Alaa Zoubi is a Research Assistant in the Middle East, North Africa and Turkey in the New Global Order Programme at RUSI

Sanctions announced recently by the UK on Israeli settlements in the West Bank have been framed by the UK government as mainly an economic move, including prohibition of goods from settlements, restriction of organisations engaged in assisting settlement-related activities, and sanctions on people and organisations linked with the expansion of settlements. However, a critical question should be asked; can London offer an alternative beyond sanctions that produces change in Israeli government behaviour on the issue of Palestinian sovereignty, or will it merely impose costs without a clear path forward?

The use of sanctions as policy are nothing new or unknown to Israel. Western countries have used sanctions regarding settler activity in the West Bank before. In February 2024, President Joe Biden signed Executive Order 14115, building an American model for asset freezing and limiting those who are involved in violent acts, or activities that threaten the peace and security of the West Bank region. However, the American model during this era sought to primarily limit violence and to promote stability without placing economic pressure on Israel.

Now, British sanctions are attempting to go a step further. The innovation lies in shifting the focus from individuals and organisations to restrictions on economic activity defined as part of the settlement enterprise. There is therefore a clear difference between the American approach of 2024 and that of the UK, since Washington singled out individuals in order to exclude them from the American financial system, while London attempts to define access to the UK market through a separate regulation of settlements as distinct from that of Israel.

This move transforms a political and legal demarcation line; separating Israel from territories it captured in 1967, into a boundary with direct business implications. The UK’s measures draw upon advisory opinions regarding international law and incorporate them into its business practices. The International Court of Justice advisory opinion of 2004 regarding the legality of Israeli settlements in the Occupied Territories concluded that they are against international law, a view upheld by UN Security Council resolution 2334 of 2016. The ICJ in its advisory opinion of July 2024 stated that the ongoing occupation of the occupied Palestinian territory by Israel is illegal, urging Israel to stop further construction and withdraw settlers.

It is important to note that the advisory opinion is not a legally binding decision and does not order states like the UK to call for sanctions against the settlements in the West Bank. The advisory opinion simply serves as a framework through which countries can reconsider their economic dealings with the settlement process. The UK contends that changes in international law have altered its legal considerations.

An immediate trigger was E1. The UK warned businesses against participating in tenders related to E1 and settlement expansion. Then, it tightened business guidance against economic or financial activity in settlements, moving to a sanctions policy in September.

For the UK, the declaration recognising the State of Palestine created a diplomatic imperative to take this step in an attempt to halt settlement expansion and preserve the viability of the two-state solution; yet, it cannot ignore its historic ties with Israel, and any aspiration to bring about change in the West Bank requires direct dialogue with Israel. For its part, Israel must articulate a policy that addresses the reasons why its allies are increasingly concluding that the status quo is unsustainable.

This raises the central question for London: what does it propose Israel to do instead? If the goal is to advance the two-state solution, sanctions can exert pressure, but they cannot replace a strategy. The UK needs to define the political, diplomatic, and legal outcome it seeks, and determine how to translate those aspirations into a practical strategy. Without this, the risk is that Israel will be diplomatically isolated without being brought any closer to an agreement or the creation of a political alternative. The first real indication of whether UK policy is actually working will be whether the E1 plans are stalled by the Israeli government. If they are not, the UK risks looking like it has enacted a purely performative sanctions regime on a close ally, failing to achieve its intended effect of compelling Israel to halt settlement expansion.

On the Israeli side, however, the discussion is complicated. Leader of the Opposition, Yair Lapid has stated that the UK’s decision was a grave mistake and that “the decision… will strengthen extremist voices in Israel just ahead of the Knesset elections and serves as a morale boost for Hamas and terrorist organisations.”

Not long ago, Gadi Eisenkot, the former chief of staff of the Israeli Defense Force and leader of the political party Yashar, rejected the E1 project as a mistake because there are additional strategic costs associated with building on the West Bank aside from the construction itself. When combined, the perspectives of Lapid and Eisenkot provide an example of a more complicated discussion of the Israel situation compared to the simple question of whether to accept or reject external pressure. It is possible to reject the idea of sanctions while at the same time understanding that settlement policy is fraught with political and strategic implications. This is important since it implies that the real debate in Israel is not about resistance itself but about its strategic implications.

The practical reality test is complex, even the UK government admits that it is not easy to determine the volume of trade with the territories, considering that there is an integrated customs area between the West Bank and Israel as Israeli and Palestinian economies are interconnected through customs, infrastructure, banks, shipping, labour, and supply chains. In 2025, UK trade with the Palestinian territories was approximately £38 million, compared with roughly £6 billion in total trade between the UK and Israel.

Defining boundaries will not be easy. For example, the UK will need to decide how to deal with an Israeli company based in the Green Line with its warehouse in a settlement, how to classify a good whose components were manufactured in Israel and the settlements, and how to classify services such as financial services, insurance, legal and logistics services for Israeli companies that operate both within and outside the Green Line. The UK already uses trade certificates stating place of origin, and settlement products cannot benefit from tariff preference arrangements under the trade agreement between the UK and Israel. However, changing from tariff preference to complete prohibition of transactions represents an important regulatory change.

On the other hand, Israel’s response to the UK’s actions is significant. It chose not to limit itself to economic protest but to target aspects of the British presence in the Palestinian arena, including closing the British Consulate in East Jerusalem, barring representatives from coordination mechanisms related to Gaza, and halting the training of Palestinian security forces. In fact, this is a game of diplomatic mirrors, whereby the UK uses economic means to put pressure on Israel on the ground while Israel, through diplomatic measures, restricts the UK’s capacity to manoeuvre in the Palestinian arena. Israel is responding in strong terms to the sanctions, signalling that any external interference in its internal affairs – including its policy regarding the Palestinian issue – will come at the cost of forfeiting an external role in those issues. From the Israeli perspective, the UK decision is not one in isolation, but has been building incrementally against a close ally, including last year’s recognition declaration, and limits on export licencing. Notably, the fact that Israel has decided to employ diplomatic retaliation so strongly and exclusively towards the UK rather than implementing exactly the same measures towards all European nations – suggests it views the UK’s actions as uniquely consequential. Israel is essentially trying to make an example of London to create a deterrent against other Western nations using similar economic and political tools.

Yet, both sides have something to lose. The UK risks a scenario where sanctions diminish the prospect of keeping diplomatic channels open with Israel regarding the Palestinian issue. Israel risks a harsh reaction that could exacerbate the very isolation it seeks to avoid.

Ultimately, the question is whether a policy of pressure can generate an alternative policy.

The six to nine months leading up to the full implementation of this UK policy will have more significance than the actual imposition of sanctions. The time between the making of the decision and the enforcement of that decision presents an opportunity to follow the upcoming October elections in Israel and see whether it will lead to the formation of a new government or the retention of the old one and whether subsequent changes in Israeli policy could alter UK policy. This will be the real test for the policy.

In this light, the whole story is not about commodities at all, but about who draws the lines of legitimacy, who pays the price when these lines are transgressed, and whether the international system can still turn diplomatic pressure into a diplomatic settlement.

The opinions expressed are those of the contributor, not necessarily of the RSAA.