On the road to annexation, Israel is intentionally causing economic collapse in the West Bank
Tires burning during an Israeli raid near Ramallah in the West Bank, October 2024
Eytan Avriel writes in Haaretz on 19 November 2024:
“When all hell breaks loose in the occupied territories of the West Bank, October 7 will seem like a walk in the park. There’s a tremendous amount of weapons here, and the lives of Arabs and Jews are intertwined.”
This is a Palestinian industrialist’s take on the West Bank’s economy, and on Finance Minister Bezalel Smotrich’s moves against it and the Palestinian Authority government.
It’s all thought-out, with the encouragement of Prime Minister Benjamin Netanyahu, as the first phase of a plan to annex the West Bank and flood it with Jewish Israelis. The Palestinians there would be encouraged to emigrate, and those remaining would become residents of a Greater Israel stretching from the river to the sea without the right to vote.
Finance Minister Bezalel Smotrich speaking at the Havat Shaharit outpost.Credit: Screenshot from the Peace Now website
Unlike Netanyahu, who is careful about what he says, Smotrich has explained his vision for the West Bank many times.
When most Israelis think of Smotrich, they might first think of a failed finance minister, and rightly so: Israel is in a recession and interest rates are on the rise. Plus it’s unclear whether a budget will be passed, nonproductive communities such as the ultra-Orthodox are looting the public coffers, and the ratings agencies have downgraded the country by two or three rungs. Finally, foreign investors are ditching Israeli bonds.
Israel At War: Get a daily summary directly to your inbox
Email *
Please enter a valid email address
But for Smotrich, whose party in polls is well below the 3.25-percent electoral threshold, the Finance Ministry is merely a tool and his second job. His real job, in which he acts decisively according to a detailed plan, is to wreck the PA’s economy, paving the way for a de facto annexation.
He’s supposed to steer Israel’s economy. Instead he’s focused on crushing Palestinian hope
Smotrich says Israel ‘a step away’ from annexing West Bank after Trump’s election victory
Megalomaniacal Smotrich doesn’t know what it means to be Israel’s finance minister
There is no mistaking Smotrich’s intentions. Unlike other right-wing politicians – particularly Netanyahu, who is careful about what he says – Smotrich has explained his vision for the West Bank many times. In June, The New York Times reported on statements he made at the Havat Shaharit outpost in the West Bank, at a rally of his Religious Zionism party.
At the outpost, Smotrich discussed moves he had made that would lead to a de facto annexation of the West Bank, he said. All settlement and land administration activities would be transferred from the military to civilian government departments under his control.
This would be the first time since 1967 that the ultimate administrative powers in the West Bank would be in civilian hands, and not just any civilians but messianic settlers – a planned power play that Smotrich is trying to play down.
Tires burning during an Israeli raid near Ramallah in the West Bank last month.Credit: Zain Jaafar/AFP
“It will be easier to swallow in the international and legal context, so that they won’t say that we’re doing annexation here,” Smotrich said, later adding: “The authority is in Hillel Roth, all authority.”
In April, Smotrich appointed Roth deputy head of Israel’s Civil Administration in the West Bank, the first civilian ever in that position. As Smotrich put it, Roth, a resident of the settlement of Revava, “signs directives, convenes the Supreme Planning Council, declares land state-owned land … [and] oversees the land registry. … Everything – everything – is in his hands.”
Through this mechanism, Smotrich plans to approve and build dozens of new settlements and bring another half million settlers to the West Bank, putting the total number at 1 million.
But transferring Jews to the West Bank and preparing homes and roads for them is just one part of the plan. The more dangerous part, the one that critics say could bring about another October 7, is the destruction of the PA and its economy.
Hillel Roth, a settler, is the first civilian to be appointed deputy head of Israel’s Civil Administration in the West Bank.Credit: From the Bnei Akiva website
To this end, Smotrich has already been striking at his targets: the PA’s budget, financial system, job market, power grid and water system, as well as its transportation, construction and real estate sectors. And this is just a partial list.
The finance minister’s office did not comment for this article.
Stunning economic contraction
The West Bank’s economy has already been badly hit since the war broke out 13 months ago. The complete destruction of Gaza’s economy, which before the war made up about a fifth of the Palestinian economy, has stung the West Bank as well. Last month, for the first time during the war, the World Bank and the United Nations, as well as the Palestinian financial authorities, released preliminary assessments on the depth of the crisis.
The World Bank said that Gaza’s economy shrank a “staggering 86 percent” in the first quarter of the year (so that its share of the Palestinian economy dropped from 17 percent to 5 percent). In the West Bank, the economy contracted 25 percent, “with trade, services, construction, and manufacturing sectors experiencing the most significant declines.”
The World Bank applied the term “free fall” and said that the PA’s “financing gap is projected to reach US$1.86 billion in 2024, more than double the gap of 2023, which may pose elevated risks for a systemic failure, especially affecting public service delivery.
“Worryingly, the gap continues to be mostly filled with borrowing from domestic banks and arrears to the private sector, public employees, and the pension fund.”
It did add a positive note: In July and August the World Bank and the European Commission said they would ramp up grant money to the PA.
Breaking news and the best of Haaretz straight to your inbox
Email *
Please enter a valid email address
The World Bank’s assessment might actually be too optimistic. A Palestinian businessman estimates that, based on his own experience and remarks by his friends, the West Bank economy is at least 50 percent smaller than the size before October 7, 2023.
“At the beginning of the war, from October to December, my business, which has to do with tourism, dropped 90 percent. I sell to hotels, cafés, restaurants and shops, and they just shut down. I’ve had to fire 60 percent of my employees,” he says.
Palestinian workers at the separation barrier near Bethlehem waiting to enter Israel.Credit: Nir Kafri
According to the World Bank, before the war Israel was withholding 200 million shekels ($53 million) of PA money every month, but since June this number has been at around 500 million.
“Since February, we’ve seen a slight pickup, maybe because people have gotten used to the new reality, or maybe because the PA has found a way to pay civil servants’ salaries. But after the war with Hezbollah started, we went back to the days when the war broke out,” he says, referring to Israel’s escalation of the fighting in the north in September.
While the collapse of Gaza’s economy is a result of the war against Hamas, the West Bank economy is tanking because of Israeli government policy. Smotrich’s Finance Ministry isn’t transferring tax money it collects for the Palestinians, a sum that makes up over 60 percent of the PA’s revenue.
Smotrich has been withholding PA funds to offset so-called martyr payments; for example, to families of terrorists. He has been withholding every dollar earmarked for Gaza, including civil servants’ salaries, claiming that this money would find its way to Hamas.
He has also been withholding funds for services including electricity and water. His rationale is political; when the PA complained to the UN about Israel’s actions in Gaza, Smotrich withheld more money.
The Americans, meanwhile, have been pressuring Israel to transfer funds to prevent a collapse of the West Bank’s economy. When the pressure is increased, Smotrich eases off a little, and when the pressure is relaxed, he finds a reason to delay or cancel transfers.
This year, Smotrich waited until June to end a complete freeze on transfers. According to the World Bank, before the war Israel was withholding 200 million shekels ($53 million) of PA money every month, but since June this number has been at around 500 million shekels, slashing PA tax revenues by some 50 percent.
Add to that the 150,000 Palestinians who until the war worked in Israel and have become jobless, especially in construction, and cuts to government salaries and pension payments, as well as the much quieter business sector, and it’s easy to see why the economy is collapsing.
Financial nuclear buttons
Smotrich is also acting on other fronts. According to the Oslo Accords of the ’90s, Palestinian banks can operate outside of Israel only through two Israeli banks, Hapoalim and Discount, which demand a guarantee from the Finance Ministry against a possible lawsuit somewhere around the world for allegedly abetting terrorism. For decades this pledge was automatically renewed; even an alternative mechanism was designed: The Bank of Israel would do the job.
But Smotrich realized he could kill off the PA’s financial system by simply not renewing this guarantee. The two Israeli banks would refuse to transfer Palestinian funds and the West Bank would be cut off from the outside world financially.
Of course, the Americans, the Europeans and other countries are aghast at the notion of a rescue costing them billions of dollars, so they’ve been pressing Netanyahu not to dare push this financial nuclear button.
But Smotrich is toying with them; in June he extended the pledge by four months, so the saga about renewing the guarantee is likely to resume. Bank of Israel officials say the decision lies with the security cabinet and the Finance Ministry.
Smotrich has another tool to suppress the Palestinian economy: the shekel. The Palestinian economy uses the Israeli currency, though payments may also be made in dollars and Jordanian dinars. But Palestinian sources in the West Bank say the Bank of Israel has been refusing to allow Palestinian banks to deposit shekels at Israel’s central bank, so these banks are swamped with shekels they can’t do anything with – and so they’re no longer taking deposits in shekels.
“I have 50,000 shekels in cash and I can’t deposit it in any bank,” says the Palestinian businessman whose business dropped by 90 percent at the start of the war.
A line at a gas station in Hebron in the West Bank on October 7, 2023.Credit: Hazem Bader/AFP
Palestinian sources say the Bank of Israel has been refusing to allow Palestinian banks to deposit shekels at Israel’s central bank, leading gas stations in the Ramallah area to ‘go on strike.’
“They say that Palestinian banks have around 10 billion shekels in their coffers, compared with 2 billion shekels normally. Just imagine, this is a unique situation that doesn’t exist anywhere else in the world: a central bank that refuses to accept deposits and funds in its own currency – for political reasons.
“This has enormous implications for Palestinian banks, because it’s very expensive for them to hold on to these vast sums. So they’ve stopped accepting deposits in shekels.”
He gives an example of the chaos that ensued. “A couple of weeks ago, gas stations in the Ramallah area went on strike and didn’t sell gasoline, which created huge lines and traffic jams. Why? Because unlike Israel, where credit cards are widely used, the Palestinian economy is cash-based, and those gas stations had a lot of shekels that the bank refused to accept. So they refused to accept any more shekels from customers and went on strike.
“This is a crazy, screwed-up situation, and it’s all designed to collapse the Palestinian economy. What’s really crazy is that 80 percent of our imports come from Israel, and how am I going to pay my suppliers if I can’t deposit checks or transfer money from Ramallah to Tel Aviv?”
The Bank of Israel said it is not accepting deposits from Palestinian banks and does not manage accounts for them. “The Bank of Israel is allowing the Palestinian monetary authority a quota to absorb cash excesses that accumulate in the banking system, based on an estimate of legitimate economic activity in cash, i.e., cash that passes from Israel into the PA,” the Bank of Israel said.
The Palestinian businessman who spoke with TheMarker, Haaretz’s business newspaper, has more complaints about economic moves designed to choke the PA economy. One concerns raw materials; his business requires a healthy flow of water, but he says Israel has been siphoning Palestinian water from a large West Bank aquifer and selling it back at exorbitant prices.
“Palestinians are banned from drilling wells and siphoning water from the aquifer. If anybody tries, the army comes the next day, destroys the well and confiscates the equipment,” the businessman says.
“In the summer, Israel made a unilateral decision to reduce the water supply, particularly in areas in the southern West Bank like Bethlehem and Hebron that are now suffering from an acute water shortage. This isn’t a real crisis, it’s an artificial crisis, because there’s no water shortage in Israel thanks to the desalination plants. It’s just a way to make people’s lives miserable and make it harder for businesses.
The southern West Bank is ‘suffering from an acute water shortage. This isn’t a real crisis, it’s an artificial crisis. It’s just a way to make people’s lives miserable,’ a businessman says.
“Where I work, for example, the municipality stopped supplying water, so I’ve had to buy water from an independent contractor at an exorbitant price. If before the war I bought water from the municipality at 7 shekels per cubic meter, now I’m paying as much as 40 shekels. Do you realize how this affects my production costs?”
Then there are problems with the power supply. “Due to the economic and financial crisis, municipalities are having a hard time providing electricity everywhere,” the businessman says. “In Tul Karm, for example, you can’t get high-voltage electricity, so you can’t open a new business there.”
Then there is transportation. The army has set up checkpoints throughout the West Bank that make a trip of a few kilometers last hours. According to the industrialist who warned about the proliferation of weapons in the West Bank, this “has made transportation and logistics costs rise through the roof.
“Yesterday I drove to a meeting in a village just a few kilometers from Ramallah and it took four hours because of the checkpoint, on a road where there usually isn’t much traffic. Currently only one exit from Ramallah is open; all the rest are closed and they’re only opened randomly. You never know whether a drive will take one hour or four, and the transportation costs for raw materials are enormous.”
For Palestinian businesspeople, there is no question why these checkpoints, which already existed in one form or another for years, were taken to the next level by the current government, especially since the Gaza war broke out: Netanyahu’s and Smotrich’s plan to ruin the economy.
“Now everything has been taken up a notch,” the industrialist says. “Everything is harsher. It’s obvious to us that this is premeditated, and it’s also obvious that this doesn’t just hurt the PA. It hurts people; for example, those who want to fill their gas tanks, people who need water, people who need electricity or need to buy things.
“This is all happening to wreck the economy and so that people – this is what Israel hopes – will pack up and leave. The government’s goal is annexation and emigration. These people [Smotrich and Netanyahu] mean what they say. They’re not just talking. They’re not just crazy, the way you might think. It’s insane, but Israelis don’t learn.
I can’t see how the collapse of the economy in the occupied territories is good for Israel. Nothing good could come of it unless you want to set off an Armageddon.
A Ramallah businessman
“The fact that settlers are allowed to attack villages and burn houses, businesses and cars, sometimes with the army looking on or even taking part – that never happened before. I have salespeople who travel around the West Bank, and recently one of them came back from the north and was stopped by soldiers at a checkpoint near Ramallah.
“This is typical, we get stopped every day. But what doesn’t happen every day is that they searched his bag, found 16,000 shekels and just confiscated it. It was never like this. He tried to complain, so they threatened him. This never happened before, certainly not in such plain sight, at a checkpoint on the outskirts of Ramallah.”
Gaza: Inflation of 250 percent
According to the World Bank and the UN, Gaza’s economy has been completely destroyed. Health, education and other public services are all but dormant. In its report, the World Bank says that all Gazans are considered to be living in poverty, prices have more than doubled, it’s hard to find food and famine fears lurk.
The reports of the more than 40,000 dead are familiar; a similar number of people have been wounded. Less known is that unemployment in Gaza is over 50 percent (compared with 35 percent in the West Bank), annual inflation has reached 250 percent, and the surviving economy, according to the World Bank, is “mostly informal, with essential goods being sold on the black market at exorbitant prices.”
As expected, the collapse in Gaza directly affects the economy in the West Bank, as described by a Ramallah industrialist. “For many businesses, Gaza accounted for 25 percent of sales, both imports and exports. That vanished overnight. Many businesses extended credit to Gaza residents and businessmen, and this also vanished.
“I have a friend who lost over $2 million because the client in Gaza couldn’t pay him. In many cases the client died or the collateral, like a company, warehouse or factory, was destroyed.
“It’s not that the client doesn’t want to pay – he has nothing to pay with. Banks in Gaza have lost a lot of cash, including dollars and checks, because the bank was destroyed or confiscated by the Israeli army. If you had debtors in Gaza, this is an absolutely lost debt. And you’re not selling any new merchandise.”
All told, Palestinian businesspeople are deeply frustrated by the Israeli government’s actions, not least because they suspect that these actions are intended to sooner or later topple the PA and ruin the Palestinian economy. But the same assessment, including the part about Smotrich’s and Netanyahu’s not-so-invisible hand, is shared by many Western and Israeli experts on the Palestinian economy.
“Smotrich has no hidden agenda. Everything he’s doing today is part of the plan he presented in 2017, but things changed in January 2023,” says Michael Milshtein, a former senior Military Intelligence officer and currently head of the Palestinian Studies Forum at Tel Aviv University.
A damaged school in the southern Gaza city of Khan Yunis in June.Credit: Eyad Baba/AFP
Gaza’s economy has been completely destroyed. Health, education and other public services are all but dormant. The World Bank says that all Gazans are considered to be living in poverty.
“Two dramatic things happened. First, because Smotrich can put his finger on the thing that changes the reality in Judea and Samaria [the West Bank], he isn’t wasting time coordinating with the Palestinians. He went straight ahead and created his own entity at the Civil Administration responsible for planning, and he has been changing the reality through this,” says Milshtein, who is also a senior researcher at Reichman University near Tel Aviv.
“Everything that has to do with approving settlements, and huge swaths of the Transportation Ministry budget, and Housing Ministry budgets that are earmarked for the territories – he controls it. I estimate that about a quarter of the Transportation Ministry’s budget is intended for Judea and Samaria.
“He said: ‘We have come to change Judea and Samaria’s DNA, so that even if we lose an election, we’ve passed a point of no return, and it will be impossible to turn reality back.’ I drive through Judea and Samaria, and you can see how the Palestinian and Israeli areas are being fully fused – demographically, geographically and regarding infrastructure. And all this is being done consciously. Smotrich’s goal is to achieve one state without borders.”
Milshtein adds: “In the cabinet, Smotrich is one of the few with a clear vision and work plans to create a reality. It’s really amazing. He works at that: infrastructure, work plans, the legal aspect – everything.”
Why is this amazing? Today it seems that most people aren’t interested in a two-state solution.
“Ever since the war started, two incompatible things have been happening: The public says it doesn’t want to be bothered with the two-state solution, while that same public doesn’t want to see or hear any Arabs. But if you’re going for the one-state solution, which is what Smotrich wants, the public will have to see Arabs: on the beach, in shopping malls, everywhere. The public hasn’t come to terms with this, except for the religious Zionist community, which explicitly wants to extend Israel’s territory.
“According to Smotrich’s plan, there should be a million Israelis in the territories by 2030-2032, by when the two-state solution really will be out of the question forever. The other main issue is him taking over the Civil Administration; he has created a civilian wing in the army and at the Defense Ministry that promotes a political ideology. And with the economy it’s obvious: Smotrich sees the PA as an enemy – and wants to topple it.”
On the day the PA collapses, what will Smotrich, Netanyahu and the government do?
“To him, that will be great. The vacuum will be filled by Israel, which will bring us one step closer to control and sovereignty. I think Smotrich intends to have government ministries directly manage Judea and Samaria, rather than the Civil Administration doing it. The education, health, welfare and environment ministries will administer the territories.
“This is like other things that seem trivial but are dramatic, like projects by the Nature and Parks Authority to enforce its authority at nature reserves in Judea and Samaria. It’s done to make clear that this is ours. The government enacts creeping sovereignty in all kinds of ways.
“For example, Housing Minister Yitzchak Goldknopf. Some of his projects intended for the ultra-Orthodox aren’t in Israel but are in Judea and Samaria. These things pass under the radar, and the rationale is to fuse Judea and Samaria with Israel, to build the foundation on which sovereignty will be imposed.”
I drive through Judea and Samaria, and you can see how the Palestinian and Israeli areas are being fully fused – demographically, geographically and regarding infrastructure.
Michael Milshtein of Tel Aviv University
Are Palestinian workers from the West Bank not being allowed into Israel for security reasons or to hurt the PA economy?
“Nearly 190,000 Palestinians have worked in Israel, 17,000 of them from Gaza, and this number includes both workers with permits and illegal workers. Since the war broke out, 25,000 permits have been awarded, but most of them for Judea and Samaria to build settlements and for agricultural work. There are security considerations, of course, but the main reason is the government’s desire to topple the PA. There is nothing about solid security reasons for preventing their return to Israel.”
In his latest interest rate decision, Bank of Israel Governor Amir Yaron addressed the issue of workers returning from the West Bank. He talked about the importance well beyond the construction industry.
“While complying with the instructions and restrictions set by security officials, it’s best to promote, as far as possible, the actions needed to allow Palestinian workers to return to the construction sector,” Yaron said.
The Ramallah businessman warns that a collapse of the PA and its economy will make a violent intifada inevitable. “I can’t see how the collapse of the economy in the occupied territories is good for Israel. I just can’t see it,” he says.
“Nothing good could come of it unless you want to set off an Armageddon. If a war like that is what you want, this is exactly what you should be doing, and this is exactly what they’re doing,” he says.
Milshtein, meanwhile, is surprised that an intifada hasn’t broken out yet. “After a terrible year for Judea and Samaria, you still don’t see signs of an intifada,” he says, adding that he visited Ramallah and the restaurants were fuller than in Tel Aviv.
“But a generation is growing up there that hates Abu Mazen [Palestinian President Mahmoud Abbas] and the PA, and when you have problems like unemployment, a lack of a horizon … and immense corruption, an energy develops that, if it erupts as it did with the Arab Spring, we’re all going to be in trouble. An emigration is also going on there; everybody who has graduated from university is interested in leaving, and their polls show that the desire to leave is great.”
All this may be compatible with Smotrich’s goals, and maybe also with Netanyahu’s worldview, but it’s doubtful whether their plans can be carried out without the huge risk that another front will open, one just as difficult as in Gaza and Lebanon.
This article is reproduced in its entirety