And I agree with you that the airline could and maybe should be prohibited from doing business in Germany on Kuwait’s terms. This was the solution in the US when the Department of Transportation brought an administrative proceeding.

Thanks, Lukas, for the comment. It seems to me you are really asking whether the lawsuit would be based on the foreign state’s commercial activity abroad (acting as a common carrier, refusing to sell a ticket) or whether it is instead based on its policymaking at home (enacting a boycott law). This is the Saudi Arabia v. Nelson issue about the gravamen of an FSIA case. My own view is that foreign states that act commercially generally shouldn’t be able to point to their own policymaking rationales, because (at least in the US) to determine whether an act or omission is commercial, you have to look at its nature, not its purpose.

I do have a question on this matter regarding its relation to the question of state immunity:

If we were to allow compensation for refusal of service on the grounds that the state party is ultimately responsible for the impossibility, would we not break the principle that one country’s courts cannot decide upon the legality of another states’ laws?

The ban of Israelis in Kuwait is not (as far as I understand it) specific to Kuwait Airlines but is enforced for everything (in 2014 there were, apparently, allegations that potatoes from Israel were sold in Kuwait which resulted in an investigation).

It seems to me that expanding the scope of the commercial exception to immunity so far as to apply to the laws of the country in question is not the correct way to solve this problem.

However, if Kuwait cannot be persuaded to stop such boycotts, the obvious decision to me would be to revoke Kuwait Airlines’ right to operate in Germany, if it cannot do so in a way that complies with German law. That way, there is no intrusion into Kuwait’s immunity but also no discrimination violation.