Israel rattled by talk that Netanyahu may replace defence minister

Reports that Israeli Prime Minister Benjamin Netanyahu was considering firing Defence Minister Yoav Gallant shook the political landscape and sent Israeli financial markets lower on Monday.

Israel's leading television channels and news websites reported that Netanyahu, under pressure from far-right coalition partners, was contemplating firing Gallant and replacing him with a former ally turned rival, Gideon Saar, who is currently a member of the opposition.

Such a move would be a major shock to the political and security landscape, especially with the looming threat of all-out war between Israel and Iran-backed Hezbollah in Lebanon.

The shekel weakened 1% to nearly 3.75 versus the dollar, while main Tel Aviv share indices were down 1.4% to 1.6%.

The Israeli currency was expected to appreciate after data on Sunday showed Israel's inflation rate rose more than expected to 3.6% in August, a jump analysts said would delay rate cuts well into 2025 in contrast to expected rate cuts in the United States and Europe.

Netanyahu denied that he was in negotiations with Saar, though he did not refer to his plans for Gallant. Saar denied that he was negotiating with some members of the coalition.

NETANYAHU AND GALLANT AT ODDS

It would not be the first time Netanyahu has tried to fire Gallant. The two have been at odds over a number of government policies and, more recently, the handling of the war in Gaza and the terms of a possible hostage release and ceasefire deal with Islamist militant group Hamas.

Centrist lawmakers criticised Netanyahu for getting sidetracked by political wrangling rather than focusing on the task at hand.

"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," centrist lawmaker Benny Gantz wrote on social media.

Police minister Itamar Ben Gvir, who heads an ultranationalist party in Netanyahu's coalition, has for months been advocating to replace Gallant and called for his immediate dismissal.

"We must resolve the situation in the north and Gallant is not the right man to lead this," Ben Gvir said referring to a possible escalation with Hezbollah.

Tens of thousands of Israelis have been displaced near the Lebanese border in the north due to daily rocket fire from Hezbollah.

Gallant, who rose to the rank of general during a 35-year military career, on Sunday told U.S. Secretary of Defense Lloyd Austin he was committed to returning residents back to their homes and that the "possibility for an agreed framework is running out."

On Monday, he said the only way to return residents evacuated from the north to their homes was with military action.

In March 2023, Netanyahu fired Gallant after he broke ranks with the government and urged a halt to a highly contested plan to overhaul the judicial system. That triggered mass protests and Netanyahu backtracked.