Palestinian Economy Faces Growing Instability Amidst War Fallout

The Palestinian economy is experiencing severe strain due to the ongoing war, with unemployment soaring, particularly among young and educated Palestinians. Before October 7, approximately 180,000 to 205,000 Palestinians worked in Israel, earning significantly more than in the Palestinian territories. This employment contributed substantially to the Palestinian economy, estimated at $1.5 billion monthly, or 20-25% of the Palestinian GDP.

Following the war's outbreak, Israel closed its labor market to Palestinian workers. Currently, only about 50,000 Palestinians have returned to work in Israel and the West Bank after security vetting, representing only a quarter of the pre-war workforce. This drastic reduction has crippled household spending and business activity, creating a self-perpetuating cycle of economic decline.

The Palestinian Authority, the largest employer, is also struggling, recently paying only 50% of the May salaries to its employees, including teachers, doctors, and security personnel. This financial distress exacerbates the unemployment crisis, with official figures showing 28-30% unemployment, rising to nearly 40% for those aged 20-29 and over 50% for women.

Economic hardship is seen as increasing the potential for unrest, although not directly predicting an intifada. The Palestinian Authority's economic maneuvering room has significantly shrunk. Further complicating matters, Israeli banks had sought to sever ties with Palestinian banks, a move that would have severely impacted the Palestinian economy, which operates almost entirely in Israeli shekels. The Israeli government intervened, extending the banking cooperation agreement until the end of 2026, providing temporary relief.

Despite declarations of potential collapse from the Palestinian Finance Minister, economic analysts suggest the Palestinian Authority's economy is currently holding steady, though the underlying instability and potential for escalation remain high.