Economics have always been a significant part of the ongoing Palestinian-Israeli conflict. Israel has always used economic sanctions and economic punishment as a major tool for affecting change in the Palestinian people and their society. In turn, Palestinians, as one way of achieving their political goals, have tried to pursue activities that will hinder the Israeli economy.
Equally, economic benefits were a significant incentive for both sides to participate in the peace process. Palestinians were offered several packages of economic support from the donor community in order to compensate them for the damage done by the Israeli occupation, and in order to build their society and state. Israel also made out well in the peace process, its economic incentives stemming from new opportunities opened up immediately after and as a result of peace talks. The negotiations transformed Israel into a politically integral but economically advanced component of the Middle East. The direct and indirect boycott of Israel then came to an end and recent research indicates that climbing economic indicators in Israel over the last ten years can be partially explained by the peace process and the end of Israel’s political isolation.
The recent wave of confrontations resulting from the collapse of the peace process has again demonstrated that economics is a major battlefield for both sides. As a result of Israeli economic sanctions on the Palestinian people and their trade and industry, the Palestinian standard of living has declined by half, those below the poverty line make up fifty percent of the population, and one out of three Palestinians of working age are unemployed.
The Israeli economy has not escaped unscathed. Those behind Palestinian activities in this phase of confrontations have most certainly taken stock of this effect in making their plans. Israel’s nascent economic relations and regional economic cooperation have been badly affected because the Arab and Middle East states in general have stopped cozying up to Israel out of sympathy with Palestinians. In addition, many of the multinational economic entities that once thought of Israel as a foothold for their Middle East ventures are now hesitating.
Israel has also been impacted by the Intifada in as much as it has stopped using cheap Palestinian labor, replacing these workers with foreign guest workers. Tourists who previously visited Jerusalem and Bethlehem, pumping significant cash into the Israeli economy, have fled the region due to security concerns. More generally–and more important–is the decline in investment, as companies think twice about entrusting Israel as a stable, safe and secure place for their investments. Some Israelis, too, are reportedly discussing emigration from the country, taking themselves and their businesses with them.
One of the possible reasons for this dramatic deterioration in the Israeli economic outlook is the feeling cultivated among Israelis during the middle of the peace process that Israel would be able to have its cake and eat it, too. That is, the economic improvements in Israel after peace talks, in addition to the security achievements at that time, had convinced many Israelis that it was not necessary to fulfill their half of the bargain and turn over land to Palestinians. After all, they were already enjoying their share of peace, security and economic prosperity. What concern of the Israeli public was an end to the Israeli occupation?
There is a major lesson to be learned from the collapse of the peace process, the eruption of violence, and the resulting negative consequences for the Israeli economy. That lesson is that unless both sides achieve their political and economic objectives, i.e., peace and security for Israel, the end of occupation for Palestinians and economic prosperity for both, it will be difficult for either side to make sustainable achievements on its own.
Mr. Ghassan Khatib is a Palestinian political analyst and director of the Jerusalem Media and Communications Center.
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