Economic crises risk brew in shadow of Palestine-Israel conflict

The persistent Palestine-Israel conflict carries a significant human cost and imposes a considerable economic burden on both Israel and Palestine. Its ripple effect will also impact neighboring countries in the Middle East.

According to the UN, the conflict in Gaza could set back development in the Palestinian territories by over a decade. A November UN report places the potential setback in overall human development for Palestine at 11 to 16 years due to factors such as decreased educational attainment, reduced life expectancy and a drop in per capita income.

The UN also forecasts that the war will likely negatively affect Palestine's GDP in 2024. In an optimistic scenario, assuming normalized economic activities but accounting for the ongoing effects of capital stock destruction, Palestine's GDP in 2024 could decrease by $904 million, 4.2 percent of the expected GDP, if the war lasts a month. For three months, the reduction could be as much as $1.9 billion, an estimated 8.7 percent of GDP.

Gaza's economic fragility intensifies, impacting regional stability

Compounding these challenges is the Palestinian territories' heavy reliance on Israel for labor, goods markets and essential services such as water and electricity. Decades of Israeli restrictions and occupation have exacerbated this dependency, entrenching them in a cycle of underdevelopment.

"Considering Palestine, it might be categorized as one of the so-called quasi-states, with an already fragile economy," observed Yu Jianhua, the vice president of the China Association of Middle East Studies.

"This fragility is particularly evident in Gaza, where the economy primarily relies on aid from the international community, the United Nations, Qatar, and other affluent Middle Eastern nations. Unfortunately, the current situation has dealt a severe blow to this already precarious economic state."

The war has caused catastrophic damage to Gaza's infrastructure and economy. The United Nations Office for the Coordination of Humanitarian Affairs reports that over 1.5 million people in Gaza are now internally displaced, with around 778,000 seeking shelter in approximately 154 United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) facilities.

Further exacerbating this humanitarian crisis is a severe economic downturn. The International Labour Organization (ILO) estimates that the conflict has led to the loss of 182,000 jobs, impacting 61 percent of the labor market. Even before the conflict, Gaza's unemployment rate was over 46 percent, one of the highest in the world.

The war's impact extends into neighboring areas as well. In southern Lebanon, the olive trade, a key income source for many, has reached a standstill. The ongoing conflict and shelling have led farmers to abandon their harvests, resulting in the destruction of around 40,000 olive trees due to fires from Israeli Defense Forces' shelling.

The Institute of International Finance has estimated that Lebanon's GDP may decrease by one percent by year's end and could plummet by 30 percent in 2024 if the conflict intensifies and spills over into the region.

Israel's economic resilience under pressure

"In recent years, military operations in Gaza have been relatively short-lived. The current conflict in Gaza represents one of the most severe escalations since 2003," said Yu, who is also a researcher and deputy director of the Institute of International Studies of the Shanghai Academy of Social Sciences.

"For Israel, its goal is to weaken the Iran-backed Hamas, with the expectation that this will lead Gulf countries to invest in economic reconstruction," he said

"But the conflict will undoubtedly impact Israel's economic development and growth. However, due to the strength of Israel's economy, the effect is likely to be limited, causing only a short-term stagnation," Yu told CGTN, adding that "while attracting foreign investment to Israel may be impacted, it won't be a decisive factor in the long term."

However, some analysts believe the repercussions are more severe. The Bank of Israel's analysis emphasizes the economic cost of worker absenteeism in terms of labor costs, rather than lost production and indicates that the conflict is draining the Israeli economy.

The Bank of Israel estimates a weekly economic loss of $600 million due to work absences, which represents about 6 percent of the country's weekly GDP. If the conflict continues for eight to 12 months, the cost to the Israeli economy could surpass $50 billion, nearly 10 percent of its GDP.

Regarding the assessment of the Palestine-Israel conflict's impact on Middle East economic stability, Yu believes the key factor is whether the war has expanded. If it has, it will have a significant impact, he said.

"If the conflict extends to involve countries like Iran, instability will arise on both sides of the Strait of Hormuz, leading to fluctuations in oil prices," he explained. "While regional conflicts are improbable, should one erupt, it could spread from the Middle East to the global stage."

"At present, this seems unlikely. Iran is exercising relative restraint, and the current situation remains within control," Yu said.