Israeli far-right Finance Minister Smotrich could cause 'PA collapse' by cutting Palestinian banks from Israel

Far-right Israeli Finance Minister Bezalel Smotrich could cut Palestinian authorities in the West Bank from accessing funding, US officials fear, in the latest threat to the region.

Smotrich, who is responsible for the administration of parts of the occupied West Bank, has repeatedly threatened to withhold tax revenues to Ramallah, collected by Israel on behalf of the Palestinian Authority (PA).

US officials are reportedly worried that Smotrich will now cut Palestinian banks from Israel’s financial system in October, threatening to trigger economic chaos in the impoverished West Bank, according to a report by US outlet Axios.

A large portion of the PA'ss finances comes through Israeli banks and is propped up by international aid with funding split between Gaza and the West Bank.

US and other Western officials are concerned that Smotrich might refuse to renew the agreement which expires on 31 October, risking the collapse of the PA and fuelling further instability in the occupied Palestinian territory. 

Palestinian banks receive tax income through Israeli banks, as well as trade in goods and services, with the agreement a vital lifeline for businesses in the occupied territory.

The barring of access to Israeli banks would have a potentially devastating impact on the local economy for the 2.9 million Palestinians in towns and refugee camps in the occupied West Bank.

Meetings between finance officials of the G7 countries in recent weeks have discussed concerns about Smotrich cutting access to the global financial system to Palestinian banks, according to Axios.

The report also said that the Israeli minister has presented conditions ahead of the annual review which could see a "third party review on a third party review of the Palestinian banking system as a condition for extending the authorization for one year". 

In January, Smotrich rejected calls from Washington to release Palestinian tax revenues held by the Israeli government, claiming - without evidence - the funds would go to Hamas in Gaza after Israel suspended payments early on in the war.

Smotrich has previously called for the ethnic cleansing of the civilian population of Gaza, saying Jews should settle the land instead.

Smotrich, who is a settler himself, has been looking to take over the powers of Israel's Civil Administration, which oversees some bureaucratic powers for the military in the occupied West Bank.

Doing so would allow him to expand the Israeli settler presence in the territory and further tighten the noose on Palestinians.

Israel exercises direct control over 60 percent of the occupied West Bank, while Prime Minister Mohammad Mustafa's Palestinian Authority has limited powers in Palestinian cities and towns.

The settler movement, represented by far-right figures such as Smotrich and National Security Minister Itamar Ben-Gvir, had for years attempted to obtain these civilian powers, which include the administration of agricultural land, forests, and leisure sites.

Palestinians have lived under stifling occupation since Israel seized control of the West Bank in 1967, with settlement expansion a key component of the oppression.