As Israel-Iran conflict expands, Palestinian economy is pushed towards the brink

With regional tensions between Israel and Iran reaching a boiling point, Palestinians are watching closely and anxiously as Tehran threatens to shut down the Strait of Hormuz, a critical maritime passageway for nearly a fifth of the world's oil.

While the global community fears soaring energy prices and shipping disruptions, Palestinians, already reeling from war, occupation, and aid fatigue, see in these threats yet another looming disaster.

Gaza is under Israeli genocidal war and siege. The occupied West Bank is fragmented. Economic lifelines are drying up. Now, a spike in oil prices or even a temporary disruption at Hormuz could shatter what remains of an already brittle economy.

Samir Abu Mudallala, an economics and political science professor at Gaza's Al-Azhar University, told The New Arab that the Palestinian economy stands on the brink of collapse.

"Our economy is unproductive, import-dependent, and almost entirely externally controlled," he said. "It lacks sovereignty over resources, borders, and currency. The economy is held hostage by Israeli decisions—crossings, trade, even tax revenues."

He added that the so-called clearance crisis—Israel's withholding of tax funds collected on behalf of the Palestinian Authority—has crippled the PA's ability to pay salaries and fund services.

"With the war in Gaza, these restrictions have only intensified. And now, with the Iran-Israel war, we are facing a new shock from the outside that will hit us hard and fast," he continued.

While distant, the Strait of Hormuz is deeply relevant. Most global oil flows through it, and a closure or even a military escalation would push global prices up.

The effects are magnified for Palestinians.

"Any rise in shipping or fuel costs will be immediately reflected in the local market," Abu Mudallala warned. "We have no price buffers, subsidies, or energy reserves."

Gaza: A powder keg of social despair

Across the occupied West Bank and Gaza, early warning signs are already emerging. Basic commodities are becoming scarce, particularly in Gaza, where war has decimated infrastructure and cut supply chains. Prices of essentials such as flour, fuel, and medicine have increased significantly.

"Monopolies are profiting from people's suffering," Abu Mudallala said. "Meanwhile, Palestinian banks are stuck in a liquidity trap as Israeli banks are refusing to accept shekel surpluses, and that's preventing transfers, salary payments, and basic commercial activity."

International aid, long a financial pillar, is also in sharp decline. Donors are pulling back due to political stagnation, rising risks, and donor fatigue.

As a result, development projects are frozen, and the public sector is barely functioning. "There's simply no money left," Mudallala explained.

For political analyst Ismat Mansour, the impact of economic instability is not just fiscal; it's existential.

"In Gaza, the situation is so fragile that any external shock, even a minor one, becomes a full-blown internal crisis," he told TNA. "We're talking about over 70 per cent of the population suffering from food insecurity. Unemployment is above 90 per cent, and most people are suffering from starvation."

He said that people in Gaza are already struggling to survive day by day. "There are no savings, no fallback. So, if Iran implements its threats, Israel may take its own pretext not to enter any food to Gaza, which means that it will kill thousands of people by hunger," he added.

Mansour explained that the social ramifications are becoming increasingly difficult to conceal. "We're seeing a rise in psychological breakdowns, suicides, and domestic violence. People are losing hope. This isn't just about prices. It's about a complete erosion of dignity."

West Bank's economy suffocates silently

Although the bombs are spared, the occupied West Bank is undergoing a quieter kind of collapse. Checkpoints, closures, and permit revocations have brought commerce to a standstill. Thousands of Palestinian workers can no longer reach their jobs in Israel. The daily grind of occupation chokes internal trade.

"Cities are isolated from each other," Mansour said. "The cost of transporting goods within the West Bank has risen. Small businesses are closing. The middle class—the engine of any society—is disappearing."

He adds, "Shops are emptying. People are cutting back even on food. Some towns are like ghost cities after sunset."

The situation has pushed thousands into informal labour or forced them to rely on family networks and remittances. "We're not just witnessing economic decline. We're watching social fabric unravel," he explained.

Faced with this spiralling crisis, the Palestinian Authority (PA) is attempting to mitigate the damage, but its room for manoeuvre is painfully limited.

In press statements, Rashad Yousef, Director General of Policies at the Ministry of National Economy, said that the PA is "taking steps to manage the situation," including cracking down on price manipulation, coordinating basic imports with traders, and strengthening local market monitoring.

"We are also trying to revive donor relationships and are pressing for the release of withheld clearance funds. We're working with international agencies to launch temporary employment projects, especially for youth," he added.

But he concedes that the efforts are barely enough. "We do not control borders, currency, or trade. Without sovereignty, our ability to respond is limited to crisis management," he explained.

For most of the world, the Strait of Hormuz is a strategic choke point. For Palestinians, it could become a trigger for economic free fall.

"Our imports come through Israeli ports," Mohammed Arram, a Ramallah-based Palestinian man, told TNA. "If global oil prices rise due to disruptions in Hormuz, that increase gets passed along the chain to Palestinian markets without delay and mercy."

And with aid shrinking, jobs lost, and banks paralysed, Palestinians have nowhere to turn. "More people will fall below the poverty line. More will become dependent on non-existent aid. More youth will migrate if they can. Others may explode," he said.

In war-ravaged Gaza, the concern is less about oil prices and more about being forgotten in the swirl of geopolitical rivalries. For many residents, the growing regional conflict between Iran and Israel is not just another crisis; it's a distraction that could bury their suffering even deeper under international silence.

"We're not thinking about fuel. We have no fuel, no cars, no economy left," Yasser Abu Ghoneim, a displaced father of five now sheltering in a crowded tent camp in Khan Younis, told TNA. "We're thinking about food, clean water, and whether our children will survive another night."

Since Israel launched its war on Gaza in October 2023, the coastal enclave has endured relentless bombardment, displacement on an unprecedented scale, and a collapse of all civil infrastructure.

Humanitarian aid arrives sporadically—if at all—and most families survive on a single meal a day, often scavenged or shared.

"But when Iran and Israel escalate," Abu Ghoneim says, "the world stops talking about Gaza. Every new front opens a new headline, and every new headline delays the ceasefire we've been hoping for. We're left to die in silence."

He adds, "It's like we've become background noise. We fear the war here will drag on longer, not because of what’s happening inside Gaza, but because the outside world is moving on."