With a number of European firms already withdrawing some funds, Israeli Finance Minister Yair Lapid has warned that every household in Israel will feel the pinch if peace talks with the Palestinians collapse.
U.S. Secretary of State John Kerry has also warned that Israel risks a financial hit if it is blamed for the failure, but investors and diplomats say they are unconvinced.
It is true that some foreign firms have started to shun Israeli business concerns operating in East Jerusalem and the West Bank – land seized in the 1967 war – and the European Union is increasingly angered by relentless Jewish settlement expansion.
But the bulk of Israeli business is clustered on the Mediterranean coast, a world away from the roadblocks and watchtowers of the West Bank, and not even the Palestinian leadership is demanding a total economic boycott.
“The boycott is being used like a bogeyman, a scary story you tell a child at night,” said Jonathan Medved, CEO of OurCrowd, a crowdfunding platform looking to provide venture capital funding to Israeli companies.
“The truth is that Israel is a world leader in water technology, next-generation agriculture, cybersecurity, health care innovation and startups. What sane person is going to walk away from that?” he said, speaking by telephone during a visit to South Africa to seek out potential partners.
In December, Dutch firm Vitens said it would not work with Israeli utility company Mekorot because of its West Bank footprint. The following month a large Dutch pension fund, PGGM, ended its investment in five Israeli banks because of their business dealings with settlements considered illegal under international law. Denmark’s Danske Bank blacklisted Bank Hapoalim for the same reason.
These moves sent a jolt through the Israeli government.
“If the negotiations with the Palestinians break down and a European boycott begins, even partially, Israel’s economy will go backward, every person will be directly affected in their pockets,” Lapid said in a speech earlier this month.
Unlike some of his Cabinet colleagues, the finance minister supports the need to pull back from much of the occupied territories in an effort to secure an elusive peace accord.
Looking to convince the skeptics, Lapid said failure to strike a deal could lead to a 20 percent drop in exports to the European Union and a halt in EU direct investment, warning that this would cost the Israeli economy 11 billion shekels ($3.1 billion) a year.
Lapid points to an EU decision last summer to bar financial assistance to any Israeli organizations operating in the West Bank, and warns that this could be expanded.
But EU diplomats say business with firms operating in the settlements, such as skincare company Ahava, represent less than 1 percent of all Israeli-EU trade, which last year totalled $36.7 billion, up from $20.9 billion a decade earlier.
The European Union matters because it is Israel’s largest trading partner and it is the only place where murmurings of sanctions have so far been raised outside the Arab world, where only Egypt and Jordan have formal ties with Israel.
However, Europe is not united on how to deal with Israel and has not yet even agreed to introduce EU-wide labeling to make clear if goods come from settlements, much less anything more radical along the lines suggested by Lapid.
“There is no EU boycott,” the president of the European parliament, Martin Schultz, said this month during a visit to Jerusalem during which he questioned whether the 28-nation bloc would want to penalize Israel if the U.S.-backed talks failed.
The international Boycott, Divestment and Sanctions movement seeks to turn all Israeli brands into toxic property as a way of forcing the government to roll back settlements and sign a full peace deal.
Omar Barghouti, the BDS co-founder, said he sensed a changing international atmosphere and was particularly buoyed by news of divestments from Israeli banks.
“We’re talking about a completely different league here. Forget boycotting settlements, [that is] peanuts. Targeting the banks, that’s where the money is, that’s the pillar of the Israeli economy,” he said.
However, divestment moves by the likes of Danske Bank appear to be the exception rather than the norm.
Germany’s biggest lender Deutsche Bank AG denied reports last week that it was set to boycott Israeli banks, while the giant Dutch pension fund ABP announced this month that after a review, it saw no need to cut ties with Israeli banks.
