Israel Destroys Hamas’s Economy Irrevocably. The Political Economy of Israel-Palestine War.
Israel wants to cancel Hamas’s ability to return to ruling Gaza after the war. Hamas wants to pressure Israel into international negotiations by increasing the cost of war.
The intensity of the ongoing war between Israel and Palestinian militant factions in Gaza suggests the conflict and the region is experiencing a paradigm shift. There is no way back. Recycling old ideas and perceptions is not possible. To discuss this view and forecast the war trajectory, it is important to understand the political economy of the ongoing war.
Over the past few days, Israel has destroyed Hamas and Gaza’s economy completely. Sure Gaza’s economy was small and dysfunctional, but it offered work opportunities for many Gazans. In previous rounds, Israel normally refrained from destroying the economy completely and instead bombed some economic assets to send Hamas a message of deterrence. In this war, Israel destroyed Al-Remal street which is the economic hub of Gaza where Hamas has lots of businesses and government offices. The street also hosts headquarters of few Palestinian large companies such as Jawwal, Bank of Palestine and others. Israeli aerial bombardment campaign also destroyed nearby neighbourhoods which housed some of the most affluent Gazans. The same was done in other parts of Gaza strip. Such complete destruction of Hamas economic base and affluent Gazans livelihood has many strategic aims.
Israel wants to destroy Hamas’s core support base. Previously, Israel sought to contain Hamas which meant it limited the scope of its attacks. However, this war Israel is serious about ending the existence of Hamas. Thus, it is seeking to cancel Hamas’s ability to return to ruling Gaza after the end of the war. In a way, this makes the war an existential war for Hamas with no way out. By losing capital from affluents, Hamas won’t be able to rule Gaza. Israel is alo seeking to make Hamas incur an economic cost for its military efforts and given the limited economic activity in Gaza, there is not much destroy. Effectively, there is no reason to invade Gaza to destroy the economy. It has been destroyed already. Thus, the idea of Israel going for a land invasion does not stand economic logic because it will only go to street fight with militants, which will be costly but important to restore Israel self confidence and create an image of victory.Israel also imposed a full blockade on Gaza and bombed Rafah crossing. This aims to accelerate depletion of available resources in order to increase the cost on Hamas for prolonging the fighting. However, such pressure may accelerate the humanitarian crisis in Gaza and force Hamas to escalate the conflict.
Israel sought to equate Hamas with IS and Deash in order to impose cost on Hamas and its supporters using financial anti-terrorism financing laws more broadly. Israel already pressured the US to freeze the transfer of the $6 billion held in Qatar for Iran under the suspicion it may have facilitated the attack on Israel. Thus, Israel is manufacturing global consent for broad financial sanctions on Palestinians and their supporters similar to those that were imposed on Russia. Essentially, Israel wants global criminalisation of supporting the Palestinian issue by claiming supporting Palestine means supporting Hamas and Daesh. This is to prevent aid from reaching Palestinians and to prevent anyone from making any political and diplomatic initiatives that may undercut Israel’s political and military plans. Israel has used such tactic against Fatah and the PA, but now it believes it has an opportunity to extend the western financial sanctions clout to target Palestinians.
At this point, Hamas has no way back. It needs to challenge the status quo politically as this is the only hope for its campaign to succeed. There is no other war. If Hamas fails, it will be dissipated. This means that Hamas is extremely determined to succeed, which suggests the war will last for months if not longer and will almost certainly go regional as pressure mounts on the Gaza front. International mediators need to create an exit option for Hamas otherwise it will carry on its campaign and take the region and the world with to new levels of geopolitical tensions. Hamas’s way out is to pressure Israel into international negotiations and a broad political settlement.
On Israel side, Hamas succeeded in brining a good part of the Israeli economy to a halt. This has happened via broad missiles attack which targeted Israeli cities and undermined citizens’ mobility and ability to work. It also impacts goods supply chain. Nonetheless, the Israeli economy learned to go remote from COIVD19 times and is able to adopt nearly half of the economy to work remotely and continue operations. Israel took billions worth of losses due to property damage, attack on factories, shrinking labour market, and slower economic activity. As it is likely the war will go on for some months, the Israeli economy will struggle to recover. Even after the war, Israel will need state-led efforts to reconstruct economic assets and infrastructure and rehouse the displaced. Private capital may not want to invest in a high-risk environment. Israel’s credit rating will lower, and debt servicing will become an issue. Western financial aid will be a must.
Israeli central bank has had to support the shekel and injected $30 billion to support its stability. However, as time passes and the war prolong, pressure will rise again to back up the currency with more reserves. Bank Hapoalim expects the war will cost Israel $7 billion initially. But it is hard to assess at this point the size of the damage and such information will be of confidential nature. Overall, for Israel, time is not on its side. The longer the war goes, the higher the cost will be whilst Hamas has already lost any economic assets worthy of destruction. Hamas bets as the war expands to new fronts, Israel calculus will have to change. Seeking a political settlement with the Palestinians will become cheaper than engaging in a multifront regional war with global ramifications.