Gaza economy decimated as Israel deprives residents of food, water, electricity and fuel

And the latest impact comes just after Gaza's imports and exports were showing signs of recovery. Both were up in the current year before the outbreak of war after the World Bank estimated that the Palestinian economy grew by 4% in 2022. 

Professor Karim warns there will also likely be a financial impact for the Palestinian Authority (PA) on the West Bank. Its revenue could fall by $175mn per month if Israel, which provides two-thirds of the PA's income, withholds payments during the war.

US news network CNN has reported that the PA is already unable to pay the salaries of 15% of its employees.

Unemployment high before war

United Nations organisations estimate Gaza's unemployment rate at 46%. For young people, the rate is even higher, at 70%. These numbers mean Gaza had one of the highest unemployment rates in the world before war broke out, not least after the restrictions on movement and travel after the uprising in 2000 made it difficult for Gazans to find work outside their homeland.

It leaves 58% of Gaza's population in need of humanitarian assistance, while 29% of them live in extreme poverty, according to the UN.

War means these numbers, too, will head even higher. The violence has already hit the currency, with the shekel worth over 3% less at 3.99 per dollar, its weakest in 8 years.

This comes amid the possibility of an even wider escalation of the war in the broader region. That could deepen the economic impact, and maybe even lead to a global crisis on the scale of the one caused by Russia's invasion of Ukraine.

International markets

So far, the reaction on global markets to the war has been mainly limited to the price of oil and natural gas.

After Hamas' Operation Al-Aqsa Flood shocked the world on 7 October, Brent crude rose past $90 a barrel. It had been heading higher over a wider period, not least due to production cuts, but the sharp rise in tension in the Middle East will be felt in energy markets.

On 9 October, analysis from the Swiss bank UBS said: "oil prices have shown significant fluctuations this month. Fears of a recession have led to a sharp decline in oil prices, while Hamas' attacks caused prices to rise".

Clay Seigle, director of global oil services at the Rapidan Energy Group, told Al Majalla that Iran poses the biggest threat to energy prices.  He said: "the main factor affecting oil prices is the risk that Iran intervenes in the fighting. If this happens, it could have an impact on oil transport through the Strait of Hormuz."

He added: "More than 15 million barrels of crude oil are transported across the strait to global markets every day, accounting for about 40% of the total global oil exports, as well as more than five million barrels of oil derivatives such as gasoline and diesel."

Seigle stressed that the likelihood of a direct confrontation between Israel and Iran would increase if Israel directly accused Iran of supporting Hamas in the attack, or if the Iranian-backed Hezbollah joined the war, resulting in a strong rise in oil prices.

Seigle also points out that the US strategic oil reserve is down to 350 million barrels from over 600 million barrels before Russia's invasion of Ukraine. The US administration withdrew significant quantities from it after the sanctions against Russia cut supplies. This could make oil price shocks more severe.

UBS analysts emphasise the importance of relying on Brent futures for longer periods in anticipation of sudden price increases as a result of current disruptions and their possible worsening. Forecasts suggest that oil prices could reach around $150 per barrel in the event of an escalation.

Focus on Rafah crossing and potential escalation

According to Matt Smith, lead oil analyst at Kpler, a firm that tracks commodity prices, the rise in oil prices in direct response to the war in Gaza will not last long unless the situation worsens.

Smith also said in a statement to Al Majalla that "there is no immediate threat to oil production or flows unless we see a broader geographic disruption in the coming days.

Last week, Israeli forces attacked the Palestinian side of the Rafah border crossing three times in less than 24 hours, sparking concern among the Egyptian government due to the proximity of the unrest to the borders and the rising death toll, particularly among Palestinian civilians.

Israeli reluctance for Palestinians to cross the Rafah border has also sparked resentment among Egyptian officials, who see these calls as the demands as a violation of state sovereignty.

There are growing concerns that tens of thousands of Palestinians could pour across the border if the Israeli army launches a ground attack on Gaza, which the Egyptian government strongly opposes, especially as the country's domestic economic situation worsens.

Egypt is already hosting many refugees, including thousands of Sudanese, following the conflict in Sudan since last April.

After the Rafah crossing was closed due to Israeli bombing, Egypt did not send aid convoys to the Palestinians because Israeli forces threatened to attack the convoys if they attempted to cross the border.

Egyptian President Abdel Fattah el-Sisi said last Tuesday, " Safeguarding national security is my top responsibility, and there will be no compromise or complacency under any circumstances.

The Egyptian people must be aware of the complexities of the situation and the magnitude of the threat," according to the official Middle East News Agency.

Read more: Netanyahu call for Palestinians to "leave" Gaza raises alarm in Egypt

Gas stops flowing from Israel to Egypt

The war in Gaza has also led to a rise in natural gas prices, especially after Israel decided last week to halt production at the Tamar field near the conflict zone. A 44% price rise followed this decision in European wholesale markets.

It is estimated that the cessation of production at the Tamar field has resulted in a 19% drop in Israeli gas exports to Egypt. On Tuesday, Chevron, the company that operates the field, said it had halted gas flow from Israel to Egypt via the Eastern Mediterranean Sea gas pipeline, opting for an alternative route through Jordan.

The drop in gas supply from Israel will undermine the Egyptian government's hopes of resuming gas exports from October this year. The heatwave led to a significant increase in domestic energy consumption over the summer, prompting the government to impose daily electricity cuts in many parts of Egypt to conserve gas. Electricity production accounts for 60% of Egypt's total domestic gas consumption.

Rihana Rashidi, a natural gas and liquefied natural gas analyst at Kpler, said, "Long-term disruptions are expected for security reasons." Reuters reported that Israeli gas exports from the Leviathan field to Egypt are declining to meet local demand in Israel.

Mustafa Ouki, a senior research fellow at the Oxford Institute for Energy Studies, noted that Egypt's gas supply and demand are almost equal in the 2022/2023 fiscal year (5.9 billion cubic feet per day versus 6.2 billion cubic feet per day).

This means Egypt's room to supply gas for export is extremely tight.