Sanctions on Israeli settlements are working – even without the US

Amid an unforgiving global news cycle – and as nations weigh their options in responding to the yet unbuilt West Bank settlement project that would “bury the idea of a Palestinian state” – a telling sanctions-related development in Israel passed largely unnoticed outside Israeli media. In Tel Aviv, the new year began with a protest by a violent extremist settler group that has faced UK sanctions since October 2024.

The trigger was a new Israeli banking directive, rushed out to placate Israel’s hardliners, that they said did too little to shield Israelis from international sanctions.

The protest – and the response from the pro-settlement extremist finance minister Bezalel Smotrich, who himself faces sanctions from Australia, Canada and the UK) – makes one thing clear: sanctions on extremist Israelis are working, and this remains true even after the Trump administration rolled back all Biden-era sanctions on Israeli settlers last year.

That lesson carries immediate relevance as governments now have an opportunity to give teeth to their long-standing opposition to the E1 settlement plan – a move that would fracture the territorial contiguity of the West Bank and the viability of a Palestinian state. The tenders, which seek bids from developers, call for proposals to develop 3,401 housing units in E1 – a stretch of land east of Jerusalem – and are expected to be awarded on 16 March.

Smotrich, who oversees the West Bank settlement planning body that approved the E1 settlement plan, has simultaneously waged war on the settler sanctions movement since its inception two years ago. In February 2024, Smotrich publicly browbeat Israeli banks and regulators for complying with sanctions on Israeli settlers, vowing to use “all available tools” to prevent banks from enforcing the sanctions.

The following month, as pressure mounted over banks’ compliance with the US sanctions regulations, the US treasury issued unusually expansive guidance allowing Israeli banks to “process transactions for basic needs” for sanctioned Israeli settlers without risking US sanctions penalties, effectively diluting the impact by narrowing enforcement ambiguity and preserving financial normalcy for intended targets. (To date, no comparable Israel-specific accommodation has been issued by other sanctioning countries.)

The persistence of Israel’s backlash against the sanctions – even after the US lifted its own and issued accommodations – shows that Washington’s participation is not essential to maintaining pressure via sanctions. Even in the absence of active US sanctions, Israeli institutions are still scrambling to manage the fallout from economic sanctions imposed by other countries. At a moment when the United States is increasingly willing to sidestep the rules-based international order, the case for a coordinated escalation of multilateral sanctions has only grown stronger – regardless of Washington’s shifting priorities or the latest peace plan developments.

The international community must recognize that Israel’s extremist factions involved in human rights abuses and violations of international law are accustomed to running unchecked, and that Israel’s financial institutions are already bending to accommodate these sanctioned actors, much like the United States.

For emerging sanctions leaders – Canada, the EU, the UK, Australia, Japan, Norway, and Singapore – the task now is to restart and escalate employment of the world’s most widely used foreign policy tool: targeted economic sanctions against entities complicit in Israeli human rights abuses and violations of international law.

Ahead of the expected 16 March awarding of tenders, the Global Sanctions Coalition, consisting of civil society organizations spanning multiple countries – including Amnesty International Australia – has called on governments to announce the decisive use of targeted sanctions on any companies or entities involved in the E1 settlement project.

The imminent advancement of the E1 settlement plan will test whether nations are prepared to enforce their red lines or acquiesce to US-backed impunity for Israel.

Until the recent breakout of the US-Israeli war with Iran, key countries appeared to coalesce around Donald Trump’s Gaza peace plan while retreating from accountability efforts toward Israel, as reflected in the slowdown in new sanctions designations in 2025. Yet the present moment offers governments the opportunity to pivot and build a multilateral sanctions taskforce similar to those established in response to Russia’s 2022 invasion of Ukraine.

Israel’s hardliners have already secured a key regulatory concession. On 30 December 2025, the Bank of Israel issued Directive 412 to balance the financial interests of sanctioned Israelis with Israeli banks’ exposure to foreign sanctions risk. For now, discretion in managing sanctions-related risk remains with Israel’s banks under domestic regulations requiring them to mitigate risks associated with money laundering and terrorist financing.

That discretion, however, is increasingly under political pressure. While Directive 412 prevents banks from issuing blanket denials of service and requires banks to specify which services may still be provided to sanctioned individuals, it stops short of compelling banks to disregard international sanctions altogether. Even this compromise was met with protest, alongside assurances from Smotrich that his campaign to shield Israelis from the practical effects of international sanctions remains unfinished.

The unresolved question is how long this regulatory balance will hold before hardliners move to amend Israel’s banking framework itself – seeking to institutionalize immunity from sanctions by weakening or overriding existing anti-money-laundering and counter-terrorist financing obligations. Absent credible implementation and strategic escalation by sanctioning countries, sanctions meant to address malign Israeli conduct risk losing force, creating conditions under which Israel’s financial sector may ultimately yield to political pressure.

If timidity continues to define global sanctions efforts, inaction will not preserve stability. It will only give hardliners the time and political space to undermine Israel’s core institutions – including the independence of its financial sector – in order to insulate malign actors from sanctions pressure. With construction tenders for the E1 settlement plan expected on 16 March soon, governments have an opportunity to develop a simple but coherent sanctions strategy to translate their opposition to the illegal settlement enterprise into tangible pressure on the companies involved. Absent this or other immediate action, the global community may ultimately be forced to escalate toward far more sweeping measures against Israeli expansionism – including sanctions on Israel’s banking sector akin to those imposed on Russia or Iran – should governments eventually decide to impose meaningful consequences.

• Mohsen Farshneshani is the principal attorney at the Sanctions Law Center, where his practice focuses on sanctions advocacy, licensing, enforcement, and SDN List matters. He also serves as an adviser to DAWN MENA. Emily Hawley is special counsel at the Center and focuses on sanctions issues affecting civil society. She previously served as a legal fellow with Al-Haq prior to the unprecedented tranche of US sanctions against Palestinian human rights groups