How Real Is the Impact of Western Sanctions on Israel?

Europe is getting tougher on Israel in rhetoric and sanctions, but its latest measures may be designed to create political distance from Israel without creating enough economic pain to make Israel change course in the West Bank or anywhere in Palestinian territories.

The Arithmetic of Punishment

The language accompanying the measures is strikingly forceful. The governments say that Israeli actions in the West Bank are undermining the possibility of a two-state solution and demand that Israel halt settlement expansion, stop extending civilian administrative powers and ensure accountability for settler violence. They specifically singled out the planned E1 settlement project, which they regard as a threat to the territorial viability of a future Palestinian state.

Yet the economic arithmetic behind the sanctions tells a very different story. Britain offers the clearest example. UK-Israel trade was worth approximately £6 billion in 2025. By contrast, the British government estimates that trade between the UK and the Occupied Palestinian Territories was only around £38 million in the same year. That is roughly 0.6 percent of the value of UK-Israel trade.

The £38 million figure is not equivalent to the value of settlement exports. Because Israel and the Palestinian territories operate within an interconnected customs system, precise figures for trade originating specifically in settlements are difficult to establish. But that is precisely the point. Even the broader figure for UK trade with the Occupied Palestinian Territories is tiny compared with the overall UK-Israel commercial relationship. The British government is therefore not threatening the economic relationship that matters most to Israel. It is targeting a small and geographically........

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