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March 24, 2015 9:04 pm

The Next Crisis? United States Might Limit Aid to Israel by Amount it Spends on Settlements

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avatar by David Daoud

The Psagot settlement in Israel. Photo: Wikipedia.

The State Department might be attempting to limit the loan guarantees Israel receives from the United States, based on Israel’s expenditures on West Bank settlements, according to an Israeli media report published on Tuesday.

Israel’s Walla news said that the State Department will be submitting a brief to Congress detailing Israel’s investment in settlements over recent years – purportedly in the billions of dollars.

Officials familiar with the report currently being formulated told Walla that after this move in Congress, Israel might remain with a “very limited” amount of financial guarantees. The effect of offsetting the guarantees would only be felt by Israel when it actually seeks to use them, for example when there is an economic or security crisis. The last time Israel sought to use its loan guarantees from the US was a decade ago, in 2005.

US government officials have been debating how to treat the sensitive report. According to Walla, Secretary Kerry and others recommended a delay in its publication so as to not be perceived as attempting to influence the elections in Israel last week. “People were afraid that if the report was leaked before the elections, it would look like an attempt to influence them, though in reality there is no connection between this report and the other crises between Obama and Netanyahu,” claimed an American official who was involved in the process. The official added that “this is a technical matter that was derived from an agreement that was reached during President Bush’s term in office. This has nothing to do with Netanyahu and Obama, but is related to Israel’s general policy to invest in settlements.”

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The method of offsetting aid by Israel’s expenditures on settlements is nothing new. In 2003, in the wake of Prime Minister Sharon’s investment in settlements, the Bush Administration announced that it would offset Israel’s loan guarantees by about $300 million. At the time, Israel was in critical need of the guarantees in light of the recession caused by the Second Intifada. And in 2005, the United States and Israel agreed that Israel’s financial guarantees would be reduced by the amount it spent on settlement building.

A US official noted that after the offsetting of funds that the Bush Administration carried out, Israel was left with $3.8 Billion in available funds, saying that, “it is not clear how much of this amount will be deducted now following the State Department’s report. But, as soon as the report is delivered to Congress, it will cause turmoil.”

News of this report comes at a particularly tough time in US-Israel relations, particularly over the United States’ perception of Israel’s lack of a continued commitment to a two-state solution.

Leading commentator on security affairs, David Ignatius, made reference to the State Department report in a recent column and commented that it might be intended by the Administration as a warning to Israel, and to deter Netanyahu from settlement expansion.

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