Israel-Palestine: The One-Sided Strife

Approaching the conflict from an economic perspective

Today, the Gaza death toll reached 200 following the reignited tensions between Israel and the State of Palestine in the single deadliest attack in the latest round of violence. Explosions have displaced children from their families and obliterated their homes. The tensions show no sign of easing despite calls from the UN Secretary-General for an immediate end to the “utterly appalling” violence.

Gaza’s only powerplant is likely to run out of fuel in the next few days due to the blockade of the commercial crossing with Israel. Main roads and powerlines, along with homes and offices, have been ravaged due to the recent bombardment, accumulating estimated losses in Gaza of $210 million since the start of military operations.

This recent outburst of destruction is not new news: between 200 and 2015, there were 1050 incidents of terrorism in the West Bank and Gaza and 1089 in Israel. Thousands of people have died over the past decade in a feud that originated in the mid 20th century.

Approaching the conflict from an economic perspective, though this does not do justice to the death and suffering experienced, reveals the inevitability of the destruction of the Gaza strip and West Bank that is occurring. Simply put, the State of Palestine is far more modest and economically sensitive than Israel’s sound and relatively stable economy.

The Israeli economy

Israel’s economy is durable due to its secure government and critical ties with the United States, its predominant trade partner. It is the fourth strongest economy in the region, with gross domestic product measured at $394.7bn, which joined the OECD in 2010. It is well known for its expertise in diamond cutting, making up almost a quarter of all exports, most of which are to America. Finally, the Israel Defense Forces (IDF) are considered, by military experts, to be one of the finest armed forces in the world. Hence, they pose a great risk to Palestine.

The Palestinian economy

On the other hand, the State of Palestine’s economy lacks compared to Israel’s: gross domestic product measures at an inferior $16.8bn, over twenty times less than its competition. Its economy has been struggling due to years of friction with Israel, which had led to significant opportunity costs, while policies implemented by Israel have warped and weakened the economy. Since 2007, the Gaza strip has been restrained, and the Israeli and Egyptian borders have been closed. As a result, citizens cannot leave nor enter the region, nor can they freely import or export goods, which has drastically deteriorated their labour market and trade with other nations. Other Israeli policies have also had deep-felt effects on government tax revenues, offset by substantial military costs.

Additionally, Palestine has always been reliant on international donations to finance their spending on both defence and public and private investment. Unfortunately, this revenue stream has plunged from 32% of GDP in 2008 to 3.5% in 2019 due to fears that it was being spent on funding terrorism. Furthermore, the persistent violence is also unattractive to prospective aid donators. As a result of all these factors, Palestine’s economy is significantly depressed.

It is no surprise then that Palestine stands a minimal chance if this conflict is to persist. Israel, which consumes the second-most on military expenditure (5.6% of GDP), spends significantly more on their military than the total value of Palestine’s gross domestic product, contributing towards exceptional defence infrastructures such as one of the most advanced defence systems in the world: the iron dome. This has reportedly intercepted around 90% of the 3000 rockets fired towards Israel, making it almost impenetrable from Palestine’s arsenal of weapons. Furthermore, the Biden administration has recently approved $735mn in precision-guided weapons to Israel, making Palestine’s unfair opponents even more intimidating.

The fighting roars on despite the mutual economic consequences that would stem from a peace deal known as the two-state solution, which envisions an independent State of Palestine alongside the State of Israel. It is projected to provide Israel and Palestine with $123bn and $50bn respectively over the next five years. Despite the Palestinians gaining more proportionally, it would be an excellent outcome not only economically but due to the number of lives and bloodshed that would be saved. Any continued conflict would likely cause GDP per capita to decline by 46% in the West Bank and Gaza and 10% in Israel by 2024.

There is only one preferable outcome. It will take a consolidated global effort to encourage a cease-fire between the opponents, which will come alongside economic optimisation and, more importantly, help to save the lives of thousands of blameless citizens of the Middle East. Leaders worldwide must fight for peace if they want to stop this conflict from intensifying into a full-scale war that could spill across the Middle East and Europe, with existential consequences — action must be taken now.

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Ted Jeffery

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A student passionate about economics and how the world works. New blog post every Monday.

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Ted Jeffery

Ted Jeffery

A student passionate about economics and how the world works. New blog post every Monday.

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