Israel's Russian dilemma

Roman Abramovich  credit: Suzanne Plunkett
Roman Abramovich credit: Suzanne Plunkett

Israel has still not fully joined the sanctions against Russia, but a tougher US stance could present it with a problem.

Almost three weeks after Russia invaded Ukraine, the US is stepping up pressure on Israel and other countries to join the economic sanctions on Russia and on people close to the Russian regime. Talking to journalists at the US Embassy in Israel at the weekend, a senior US official said, "The strength of the sanctions depends on wide participation by many countries, and the more countries that are involved, the more effective the sanctions. The sanctions are causing severe and continuing damage to the Russian economy and are cutting it off from the world, and the US is winning cooperation from its many friends."

Where does Israel stand on the US demand? So far, it has come into line where it has had to, but it has not officially joined the sanctions and has not passed regulations or issued guidelines for Israeli companies that trade with Russia.

The sanctions are made up of several layers, and those that have been implemented here are in the area of banking and finance. Israel's banks have cut ties with the banks in Russia on which sanctions have been imposed. Russia has also been cut off from the global SWIFT system for money transfers, which affects Israeli banks too.

As a result, Jews attempting to travel from Russia to Israel are encountering difficulties, and their payments are being executed by means of international credit cards not connected to Russian banks, or through friends and relatives in Israel. As far as flights are concerned, Aeroflot no longer flies to and from Israel, but Israeli airline El Al is continuing to fly to Moscow.

Webinar for companies

Another way in which Israeli is trying to limit economic activity vis-à-vis Russia is though instruction, advice and assistance for Israeli companies that have commercial ties there. Last week, the Ministry of Economy and Industry held a webinar for some 160 Israeli companies that trade with Russia, with the participation of two law firms, one European and the other from the US, to explain the consequences of the sanctions.

The information sheet sent by the Foreign Trade Administration in the Ministry of Economy and Industry concerning trade with Russia states that companies need to be aware of the sanctions, but it contains no real guidelines. While the professionals at government ministries are doing what they can, ministers are sticking to a policy of sitting on the fence and not directly joining the sanctions.

The fear of Russia's possible reaction is both political and economic, although the scope of Israel's trade with the US and Europe is far greater than that of its trade with Russia.

Pressure on the diamond industry

The diamond trade is a particularly difficult area. Last year, Israel imported $400 million worth of diamonds from Russia, accounting for two thirds of its total imports from that country. Russia currently controls about a third of raw diamond exports to the rest of the world, and the Israeli diamond industry is a big buyer of these diamonds.

The US has banned the import of Russian diamonds, but so far few countries have followed suit. Reports have reached "Globes" of US buyers who have told Israeli diamond exporters that they will not buy polished diamonds produced from Russian raw diamonds. Senior people in the industry say that so far this is a marginal phenomenon, but that there is nevertheless considerable anxiety on the part of Israeli diamond traders, as US pressure could deal a blow to an industry that is in a slow and painful process of recovery.

The Israel Diamond Exchange said in a statement: "The Israel Diamond Exchange is acting in accordance with government instructions and is in constant communication with the Diamonds, Precious Stones and Jewelry Administration, which is the professional arm of the Ministry of Economy and Industry."

Alternative to oil and coal

On oil and gas too, the US has imposed an initial ban only, i.e., only on imports, and has left other countries to decide independently. Most countries in Europe continue to import gas and oil from Russia, but they are feverishly looking for other energy sources, one of which, though on a small scale, is liquefied gas from Egypt, some of which originates from Israeli natural gas reservoirs.

Israel also imports oil from Russia, in quantities that reach 10% of its total imports in certain periods (80% comes from Azerbaijan). Here too there is no real change at this stage, but rather a search for alternative sources.

Coal is also an important import from Russia, amounting to $180 million in 2021.

Although Russia is not a major market for Israeli high tech, accounting for just 10% of exports in 2021, this is an industry that will be harmed. The US expects that Israel will join sanctions on all branches of the Russian technology industry. The direct effect is on Israeli companies that operate in both the US and Russia, and these prefer not to get into trouble with the US and so have joined the sanctions independently. Nevertheless, there are companies that are maintaining their trade and services ties despite the sanctions. The US has already demanded that Israel should accept its stance on technology sanctions.

The picture at the moment is mainly one of cautious waiting. The main areas of trade with Russia have still not been harmed, but the assessment is that Israel will not be able to remain indifferent to a tightening of the sanctions.

Haven for oligarchs

The personal sanctions relate directly to Russian oligarchs, some of whom hold Israeli citizenship, and can enter and exit Israel freely, but even on those who just hold Russian citizenship there are currently no direct restrictions in Israel, or only very minor ones.

In this context it should be mentioned that the Yad Vashem Holocaust museum has announced the suspension of its strategic partnership with Roman Abramovich, who was meant to donate tens of millions of dollars to the museum and to its International Institute for Holocaust Research.

Many of the Russian oligarchs have ties with Israeli politicians, and Minister of Foreign Affairs Yair Lapid brought this up at a government meeting two weeks ago. Among other things, mention was made of Minister of Defense Benny Gantz's business links with Viktor Vekselberg, who invested in predictive analytics company Fifth Dimension, in which Gantz was involved. Minister of Finance Avigdor Liberman, Minister of Housing and Construction Ze'ev Elkin, Minister of Justice Gideon Sa'ar, and others, also have ties with oligarchs, but most of them are not on the sanctions list at present.

The links between Israeli companies and the companies belonging to the oligarchs are under daily scrutiny. If the list of "frozen" oligarchs is expanded, the problem in Israel will expand too. There is also an image aspect to this: Israel has been criticized in the past for having to some extent become a haven for Russian oligarchs, and for having turned a blind eye because of their investments and donations. The Yad Vashem episode did not help in this regard, and if the sanctions on the oligarchs continue, and Israel continues to respond sluggishly, the criticism from the rest of the world will mount.

Published by Globes, Israel business news - - on March 14, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Roman Abramovich  credit: Suzanne Plunkett
Roman Abramovich credit: Suzanne Plunkett
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