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Israel

Gaza's Economy Imploding After Egypt Closes Smuggler Tunnels

A smuggling tunnel in Rafah, southern Gaza Strip
A smuggling tunnel in Rafah, southern Gaza Strip
Daniel Rubinstein

TEL AVIV While we talk about a certain economic stability in Ramallah, the economy in Gaza is in free fall, which is due in no small measure to the massive closing of the tunnels used to smuggle in products across the border from Egypt.

The Palestinian economy, at least in the West Bank, is not influenced by events in neighboring Arab countries. In Ramallah, we have even recently begun to talk about bona fide economic stability.

Palestinian Authority Prime Minister Rami Hamdallah has good reason to believe that his government will be able to pay its workers before the end of the year.

This comes after two years when a much talked-about crisis in the Ramallah government raised fears that the Authority wouldn't be able to pay its salaries. Meanwhile in Gaza, people were talking about the economic situation as something of a boom — thanks to the partial removal of the Israeli blockade, $500 million given by Qatar for development, and the expansion of the smuggling tunnels.

But now, the situation has been reversed, and the Gaza economy is in free fall. This is primarily because of the new Egyptian government’s closing of the smuggling tunnels, which have accounted in the past for up to 50% of imported goods in Gaza. If three years ago there were hundreds of tunnels (some even have estimated as many as 1,200) actively being used at the Rafah border, now there are only 30 in operation.

Egypt closed all the other tunnels in June after realizing most of the terror attacks in the Sinai Peninsula came from Gaza through these tunnels. On Aug. 23, the Egyptian Army halted all the movements in tunnels. One of the most immediate results is a massive gas shortage in Gaza, which has produced long lines at gas stations throughout the region.

A tunnels economy

The Gazan people rely mostly on salaries from the government in Ramallah, the Hamas authorities and international aid. Although these salaries have always been proportionally very low, the purchasing power was stronger when cheaper merchandise was coming in from Egypt.

The most obvious example is gas. In Egypt, thanks to government subsidies, gasoline is sold at just $0.28 per liter. When it was smuggled into Gaza, it could be sold at four times that price, after Hamas taxes were added. The case is the same for many other goods like food and raw materials for industry and agriculture.

There is little doubt that without the tunnels, Gaza’s economy could implode. The Palestinian economics commentator Adel Samara wrote last week in thePalestinian Independece Party newspaper that even if the Kerem Shalom crossing with Israel operates at full capacity, it won't be enough.

According to Samara, what officially comes through this crossing from Israel represents only 30% of what Gazans need. Samara and many other Palestinians challenge the Egyptians: If there is a security factor to the closing of the tunnels, you can open an official commercial crossing. It might be contrary to your treaties with Israel, but it is in your own interest too.

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FOCUS: Russia-Ukraine War

Paris-Berlin, Warsaw-Kyiv: Europe's Balance Of Power Will Never Be The Same

A new future is unfolding in real time, one that leaders in France, Germany and beyond could not have envisioned even a year ago.

Photo of Bundeswehr soldiers in Lest, Slovakia, with a training anti-tank missile and a G22 sniper rifle.

Bundeswehr soldiers in Lest, Slovakia, with a training anti-tank missile and a G22 sniper rifle.

Kay Nietfeld/dpa via ZUMA
Pierre Haski

-Analysis-

PARIS — Quick question: do you know which country is on its way to having the largest army in Europe? The obvious answer would be France, the Continent's only nuclear power since the departure of the United Kingdom from the European Union, and a military that has been tested in multiple foreign operations in recent years.

But the answer is about to change: if we put aside the nuclear factor, Europe's leading military will soon be that of Poland.

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This is one more direct consequence Russia's invasion of Ukraine: a close neighbor of the conflict zone, Poland is investing massively in its defense. Last year, it concluded a huge arms purchase contract with South Korea: heavy combat tanks (four times more than France), artillery, fighter jets, for 15 billion euros.

Warsaw also signed a contract last month to purchase two observation satellites from France for 500 million euros.

This former country of the Warsaw Pact, today a leading NATO member, intends to be ever more consequential in European affairs. The investments in defense are one way of doing that. Yet this is not the only impact of the war in Ukraine.

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