Settlements row with US may cloud Israel economy

TEL AVIV: Israel's economy, unscathed by costly wars in Lebanon and Gaza, faces a new challenge, this time from an ally-the United States. Differences with US President Barack Obama over Jewish settlement of occupied West Bank land that Palestinians want for a state has some experts predicting a price in terms of US fiscal support and investment for Israel. Some diplomats say Washington could eventually reconsider Israel's receipt of hefty US loan guarantees or $3 billion in annual defense aid.

That wouldscare off foreign investors seeking a buffer against Middle East instability.There are also signs the European Union, Israel's biggest export market, could follow the American lead by making a concerted push to prevent products from settlements from receiving tax privileges within the 27-nation bloc. Though marginal, settler products could harm Israeli exports as a whole by forcing an overhaul of labeling practices.

European clients may wonder if Israel is worth the hassle. But any changes in US policy are unlikely to come soon. Obama must contend with pro-Israel backing in Congress, and Israeli Prime Minister Benjamin Netanyahu could pre-empt a confrontation by changing the make-up or peace policies of his right-leaning coalition government.