, I wrote a column in these pages warning that Israel could one day find itself facing Russian-style sanctions.

The world was imposing the most sweeping sanctions regime in decades on Moscow, targeting thousands of individuals, companies, banks, and government entities. And while back in 2022 it seemed far-fetched that something like this could one day happen to Israel, there were already voices being heard on the fringes asking whether similar tools could one day be used against the Jewish state.

There was a politician in Colombia, someone on the far Left in Britain, a few pundits in Europe and the United States. It was not overly significant, but it was something.

My argument then was simple: Eventually, there would be another war in Gaza. Israel would do what it believed necessary to defend itself, and images of Palestinian casualties would fill television screens and social media feeds. Despite Israel’s efforts to minimize civilian casualties, public opinion would turn against it.

No one knew then that just 17 months later, Hamas would invade Israel on October 7, and that despite suffering the worst attack in its history, Israel would find itself experiencing the greatest diplomatic isolation since its establishment.

Which brings us to what happened this month.

On September 8, Britain, France, and Canada announced plans to impose restrictions on trade with Israeli settlements – an import ban on settlement goods, as well as measures targeting companies and individuals providing construction, infrastructure, financing, and other services that facilitate settlement expansion. British legislation is expected to take several months to implement.

For now, these measures are designed to distinguish between Israel within the Green Line and Israeli activity beyond it. Indeed, the British government has explicitly said that its planned import ban is supposed to avoid affecting Israel within its recognized borders.

But sanctions have a way of expanding.

Imagine that after the October 27 election, the next Israeli government decides to formally annex part of the West Bank. It does not have to be all of the territory or even all of Area C, where the settlements are located. It could just be the Jordan Valley, a strip of land that even opposition parties believe should belong to Israel.

What happens then? How difficult will it be for countries that have already imposed sanctions to move the dial another click?

Today it is a company building homes in a settlement. Tomorrow it could be a company building a highway serving that settlement. Then the bank financing the project. Then the financial institution underwriting the bank.

Earlier this week, I drove along Highway 60 toward Psagot and got stuck in traffic because work was underway to expand the West Bank highway. Now imagine that a construction company doing that work risks sanctions, or the bank that is financing it, as well as the American or European company that is supposed to supply the bulldozers and trucks.

Impossible? Sadly, no.

There are those who claim that America would never do that to Israel. The problem is that the line was crossed in 2024 when the Biden administration imposed sanctions on Israeli settlers accused of violence and destabilizing activity in the West Bank. While Donald Trump rescinded those sanctions immediately upon taking office in January 2025, the taboo has been broken, and what Biden did paves the way for a future Democratic administration.

Ben Gvir, Smotrich sanctioned abroad

There was also a time when the idea of Western governments imposing sanctions on Israeli cabinet ministers would have sounded absurd. But that has happened as well, with Finance Minister Bezalel Smotrich and National Security Minister Itamar Ben-Gvir, who have been sanctioned by the UK and parts of Europe.

So why would anyone confidently assume that what we see today is the end of the process rather than just a taste of what can still come?

We need to remember that a comprehensive sanctions regime would not merely mean that a few politicians cannot travel to London, or that a few settlers would have their bank accounts frozen. A genuinely broad sanctions regime would strike at the foundation of Israel’s economy.

International companies would need to ask themselves whether maintaining operations in Israel is worth the legal exposure. Israeli tech companies would most likely decide to relocate abroad. Foreign investment would drop. The brain drain that Israel already worries about would accelerate.

And even if America were to remain outside such a sanctions regime, Israel cannot simply shrug and claim that Europe does not matter. The European Union is Israel’s largest trading partner. In 2025, trade in goods between Israel and the EU totaled €43.3 billion. The EU accounted for 33.1% of Israel’s imports and 29.4% of its exports.

Losing significant access to that market would not be an inconvenience – it would fundamentally change the Israeli economy.

So what can Israel do? On the one hand, it needs to diversify its trade and diplomatic ties. It should expand trade and diplomatic relationships in Asia, particularly with countries where Gaza and the Palestinian issue play a smaller role in determining economic ties. Israelis are innovative – supply chains can be rebuilt, and new trading partners can be found.

Israel would survive, but it would become a different country.

It would be more isolated, more expensive to live in, less attractive for investment, and increasingly disconnected from the Western economic and diplomatic system, of which Israel has spent decades playing an integral part.

None of the above means that Israel should allow foreign governments to dictate its decision-making. A sovereign country must make decisions even when they carry costs, and there will always be moments when Israelis decide a particular policy is essential to their security and are willing to pay that price.

But we should at least understand the price and stop the habit of dismissing every warning as meaningless.

Our politicians tell us that Europe doesn’t matter, that the United Nations is a waste of time, and that the International Criminal Court is irrelevant. The problem is that none of this is true. All of these institutions matter – just ask Prime Minister Benjamin Netanyahu, who cannot travel to Europe anymore – and their decisions actually affect lives here in Israel.

In this context, Netanyahu addressed the UN on Thursday. As I wrote this column, the prime minister was making his way to New York, where he was expected to give a powerful speech. Whatever one thinks of him, Netanyahu remains one of Israel’s most talented communicators, a gifted orator who understands the theater of the UN better than almost any Israeli leader before him.

There may be a prop, and there will almost certainly be a memorable line. But none of it will solve the problem, because a speech, no matter how good, cannot reverse three years of diplomatic deterioration.

Israel’s public diplomacy has been neglected throughout this war. For more than two years, Netanyahu failed to appoint a permanent head of the National Public Diplomacy Directorate. Ministers have repeatedly been allowed to say whatever they wanted without considering the diplomatic consequences.

Settler violence has been treated as a nuisance rather than as a strategic threat that hands Israel’s adversaries ammunition on a silver platter.

And only now, after years of accusations against Israel and the IDF, has the military finally decided to establish a multidisciplinary team to respond to false claims and distortions about its conduct, due to a film that received a standing ovation in Venice.

So, yes, Netanyahu stood at the UN and made Israelis proud. But speeches are not a strategy. Israel faces a campaign today being waged on several fronts: on the battlefield, in international institutions, in the information arena, and now through economic and financial pressure.

Does anyone seriously believe we are ready for what comes next?

The writer is a co-founder of the MEAD Forum, a senior fellow at the Jewish People Policy Institute, and a former editor-in-chief of The Jerusalem Post. His latest book (with Amir Bohbot), While Israel Slept, is a bestseller in the United States.