Israel is holding the Palestinian economy captive, analysts say

Palestinian livelihoods damaged by ban on workers entering Israel – Copyright AFP/File Zain JAAFAR


The Gaza war is accelerating Israel’s “annexation” of the Palestinian economy, say analysts, who argue it has been hampered for decades by agreements that followed the Oslo peace accords.

While the war between Israel and Hamas that has raged since October 7 has devastated parts of Gaza, it has also hit the public finances and broader economy of the Israeli-occupied West Bank.

Israel is tightening the noose on the Palestinian Authority, which governs parts of the West Bank, by withholding tax revenues it collects on Israel’s behalf, economist Adel Samara told AFP.

Palestinian livelihoods have also been hurt by a ban on workers entering Israel and a sharp decline in tourism in the violence-stricken area, including a quiet Christmas season in Bethlehem.

Samara said that “technically there is no Palestinian economy under Israeli occupation – our economy is effectively annexed by Israel’s.”

The Palestinian economy is largely governed by the 1994 Paris Protocol, which granted Israel exclusive control of the territory’s borders, and with it the right to collect import duties and value-added taxes for the Palestinian Authority.

Israel has repeatedly used this power to deprive the authority of much-needed revenue.

But the war in Gaza has further tightened Israel’s grip, Samara said, with most of the customs duties withheld since Gaza’s rulers Hamas sparked the war with their attack on Israel on October 7.

“Without these funds, the Palestinian Authority struggles to pay the salaries of its officials and running costs,” said Taher al-Labadi, a researcher at the French Near East Institute.

In February, Norway reportedly transferred about $115 million from Israel to the Palestinian Authority, following an agreement to release some of the frozen taxes.

Nearly all Palestinian workers are also banned from entering Israel for work, raising unemployment in the areas.

Palestinian Prime Minister Mohammed Mustafa complained of an “unprecedented financial crisis” in which his government’s deficit had risen to $7 billion, more than a third of the territories’ GDP according to the latest budget figures.

– ‘Collective punishment’ –

The Paris Protocol, like the 1993 and 1995 Oslo Accords under which it was signed, was intended to remain in force for five years, until the establishment of a Palestinian state.

But the lack of a long-term peace deal means it still controls virtually all aspects of the Palestinian economy.

Investments are also suppressed by the protocol, Samara said, explaining that Israel “controls the land, resources and water sources” of the Palestinian territories.

Before any factory or store requiring access to these resources can be built in the West Bank, Israel must grant permission, he said.

Israel’s stance has become even tougher under far-right Security Minister Itamar Ben Gvir and Finance Minister Bezalel Smotrich, he said, both of whom are settlers in the West Bank.

Critics accuse them of holding Prime Minister Benjamin Netanyahu hostage by threatening to withdraw support that gives him a razor-thin government majority.

Israeli political analyst Michael Milshtein echoed his view.

“By not allowing Palestinian workers into Israel and withholding Palestinian tax revenues, Ben Gvir and Smotrich aim to overthrow the Palestinian Authority, which they consider an enemy,” he said.

“It is a way to collectively punish the Palestinians, whom they also see as enemies.”

Milshtein said that according to Israeli figures, before October 7, almost a third of West Bank income came from the earnings of the 193,000 Palestinians working in Israel.

Today, the number of Palestinians working in Israel has fallen to between 8,000 and 9,000, he said.

– ‘To live in dignity’ –

But Milshtein also pointed to another trend in Israeli opinion, espoused by centrist minister Benny Gantz and conservative MP Gideon Saar.

They want to allow workers back into Israel to prevent anger from sparking an uprising in the West Bank, at a time when Israeli forces are already between Gaza and the Lebanese border, exchanging fire with the Iran-backed Hezbollah.

Milshtein said he believes Netanyahu is likely closer to Gantz’s vision.

Nasr Abdel Kareem, an economics professor at the Arab-American University in the West Bank, argued that the Israeli prime minister is making a power play.

“Netanyahu is putting pressure on the Palestinians and signaling to the authority that the levers of the Palestinian economy are in (Israel’s) hands,” he said.

“Netanyahu believes he will weaken the authority and make political concessions accepted” when a peace deal is eventually to be reached, he said.

This strategy can be misleading, Nasr said, because it is based on the premise that allowing the Palestinian economy to flourish would automatically bring peace to the West Bank.

“Historically, previous uprisings broke out” when times were not economically tough, he said, adding that Palestinians ultimately want a state as much as they want a healthy economy.

“Palestinians want to live with dignity, but for them this also implies liberation and the establishment of a Palestinian state.”