Impact of Israel – Palestine Conflict on the Economy and Businesses of the

Region

Ranajay Bhowmick and Habibullah Khan, Manipal Global Next University.

Abstract –

Over the years war has shaped the course of human history, and influenced political boundaries,

cultures, economies, and societies. The century-long conflict between Israel and Palestine has also

influenced the societies, economies, and businesses in a big way. The long-running conflict has shaped

the economies and businesses of both Israel and Palestine. In the present study, efforts have been made

to find out the impact of the long running conflict on the economy and businesses of the region. Efforts

have also been made to study the ongoing war between Israel and Palestine. It has been found that the

effects have been quite significant in shaping the economic landscape of the region.

Keywords – Middle – East, Economic and Business History, Conflict and Coordination, Israel,

Palestine (West Bank and Gaza), Impact of War on Business and Economy

1. Introduction –

War is a conflict involving sustained and organized armed combat between societies,

governments or states. It may involve fighting between paramilitary groups like mercenaries,

insurgents, and militia. Over the years it has shaped the course of human history, influencing political

boundaries, cultures, economies, and societies. It has happened due to territorial disputes, competition

for resources, ideological differences, or power struggles and has resulted in significant death and

destruction and so often has caused huge economic damage.

Over the past century human civilization have seen several major and minor wars. We have

seen World War I and World War II which resulted in mass scale death and destruction of properties.

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There have been several others like the U.S. – Vietnam war or U.S. – Iraq war with medium

consequences. In recent times world is witnessing wars that are continuing for quite some time like

Russia – Ukrain war, Israel – Palestine war. All these have affected their country’s and the surrounding

region’s socio–economic life significantly.

2. Impact of War on the Economy and Businesses of a Country –

The economy is like a giant machine that keeps a geographic region or a country running. And

the businesses are the fuel or the energy that keeps the machine running. Without the business activities,

the economy ceases to exist. And as the businesses increase economy grows. The economy involves

various activities and participants, including businesses, households, governments, and other

institutions. When these parties engage in the exchange of goods and services business occurs. If the

economy is doing well, people have more jobs and money to spend; if it’s not, they might have less or

even none.

War poses severe disruptions to a country’s economy, often diverting public funds toward

military expenditures and away from vital social and development projects. The redirection of

resources, coupled with the destruction of infrastructure, results in significant production slowdowns

across various sectors. Domestic businesses face multiple challenges: supply chains are broken, skilled

labour becomes scarce due to conscription, manufacturing pivots to war-related production, and

consumer demand contracts for non-essential items. Inflation often skyrockets as a result of supply

shortages and increased government spending, eroding purchasing power and destabilizing the

economy (Arsahanova, Bokov and Larin, 2020). Internationally, the impacts of war can be just as

profound. Trade sanctions and embargoes impede the flow of goods, while international investors

withdraw, wary of the increased risks. Companies that operate globally may experience disruptions in

their operations, particularly if they are dependent on resources or manufacturing within the conflict

zone. The volatility of war drives up costs of international transactions, insurance premiums surge, and

currency exchange rates become unpredictable, further complicating international business dealings.

For the country at war, access to international markets get curtailed, and its businesses face boycotts or

loss of foreign partnerships. Supply chain disruptions can extend to affect global markets, especially if

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the country is a key supplier of commodities or manufactured goods. The need for reconstruction post-

conflict can provide a stimulus for some sectors; however, the overall long-term costs of war often

outweigh any short-term economic boosts from increased defence spending or reconstruction efforts.

(Arsahanova, Bokov and Larin, 2020; Felicio Jr and Figueira, 2022)

The impact of war on the GDP per capita growth, however, is quite unclear. War, on the one

hand, can increase GDP per capita by reducing unemployment and engaging people in wartime

activities, and on the other hand, can lower the GDP per capita by the destruction of existing physical

and human capital and by reducing gains from both domestic and foreign trades. (Thies and Baum,

2020)

In summary, the impact of war on an economy and on both domestic and international business

is predominantly detrimental. While certain defence-related industries might experience temporary

growth, the general consequences are negative, characterized by economic contraction, reduced

international trade, loss of foreign investment, and widespread damage to the business infrastructure

that supports economic growth and development.

3. Israel – Palestine Conflict –

The Israeli-Palestinian conflict is a long-standing struggle between Israelis, a military

superpower and a nuclear state, and Palestinians, the landowners, that began in the late 19th century.

The roots of the conflict are deep and involve a combination of religious, political, and territorial

disputes. The conflict started in the late 19th century when the Zionists wanted to establish a homeland

for the Jewish people in Palestine. The Balfour Declaration of 1917, issued by the British government,

endorsed the idea of a Jewish homeland in Palestine (Wikipedia). After World War I, the Mandate for

Palestine included a binding obligation for the establishment in Palestine of a national home for the

Jewish people. and led to an influx of Jewish immigrants to the region. In 1947 United Nations’ had

proposed to partition the British Palestinian into three legal entities i.e. Jordon (the eastern part), the

Arab Palestine (Arab country) and Israel (80% of which was populated by the Jews) (Global

Perspectives, 1999). The conflict continued as the United Nations Partition Plan for Palestine could not

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be implemented and provoked the 1947 – 1949 Palestine War. The Jewish longing for a homeland,

rooted in millennia of diasporic existence, ultimately culminated in the establishment of Israel in 1948,

a development that was met with severe Arab opposition. The war of 1947 – 1949 led to the creation of

Israeli statehood which was celebrated by Jews worldwide but lamented by Palestinians and wider Arab

communities as this caused the displacement of hundreds of thousands of Palestinians, an event they

call the Nakba, or catastrophe. Subsequent wars, particularly those of 1967 and 1973, expanded Israeli

territory but also intensified the conflict. Israeli settlements in the West Bank and Gaza Strip, captured

in 1967, along with Jerusalem’s contested status, remain core issues. Peace efforts, including the

Historic Oslo Accords of 1993 - 95, which established the Palestinian Authority and envisioned a two–

state solution, have seen intermittent progress but ultimately failed to produce a lasting resolution. The

first and second Intifadas (uprisings) by Palestinians in the late 20th and early 21st centuries led to

widespread violence. Military confrontations, particularly in Gaza following Hamas's takeover in 2007,

have resulted in significant casualties, displacements and humanitarian crises, drawing international

condemnation and concern. As per UNRWA (United Nation’s Relief and Works Agency for Palestinian

Refugees) the total number of Palestinian refugees counts to be more than 4 million in 2010 (Mathews,

Newman and Daoudi, 2011). The conflict continues to be marked by cycles of negotiation and violence,

with deep-seated mistrust on both sides and profound implications for regional and global stability. The

international community remains divided, with some countries supporting Israel, others sympathizing

with the Palestinian cause, and many advocating for a peaceful resolution through dialogue.

On 7th October 2023, an armed conflict broke out between Hamas, the ruling party of the Gaza

Strip, and Israeli Military forces. The conflict started as the Qassam Brigades (the armed wing of

Hamas, which governs the Gaza Strip) launched a military operation called Al Aqsa Storm and launched

a barrage of over 5000 rockets from the Gaza Strip to the Israeli cities and communities killing hundreds

of Israelis including innocent civilians. As a response, the Israeli Government declared war on Palestine

on 8th October and retaliated using heavy air strikes, military bombardment, and attacks on military and

civilian targets. The conflict has, so far, resulted in the death of more than 1200 Israelis and 24000

Palestinians.

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 (a) (b)

Figure 1. (a) & (b) Israel and Palestine (West bank and Gaza)

(a) (b)

Figure 2. (a) Israeli and Palestinian Conflict Deaths (b) The Human Cost of the Israeli – Palestinian

Conflict

4. Economy and Businesses of Israel –

The Israeli economy has shown great resilience to periods of strife and outright war and has

grown at a very fast rate since the global financial crisis of 2008-09 (4.2% on average, and 2.2% in per

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capita terms), and its GDP exceeded $500 billion in 2022 ($54,000 in per capita terms). The country

has a net external creditor position exceeding 30% of GDP, and foreign exchange reserves exceeding

$200 billion (Milesi – Ferretti, 2023). Israel’s per capita GDP has been at par with Western European

countries and its growth has surpassed that of Asia's big economies. Israel was the first nation in the

world to have free trade agreements with the European Union, the United States, and Canada (Global

Perspectives, 1999).

Israel's economic landscape is marked by a dynamic blend of domestic and international

businesses. Domestically, the country has a strong retail and service sector, advanced healthcare,

cutting-edge agriculture, and a robust real estate market. Local enterprises range from traditional

manufacturing to innovative tech startups focused on meeting the needs of the Israeli market.

Internationally, Israel is renowned for its high-tech prowess, particularly in cybersecurity,

software, and telecommunications, attracting significant global investment. The continuous need to

counter terror and manage emergencies created a unique ecosystem resulting in Israel becoming a world

leader in the Cybersecurity and Homeland Security Industry. The nation is a leading exporter of

technology, with multinational corporations often establishing R&D centers in Israel to tap into its

innovative ecosystem. The exports of the technology sector have reached over 45% of the total exports

of the Israeli economy and the success in R&D has resulted in Israel obtaining world record for the

greatest number of patents per capita. In addition, Israel's software exports reached $6.2 billion in 2009

from $1.5 billion in 1998, increasing by over 400% in a decade (Camera Di Commercio E Industria

Israel – Italia.). It is often referred to as "the start-up nation", producing more start-up companies than

large, peaceful, and stable nations like Japan, China, India, Korea, Canada, and the UK.

Pharmaceuticals, led by giants like Teva, play a crucial role in the global market, alongside Israel's

defense and aerospace products which are exported worldwide.

Agricultural technology from Israel is also in high demand, especially in regions grappling with

arid climates, thanks to its pioneering work in water-saving techniques and crop yield improvements.

Furthermore, the diamond trade remains a substantial international business, with Israel being a central

player in both trading and cutting. In addition, Israel’s vibrant financial service sector exemplifies its

strong and sound reputation as an internationally sought-after place for foreign investments.

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 Figure 3. Exports from Israel

The above figure indicates the break – up of the exports of different business sectors from Israel. The

leading sectors in High Tech in Israel are responsible for 45% of the total Israeli exports amounting to

45$ billion in 2017 (Camera Di Commercio E Industria Israel – Italia.).

In essence, Israeli businesses are deeply integrated into the global economy through trade, innovation,

and strategic partnerships, even as they continue to serve and adapt to the domestic market's unique

demands.

5. Economy and Businesses of West Bank –

Palestine's economy and businesses have historically been influenced by political and

geographical factors. The economy and the businesses of this country have been heavily affected by the

numerous military and economic measures imposed by Israel since their occupation of the West Bank,

including East Jerusalem, and the Gaza Strip in 1967. The long–lasting conflict has resulted in a long-

term economic disequilibrium and, in some cases, irreversible development (Naqib, 2002).

The domestic business environment, in West Bank, is shaped by small and medium-sized

enterprises (SMEs) focused on agriculture, with olive production being particularly notable (United

Nations, 2004). Agriculture, in the form of Olive farming and the production of olive oil is especially

prominent, along with other crops like citrus fruits, vegetables, and herbs. Handicrafts and textiles also

constitute important domestic industries, often reflecting traditional Palestinian heritage. Palestinian

territories are known for traditional handicrafts such as embroidery, glassware, and soap-making,

particularly in cities like Hebron and Nablus. The construction sector is growing, driven by the demand

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for housing and infrastructure development within the territories. In addition, there is a budding IT

sector with software development and tech startups emerging despite challenges. (Massar Associates –

The Services Group, 2002)

There are several important religious and historical sites, particularly in cities like Bethlehem,

Jericho, and Hebron, which attract numerous tourists each year. This has resulted in an attractive tourism

sector which has become a very significant part of Palestine’s economy and businesses. The tourism

sector is vital and provides many jobs, but is affected by political tensions. The war and violence and

the resulting restrictions of movements and access to different parts of the country have restricted the

growth and businesses of this sector. (United Nations, 2004).

Internationally, West Bank’s businesses engage in trade primarily with neighbouring countries.

Agricultural products, mainly olives, olive oil, and citrus fruits, are exported alongside textiles and

stone. The handicraft sector, featuring goods like ceramics, embroidery, and olive wood carvings, holds

a niche in international markets, often supported by the Palestinian diaspora. Restrictions on movement

and access, however, pose significant challenges to both domestic and international business activities,

with the broader economy heavily reliant on foreign aid and the import of essential goods.

(a) (b)

Figure 4. (a) Real GDP growth in Palestine (b) Contribution to Real GDP growth

The above figure shows the GDP growth of Palestine between 1995 – 2016. The data has been

taken from the Palestinian Central Bureau of Statistics and it shows that there has been severe ups

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(growth) and downs (recession) in GDP over the years and the major contributor to the GDP growth

has been public and private consumption and exports. The economic recessions had primarily been due

to conflicts and other geopolitical tensions. (World Bank Group, 2017).

6. Economy and Businesses of Gaza –

The economy of the Gaza Strip, one of the most densely populated regions of the world, is

small, aid-dependent, and suffers from high levels of poverty and unemployment due to a combination

of the Israeli blockade, recurrent conflicts, and internal political divisions between Hamas, which

governs Gaza, and the Palestinian Authority in the West Bank. Since 2007, Israel has imposed a land,

sea, and air blockade on Gaza, severely limiting the movement of people and goods in and out of the

Strip (Ajamieh, Bassanetti, Laursen and Qassis, 2023). Further restrictions have also been imposed

intermittently by Egypt at the Rafah border crossing. Gaza's businesses are largely focused on survival

and serving the local market under the confines of the blockade and economic restrictions imposed by

Israel (Naqib, 2002).

Businesses in the Gaza Strip operate under exceptionally difficult conditions due to the region's

political and economic isolation. The blockade of Gaza by Israel and Egypt severely restricts import

and export capabilities, constraining businesses' growth and access to materials and markets (United

Nation’s Conference on Trade and Development, 2012). Periodic conflicts lead to the destruction of

infrastructure and uncertainty, while restrictions on movement inhibit labor and logistics. Electricity

shortages, a result of fuel scarcity and infrastructure damage, hinder almost all forms of business

operation.

The key sectors of the Gaza Strip’s businesses include small-scale agriculture, producing crops

such as strawberries, olives and vegetables, and fishing, limited by access restrictions mostly for local

consumption. The food processing sector produces dairy products, bakery products and does olive oil

pressing for local needs (Oxfam Briefing Note, 2017). Manufacturing exists on a reduced scale, with

textiles and handicrafts being notable. The textile businesses face severe restrictions on importing raw

materials and exporting finished goods (Massar Associates – The Services Group, 2002). Handicrafts,

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embroidery, and other artisanal products are often marketed to the international buyers interested in

Palestinian culture. Gaza's construction sector is volatile, often tied to the sporadic influx of building

materials as allowed by Israeli authorities.

Trade is minimal and heavily regulated, but, when possible, it focuses on agricultural exports.

The blockade has also given rise to an informal economy, including underground smuggling tunnels,

although these have been largely destroyed or restricted in recent years. Despite the economic adversity,

there exists a budding entrepreneurial spirit, with a growing emphasis on digital technologies and

internet-based start-ups.

Overall Gaza’s economy is composed mainly of the Agriculture sector, Service sector,

Construction sector and Industrial sector whose contribution to the total output is about 20 – 35 %, 45

– 60 %, 18 % and 6 – 12 % respectively. Economic activity is heavily supplemented by international

aid, without which basic needs and services would not be met. The overall business climate is

challenging, with frequent power shortages and infrastructure damage further hampering economic

development. (Ajamieh, Bassanetti, Laursen and Qassis, 2023).

Figure 5. GDP by Quarter in Palestine at Constant Prices, 2020 - 2023

The above figure indicates the GDP of Palestine and is the combination of the GDP of Gaza

and West Bank. The GDP has a steady and marginal increase rate till the 2nd quarter of 2023 (Palestinian

Central Bureau of Statistics, 2023).

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 (a) (b)

Figure 7. (a) Real GDP and Per Capita Income in Palestine (b) Real GDP Growth in Palestine

It can be seen from the above figures that the GDP of West Bank though has improved a lot over the

years from 1994 onwards except the periods of conflicts and pandemic, but that of Gaza has not and the

income per capita of Gaza has decreased during the period indicating that a deterioration of the

economic conditions of the Gaza region. By 2022, per capita income in the West Bank was four times

higher than in Gaza. This largely reflects the Israeli blockade of Gaza following the political take-over

by Hamas in 2007 and recurring wars between the two sides since then. (Ajamieh, Bassanetti, Laursen

and Qassis, 2023).

(a) (b)

Figure 8. (a) Demand Side Average Contribution to GDP Growth (b) Supply Side Average

Contribution to GDP Growth

A close look at the above figures reveals that on the demand side, government consumption is the largest

contributor to the growth in Gaza and whereas private consumption contributes most in the West Bank

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and on the supply side, growth remained modest across sectors in Gaza while trade, services, and

industry were key drivers in the West Bank (Ajamieh, Bassanetti, Laursen and Qassis, 2023).

7. Impact of Israel – Palestinian Conflict on their Businesses –

The Israeli–Palestinian conflict has been going on for about a century. The process of

establishment of a homeland for Jews as Israel in Palestine and the subsequent conflicts has resulted in

a significant impact on the economy and businesses of the region. After the six-day war of 1967, Israel

had occupied several parts of the Palestinian territory i.e. West Bank and Gaza, and had imposed several

restrictions on the trades and businesses of the regions. The occupied Palestinian territory became a

“partner” with Israel in a de facto, one-sided customs union where Israeli products had free access to

the Palestinian markets and Palestinian exports to Israel were subject to a wide range of restrictions.

Over the last five decades, Israel has confiscated more than half of the Palestinian farmland and water

resources for the construction of new settlements, military outposts and bypass roads and thereby

damaging the agricultural production infrastructure, including water wells, irrigation networks,

agricultural roads and greenhouses and farms.

The Israeli-Palestinian conflict has a very significant impact on businesses within both Israel

and the Palestinian territories. The persistent state of tension and occasional outbreaks of violence have

created a challenging environment for economic activity, characterized by uncertainty and the necessity

for resilience.

A. IMPACT on West Bank and Gaza –

The risks and uncertainties associated with conflict and occupation have deteriorated

the Palestinian economy and, therefore, dampened private sector activity and reduced its employment

generation capacity. As a result, businesses have become more dependent on donor assistance.

IN the Palestinian territories. the impacts are more severe due to factors like restricted access

to resources, limited control over borders, and dependence on the Israeli economy. Over the last five

decades more than 40% of the Palestinian land in the West Bank has been lost to Israeli confiscation,

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settlements and related infrastructure and the construction of a 709 km long separation barrier has

resulted in a permanent loss of at least 8% of Palestinian agricultural products. (United Nation’s

Conference on Trade and Development, 2012). The confiscations of land and water resources have

resulted in a decline in the agriculture sector’s contribution to the Palestinian economy and a shifting

of employment opportunities towards the service sector. Restrictions on movement imposed by the

Israeli military disrupt daily business operations, hinder access to markets and resources, and delay the

import and export of goods. (Ajamieh, Bassanetti, Laursen and Qassis, 2023). The Palestinian economy

is also substantially affected by the withholding of tax revenues by Israel during times of heightened

tension, as these revenues are collected by Israel on behalf of the Palestinian Authority. The instability

deters foreign investment and limits economic growth, keeping the Palestinian territories in a state of

economic fragility and dependence on international aid. Joint ventures between Israeli and Palestinian

businesses, although less common, do exist and can be seen as a peacebuilding mechanism, promoting

cooperation and understanding. Such initiatives, however, often face political, social, and economic

hurdles that can impede their success and scalability.

For Gaza. the economy is severely constrained by the blockade imposed by Israel and Egypt

since 2007, following Hamas's takeover. This blockade restricts the movement of goods and people into

and out of the territory, hampering trade and investment. (United Nation’s Conference on Trade and

Development, 2012). The Gazan economy suffers from one of the highest unemployment rates in the

world, exacerbating poverty and limiting consumer spending power. Israeli airstrikes and military

operations in response to rocket fire from Gaza often result in the destruction of businesses,

infrastructure, and agricultural land in the Strip. Rebuilding is a slow process, hampered by restrictions

on importing construction materials which Israel classifies as dual-use items, potentially serving

military as well as civilian purposes. The Gazan fishing industry, once a cornerstone of the coastal

enclave's economy, is also heavily affected, with maritime access restricted by Israeli security policies

(Palestinian fishermen are not allowed to fish beyond three nautical miles from the Gaza shore).

Similarly, the agricultural sector struggles due to periodic military incursions and a buffer zone along

the border that reduces arable land (In Gaza, farmers are denied access to agricultural lands within the

300–1,000 meter-wide “buffer” zone along the 45 km of Gaza’s borders with Israel and after June 2009,

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46 percent of the farmland in Gaza was inaccessible or out of production (United Nation’s Conference

on Trade and Development, 2012). Access to electricity and water is sporadic in Gaza, which hinders

businesses' operations and productivity. This infrastructure instability makes it difficult for Gazan

businesses to maintain consistent production and compete in any markets outside their immediate

locale.

GDP of Palestine GDP (Percent Change)

20 30
GDP in Billion Dollars

15 20

10 10

5 0

2001
1980
1983
1986
1989
1992
1995
1998

2004
2007
2010
2013
2016
2019
2022
0 -10
1995

2019
1980
1983
1986
1989
1992

1998
2001
2004
2007
2010
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2016

2022

Years -20

(a) (b)

Figure 9. (a) GDP of Palestine in US Dollars (Billion) (b) GDP (Percentage Change) of Palestine

Import - Export of Palestine Palestine Unemployment Rate

40 35
30

20 25
20

0 15
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023

10

-20 5
Import (Percent Change) 0
1993
1995
1997
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2001
2003
2005
2007
2009
2011
2013
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2019
2021
2023

Export (Percent Change)

-40

(a) (b)

Figure 10. (a) Import – Export of Palestine (b) Unemployment Rate of Palestine

The charts in Figures 9 & 10 have been produced from the data collected from the World Economic

Outlook Database. Figure 9 (a) & 9 (b) indicates that the GDP of Palestine (West Bank and Gaza) has

increased over the period of last about thirty years but there have been sharp declines in the GDP

percentage changes particularly during the period of conflicts and during the Covid period. Also, it can

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be observed that the unemployment rate remained almost at the same level for a significant period of

time.

B. IMPACT on Israel –

IN Israel. the conflict influences business primarily through security concerns and defence

spending. A substantial portion of the national budget is allocated to security, potentially at the expense

of other areas of economic development. However, the constant security challenges have also spurred

growth in the defence and technology sectors, with Israel becoming a global leader in areas such as

cybersecurity, surveillance, and military technology. Israeli businesses often face boycotts from entities

that support the Palestinians, such as the Boycott, Divestment, Sanctions (BDS) movement, which can

impact international trade and investment. In addition, the conflict affects tourism, a significant part of

Israel's economy, as periods of violence deter international visitors.

GDP of Israel 35 Investment as Percentage of GDP

600
30
500
25
Investment Percentage

400
GDP in Billion Dollars

20
300 15
200 10

100 5
0
0
1989
1980
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1986

1992
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2001
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2007
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2025
2028
1992
1980
1983
1986
1989

1995
1998
2001
2004
2007
2010
2013
2016
2019
2022

Year Year

(a) (b)

Figure 11. (a) GDP of Israel (b) Investment as Percentage of GDP

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 Israel Inflation Unemployment Inflation
30
Israel Import Export 120 Unemployment

25

Inflation - Unemployment
100
20
80
15

10 60
5
40
0

2006
1980
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2008
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-5 20

-10 0

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2000
2002
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2010
2012
2014
2016
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-15
Import (Percent Change)
-20 Export (Percent Change) Year

(a) (b)

Figure 12. (a) Israeli Import & Export (b) Israeli Inflation and Unemployment

The charts in Figure 11 & 12 have been produced from the data collected from the World

Economic Outlook Database. Figure 11 (a) & 11 (b) indicates that the GDP of Israel has increased

steadily over the period of last about thirty years and has become one of the world’s leading economies.

However, there is a small decrease in the growth observed during the period of the conflicts and during

the Covid period. It is also evident that Israel has become one of the leading exporters of the region.

Moreover, the international community's involvement through sanctions or aid impacts both

economies. International aid to Palestinians often seeks to foster development and stability, whereas

sanctions or defence aid to Israel can influence its economic priorities and strategies.

8. Impact of the Present Conflict –

The present conflict that began with Operation Al–Aqsa Flood on 7th October, 2023 has already

dealt a heavy blow on the economy and businesses of both Israel and Palestine.

A. IMPACT on Israel –

Israel’s war on Palestine particularly on Gaza has led to a severe effect on the businesses,

industries, and job markets of the country itself. The conflict, which has crossed 100 days, has already

cost the Israeli economy more than $8 billion and much more has been earmarked for. Data cited from

Israel’s Central Bureau of Statistics reveal that 33% of the businesses are closed or operating at 20%

capacity and more than half of the businesses face revenue losses over 50% (Klarenberg, 2023). A fifth

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of Israel’s workforce is jobless due to evacuations, school closures mandating childcare responsibilities,

or reserve duty call-ups. Several large construction projects have come to a halt as the employers there

refused to engage Palestinian workers. The conflict has hit the Tourism sector hard as movement

restrictions and plummeting flight travel (from 500 to 100 per day) have resulted in a 76% year–on–

year decline (Klarenberg, 2023). A recent survey by the Start–Up Nation Policy Institute reported that

over 80% of the Israeli high-tech companies have reported damage due to the worsening war situation

and more than 40% of the local companies reported cancellation or delay of an investment agreement

(Start–up Nation Policy Institute, 2023).

(a) (b)

Figure 13. (a) Break–up of reasons for the distress of high-tech Israeli companies (b) Reasons for

Companies being at Risk

The Operation Al–Aqsa Flood has also dealt a severe blow to the reputation and the confidence

of one of the most formidable intelligence – security systems of the world. The guerrilla attacks have

made a serious blow to Israel's "Startup Nation" brand, which relies heavily on its multi-billion-dollar

tech sector - with cybersecurity, whose yearly exports in 2021 were estimated at $11 billion, at its core.

(Klarenberg, 2023).

It had been estimated that Israel’s economy would grow at a rate of 2.7% in 2023, but the

Finance Ministry of Israel had already lowered the rate to 2% owing to the ongoing war situation. The

projected growth rate for 2024 is 2.2% in case the war is confined to the first quarter of 2024, but a

longer duration would reduce the rate to a much lower level. Although the “Iron Swords” war has dealt

a heavy blow to the economy and businesses of Israel, it is believed that their resilient economy would

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overcome this crisis strongly as it has done in the past. The spending on war has already crossed $8

billion and more is pledged, but this amount is a very small percentage of its GDP. The costs, as

previously, is expected to be borne over several budget years and is likely to be financed partly from

cut to expenses and partly from foreign aid. Therefore, unless the conflict continues for an unusually

long period and gets extended to larger areas with involvement from other nations, the “Start-up –

Nation” is expected to come back strongly from the ongoing crisis. ((Klarenberg, 2023).

B. IMPACT on Palestine (West Bank and Gaza) –

The conflict started from the Gaza Strip and the Israeli retaliation is, therefore, severe in the

Gaza Strip. The damages are more in Gaza than in the West Bank. The war has ravaged vital

infrastructure and health care systems, particularly in Gaza and the shock to the economic activity has

been severe. It has resulted in massive deaths (more than 24000), forced displacement, massive job loss,

movement restrictions, and dwindling trade. Lack of fuel, electricity and water supply has led to severe

disruptions to agriculture and related activities. The building and road infrastructure is also massively

damaged causing disruptions to the supply chains. The tourism sector has become non–existent due to

the life risk and movement restrictions. Most of the businesses are facing shutdowns due to want of a

supply of resources and labour. In Gaza, more than 54% of the businesses located close to the war zone

are impaired and the production has shrunk by almost 84% in the month of October. The unemployment

in Gaza has risen to 3 times that of Palestine and within a month of the war more than 4 lakhs jobs have

been lost in the West Bank and Gaza combined. And the poverty is expected to rise by 20 – 45 %

depending on the length of the war. The continuation of the war for one, two and three months is

expected to result in the decline of GDP by about 4.2% (loss of about $857 million), 8.4% (loss of about

$1.7 billion) and 12.2% (loss of about $2.5 billion) respectively. The war is expected to result in a

significant drop of overall human development by 11 to 16 years for the State of Palestine due to

diminished educational attainment, lower life expectancy, a decline in per capita income, and

undernourishment. (United Nation’s Development Programme, 2023).

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Figure 14. Impact of one-month, two-month and three-month war scenarios on GDP, private

consumption and poverty in the State of Palestine (Percentage change relative to levels expected for

2023)

(a) (b)

Figure 15. (a) Damages by Sector in Gaza (b) Damages to the Business Sector on Selected days in

Gaza

The above figures gives an approximate estimate of the damages of different sectors in Gaza within a

few days/weeks of war and clearly indicates the severity of the damages. (United Nation’s Development

Programme, 2023).

Due to the large-scale destruction of resources, uncertain accessibility of resources and economic

condition of Palestine the economic recovery at the end of the war will not be smooth and immediate

and will require massive international support. The confiscations and movement restrictions would be

required to be relaxed. Also, the Palestinian Authorities would be required to take necessary actions to

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improve domestic conditions and international relations. All these steps would encourage foreign direct

investment and private capital inflows and improvement of economic and business conditions.

C. IMPACT on other countries –

The conflict has so far been confined to Israel, Gaza and West Bank and has mainly impacted

the economy and businesses of the region. Therefore, the impact on the outside world is limited and not

making any significant change in oil prices, inflation, or growth. In case the other countries of West

Asia are drawn into the conflict, then that may result in a rise in the oil price and subsequently a rise in

inflation and a decline in GDP globally. (Indian Today, 2023).

9. Conclusions –

The Israel – Palestine conflict has been going on since the late 19th century. After the British

rule ended the state of Israel was established in Palestinian land and the Palestinians were confined in

West Bank and Gaza Strip with Israeli settlements in between. The desire for complete control over the

region by the Israeli authorities and Palestinians have led to several conflicts between them during the

past century. The economy and businesses of these two countries have been shaped by the occurrences

of the conflicts between them over the years. In addition, Israel has the support of the economic

superpowers like U.S.A. and U.K. while the Palestinians have managed to get the support of several of

the Middle east nations. The present war that started on 7th October, 2023 is a continuation of the

ongoing tussle between the two countries.

The conflicts, over the years, have had a significant impact on the businesses and economies of

the country. Israel, in order to counter the external attacks, has strengthened their military and security

systems and has become a world-renowned leader in cybersecurity systems. Their defence and

aerospace products are exported worldwide. They have developed a strong retail and service sector,

advanced healthcare, cutting-edge agriculture, and a robust real estate market and have become a

leading cybersecurity software exporter. The present conflict is having a significant impact on the Israeli

economy and businesses. The war-related expenditures have increased significantly. A large number of

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businesses are facing losses or have closed down. Various other sectors are also hit in the same way.

The growth projection has been lowered. However, drawing inferences from past occurrences, it is

expected that Israeli businesses and other sectors would come back strongly once the conflict is over.

On the other hand, the economy and businesses of Palestine are largely deteriorated by the long-

running conflict. The main factors for such deterioration are restricted access to resources, limited

control over borders, and dependence on the Israeli economy. The confiscation of land and water has

affected agriculture and the movement restrictions have affected the businesses. All these have restricted

the growth of Palestine, lessened the exports and increased the imports (mainly from Israel) and resulted

in Palestine becoming an Import Economy. In addition, the present war has devastated the Palestinian

economy and businesses. There has been a massive death and destruction of infrastructure along with

forced displacements and job loss. It has already been about three months in the war and the GDP of

Palestine is expected to decline by 12.2% (loss of about $2.5 billion). The recovery would require huge

efforts from the domestic authorities as well as international supporters.

In conclusion, the Israeli-Gaza-Palestinian conflict casts a long shadow on business operations,

shaping the economic landscape through heightened security measures, influencing consumer markets,

impacting trade relations, and affecting the flow of foreign direct investment. Businesses operating in

this region must navigate a complex matrix of political risks and ethical considerations, requiring agility

and often resilience to the fluctuations of the conflict's dynamics.

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