Netanyahu's Potential Defence Shake-up Rattles Israeli Markets

Reports of potential changes in Israel's defence leadership have sent shockwaves through the country's political and financial landscapes. On September 16, 2024, rumors circulated that Prime Minister Benjamin Netanyahu was contemplating the dismissal of Defence Minister Yoav Gallant, causing significant market instability.

The Israeli shekel weakened by 1% against the dollar, approaching 3.75, while main Tel Aviv share indices dropped between 1.4% and 1.6%. This market reaction came despite recent data showing Israel's inflation rate had risen to 3.6% in August 2024, a figure that analysts suggested would delay interest rate cuts until well into 2025.

According to reports, Netanyahu was considering replacing Gallant with Gideon Saar, a former ally turned rival who is currently in the opposition. This potential move has raised concerns about the stability of Israel's security apparatus, especially given the ongoing threats from Hamas in Gaza and Hezbollah in Lebanon.

Netanyahu and Saar both denied being in negotiations, though the Prime Minister did not address his plans for Gallant. This is not the first time Netanyahu has attempted to remove Gallant from his position. In March 2023, a similar situation arose, leading to mass protests that forced Netanyahu to backtrack on his decision.

The potential leadership change has drawn criticism from centrist lawmakers. Benny Gantz, a prominent centrist figure, expressed his disapproval:

"Instead of the prime minister being busy with victory over Hamas, returning the hostages, with the war against Hezbollah and allowing (evacuated) residents of the north to return to their homes, he is busy with despicable political dealings and replacing the defence minister."

Meanwhile, Police Minister Itamar Ben Gvir, who leads an ultranationalist party in Netanyahu's coalition, has been advocating for Gallant's dismissal for months. Ben Gvir argues that Gallant is not the right person to handle the situation in northern Israel, where tens of thousands of residents have been displaced due to daily rocket fire from Hezbollah.

Gallant, a former general with 35 years of military experience, has recently reaffirmed his commitment to returning displaced residents to their homes in northern Israel. He stated that military action may be necessary to achieve this goal, as "the possibility for an agreed framework is running out."

These developments highlight the complex interplay between Israel's political landscape, security challenges, and economic stability. As the country continues to navigate threats from multiple fronts, the potential reshuffling of key leadership positions adds another layer of uncertainty to an already volatile situation.