Gaza war turns the West Bank into an economic time bomb

Traveling the 12 miles that separate Jerusalem from Ramallah can take more than two hours amid the chaotic traffic jams on the only road to the Palestinian administrative capital that Israel has left open. “The blockade of our economy did not begin on October 7 [when Hamas launched its attack from Gaza], but it has worsened since then,” says Atef Alawneh, former deputy finance minister and university professor, at the headquarters of the Palestine Economic Policy Research Institute.

Since the outbreak of the conflict in the Gaza Strip, the West Bank — partially controlled by the Palestinian Authority (PA) — has become an economic time bomb waiting to explode. Israel’s decision to ban the entry of some 200,000 Palestinian workers hired by Israeli companies and to withhold the taxes it collects on behalf of the PA (about $1.09 billion a month, two thirds of its income) is threatening the stability of the Palestinian territory. The cut in public employees’ salaries and the loss of the €400 million ($434 million) that cross-border workers injected into the local economy each month have pushed the Palestinian economy to the brink of collapse, as businesses struggle with empty cash registers and rising debt.

Three decades ago, Alawneh, 74, was one of the negotiators of the Paris Protocol, which regulates economic relations between Israel and the PA and established the shekel as a single currency after the birth of self-government in the Oslo Accords. “There are several factors that are hitting the Palestinian economy hard in the midst of the Gaza war,” explains this expert analyst. “The first is Israel’s withholding of transfers from customs duties and VAT, which it collects on behalf of the PA. The 200,000 public employees and pensioners, who have seen their salaries cut, no longer have money to spend, and internal demand is suffering,” he warns. According to his calculations, the West Bank government’s debts to private hospitals, electricity companies and service providers has risen to over 2.5 billion shekels ($650 million).

“The money is ours,” cries Suha Awadallah, 47, general director of international relations of the Palestinian Ministry of Economy, after Israel announced that it was going to deliver the withheld taxes — but not to the PA. Instead, Israel will give the money to the government of Norway, the mediator in the 1993 Oslo Agreements. The goal of this decision is to ensure no funds are sent to Gaza.

Awadallah says that Israel’s financial blockade on the West Bank is “illegal,” under the terms of the pacts signed in Oslo and Paris. That’s why the Palestinian territory has refused the proposal put forward by the government of Israeli Prime Minister Benjamin Netanyahu. The taxes and VAT collected by Israel account for more than 65% of all Palestinian revenue. As detailed by Awadallah, local taxes (20%) and donations received from the international community (15%) are the PA’s only remaining lines of revenue.

Price rises

Meanwhile, the prices of basic commodities are on the rise in the West Bank. “Ten shekels [$2.72] before the war could buy three kilos of tomatoes in Ramallah, now they only buy one kilo,” says Alawneh. “The economic separation between Gaza and the West Bank due to the conflict is having serious repercussions,” he says, “especially as agricultural transactions have ceased.”

According to the official estimates cited by this analyst, Gaza’s economy has contracted by 85%. What’s more, nearly all of its infrastructure has been destroyed, with “catastrophic” results. In the West Bank, meanwhile, the drop in activity has been 30% in the last three months. “I don’t think we’re going to recover in the short term,” he says. “And it will take many years of work. What is happening in Gaza is moving to the West Bank.” Inflation, which before October 7 stood at 1.7%, is already rising above 5%.

Alawneh, a former advisor at the Bank of Palestine, says that Israel’s restrictions in the West Bank have cut off trade between the three economic poles of the territory: Nablus, in the north, Ramallah, in the center, and Hebron, in the south. “Now there are 600 internal barriers, security points and military checkpoints that force people to endure long waits on the roads that connect the Palestinian towns.”

In her office at the Ministry of Economy, Awadallah acknowledges that, like the rest of the Palestinian civil servants, she has not yet received her December paycheck. “In October we received only 50% of our wage, and in November, that was raised to 66%, for a supplement… But I am not sure that we will receive our January paycheck, given the painful state of the Palestinian economy.”

She does not, however, believe that the situation will lead to unrest. “If there was no war, there would have already been demonstrations in the center of Ramallah, but we all know that we have to wait for better times to come,” she says, explaining she is getting by thanks to family loans. “We are all tightening our belts, the administration and the citizens,” she admits.

Awadallah is scathing in her criticism of Israel, arguing that it has tried to cut Palestine’s tax revenue by deducting the money that goes to the families of Palestinian prisoners in Israeli prisons, as well as the electricity and water bills of public companies in Israel. “They keep a quarter of our revenue each month and this is also reflected in public salaries, which have been cut to 80% of their real amount for three years,” she says.

Destruction of the private sector

“The Palestinian Administration disappeared from Gaza, along with everything else. And in the West Bank it is about to collapse, in parallel with the rise in unemployment and the paralysis of the economy,” adds Awadallah. “And we are also witnessing the destruction of our private sector, with company closures concentrated in the services sector, and to a lesser extent, in industry.”

Palestinian workers in Israel provided a vital injection of income into the West Bank’s economy. Since the start of the war in Gaza, unemployment has risen from 18% to 29%. Bilal Khaled, 30, who is married with two children, dreamed of buying land and building a house on the outskirts of Ramallah. He had been working for four years in a candy and sweets factory in Atarot, in East Jerusalem, the area of the city that was occupied by the Israeli army in 1967. He earned about €2,500 ($2,720) a month and was able to financially support his relatives, and pay for his little brothers’ studies. “That dream has already faded,” he says, while serving drinks at a café in Ramallah, where he earns less than €400 ($430) a month.

“My Israeli boss called me on October 7 and told me not to come to work until further notice. I don’t know if he will contact me again one day, but now my world has collapsed,” he says, dejectedly in the corner of the café. Like nearly 200,000 other Palestinians employed in Israel, not all with legal contracts, he misses getting up at 6 a.m., passing through security checkpoints and going to work in an Israeli industrial park.

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