By Zaid M. Belbagi
Six weeks into the war in Gaza, the economic cost of the conflict is becoming increasingly clear and harder for decision-makers to justify. Following the Oct. 7 attack, Israel launched a military operation which has led to over 15,000 deaths in Gaza. The war has also had a marked economic impact, both regionally and internationally.
Most pertinently, economic slowdown has struck not only Israel and Palestine but also neighbors Egypt, Jordan, and Lebanon, who are facing a fall in tourism and natural gas supplies. High oil prices brought about by the broader instability of the conflict in the context of existing cuts is also putting other regional economies under significant stresses in the absence of a ceasefire.
Despite its perceived overwhelming superiority in this conflict, Israel’s shekel hit an eight year-low against the US dollar in early October. On Oct. 9, the Israeli Central Bank reportedly announced the sale of up to $30 billion worth of reserves to stabilize the flailing currency. Additionally, with nearly 300,000 Israeli military reservists called up since the outbreak of the war, the economy is experiencing significant labor shortages. According to some reports, a third of Israeli businesses have reported losses or have shut down altogether.
Though the government has been keen to grow Israel as an international destination, the tourism economy and the country’s international perception have been greatly affected by the conflict. Meanwhile, the temporary closure of the Israeli offshore Tamar gas field has meant an additional loss of export revenue. Chevron’s closure of the site was only reviewed after the visit of the President Joe Biden’s energy security adviser to the region, who offered the possibility of using offshore gas revenue to revive the Gazan economy. The suggestion that Israel’s controversial use of these resources may be shared going forward is indicative of a narrative shift — Israel’s prosperity can no longer be considered separately to the lot of the people of Gaza.
As Israel lurched toward normalization with its neighbors, it has planned to secure economic opportunities in the region. The most important piece in this geopolitical jigsaw is its relationship with Saudi Arabia. Israel’s actions in the conflict have significantly hampered the establishment of economic relations with the largest economy in the region. The emerging partnership, which would have been the most notable move under the Abraham Accords, was brought to a halt amidst Saudi condemnation of Israel’s actions in Gaza in a joint statement by Arab-Islamic states.
The conflict has also acted as an important barometer of the existing relationships under the Abraham Accords, such as with Morocco, Sudan, and the UAE, where governments face balancing economic and diplomatic relations with Israel and strong pro-Palestinian sentiments among their populations.
The economic repercussions of the conflict have also been felt in Egypt, the only country other than Israel to border Gaza, which has faced significant financial losses since the conflict began. Most notably, the temporary closure of the Tamar field has severely reduced Egypt’s natural gas supply amid major economic problems. Egypt depends on Israeli gas for liquefaction as per a 2022 agreement under the East Med Gas Forum. After storing a portion of the liquified gas for domestic use, Cairo exports the remainder. Therefore, the closure of the field has impacted both Egyptian domestic supply and export revenue, as well as its electricity generation capacity at a time when the country is facing prolonged power cuts.
Having already experienced a fall in tourism in the Sinai peninsula owing to terrorist activity in recent years, the area has seen a further fall in bookings amongst tourists seeking winter sun. Bordering Gaza, the Sinai is somewhat exposed, as illustrated by the explosion of unidentified projectiles at two coastal towns in Egypt that injured six in late October. Concerns are so great that Egyptian Red Sea resorts have reportedly faced an 80 percent reduction in tourist activity.
Egypt now faces a precarious domestic economic situation in the run up to the presidential elections in December. On Nov. 18, the International Monetary Fund announced a possible augmentation of its 2022 $3 billion loan program in light of the economic difficulties posed by the ongoing war.
The cost of rebuilding Gaza is unfathomable. It has been estimated by the World Bank at $485 million, with the UN adding that the humanitarian needs of the Gazan people to be as high as $1.2 billion by the end of the year. This gargantuan task, alongside the strain on regional economies, will be the lasting consequence of Israel’s war.
Though oil prices have historically been susceptible to fluctuation in the face of regional and global conflict, the current conflict served as a basis OPEC+ member states to maintain voluntary cuts to keep prices high. The war has also put a spotlight on vital proposed global economic partnerships such as The India-Middle East-Europe Economic Corridor announced in September at the G20 Summit in New Delhi. The proposed corridor would create a trade route connecting India to Europe via the Middle East, including Israel. However, escalations since Oct. 7 have shed light on the physical threats to building such infrastructure.
As the war continues to take its toll, the only factors that will bring it to an end will be the cost to Israel and any leverage OPEC+ can wield over the US by keeping oil prices high — until then, the people of Gaza will pay the highest price.
• Zaid M. Belbagi is a political commentator and an adviser to private clients between London and the GCC.