The Israeli and Palestinian economies are heading towards the unknown with the escalation of military confrontations between the two sides after the Al-Qassam Brigades, the armed arm of the Hamas movement, began Operation Al-Aqsa Flood on Saturday.
Hours later, Israeli Prime Minister Benjamin Netanyahu described what is happening as a war, saying that Israel is in a state of war, not in an operation military.
The current escalation increases the economic pain in Gaza in particular, as the economies of both the West Bank and the Gaza Strip depend heavily on imports from and through Israel.
"In contrast, the Israeli economy, which relies heavily on advanced technology and manufacturing, will be affected by increased uncertainty," according to CNN.
"The situation seems complicated. The Palestinian and Israeli economies are related to each other like a Catholic marriage. Israeli factories rely on Palestinian labor from the West Bank and Gaza."
Israel is the main trading partner of the West Bank and Gaza Strip, with more than half of the goods imported to the West Bank and more than two-thirds of Gaza's imports coming from Israel.
Total West Bank and Gaza imports from Israel amounted to 70% and 54% of the GDP of the West Bank and Gaza, respectively.
Hany Abou-El-Fotouh, CEO of Al-Raya Financial Consulting Company, said in a call with CNN Economic that what is happening will have a direct impact on the Israeli economy, indicating that the military tensions will cast a shadow on the Israeli financial market.
Abou-El-Fotouh said that the war will “significantly affect the air and sea transport sector,” pointing out its vital importance to tourism and trade in general.
He added that the impact may extend to the Israeli gas sector if attacks are directed at the infrastructure, whether the gas export line or the stations, and “in this case it will affect Egypt as well.”
Gas has emerged among the most vital sectors of the Israeli economy over the past few years, as the country's gas exports amounted to about 9.21 billion cubic meters to Egypt and Jordan in 2022, according to Israeli government data.
Israel discovered huge reserves near its coast on the Mediterranean during the past decade, and a report prepared by BDO Consulting in June of this year indicated that natural gas reserves in Israel jumped by about 40% over the past decade due to increased drilling and exploration activities , from 780 billion cubic meters in 2012 to 1,087 billion cubic meters at the end of 2022.
The Israeli gas sector may be the biggest loser, but it will not be the only one. There is also tourism, which depends greatly on the state of security stability.
But the repercussions on the Gaza Strip are more severe, as years of isolation and ongoing conflicts have led to lagging economic development in it compared to the West Bank.
Gaza's per capita income reached a quarter of that of the West Bank in 2022, according to estimates by the International Monetary Fund, which indicates that unemployment and poverty rates are much higher in the strip.
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