Honestly, I see this demand as a strategy... a tactic.
Globally the negotiations were not going well for Israel. Add to this the discord in the Israeli government. Bibi's having a hard time bringing them together around ANY deal. He has to slow down or end the negotiations.
My fear is that what will truly be "dire" ... is that between the settlements and this Israel is now primed to take the fall for failure in the negotiations.
That won't be helpful.