Israel held a re-run of its parliamentary election on 17 September, following an election in April 2019 in which no party was able to form a majority coalition government with the necessary 61 of 120 seats.

Inconclusive electoral results are likely to result in a period of political deadlock before a coalition is formed: Although no one party emerged with a clear popular mandate, Likud's failure to secure the most seats is a significant political loss for incumbent Prime Minister Binyamin Netanyahu. Netanyahu's Likud party had 31 seats at the time of writing, and the right-wing bloc that Netanyahu had secured in the run up to polling day was only able to muster 55 seats. The center-left Kahol Lavan, led by former chief-of-staff Benny Gantz, is the largest party, with 33 seats. If the seats of the predominantly Arab Joint List are included, the center left bloc holds 57 seats. The final count is to be announced on 25 September, after which President Reuven Rivlin will mandate a candidate to form a government within six weeks.

It is highly likely that Benny Gantz will be given the first opportunity to form a coalition, given the failure of Netanyahu to do so after the April elections: A significant factor will be whether former defense minister Avigdor Lieberman - leader of the Yisrael Beiteinu party (with eight seats) - supports Gantz in forming a coalition government. This would almost certainly be contingent on Gantz agreeing to a national unity government with Likud - a suggestion rejected by Gantz before the election if Netanyahu remained as leader. In this scenario, the ultra-Orthodox parties that currently represent supporters of Netanyahu's right-wing bloc would lose leverage and policy priorities would likely involve reducing the religious limits on business conduct and public transport on Saturdays, and probable amendments to the existing military service law allowing exemptions for Orthodox yeshiva students.

Netanyahu is likely to seek a deal that would grant him immunity from prosecution as a condition of Likud involvement in a unity government: If no government agreement is made by 2 October, when Netanyahu is scheduled to have a pre-indictment hearing for three separate corruption cases, it would increase the likelihood of defections from Likud to Kahol Lavan, or attempts to remove Netanyahu as party chairman, as lawmakers are more likely to be concerned about a public backlash in the event of a third election being called. Additionally, Netanyahu is likely to want to draw out any unity government negotiations past 30 October, when President Rivlin would be obliged to task another party leader with a four-week deadline to form a coalition.

It is unlikely that a government led by either Kahol Lavan or Likud would significantly alter Israel's existing security policy: Airstrikes against Iranian forces and Iran-backed militias in Syria and Iraq are likely to continue in order to prevent the transfer of sophisticated missile technology. Gantz's position on checking Iranian regional expansion is similar to Netanyahu's, but his far less-developed relationship with US President Donald Trump, and past decisions when Israel Defense Forces chief-of-staff, is likely to mean that a Kahol Lavan-led government would be less publicly supportive of active confrontation with Iran. A center-left dominated coalition would be more likely to take a conservative policy towards settlement expansion in the West Bank, compared to a Netanyahu government supported by religious Zionist parties. It is unlikely that promises made by both Likud and Kahol Lavan to annex the Jordan Valley settlements would be implemented.

Indicators of a changing risk environment

Increasing risks

• The Arab majority Joint List party officially declares an intent to remain independent of any possible coalition, favoring a position as the official opposition.
• Militant groups in Gaza publicly criticize the electoral results, regardless of the coalition make-up, and increase rocket fire into southern Israel.
• Netanyahu makes media statements criticizing Gantz and accusing the Joint List of undermining the security of the state.

Decreasing risks

• Netanyahu resigns from Likud in order to focus on his impending indictment.
• Gantz publicly recants from pre-electoral promises not to form a coalition government that involved Netanyahu.

Posted 24 September 2019 by Jack A. Kennedy, Associate Director and Head of Desk, Country Risk – Middle East and North Africa, S&P Global Market Intelligence