EU, UK review of trade ties over Gaza war could take bite out of business, exporters fear
Experts warn of domino effect on investment into Israel and overall business environment as key European partners seek to pressure government over its wartime policies
Sharon Wrobel is a tech reporter for The Times of Israel
The UK’s decision to halt talks with Israel on an expanded free trade agreement, alongside a pledge by European Union member states to review commercial ties with Israel over human rights concerns in Gaza, have sparked fears of a ripple effect on the country’s export-driven economy.
“The political declarations are poised to inflict a heavy economic price on Israel and could take a heavy toll on exports and investments,” Dan Catarivas, president of the Israeli Federation of Bi-National Chambers of Commerce and Industry, told The Times of Israel. “Israel is a small country that exports and imports, including raw materials, and machinery.”
“We are a transformation economy, and if we want to continue to grow and exist, we need the foreign markets,” said Catarivas.
The British government declared Tuesday that it was suspending negotiations on upgraded trade ties with Israel, a day after joining with France and Canada in a strongly worded statement against Israel’s military actions in Gaza and its blockade on humanitarian aid, with all three threatening to take “concrete steps” against Israel. At the same time, the UK government said it was committed to a current free trade agreement between the two countries remaining in force.
“What is at stake now are future trade pacts that were expected to be more comprehensive – this will hurt exporters, our imports, and the economy as a whole,” said Gali Ingber, head of finance studies at the College of Management Academic Studies. “The freezing of the talks will make it more difficult for Israeli exporters to expand, negotiate new export orders, or even enter the UK and other European markets.”
In another potential economic blow, Israel’s top trading partner and ally — the European Union — decided on Tuesday to review its association cooperation trade deal with Jerusalem over alleged human rights abuses in Gaza. The EU accounted for 32% of Israel’s total trade in goods globally in 2024. About 34% of Israel’s imports came from the 27-member bloc last year, while about 29% of the country’s exports went there.
However, internal divisions among EU members may stymie any collective action. Germany, Hungary, Italy and several other countries are thought to oppose the review.
“I don’t see any change or suspension happening because of the unanimity needed from the bloc of 27 EU countries,” said Catarivas.
Israeli exports of goods and services make up about 25% of the country’s $565 billion economic output.
The UK is Israel’s fourth-largest trading partner and provider of foreign direct investment, with $1.13 billion invested in 2023, according to data shared by the British embassy in Israel.
Bilateral trade between the UK and Israel was worth £5.5 billion ($7.4 billion) in the year leading up to the third quarter of 2024. UK exports to Israel amounted to £3 billion ($4 billion), while UK imports from Israel amounted to £2.5 billion ($3.4 billion). Over the past year, Israeli investments in the UK have created 773 jobs, injecting £173 million ($232 million) into the UK economy, according to the embassy.
Of particular worry “is the impact on exports of services in the area of tech and cyber, the main growth engine of the economy, which will be harmed as Israeli high-tech companies will be faced with challenges and struggle to increase their market share not only in the UK but also in EU countries,” Ingber said. “If exporters sell less to Israel’s top trading partners, their local production will decline, which in turn will hurt the economy.”
The tech industry contributes about 20% to Israel’s gross domestic product and makes up more than 50% of total exports.
Over 400 Israeli tech firms operate in the UK, contributing about £1 billion ($1.3 billion) in gross value to the UK economy and creating around 16,000 jobs over the past eight years, according to data from the British embassy in Israel. About 80 of these firms operate in the cybersecurity sector, contributing to the UK’s efforts to strengthen cyber resilience across industries.
“If there will be restrictions, it will also have a significant impact on Israel’s ability to import goods and services that are not locally produced, our standard of living will drop, and eventually the situation will spur an outflow of the most talented brains,” Ingber said.
The UK’s and the EU’s actions come amid mounting international outrage leveled at Israel over its conduct during its war against Hamas in the Gaza Strip, which has skyrocketed due to an aid blockade and following the IDF’s intensification of its offensive, beginning last weekend.
“Israel’s negative image abroad and the conduct of the country’s leadership could have a detrimental effect on the economic ties of Israel with the world that took decades to built up and cement,” warned Catarivas, who is also head of the foreign trade division at the Manufacturers Association of Israel and a former Finance Ministry official. “The shifting attitudes towards Israel have repercussions on the business community and their decisions about continuing trade, investments, joint ventures, and research and development in Israel for ethical codes and other reasons.”
What follows could be “a form of a silent boycott, meaning that companies could decide to refrain from doing business in Israel by choosing other destinations because of the risk, uncertainty, and the perception that the country is infringing human rights and violating international law,” he remarked.
Israel began blocking aid from entering Gaza on March 1, arguing that sufficient humanitarian assistance had entered the Strip during a six-week ceasefire earlier this year and that Hamas has been stealing much of that aid to replenish terrorist group members. Israel also said the blockade was necessary to pressure the terror group to release the dozens of remaining Israeli hostages it has been holding for over 590 days.
“For the time being, I can’t say that we see a great number of companies that are taking decisions to cease export and import relations with Israel, but it could happen,” said Catarivas. “That’s why we are calling on the government to have a clear and consistent policy that should explain to the outside world the purpose and goals of the fighting, including a roadmap to bring back all the hostages and end the war.”
He added, “We have to prepare ourselves for different scenarios and the worst-case scenario, but hope that it won’t happen.”
Times of Israel staff contributed to this report.
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