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In late May, the European Union announced a slew of new sanctions on Israeli settler organizations as well as individuals known for violently attacking Palestinians in the occupied West Bank. This was swiftly followed by six European governments, including Britain and France, imposing additional sanctions targeting “networks of financing and support for settler attacks.” France further announced that it was banning Israeli Finance Minister Bezalel Smotrich from entering its borders due to his promotion of settlements and annexation.
In an interview with the Israeli outlet Globes, EU Ambassador to Israel Michael Mann emphasized that these were not sanctions against the State of Israel, but rather “against specific individuals and organizations that we believe have violated human rights under the law.” Even as European governments are expected to discuss further sanctions in the coming weeks, Mann’s comments suggest that the EU is still careful to draw a clear distinction between the settlements and Israel.
While these sanctions made headlines on nearly every Israeli news channel, another form of economic pressure is mounting under the radar: the selling of Israeli government bonds. At best, instances of divestment receive a brief mention on the inside pages of the financial press. Yet while its scope remains limited, the scaling up of this campaign has the potential to significantly harm the Israeli economy.
Unbeholden to the protracted political processes that characterize government decisions, bond divestment can be undertaken by an array of different autonomous actors including pension funds, private investors, local and regional government bodies, and private and public investment funds — often in direct response to grassroots pressure. And crucially, unlike the EU’s sanctions, it does not distinguish between the State of Israel and the settlements.
In May, the UK’s largest public pension fund relented to pressure from campaigners to sell Israeli government bonds worth approximately $29.2 million. “We were horrified to discover that our retirement funds are financing genocide, apartheid, occupation, imprisonment, and torture,” one of the protest leaders told Middle East Eye.
A few days later, a similar campaign in Maryland announced that it had succeeded in getting the state pension fund to divest $73.7 million worth of holdings in Israeli bonds. The fund’s management denied that the decision was made in response to the protest, but even if this was an investment decision rather than a direct achievement of the pro-Palestine campaigners, such cases threaten to shake Israel’s economic foundations.
Similar pressure is being exerted on the New York state and local retirement fund, which holds approximately $368 million in Israeli bonds, and the national pension fund of Wales (although in the latter case, the investments are in Israeli companies rather than government bonds). Britain’s largest private pension fund, the Universities Superannuation Scheme, was ahead of the trend, divesting over $100 million worth of Israeli assets as early as August 2024.
The mechanisms by which Europeans invest in Israeli bonds have also been destabilized by pressure campaigns. In the several years following Brexit, Ireland took over the UK’s responsibility for approving the regulatory documents (known as prospectuses) that enabled Israeli government bonds to be offered to institutional and public investment entities in EU member states. But in September 2025, the Central Bank of Ireland ceased acting as this vital gateway after a sustained pressure campaign by Irish parliamentarians, activists, and human rights organizations.
While this did not inhibit the bond investment mechanism — it has since been transferred to Luxembourg, where it functions in much the same way — the move does reflect a growing awakening to the fact that many people have been investing in Israeli bonds without even knowing it. And if this trend continues, it could pose real problems for the Israeli economy.
‘High investor confidence’
The issuance of bonds is an essential tool for governments to finance state spending and repay debts. For Israel, therefore, this source of income funds everything from public welfare spending to the military equipment required to carry out genocide in Gaza. With the prolonged war placing a severe burden on state expenditure, the Finance Ministry’s reliance on debt issuance has become increasingly vital.
Despite recent divestments amounting to hundreds of millions of dollars, these moves are negligible relative to the scale of Israel’s debt issuance. Demand abroad remains high: In 2024, Israel raised approximately NIS 278 billion (around $93 billion) through the sale of various types of bonds — equivalent to roughly 45 percent of total government expenditure that year, and more than four times the figure raised in 2022. The Finance Ministry’s most recent bond sale, in January of this year, raised around $6 billion as demand outstripped supply by six to one.
Smotrich argued that this “reflects the resilience of Israel’s economy and the responsible economic management we have implemented in recent years, which has earned the trust of the markets.” The Finance Ministry’s accountant general, Yali Rothenberg, said the results “demonstrate high investor confidence in the Israeli economy.”
The primary sources of these funds are localized entities — pension and provident funds, insurance companies, and banks — that manage long-term investments and savings on behalf of their customers. Most Israeli citizens also have holdings in government bonds through their provident funds, while another major source of external capital comes from evangelical Christian communities in the United States. The website of the Development Corporation for Israel, the marketing arm of Israel Bonds, features a dedicated campaign page for these communities.
In July 2025, the company’s CEO, Danny Naveh, published an open letter on an evangelical media outlet thanking American Christian communities for “the wave of support [for Israel] not only in words and prayers but also in meaningful actions since the October 7 attack.” He went on to specify which actions he was referring to: “Individuals and institutions have invested more than $5 billion in Israel through Israel Bonds, and a significant and growing portion of these investments has come from Christian supporters who understand that financial support for Israel is one of the ways to protect the Jewish people.”
Many in the Gulf are also keen investors in Israel’s government bonds. According to the Israeli financial newspaper Calcalist, during a presentation given by Rothenberg, the accountant general, to investors from the Gulf amid the January sale, a senior manager at one of the largest funds interrupted him and said: “We know everything; we’ve done our due diligence. Set aside this amount for us in the offering” — and proceeded to write down a figure totaling hundreds of millions of dollars.
Neutrality or complicity?
While divestment from government bonds has the potential to seriously pressure the Israeli economy, the strategy is inhibited mainly by the fact that the vast majority of the money comes from passive investors. Since 2020, Israeli local-currency government bonds have been included in major global bond indexes — notably the FTSE World Government Bond Index, the global benchmark for government bonds. As a result, they are included in passive exchange-traded funds (ETFs) that track these indexes and bundle bonds from various countries together.
As such, investors with savings in pension funds, provident funds, mutual funds, and other investment vehicles managed by institutional entities do not actively choose to invest in Israeli assets, and in the vast majority of cases are completely unaware that they do. As long as Israel remains in these indexes, part of the demand for bonds is effectively guaranteed by the financial system itself, while remaining almost invisible to the public.
This reality is both a source of limitations and potential for the struggle over Israeli debt. There is currently no indication that a pension fund in the UK, a U.S. state, or a regulator in Ireland is capable, on its own, of undermining Israel’s ability to raise debt through bonds. Even considering the recent wave divestments discussed above, the crisis in Ireland, and growing public pressure on institutional investors, Israel continues to successfully raise billions on international markets, benefit from high demand, and be protected by a domestic market that is nearly automatically invested in government bonds.
As long as government bonds are viewed as a standard investment product, included in international indexes, purchased through broad-based ETFs, and savers remain unaware that their money is invested in Israeli government debt, the financing mechanism will continue to operate almost autonomously. As such, protest groups around the world are now seeking to transform this system from a technical matter to a political and moral issue.
When savers in northern England discover that their pension funds are invested in Israeli government bonds; when members of parliament in Ireland ask why their country’s central bank provides a regulatory framework for Israeli bond issuances; and when investors in New York or Wales demand an end to channeling their money to finance a state committing war crimes in Gaza and deepening its control over the West Bank, the very raising of these questions already undermines Israel’s convenient separation between the capital market and government policy. These moves disregard the distinction that figures such as the EU ambassador insist on drawing between the Israeli state and the settlements.
In this sense, divesting from Israeli debt strips away the ostensibly professional veneer from one of the state’s central financing mechanisms. It forces entities that prefer to speak the language of returns, risk, credit ratings, and liquidity to grapple with questions of morality and human rights: Is purchasing Israeli government debt still a neutral investment, or does it constitute complicity in financing a state that is gradually losing its international legitimacy?
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This is a question the EU is still trying to sidestep by distinguishing between Israel and the settlements, but the distinction is impossible to maintain in the long term. The debt belongs to the state, and the money flowing into it finances its actions.
While direct sanctions against settlers and organizations in the West Bank will continue to make headlines, the struggle taking place within pension funds, investment committees, prospectuses, indexes, and ETFs possesses the potential to have a much greater impact.
This struggle may be slower, less dramatic, and at times almost invisible, but it touches on a question far broader than which ministers will be allowed to enter Paris or London. It concerns who is willing to continue lending money to the State of Israel, under what conditions — and at what point even the most passive investment becomes a moral and political stance.
A version of this article was first published in Hebrew on Local Call. Read it here.