Sanctions against Israel: targeted or global, what’s at stake?
Western governments have recently adopted some of their most significant measures in years against Israeli settlements in the West Bank. The UK, Canada, France, and several European countries have announced restrictions on settlement exports in 2027 in response to increasing settler violence, accelerating settlement expansion, and projects such as E1, which many governments believe would make a viable Palestinian state impossible by physically dividing the West Bank in two.
However, the European Union (EU) has failed in adopting a common sanctions policy towards Israel. Instead, EU countries have taken a range of approaches toward Israeli settlements. The first group, led by the UK and supported by Canada and several European states, has announced targeted bans on settlement exports and sanctions on companies involved in settlement development and financing. A second group, including Spain, Belgium, Ireland, and the Netherlands, has introduced bans on settlement goods and supported broad restrictions on EU-Israel trade and research cooperation. Group three, would support EU restrictions on settlements only and not single country restrictions or restrictions on Israel as a whole. A fourth bloc, led by Germany, opposes sanctions altogether, arguing that they would be counterproductive and harm ordinary Israelis. The remaining EU members have no clear positions.
Targeted Measures
At first glance, bans on settlement goods may appear significant. In practice, however, their direct economic impact is limited. Settlement exports are about US$300 million annually, a minute share of Israel’s overall exports. Most consist of agricultural products. While the EU is a key destination, the total value remains modest. Bans on settlement goods alone are therefore more symbolic than economically consequential.
Measures directed at businesses that support settlement expansion and financing could prove more significant, according to Hagit Ofran of Peace Now. Israeli banks play a central role by providing mortgages, construction financing, loan guarantees, and insurance that help make settlement growth possible. If financial institutions conclude that settlement financing exposes them to excessive legal, regulatory, or reputational risks, they may choose to end their involvement. In that case, the Israeli government would likely be forced to assume a larger role in financing settlement expansion.
Such a shift could make the costs of the settlement project more visible. Activities currently financed through private banking channels could require direct government financing. Managing financing on that scale would not be straightforward for the state. More importantly, the government would have to justify additional spending that benefits a relatively small segment of the population. The debate could gradually shift from diplomacy and international law toward questions of budget priorities, and the burden on taxpayers, although the security arguments advanced by settlement supporters would remain influential.
Targeted sanctions also carry a lower risk of triggering a strong nationalist backlash. Because the focus remains on settlements rather than Israel as a whole, supporters can argue that the measures are intended to preserve the possibility of a two-state solution rather than punish the country as a whole.
Broad Measures
Broader restrictions would affect large parts of Israel’s economy. Suspending the EU-Israel Association Agreement or limiting Israel’s participation in Horizon Europe research program, which provided Israel with €1.1 billion between 2021 and 2024, would affect universities, research institutes, technology companies, and innovation networks across the country.
The economic consequences could be substantial. Israel has been deeply integrated into European markets and research programs for decades. The EU constitutes the second most important market after the US for Israel’ s exports of goods and services or about $30 billion US. In comparison, the UK and Canadian markets are small.
The asymmetry between the EU and Israel is notable. Exports from the EU to Israel represent only a tiny share of their global exports. For Israel, however, the EU accounts for more than 30% of its imports while the UK and Canada’s market remain small. The economic leverage is clearly in the EU’s favor.
That said, Israel is not without leverage. Israeli strengths in high technology, cybersecurity, defence industries, and research create significant links with European economies. Disrupting those ties would impose costs on Europe as well as on Israel.
For political reasons, broad sanctions remain difficult to implement. Several EU member states maintain strong political ties with Israel and are unlikely to support sweeping measures. Because broad sanctions such as suspending the Canada EU Cooperation Agreement would generally require unanimity, the political obstacles remain substantial. More targeted restrictions, which may be adopted through less demanding decision-making rules, therefore appear more achievable. Recent Commission proposals suggest that partial measures such as the proposed ban on settlement goods or the ones recently applied to the Horizon programme could be adopted by qualified majority
Israel’s Response
Israel’s response has already signalled that even limited restrictions against settlements come with consequences. Countries that applied settlement-related measures have faced varying forms of retaliation. The UK, the Netherlands, Norway, and Spain have all encountered restrictions affecting diplomatic activities or access to Palestinian territories. These actions demonstrate Israel’s willingness to push back even when the measures are limited to settlements. However, a potential opposition party winner in the elections, Gadi Eisenkot, has stated that E1 was a mistake because it harms Israel’s relations with key allies.
Historically, settlement-specific measures such as labelling settlement goods and bans on settlement exports have generated less domestic backlash than broader actions such as comprehensive boycotts, international criminal proceedings, or UN initiatives that many Israelis perceive as anti-Israel.
A more effective option
It is too early to determine whether recent European measures will have any measurable impact on the pace of settlement expansion. So far, there is no evidence that bans on settlement goods have altered settlement developments.
Sanctions aimed at the financial infrastructure supporting settlements appear the most practical and potentially the most influential. They place pressure on Israeli actors directly and indirectly involved in settlement expansion, preserve the distinction between Israel and the occupied territories, and are less likely than broad sanctions to trigger a strong nationalist backlash.
Whether the UK-led initiative proves to be a turning point will depend largely on future political developments. Much will hinge on the specifics of the UK sanctions, whether other European and Western governments adopt similar measures, and on the composition of future Israeli governments. A more right-wing government could increase the likelihood that sanctions are implemented and expanded. A more centrist government, depending on its approach to settlements, could delay their adoption.