It is due to recent political developments and rising tensions amongst Palestinians and Israelis that people across the world are starting to explore the different aspects of this decades-old conflict, including the economic one.
Despite the fact that the conflict is more political than it is economic, attempts to have a better understanding of this conflict still require us to go through the economic and financial sides of it because the balance thereof or the lack of it can have a major impact on future solutions.
Israel often promotes itself as one of the strongest economies in the Middle East, celebrating policies that have for long prioritized local manufacturing, agriculture, science, and technology, all of which constitute a solid basis for its economy.
Reading through Israeli government websites, it is clear that Israel regards its economy as an industrial one, describing itself as a "maker of intensive and sophisticated research and development".
According to World Bank data, the Israeli economy has been growing steadily since the 1960s, despite a number of turbulent years in which its economy faced slow growth. For example, the Israeli GDP per capita was $1,299 USD in 1960, compared to $43,592 USD in 2019.
Over the years, Israel has utilized land and water resources to expand its agricultural sector, in addition to boosting its industrial efforts. Israel is now a major exporter of food products, textiles, pharmaceuticals, chemicals, rubber, plastic, and smart technological products.
During the 1990s and thanks to being one of the heaviest militarized countries in the region, Israel ventured on military-related investments, including the manufacturing of medical, telecommunication, and electronic devices. Moreover, Israel has in recent years become a major producer of natural gas in the region, boosting its international export revenue to US$55.8 billion in 2016. Israel is also one of the major recipients of US financial assistance, which had reached more than $3.8 billion USD in 2019.
In 2020, the Israeli economy faced a major blow due to the coronavirus crisis that has hit every country around the world, seeing a 2.6% decrease in growth, according to Reuters numbers.
This year, and despite normalization deals with oil-rich GCC countries in addition to Israel's having the international lead in vaccinations, the Israeli economy has been underperforming. Q1 numbers have shown an unexpected -6.5% decline, going against an earlier expectation of 5% - 7% growth.
Recently, the heightened political tensions triggered by the latest Israeli military operation in Gaza, which lasted for 11 days, are suggesting another hard year for the Israeli economy, especially as the latest events are feared to affect the country's highly-anticipated touristic season. Tourism is one of Israel's major economic sectors as it has generated more than $8 billion USD in December 2019.
While figures on the Israeli economy suggest a relatively strong economy with a number of unstable periods, the Palestinian economy has a whole different reality.
This is mostly due to the Palestinian territories being either under full Israeli military control in the West Bank and East Jerusalem at a time the Gaza Strip continues to live under a 14-year old blockade. After all, Palestinians are still far from having an independent state.
Besides, Palestinian territories with little to no natural recourses under Palestinian control are still home to dozens of overcrowded refugee camps that were established either following the 1948 war or 1967 one.
Within Palestinian territories, near 5 million Palestinians having no option but to consume Israeli products on a daily basis. Yet, locally-made products in each Palestinian city face major difficulties being exported to other cities within the West Bank, let alone being part of the international trade, which deprives Palestinians of major financial revenues.
In a report published in 2017, the World Bank addressed "an enormous trade deficit and overdependence on Israel’s economy", saying that it has been a result of "operating within an uneven Customs Union arrangement with Israel".
Ever since the 1967 war which resulted in Israeli control over the West Bank, Gaza, and East Jerusalem, Palestinians have been heavily relying on international aid, amid the lack of means through which they can make their own living under occupation. Besides more than $200 million USD granted by the EU to Palestinians every year, the US has just restored $235 million USD in aid to Palestinians following the Joe Biden inauguration, undoing a previous decision by former US President Donald Trump to stop providing financial aid to Palestinians during his term in office.
However, a study conducted by Aid Watch in 2015 found out that more than 70% of international aid meant to support Palestinians ends up in the Israeli economy, mainly as Israel collects taxes from non-citizen Palestinians under its control, in addition to their consumption of its products on a daily basis.
Numbers provided by the World Bank estimated the nominal GDP in the Palestinian territories at $4,007,000 USD in comparison to Israel's $161,822,000 USD.
What role can the current economic disparity between the Palestinians and the Israelis play in future negotiations and a potential solution to the conflict?
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