Gaza financial crisis may spark renewed instability

Gaza financial crisis may spark renewed instability

While international headlines are focusing on the new battleground of the conflict between the Palestinians and Israel, the worsening financial troubles looming over the Gaza Strip have the potential to lead to a period of political instability and social unrest in the war-torn territory controlled by Hamas.

As the Palestinian Authority (PA) moved to initiate legal cases against Israel at the International Criminal Court (ICC), the government of Prime Minister Benjamin Netanyahu ruled in early January 2015 to suspend the transfer of approximately NIS 500 million (USD $124 million) to the Palestinian government in the West Bank.

The money is part of the Israeli tax collection in the West Bank. The move, criticized by Israeli authorities, PA, and the UN, has the potential to spark a renewed round of unrest in the Gaza Strip.

Following the April 2014 deal reached between Hamas and the Fatah-run PA, and the creation of a unity government between the two political entities in June 2014, the PA is legally responsible for providing the salaries of all 50,000 Hamas civil servants in the Gaza Strip. The current financial malaise to which the PA is subject hinders the payment of these wages and underscores the ever-present tensions between the two rival factions.

Since the beginning of January 2015, a series of incidents in the Gaza Strip highlight the risk of social unrest and political instability associated with the ongoing financial crisis.

A number of ATMs owned by the Bank of Palestine have been destroyed in Gaza. The Bank of Palestine is the institution the PA uses to transfer administrative salaries. In addition, offices of PA related media have been torched and explosions have been reported in the vicinity of politicians members of the Hamas-PA unity government.

As part of the ongoing wave of tensions, Hamas personnel increased their armed presence in checkpoint areas in the north of the Strip. Since the June 2014 agreements between the two parties, all checkpoints between Gaza and Israel are administered by the Fatah.

In early January, Hamas operatives set up unofficial checkpoints in the area facing Eretz in an attempt to mark their independence from the PA presence in the Gaza Strip. The current climate of civil unrest is further exacerbated by the decision taken by Hamas civil servants to hold sit-ins and protests in Gaza City against the unity government.

Given the precarious financial and humanitarian situation in the Gaza Strip, the non-payment of wages to 50,000 civil servants is a potential trigger for substantial rifts between the ruling party in Gaza and the PA. The first and most immediate implication of the ongoing crisis is a weakening of the political relevance and legitimacy of the unity government.

Hamas senior leaders faced by the need to maintain their administration livelihoods are likely to reaffirm their movement’s power in the Strip by implementing measures such as security controls of PA offices, temporary detentions of political rivals, and the set-up of additional parallel checkpoints.

At this point, an all-out-conflict remains unlikely. However, additional low-intensity attacks staged by disenchanted civil servants against unity government assets and personnel are likely to occur in the immediate- to short-term, thus raising the risk of low-scale violence in the Strip and further deteriorating the local security environment.

The ongoing tensions between the two main parties in Gaza also generate the risk that local civil servants may decide to move toward other, more radical, local factions either for financial gains or for the lack of socio-political recognition.

In fact, this is likely to embolden smaller radical Islamist groups in the Gaza Strip that are currently operating in the shadow of Hamas. Such a situation would in turn increase the risk of small-scale cross-border violence involving mortar and rocket fire toward southern Israel as more radical militant groups need to establish their presence in the Gaza Strip.

As the situation in the ICC evolves in the coming weeks, the transfer of PA taxes is likely to remain a strong negotiating tactic used by the Israeli authorities. While trying to diminish the political clout of the PA, the Netanyahu government is indirectly emboldening groups that may endanger the status quo in the Gaza Strip and generate a security threat in Israel’s border areas. The crisis also increases the risk of violent unrest and localized terrorist actions raising tensions between Hamas and Fatah.

About Author

Riccardo Dugulin

Riccardo Dugulin is an analyst at Drum Cussac, a global business risk consultancy. He specializes in supporting international organizations and large corporations operating in emerging markets by providing them with critical risk management intelligence. His regions of expertise are the Near East, the Gulf, North Africa and Continental Europe. He previously worked as project manager for a French medical assistance company. He gained field experience in the Middle East having worked for leading think tanks in Dubai and Beirut. Riccardo holds a Master in International Affairs from the Sciences Po – Paris and a Bachelor in Middle Eastern Studies from the same university. Follow him on Twitter @RiccardoDugulin.