It is far from clear how things will develop after the air strikes on Gaza in which the IDF killed three senior Islamic Jihad members, and many factors are involved, but one of them is certainly the economic aspect, and it is likely to prove a restraining element.
Coordinator of Government Activity in the Territories General Ghassan Alian has announced the closure of the Erez and Kerem Shalom crossings between Israel and the Gaza Strip to movements of goods and people until further notice. Last September, then minister of defense Benny Gantz raised the number of permits for Palestinians from the Gaza Strip to work and trade in Israel by 1,500 to 17,000. Also last year, the rules for transfers of textiles and agricultural products were eased.
The decision to close the border crossings represents a lever against Hamas, which controls the Gaza Strip. The rate of unemployment there was 45.3% in 2022, more than triple the rate in Judea and Samaria (13.4%). The gap is explicable by the large difference in the numbers of Palestinians in each territory allowed to work in Israel. While 22.5% of working Palestinians who live in Judea and Samaria are employed in Israel, the corresponding percentage for the Gaza Strip is just 0.8%, according to the World Bank.
These numbers are important, because the daily wage of Palestinians who work in Israel is double that of those who work in the Palestinian territories. In 2023, the Palestinian economy is in a difficult situation. Economic growth slowed from 7% in 2021 to 3.9% last year, and the World Bank sees growth of 3% annually over the next few years.
Like most of the world, the Palestinians are having to cope with high inflation, which was running at an annual rate of 4.3% in March.
According to the UN, 80% of the inhabitants of the Gaza Strip rely on humanitarian aid. More than half live below the poverty line, and almost 80% of young people there are unemployed. Mass unemployment helps terrorist organizations to attract poor young people to their ranks. Islamic Jihad exploits Iranian financing to turn them into servants of the Ayatollahs’ interests in the Gaza Strip.
The role of Qatar
One factor that may encourage Hamas not to join in the escalation in the Gaza Strip is the territory’s economic sponsor, Qatar. About 100,000 needy families receive $100 each from the Qataris monthly. Qatar is also involved in efforts to solve the problem of the shortage of power generation capacity in the Gaza Strip. According to the Red Cross, Gaza Strip residents receive electricity for 10-12 hours a day, and even that is thanks to $10 million from Qatar to buy diesel fuel for the power plant in Gaza.
Various events over the past few years indicate that when Qatar wants quiet in the Gaza Strip, it generally gets it. One instance of this was the 2022 FIFA World Cup, which took place in Qatar, and during which the Gaza Strip was noticeably peaceful.
Natural gas potential
Apropos energy, another matter on the economic front is the Gaza Marine natural gas reservoir discovered in 2000, 36 kilometers off the Gaza coast, and estimated to contain 30 BCM (billion cubic meters) of gas. Although the reservoir is in an area the status of which is not clear, and Israel has never officially ceded it, in that same year then prime minister Ehud Barak gave Yasser Arafat the right to drill in it and to benefit from its revenue. If the Palestinians want to gain revenue from Gaza Marine now, an agreement will be required settling its status.
In February 2021, the matter was put back on the agenda, when Egypt and the Palestinian Authority signed a memorandum of understanding for development of the reservoir. Under the memorandum, the Egyptian natural gas holding company and the Palestinian Authority are meant to cooperate in developing the reservoir and in transporting it to the Gaza Strip and to liquefaction installations in Egypt.
Last year, the matter again became significant when the Bennett-Lapid government in Israel received an approach concerning development of the reservoir. Last July, however, then minister of energy Karin Elharar decided to leave this hot potato to the next government. At that time, it was reported that Israel, the Palestinian Authority, and Egypt were acting to advance development of the gas reservoir through the mediation of the US and the EU.
In October last year, Egypt’s foreign minister Sameh Shoukry even declared that there was a framework agreement between the sides, including Israel, and that he expected progress to be made shortly. Seven months have gone by, however, without an agreement. Should an agreement eventually materialize, the significance for the Palestinians is clear: possible revenue of tens of billions of dollars and a huge boost to the Palestinian economy. Will the current escalation put all this back? Time will tell.
Published by Globes, Israel business news - en.globes.co.il - on May 10, 2023.
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