Date first published: 17/06/2021

Key sectors: all

Key risks: policy uncertainty; political volatility


Risk development

On 13 June the Knesset approved the new ‘Change’ coalition government in a 60-59 vote, ousting former premier Benjamin Netanyahu after 12 consecutive years in office. The new power-sharing agreement sees ultra-nationalist Yamina head Naftali Bennett as premier for two years, with centrist Yesh Atid Leader Yair Lapid taking over in 2023. The agreement ostensibly ends years of political paralysis. Nonetheless, in the four days since, 16 members of the Knesset (MKs) have resigned under the Norwegian Law which allows their replacement to be substituted from the party list. Two of seven MKs in Prime Minister Naftali Bennett’s Yamina party resigned in protest at the inclusion of Arab party Ra’am in the coalition. Bennett’s second, Ayelet Shaked, was to resign but rescinded on fears that her replacement would defect, losing the coalition’s one seat majority. In Yair Lapid’s Yesh Atid party, two of six MKs resigned. All three ministers from Yisrael Beitenu, including finance minister and party leader Avigdor Lieberman, resigned. Bennett seeks to paint this as cleaning the coalition and crystallising support.

Why it matters

However, volatility is characteristic of the fact that Israeli democracy – a source of pride for the country against the regional backdrop – has been significantly eroded during Netanyahu’s 12-year tenure. The consequence of this is that coalition building – with or without Netanyahu – has become untenable. Under ‘normal’ circumstances, Israel’s political volatility leaves citizens and would-be investors concerned but continuing with business as usual. However, against the backdrop of COVID-19 related economic fallout, recent violence with Hamas, intra Arab – Jewish clashes and the United States’ nuclear negotiations with Iran, it becomes far more important to face this with a united front.


Netanyahu first called a snap election in December 2018 after he lost his one seat majority in the Knesset. Three inconclusive elections later Netanyahu and Blue & White leader Benny Gantz formed an emergency ‘Unity’ government as COVID-19 was spreading. This would have seen Gantz take office in November 2021 after 18 months. However, a disagreement over the 2020 budget enabled Netanyahu to again dissolve the coalition – preventing himself from losing power – and call another snap election, banking on his recent achievements including successful vaccine roll outs, normalisation agreements with the United Arab Emirates and West Bank annexation progress. However, Bennett and Lapid split Netanyahu’s right wing voter base, meaning that the ‘anti-Netanyahu’ coalition, right-wing Yamina needed the backing of leftist Meretz and Arab conservative party Ra’am. This leaves the 59-seat opposition led by Netanyahu’s Likud, the ultra-Orthodox Shas and United Torah Judaism, the far-right Religious Zionism and the predominantly Arab Joint List.

Risk outlook

The ‘Change’ coalition must remedy some of the most difficult issues faced by Israel – rebuilding the economy and remedying the Arab – Jewish Iraeli divides which erupted into violence in May and still simmer on the surface. However, the resignations so soon after coalition formation, the coalition’s razor thin one seat majority, widespread distrust, and Netanyahu’s role as leader of the opposition all portend a speedy collapse. Netanyahu’s political nous after 15 years in total, even despite his ongoing corruption trials, means that he is in a prime position to disrupt the already extremely fragile new coalition. Whether or not the coalition collapses soon, all signs indicate that political volatility and gridlock is now a core part of Israel’s political landscape.