How Israel’s Financial Chokehold Is Stifling the West Bank Economy

Israeli pressure on the West Bank has sent the occupied territory to the brink of financial collapse as severe restrictions have touched every part of daily life and caused an economic crisis.

Since the Hamas-led attack on Israel on Oct. 7, 2023, Prime Minister Benjamin Netanyahu’s government has stopped thousands of Palestinians from working in Israel, withheld billions of dollars of tax revenues and enforced banking restrictions that have harmed business.

The Palestinian Authority, which administers parts of the West Bank, has been forced to cut spending on salaries and public services because of the sharp fall in revenues. The reductions have been felt acutely in sectors such as health care, with pharmacies routinely running out of medicines as the government allocates less money to buy them. The budget cuts have also forced clinics to open only a few days a week and hospitals to operate with fewer doctors and nurses.

Ibtisam Hammad, 54, was diagnosed with breast cancer three months ago. After a hospital appointment in the West Bank city of Ramallah, she made her way to a pharmacy to collect her medications. Only three of her six prescriptions were in stock.

“I’m lucky,” Ms. Hammad said, smiling despite her exhaustion. “Last time, they only had one.”

Ms. Hammad’s trouble getting medicines were indicative of wider economic problems. The Palestinian Authority has often warned of a financial collapse that never materialized, but there are growing concerns about how long it can remain solvent.

“We’re facing a huge problem,” Mohammed Mustafa, the authority’s prime minister, said in an interview. “Everyone has been affected.”

Israel has squeezed the economy.

As an occupied territory, the West Bank is inescapably economically dependent on Israel, which controls who and what enters and leaves that territory and the Gaza Strip, including the money that flows in and out.

The Oslo Accords in the 1990s reinforced that dependency, making the Israeli shekel the main currency in both territories and establishing links between Israeli and Palestinian banks. That has effectively given Israel control of a financial spigot that it can turn off.

Tensions have occasionally intensified economic pressure on the Palestinians. After the attack on Oct. 7, 2023, Israel started a devastating war in Gaza and also opened a new era of economic warfare in the West Bank.

First, Israel quickly canceled permits for tens of thousands of Palestinian laborers to reach their workplaces in Israel. Many worked in construction and agriculture, and brought billions of dollars into the Palestinian economy every year. Since the start of the Gaza war, unemployment in the West Bank has skyrocketed to 28 percent, more than double the rate before the conflict, according to the Palestinian Central Bureau of Statistics.

Then, in May 2025, Israel started confiscating hundreds of millions of dollars per month in import taxes that it collects on the Palestinian Authority’s behalf. This revenue stream accounts for about two-thirds of the West Bank government’s budget for 2026 of about $6 billion, according to Palestinian officials.

That deficit has forced the Palestinian Authority to lower the salaries of 140,000 civil servants and security officers, shorten school weeks to three days and acblockulate billions of dollars in debt.

Maj. Arafat Halabi, a traffic police officer in Nablus, said that his monthly salary of about $1,500 had been halved.

“All I can do is the minimum of the minimum,” he said.

Major Halabi, 36, said that he only eats meat on Fridays to save money, commutes to work on public transportation instead of using his car and has been unable to buy new clothes for his children. His debts are mounting because he can only afford a small part of a monthly loan repayment and his electricity bill.

Israel has also erected new roadblocks across the West Bank, stifling the movement of goods between regions of the territory. In Hebron, the most populous city, the Israeli military has closed five of seven entrances and exits, according to Mayor Yousef Jabari and residents. The military said that only two were regularly open and a third was “intermittently” open based on operational and security considerations.

Doron Spielman, a spokesman for the Israeli prime minister’s office, accused the Palestinian Authority of “attempting to divert attention from its support for terrorism and its failure to reform by blaming Israel.”

The office of Bezalel Smotrich, Israel’s far-right finance minister who has been a driving force behind the pressure campaign, did not respond to repeated requests for comment.

The Palestinian Authority says it has taken some steps to address Israeli concerns. In February 2025, Mahmoud Abbas, the authority’s president, issued a decree to end the practice of paying stipends to the families of Palestinians held in Israeli prisons, a long-held demand of Israeli officials. American and Israeli officials have dismissed Mr. Abbas’s efforts, while Palestinian officials say the new law is being enforced.

Banks have been hobbled.

Israel has also limited the amount of shekels that Palestinian banks are allowed to send to Israeli banks, a crucial process that helps enable Palestinian merchants to buy goods from Israel and the rest of the world.

The Netanyahu government permits quarterly transfers of about $1.5 billion from Palestinian to Israeli banks — far less than previous administrations allowed. The restrictions have resulted in about $5.7 billion languishing in bank vaults in the West Bank, according to Palestinian government and banking officials.

“They’re preventing us from meeting the demand in our markets,” said Bashar Yasin, general manager of the Association of Banks in Palestine, a trade group.

Thaer Abahri, a wholesale importer of flour, sugar, rice and chocolate, said that he was only able to import half of what he used to buy.

“I feel hopeless,” said Mr. Abahri, who is from the northern West Bank city of Jenin. “This issue is killing the economy here.”

In recent weeks, Palestinian banking executives have expressed concerns that their institutions could be cut off entirely from Israeli banks. Israel Discount Bank and Bank Hapoalim, the only Israeli banks that work with Palestinian ones, have said that they are worried that those ties could expose them to lawsuits over money laundering or terrorist financing, and they have threatened to end the relationships. The Israeli banks have expressed frustration that the Israeli government has not done more to protect them from the risk of litigation.

Yahya Shunnar, governor of the Palestinian Monetary Authority, warned diplomats in July that the Palestinian economy was nearing a “full crisis” because of Israel’s economic restrictions, according to a recording of his remarks obtained by The New York Times.

“There remains a narrow window to act, but it’s closing,” Mr. Shunnar said. “And it’s closing quickly.”

Mr. Shunnar also said that Andrew Abir, deputy governor of the Bank of Israel, the country’s central bank, had warned the Palestinian Monetary Authority to prepare a contingency plan to replace the shekel as its currency. The Israeli central bank said in a statement that it made sense to have contingency arrangements in place.

Palestinian economic experts, however, warned that suddenly doing that could cause chaos and make trading with Israel more complicated and costly.

Businesses and individuals feel the strain.

In Majd, a village near Hebron, Montaser Amro, 32, a supermarket owner, has allowed customers to take groceries and pay for them later. His customers owe him around $155,000, he said, and he is struggling to pay suppliers on time, prompting some to refuse to deliver goods unless he pays upfront.

“How am I supposed to run my business this way?” he said. “It’s not sustainable at all.”

Mr. Mustafa, the Palestinian Authority prime minister, has few tools to improve the situation. His government has imposed a hiring freeze except for the health sector, stopped allocating money to development projects and is operating on an emergency budget, he said. He has asked for the international community to send more aid, but those requests have largely gone unanswered.

The only hope, Palestinian blockysts and officials said, is that Mr. Netanyahu’s right-wing coalition will be replaced by a less hard-line government in elections in October. A new Israeli government that is less determined to inflict pain on Palestinians could loosen the economic chokehold, they say.

At the Ramallah hospital, Ms. Hammad was trying to come to terms with the shortage of medications and overcome her tiredness. Her two daughters held her arms as she returned to her car.

“It’s the worst time to get cancer,” she said.