The tragedy of Gaza

Even before the present war, Gaza's economy was in terminal decline. Why was this, and who was responsible?

“The Palestinian economy is enduring a fiscal crisis and the economic outlook is dire.” - IMF, 26th April 2022.

I’m sure everyone realises by now that Gaza’s economy has fallen off a cliff. There is almost no productive activity, so GDP has collapsed and nearly everyone is unemployed. The UN estimates that Gaza’s GDP fell by 24% in 2023. It is of course still falling - rapidly.

Massive GDP falls are common in wars: for example, Ukraine’s economy shrank by 30% in 2022, equivalent to the US Great Depression. But what people perhaps don’t realise is how bad things were before the current crisis.

Gaza and the West Bank: the great divergence

In a report released in September 2023, shortly before the start of the present conflict, the IMF repeated its 2022 warning about the Palestinian economy:

The outlook for the Palestinian economy remains dire, with risks tilted to the downside. Amid a deteriorating security, political and social situation, the recovery is losing momentum and per capita income is projected to decline over the medium term. The fiscal crisis remains unresolved, amid limited prospects for much-needed deep expenditure reforms and resolution of the outstanding fiscal files with Israel. The banking sector remains stable and well-monitored, but early signs of asset quality deterioration are emerging.

Gaza was already in deep recession at the the time the IMF released its report. The UN says the economy shrank by 4.5% in the first three quarters of 2023. But it has been losing ground versus the rest of Palestine for years. The last time GDP was the same in both Gaza and the West Bank was in 2006:

The smuggling-driven economic boom of 2009-2014 raised Gaza’s GDP to where it had been in 2006. But then it tailed off as Egypt blocked and flooded the tunnels. Israel insists that tunnels between Egypt and Rafah are still being used. The GDP figures say they are not.

Although Gaza’s economy grew between 2009-2014, it had shrunk so much in the previous three years that it was unable to catch up with a strongly growing West Bank. But this does not mean the West Bank is rich. Far from it. The IMF says that 13-14% of the population of the West Bank lives below the poverty line, and unemployment is high, at 15-20%. Rather, it illustrates how horrendously poor Gaza was even before the present conflict. Over half (53%) of the Gazan population lived below the poverty line, and unemployment in Gaza was more than double that in the West Bank:.

Why this divergence? It would be easy to point to the fact that the West Bank is run by Israel and the Palestinian Authority, while Gaza is run by Hamas, and conclude that Hamas is a terrible government that diverts resources to terrorist activities instead of managing the economy for the benefit of its people. This is, in essence, Israel’s argument. Naturally, the Palestinian Authority does not disagree.

The cost of Israel’s blockade and wars

But it’s not Hamas that the IMF blames for Gaza’s poverty and fragility:

Years of isolation and recurrent conflicts have left Gaza’s economy far behind the West Bank’s. Between 2007–22, the Israeli-imposed blockade, four wars, and deeply rooted domestic political divisions took a heavy toll on the Gazan economy, resulting in the prolonged stagnation of real GDP.

Israel’s fifteen-year blockade and repeated wars have done terrible damage to the Gazan economy. Gaza’s real GDP growth has swung wildly from positive to deeply negative, but overall, the trend has for some years now been sharply downwards.

In 2018, UNCTAD estimated the cost to Gaza of Israel’s blockade and military actions since 2007 (my emphasis):

Focusing on the period 2007–2018, and using econometric analysis of household survey data, the estimated cumulative economic cost of the Israeli occupation in Gaza under the prolonged closure and severe economic and movement restrictions and military operations would amount to $16.7 billion (constant 2015 USD): equivalent to six times the value of the GDP of Gaza, or 107 per cent of the Palestinian GDP, in 2018. Scenario analysis suggests that, had the pre-2007 trends continued, the poverty rate in Gaza could have been 15 per cent in 2017 instead of 56 per cent, while the poverty gap could have been 4.2 per cent instead of 20 per cent.

The export blockade is particularly damaging, since it means Gaza is totally unable to earn foreign exchange to pay for essential imports and is reliant on external aid and fiscal transfers from the Palestinian Authority. Both have been declining for over a decade.

Wars in Gaza don’t just affect Gaza. The West Bank’s GDP also falls when Gaza is at war, though not as much. And although the West Bank is relatively more prosperous than Gaza, Israel maintains permanent restrictions on the movement of people and goods, limits Palestinian access to water and other services, and periodically destroys civilian infrastructure, usually when it is fighting a war in Gaza. This limits economic growth in the West Bank and thus the ability of the Palestinian Authority to offset the effects of Israel’s blockade of Gaza.

Israel also withholds tax revenues it collects on behalf of the Palestinian Authority. Since 2019 it has withhold amounts totalling some 4.4% of Palestine’s GDP. This is the principal cause of the Palestinian Authority’s fiscal crisis. And since it means the PA can’t fully pay public sector salaries and pensions, on which approximately 44% of Gazan workers depend, it contributes to Gaza’s relative poverty and economic distress.

Israel’s sustained blockade, repeated military incursions, and fiscal stranglehold on the Palestinian Authority, are thus the main causes of Gaza’s terrible economic weakness. But there is another cause too, namely the “deeply-rooted domestic political divisions” mentioned by the IMF. What are these, and who is responsible?

Internal politics and international meddling

In January 2006, Hamas (under the name Change and Reform) won an absolute majority in the Palestinian National Legislature in elections that international observers said were free and fair. Fatah and other Palestinian factions refused to join the new government, so it consisted mainly of Hamas members.

The USA and its allies refused to accept the new government. Israel and Egypt closed their borders, major international donors suspended economic aid, and the USA imposed sanctions on the new government. In June 2006, after Hamas militants detained an Israeli soldier, Gilad Shalit, Israel arrested many members of the Hamas-led government and blockaded Gaza.

Pressured by Israel and its international supporters to undermine the Hamas-led government, Palestine’s President Mahmoud Abbas formed what amounted to a parallel government from his office. Civil servants loyal to Fatah embarked on a long and damaging strike. The commanders of the Palestinian Security Force refused to take orders from the Hamas-led government. Fatah gunmen repeatedly attacked Hamas-run ministries. Palestine was in a state of civil war.

In early 2007, Fatah and Hamas agreed to share power in a government of national unity. But it lasted only four months. During that time, President Abbas increased the size of the Presidential Guard, and Western countries, principally the USA, provided it with training and equipment. Suspecting that Abbas was planning a military coup, in June 2007 Hamas seized total power in the Gaza Strip, evicting the Presidential Guard and other forces loyal to President Abbas and Fatah. In response, President Abbas dissolved the national unity government and formed an unelected Fatah-led government in the West Bank. Neither the Fatah government nor President Abbas have subjected themselves to elections since then. Perhaps understandably, nor has Hamas.

Astonishingly, Hamas’s pre-emptive strike in Gaza was reported in the West as a military coup. To this day, the USA regards the unelected Fatah as the legitimate government of Palestine. It seems democracy only matters when the right side wins.

Immediately after Hamas’s seizure of power, Israel imposed a ground, air and sea blockade on Gaza, and said it would only allow sufficient supplies in to prevent a humanitarian crisis. Unsurprisingly, Gaza’s economy collapsed.

So it was the Palestinian civil war, coupled with Israel’s blockade, international sanctions and the suspension of aid, that pushed Gaza’s economy into the deep recession from which it has never really recovered.

And although everyone likes to blame Hamas, the real culprits are Israel and its international supporters, President Abbas, and Fatah. They are jointly responsible for Gaza’s terrible economic weakness and the dire state of the Palestinian economy as a whole. It’s hard to tell how effective Hamas would have been as a government if Israel and its supporters weren’t throttling Gaza’s economy and the USA wasn’t trying to stage a coup by proxy.

The USA bears particular responsibility for Gaza’s terrible economic weakness, and indeed the dire situation of the whole of Palestine, because its disastrous attempt to remove a democratically-elected government has seriously, and perhaps fatally, destabilised Palestine’s economic, political and social infrastructure.

Wars and protests

As I’ve previously written, Hamas broke Israel’s blockade by fostering a smuggling economy using tunnels from Rafah to Egypt. As a result, Gaza was able to bounce back from the three-week war with Israel in December 2008 and January 2009.

But the 2014 war was a different matter. It was the worst conflict in Gaza since 1967, and it was economically disastrous. It sent Gaza’s economy into a tailspin from which it has never emerged.

Exactly who started the war, and why, is disputed. Most media reports say the trigger was the kidnapping and murder of three Israeli teenagers in the West Bank, though the rise in tension can be traced back further, to the killing of two Palestinian teenagers by Israeli forces during the Nakba commemorations a month earlier. Israel blamed Hamas for the killing of its teenagers, and its troops arrested 350 West Bank Palestinians, including several people suspected of being Hamas leaders. Hamas responded with a spate of rocket fire from Gaza into Israel. To stop the rocket fire, Israel launched devastating air strikes followed by a ground invasion.

The war lasted from 8 July until 26 August. During that time, 2,251 Palestinians were killed and over 11,231 were injured, mostly civilians: 3,436 of the injured were children, of whom about a third suffered life-changing injuries. As usual, the Israeli death toll was far lower and mainly miltary: 66 soldiers and five civilians lost their lives.

Israel’s military action caused massive damage to civilian infrastructure. Tens of thousands of homes were destroyed or damaged. Schools and health centres were ravaged. Half a million Palestinians were forced to flee their homes.

It’s not hard to imagine the effect of such destruction on Gaza’s economy. In 2014, Gaza’s economy shrank by 14%. It briefly bounced back in 2015 due to some repair and rebuilding of civilian infrastructure, but Israel’s continuing blockade quickly strangled the nascent recovery. As the economy collapsed again, incomes fell and both unemployment and poverty rose.

Between March and December 2018, there were repeated protests in Gaza against Israel’s blockade. Israel responded to the protests with deadly military force, killing at least 189 people and injuring thousands, nearly all civilians. Despite widespread international condemnation of Israel’s brutal suppression of largely peaceful civilian protests, no sanctions were imposed on Israel. But Gaza paid a terrible price. Israel tightened its blockade, and aid flows to Gaza dropped precipitously. Gaza’s GDP fell by 6%. Poverty escalated.

In September 2018, the IMF warned:

“a humanitarian catastrophe is unfolding in Gaza—electricity and clean water are in short supply, medical facilities are overwhelmed, and much of the population faces a significant loss of income.”

The World Bank described Gaza’s economy as in “freefall”, and the UN Special Rapporteur for the Situation of Human Rights in the Occupied Palestinian Territories said that unless things improved, by 2020 Gaza would be “unlivable.”

The inevitability of October 7th

In 2019, Gaza’s reported GDP growth was positive. But there was no real improvement in the economy. The increase arose entirely from base effects.

Then the Covid pandemic hit. The West Bank and Gaza were badly affected, suffering a catastrophic fall in GDP and a sharp, though short-lived, rise in unemployment.

Just as Gaza was beginning to rebound from the pandemic, Israel launched another war. This time, the trigger was in East Jerusalem. In May 2021, Palestinians protesting at an anticipated Israeli Supreme Court eviction of six Palestinian families from the Sheik Jarrah neighbourhood threw stones at Israeli police. In response, Israeli forces stormed and occupied the Al-Aqsa mosque, preventing Muslim worshippers from entering to pray during Ramadan. On 10th May, Hamas issued an ultimatum to Israel to withdraw its forces from the mosque. When it did not do so, Hamas fired a spate of rockets from Gaza into Israel. Israel responded with air strikes. Hostilities continued until 21st May, when Egypt brokered a ceasefire, though the ceasefire lasted less than a month: in June, provoked by a march by Israeli nationalists in East Jerusalem, Hamas launched incendiary balloons into Israell from Gaza. Israel responded with air strikes.

In August 2022 Israel launched unprovoked air strikes against Gaza, taking out an Islamic Jihad commander and 49 civilians, including 17 children. Islamic Jihad responded with enormous rocket fire into Israel. Israel claimed its air strikes were a pre-emptive operation to prevent what it alleged was a planned attack by Islamic Jihad. But commentary at the time suggested that Yair Lapid, then Prime Minister of Israel, started the action to improve his standing in Israeli opinion polls ahead of an election in November - which he lost.

Benjamin Netanyahu’s new far-right coalition government turned the thumbscrews on both the West Bank and Gaza. It tightened restrictions on West Bank Palestinians, intensified its “security operations” in the West Bank and East Jerusalem, armed illegal Jewish settlers, and encouraged them to harass and evict West Bank Palestinians. It increased its Palestinian arrest rate, and as the number of prisoners it held rose, it doubled the amount of money it withheld from the Palestinian Authority for each Palestinian prisoner, causing a large fiscal tightening on top of a forced slowdown in economic activity. This was bad enough for the West Bank, which stagnated. But for Gaza, it was disastrous.

As economic conditions worsened, violence between West Bank Palestinians and Israeli armed forces, both regular and irregular, escalated. In the first nine months of 2023, Israeli soldiers, police and armed settlers killed at least one West Bank Palestinian almost every day, and there were several outright pogroms - for example, in the Palestinian village of Huwara, which suffered an armed settler assault of extraordinary violence in February 2023 and was then attacked again on 6th October. Hamas’s attacks the following day were exceptional in their scale and brutality, but they really should have been foreseen. It was inevitable that Palestinian militant organisations would eventually respond to such extreme Israeli violence on the West Bank, and their retaliation was bound to involve more than a few rockets.

End game: the destruction of Gaza

It should be obvious by now that even quite minor skirmishes between Israeli forces and Palestinians in the West Bank and East Jerusalem have utterly catastrophic effects in Gaza. The Netanyahu government’s harshness meant Gaza was heading for a disastrous economic collapse. And the growing conflict between West Bank Palestinians and Israeli forces was inevitably going to result in another horrific war, which would hasten and amplify the economic collapse. Gaza was doomed long before the October 7th attacks.

Could this have been prevented? In another universe, maybe. But in our universe, Gaza’s eventual fate was written in the stars many years ago. The beliefs and actions of the key players since - well, opinions vary, but certainly since at least 1947 and perhaps as far back as the Balfour Declaration of 1917 - have led inexorably to this moment. And old-fashioned bad luck has played its part too. If Woodrow Wilson had not suffered a stroke in 1919… if Franklin D. Roosevelt had not died unexpectedly in 1945… if Yitzhak Rabin had not been assassinated in 1995… we might not be where we are now, and much bloodshed might have been avoided.

Gaza’s tragedy is inevitable, in the classical sense. And like a classical tragedy, it stems from a fatal flaw, or perhaps a fatal conflict of interests. Gaza hosts the Palestinian factions that want to free Palestine by destroying Israel. The West Bank hosts them too, but only in certain areas. But in Gaza, they run the entire enclave. So for Israel, Gaza is the enemy. If the people of Israel are to live without fear of destruction, Gaza must be destroyed. There is no other choice.

Israel’s destruction of Gaza did not start on October 7th. No, it started when Hamas seized power in 2007. Prior to October 7th, Israel was destroying Gaza slowly, through economic strangulation and periodic military degradation. Now it is destroying it rapidly, through massacres, deliberate starvation and ethnic cleansing. It makes no difference. The end is the same.

And as the destruction of Gaza gathers pace, we, the onlookers, are overwhelmed with pity and fear: pity for the people of Gaza, whose suffering is beyond our imagination, and fear that as the rules-based order we thought would prevent such a catastrophe from ever happening again crumbles into dust, we too could follow in their footsteps.

Related reading

The road to Armageddon

Image: Theatre mask mosaic, Naples National Archaeological Museum, Public domain, via Wikimedia Commons