Smotrich Rejected PA Offer to Trade Sanctions Relief for Frozen Funds
Senior Palestinian Authority officials offered to lobby for the removal of European sanctions against Finance Minister Bezalel Smotrich in exchange for billions in frozen tax funds. Smotrich rejected the proposal.
Two senior Palestinian Authority officials approached Israeli Finance Minister Bezalel Smotrich with a proposal: they would push to lift European sanctions against him in exchange for the release of billions in withheld tax funds. The unusual back-channel outreach occurred four months ago amid a severe fiscal crisis in Ramallah. Smotrich, who has blocked nearly 11 billion shekels from Gaza and the West Bank since taking office, ultimately rejected the deal.
Financial Pressure and Allocation
Over the past several years, the frozen funds have been systematically redirected. Approximately 3.1 billion shekels were transferred to Israeli families of terror victims, and nearly 2 billion shekels went to the Israel Electric Corporation to cover longstanding Palestinian debts. Currently, separate accounts hold 7 billion shekels in Gaza revenues and 4 billion shekels in West Bank Palestinian Authority funds.
Dr. Mahmoud al-Habbash, an advisor to Mahmoud Abbas, and Hussein al-Sheikh, the designated successor to the PA chairman, communicated through an intermediary with Smotrich's associates. They offered to sign a formal letter denouncing sanctions imposed on Smotrich by the European Union, the United Kingdom, and France. In return, Smotrich was asked to release the frozen funds, or at least a portion of them, to help pay public sector salaries.
"The talks between the parties and emissaries led to a complete deadlock. Smotrich firmly refused the arrangement presented to him," a source familiar with the matter stated.
Broader Economic Restrictions
The financial squeeze is part of a broader strategy implemented by the finance ministry. Following the October 7 attacks, the entry of Palestinian laborers from the West Bank was heavily restricted and has not returned to pre-war levels, replaced instead by roughly 196,000 foreign workers in the Israeli construction sector. Furthermore, Smotrich has withheld indemnification guarantees for Israeli banks dealing with Palestinian financial institutions, creating a severe liquidity bottleneck.
