Burnham’s settler sanctions trigger fears of wider Israel boycott
Henry Bodkin
12–16 minutes
How Burnham’s sanctions could make Israel a pariah
Prime Minister risks fundamentally changing Britain’s relationship with Jewish state
Andy Burnham is preparing an unprecedented package of sanctions against Israeli settlements in the West Bank.
In doing so, it is likely that he will fundamentally change Britain’s relationship with the Jewish state.
The UK – including under the last Conservative government – has mainly sanctioned individuals accused of perpetrating or inciting violence against Palestinians, as well as a handful of organisations said to facilitate it.
Now, however, a form of trade ban on West Bank settlements as a whole is expected – not only on the import and export of goods, but potentially on services as well.
Supporters of such a move, including many on the Labour Left, say it is about time: the violence and discriminatory planning policies are rampant, and the Palestinian footprint in the West Bank is visibly shrinking as a result.
But opponents, including some UK Jewish groups and independent experts, say that attempting to outlaw trade with the settlements could inadvertently bleed into the main Israeli economy.
Three years after Oct 7, they say, Mr Burnham would essentially be leading a boycott of the only Jewish country in the world, potentially placing part of its economy on the same legal footing as Vladimir Putin’s Russia.
Moreover, Israel currently acts as a valuable security partner for Britain, a point emphasised by Tom Tugendhat, the shadow foreign secretary, at the weekend.
The expected move also risks a first major disagreement between the new Prime Minister and Donald Trump, whose administration reacted angrily when Ireland enacted a similar set of measures earlier this year.
‘No such thing as a smart sanction’
Whitehall insiders have told The Telegraph that the Government was alive to the risk that sanctions could inadvertently cast a chill on wider UK-Israel trade.
“A major part of the discussion is drawing a framework that does not penalise uninvolved individuals or businesses,” one said.
“The aim is not to have any unintended consequences. This is directed at the Israeli government’s policies, not at the Israeli people.”
However, Tom Keatinge, a sanctions expert who leads the centre for finance and security at the Royal United Services Institute (Rusi), said the expected new package could deter British banks from trading with Israel at all.
“Whatever a civil servant or politician might say, there’s no such thing as a smart sanction, just like there’s no such thing as a smart bomb,” he said. “The room for interpretation is enormous.”
As of last month, there were, according to Peace Now, 146 Israeli settlements in the West Bank – not including East Jerusalem – that the government of Israel had officially recognised.
All settlements are illegal under international law, although Israel disputes this.
In addition, there were roughly 390 smaller outposts or farms that were not formally recognised by the Israeli government, a number that was changing rapidly.
The settler population was 540,327, according to the Yesha Council last January, with the Palestinian population estimated to be about 3.1 million.
Many of these outposts are erected close to Palestinian communities and serve as staging posts for regular attacks, ranging in severity from harassment to murder, which increasingly result in Palestinians moving out.
The Telegraph has recently witnessed several attacks first hand.
Mike Huckabee, the US ambassador to Israel and a supporter of the settler enterprise, said last week that the violence risked delegitimising Israel as a whole in the eyes of the world.
Many in Whitehall and Westminster had expected Mr Burnham to wait until after Israel’s general election on Oct 27 before introducing new sanctions.
Gadi Eisenkot, a former Israel Defence Forces (IDF) chief of staff, is leading in some polls with his challenge from the centre and his criticism of Benjamin Netanyahu’s handling of the settler issue.
However, Israel’s decision to open tenders for the significant new “E1” settlement prompted a furious response from Ed Miliband, the Foreign Secretary, who said it risked making a future Palestinian state unviable.
Back in July, Sir Chris Bryant, then a trade minister, confirmed to Parliament that the Government was considering prohibitions on the import and export of both goods and services.
It is not known whether the UK would act in concert with like-minded allies such as France, Canada and Australia, as it did on issues such as recognising a Palestinian state.
On paper, prohibiting the entry of goods to Britain that emanate from West Bank settlements is relatively straightforward, although in practice it relies to a large extent on the honesty of the exporting company.
Wine, dates, and other fruit and vegetables originating from settlements have all been sold in the UK, according to reports.
JCB diggers have also been documented as having been used on settlements, according to NGOs, although it is not thought they were not sold directly to settler businesses or that they hired them.
There have been several examples of settlement products wrongly marketed abroad as originating “from Israel”.
In terms of services, experts believe British banks and other financial institutions sometimes finance the building or acquisition of settlement property. It is in this sphere that things become potentially very complicated.
Mr Bryant raised the prospect of UK-originated loans, which finance settlement properties or businesses, being banned under the new regime, including mortgages and even insurance products.
The difficulty for a tailored package of sanctions aimed at West Bank settlements but not Israel as a whole, is that the settlements use the same banks and financial systems as the wider country.
Hugh Lovatt, from the European Council on Foreign Relations, who is broadly in favour of the proposed new sanctions, said: “With the physical products, it’s still two economies, at least when it comes to exports.
“But with finances, there is only one financial sector. So, does it force Israel to differentiate its financial sectors? It’s the nuclear option.”
Many who deplore the consequences of the settler project would count this as a major victory, because, in their view, it would highlight the illegality of all Israeli institutions and businesses in the West Bank, whether connected with violence or not.
As Mr Lovatt put it: “There clearly is significant material support and funding from the UK, among other places, to settlements.
“This is about giving practical effect to the decision [last year] to recognise Palestine – i.e. that you shouldn’t allow someone else to build on it.”
However, even under a non-Netanyahu premiership, the idea of an Israeli government declaring the settlements as essentially a non-Israeli system to protect the main economy from foreign sanctions seems politically unlikely.
Even many centrist Israelis view the settlements as a legitimate part of Israeli society. Settlers serve in the IDF, pay taxes, and many commute into hubs such as Tel Aviv and Jerusalem for work.
Moreover, fervent critics of Mr Netanyahu and his ultra-nationalist coalition partners, who have driven settler expansion so rapidly, say that foreign sanctions before the election could foster a “siege mentality” on the Right that would end up keeping the incumbent in power.
As such, British banks would find themselves in the difficult position of having to try to establish whether a transaction involves a sanctioned West Bank settler branch or account, or one based in Israel.
Mr Keatinge, who worked as an investment banker for 20 years, said this could be practically impossible in many cases and that British banks and financial institutions may be forced into suspending trade with Israel more broadly.
“As a bank you are constantly making decisions about what to do and what not to do.
“If there is a reason not to do something, then you’ll probably choose that path because it’s just not worth the time and effort trying to figure out whether getting money into a contested area is worth the hassle if there are sanctions floating around.”
‘A big mistake’
He pointed to the difficulty the West had faced in applying effective sanctions on Russian individuals and businesses in occupied Crimea.
Bilateral trade between Israel and the UK amounted to an estimated £5.9bn in the 12 months to the end of March 2026, with Britain enjoying a trade surplus of about £1.5bn.
Israel has made clear it will not take British sanctions lying down. “If they act, I think they will be making a big mistake,” said Gideon Sa’ar, the foreign minister.
Specifically, Israeli government officials have threatened to expel the British officials and military officers from the International Gaza Support Centre, the headquarters set up after the Gaza ceasefire last year, which is designed to help the stalled peace process come to fruition.
After the IDF and Israelis, the British, under the command of Rear-Admiral Daniel D’Silva, is one of its larger foreign delegations.
The British embassy has said that such a move would make peace more difficult and pointed out that the UK officials are taking part at the invitation of Mr Trump.
The Telegraph understands the US has privately urged Israel not to expel the British contingent.
One official with knowledge of the matter said: “The relationship at Kiryat Gat [the HQ] between the Americans and the Israelis is so fractious that the Americans quite value having the Brits there.
“US and British officers have working relationships going back years, with the wars in Afghanistan, Iraq and against Isis, and they enjoy working together. It’s tough going, but progress is being made.”
For his part, Bezalel Smotrich, the Israeli finance minister who hails from a settler community and is the key architect of E1, threatened last week a “very painful” package of political and economic countermeasures.
The Israeli-occupied West Bank village of Osrin
The Israeli government is believed to have recognised officially 146 Israeli settlements in the West Bank Credit: Zain Jaafar/AFP
Decisions regarding the Israel-Palestine conflict are rarely straightforward for British leaders.
The Board of Deputies of British Jews has urged Mr Burnham and Mr Miliband to act with a steady hand, warning that the proposed measures could harm British Jews and encourage wider boycotts.
And the risk of angering Mr Trump is real.
The Prime Minister is known to be seeking a private audience with the US president on the fringes of the UN General Assembly in the final week of September – a first meeting for the pair.
But a row over the West Bank, when combined with existing transatlantic tensions over Britain’s defence spending and North Sea drilling, could end his hopes.
“If you’re doing anything deemed to be against Israel by the United States, particularly with the current regime, then you’d better be ready for the backlash,” said Mr Keatinge.
For Mr Burnham, however, there is, of course, another major event, also at the end of September, for which a recently announced package of West Bank sanctions would prove advantageous: the Labour Party conference.
Ultimately, it is possible that the fledgling Prime Minister will opt for a compromise.
This could take the form of a package involving technical trade embargoes rather than the formal sanctions and anti-money laundering act regime.
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Whitehall officials have conceded that Mr Burnham could talk tough but ultimately go soft on financial services, given how messy the fallout could be.
Measures such as bans on tourism sites advertising trips to settlements could add some political noise to compensate for the loss of regulatory substance.
Mr Keatinge said: “With sanctions, I always ask the government of the day: ‘What is your theory of change?’
“The whole point of sanctions is that it is supposed to lead to a change in behaviour. You shouldn’t be wishing sanctions in a huff.”
But Mr Lovatt suggested that sanctions could ultimately yield a political effect in Israel, particularly if coordinated with other countries.
“The question is, will this start to impose costs on normal Israelis?” he asked. “Will this underscore that they’re becoming a pariah state?”
“A graveyard of the living.”
