Economic Implications of the Conflict between Israel and Palestine
The Gaza conflict has exerted a profoundly detrimental influence on the Palestinian economy. Conversely, in other areas of the region, the negative repercussions have been comparatively minimal. In Israel, economic growth has experienced a deceleration, and the fiscal deficit has escalated; nevertheless, prior to the onset of the conflict, the economy was demonstrating robust performance, and Israel possesses substantial financial reserves. Egypt and Jordan have encountered repercussions due to the disruption of maritime traffic in the Red Sea, attributable to assaults by Yemeni Houthi forces on international shipping; however, they have concurrently benefitted from significant financial assistance from international organizations and Gulf Arab nations. The economies of Lebanon and Syria were already in a precarious state, and the Gaza war has had negligible impact on their conditions. Israel’s economic relations with Jordan and Egypt remain largely unaffected, irrespective of the strong pro-Palestinian sentiments prevalent among the populations of these nations.
There has been a notable increase in volatility within global financial markets, a rise in energy prices, a downturn in revenue from tourism and travel, interruptions in trade and global supply chains, an escalation in the cost of insurance, heightened recession risks, persistent inflation, rising operational costs for businesses, and delays in decision-making processes within enterprises. Furthermore, there is empirical evidence suggesting the transmission of inflationary pressures and GDP fluctuations to other nations during the course of the conflict.
The global reaction and apprehensions are primarily centered on the energy sector, particularly concerning price escalations, the import and export of oil and gas, and anxieties surrounding a potential oil embargo. A second significant issue under discussion pertains to political tensions among Gulf Cooperation Council (GCC) member states, which influence the investment climate, including financial and capital markets. The ongoing conflict is anticipated to hinder economic growth and recovery in the aftermath of the COVID-19 pandemic, impacting major economies, including the United States, various Asian countries, and several European nations.
The historical context of the conflict between Israel and Gaza, Palestine, spans over seventy years. This conflict was initiated in 1947 when the United Nations (UN) ratified the Resolution on the Partition of Palestine. The Resolution delineated the Palestinian territory into a Jewish state and an Arab state. Presently, the discord between Israel and Palestine persists, culminating in ongoing violence and bloodshed. The Israeli-Palestinian conflict continues to represent a pressing global concern. Scholars assert that the conflict has precipitated prolonged poverty, with the poverty rate escalating from 40% to 56%. Additionally, the poverty gap has widened from 14% to 20%, unemployment has surged from 22% to 52%, and the annual expenditure required to alleviate poverty has quadrupled from $209 million to $838 million. This conflict provokes critical inquiries regarding the responses of the global economy to regional instability and the potential ramifications of economic issues on international markets.
The Palestinian-Israeli conflict is exhibiting indications of evolving into a more entrenched phenomenon, and given Israel's substantial role within the global supply chain as well as its status as a pivotal trade hub in the Middle East, the repercussions of the military strife on the nation are yielding further adverse effects on the global economy via trade networks and commodity markets. Israel occupies a critical position in the global semiconductor sector and is also a prominent exporter of potash. Notably, Israel ranks as the sixth-largest producer of potash fertilizer globally, while also being the second-largest producer of potash and the foremost producer of phosphate fertilizer within the pan-European region. Israel accounts for approximately 8% of the global potash market, a share sufficient to exert a significant influence on the international marketplace. This ongoing conflict inevitably amplifies the risk of disruptions to coastal transportation and escalates the costs associated with shipping. Since October 2000, Israel and the Palestinian populace of the West Bank and Gaza Strip have become enmeshed in a violent confrontation. The policies implemented by Israel have distorted and undermined the Palestinian economy, particularly concerning trade (creating reliance on a single major trading partner), taxation (resulting in diminished revenues to support developmental expenditures), as well as the labor market (exerting controls over the movement of workers) and Palestinian access to land (including land confiscation). Consequently, there has been a marked increase in poverty and unemployment within the West Bank and Gaza Strip.
The most recent data reveals that, in the first half of 2023, the Gross Domestic Product (GDP) of Gaza experienced a contraction of 4.5 percent. To project the GDP for the entirety of the year, it was postulated that the trend observed in the initial six months would persist into the third quarter. Nevertheless, to account for the supplementary effects of the military engagement in the fourth quarter, it was assumed that these repercussions were analogous to the quarterly GDP decline observed during the Israeli military operation in 2014 (38 percent), with adjustments made for both the duration and intensity of the military action. It is estimated that, in 2023, Gaza's annual GDP decreased by $655 million (measured in constant 2015 dollars), representing 24 percent of GDP, with a marginally greater contraction (26.1 percent) in GDP per capita, which currently stands at slightly more than one-third of its peak level in 2005.
As of the conclusion of the third quarter of 2023, the unemployment rate in Gaza reached 45.1 percent. The International Labour Organization (ILO) projected that 61 percent of employment opportunities have been forfeited in comparison to pre-conflict conditions, amounting to a loss of approximately 182,000 jobs. By December 2023, the unemployment rate escalated to 79.3 percent.
Historically, warfare has profoundly influenced the trajectory of human civilization, impacting political frontiers, cultural identities, economic systems, and societal structures. The protracted conflict between Israel and Palestine has significantly affected the social fabric, economic conditions, and commercial enterprises within both territories. This enduring conflict has critically shaped the economic landscapes and business environments of Israel and Palestine alike. Consequently, warfare has exerted a detrimental effect on essential sectors such as education, healthcare, social services, the economy, and the environment. Educational institutions have encountered considerable losses, characterized by numerous casualties among students and educators alongside the extensive destruction of schools. The healthcare system is on the brink of collapse, grappling with acute shortages of medical supplies and widespread malnutrition, particularly affecting children. The delivery of social services has been drastically diminished, compelling the majority of individuals to rely on their own resources, while the comprehensive impact of the conflict on the environment remains ambiguous and is likely to require generations to fully resolve. Furthermore, escalations in the West Bank, including intensified Israeli military operations, have led to substantial casualties, infrastructural damage, and economic setbacks.
FAQ Here:
How has the Israeli-Palestinian conflict affected the Palestinian economy?
The Israeli-Palestinian conflict has severely damaged the Palestinian economy. The long-running conflict has caused widespread destruction of Palestinian trade, production, agriculture, and infrastructure. This has led to increased unemployment, reduced livelihoods, and increased poverty. It has also increased dependence on international aid.
How has the conflict affected Israel's economy?
Israel's economy has slowed somewhat, but it is largely self-sufficient and robust. The conflict has led to increased military spending and a slowdown in some sectors. However, Israel's international financial assistance and expertise in high-tech industries have kept its economy strong.
How has the conflict affected the economies of other Middle Eastern countries?
The Israeli-Palestinian conflict has had some impact on the economies of other countries in the Middle East, especially Egypt and Jordan. The conflict has disrupted shipping lanes and commercial activities, which has had an impact on their regional economies. However, Egypt and Jordan have maintained some economic stability by receiving international assistance. In addition, some countries have received financial assistance from Gulf Arab countries, which has helped them cope.
How have economic relations between Israel and Jordan or Egypt been affected by the Gaza war?
Although the Gaza war has increased political tensions in the region, economic relations between Israel, Jordan, and Egypt have remained largely unchanged. These countries have commercial and security cooperation, which has kept their economic relations long-lasting, especially in the transport of goods and services with Israel.
What impact could the Gaza conflict have on global economic relations?
The Gaza conflict may have some negative effects on global economic relations, particularly on international trade and oil and shipping routes. However, other regions in the Middle East, such as Egypt and Saudi Arabia, have largely secured their economic positions through international aid. Although the direct impact of the Gaza conflict on the global economy is limited, global political tensions could increase.