HEBRON, WEST BANK—Since the start of the Israel-Hamas war in October 2023, Rauf, a Palestinian construction worker from the West Bank, has only returned to his job in Israel once, in July 2024. After climbing over the Israeli-built wall separating the West Bank and Israel, Rauf was caught by Israeli police during a raid at his employer’s construction site and jailed for 38 days for entering without a permit. Now back in the West Bank, he’s banned from Israel until 2027.
Rauf, who didn’t want his last name used to protect his identity, had his permit revoked when Hamas attacked Israel on Oct. 7, 2023, as with the other approximately 115,000 Palestinians from the West Bank who also held work permits. Nearly two years into the war, only about 8,000 permits have been reinstated.
With hundreds of thousands of Palestinians out of work, unemployment has skyrocketed to over 30 percent in the West Bank, as of the last time unemployment data was gathered in September 2024—approaching the highest it’s ever been. (A month before the war began it stood at 12.9 percent.)
Compared to the steady stream of work he received in Israel, Rauf hasn’t found a permanent job in the West Bank. Instead, he’s managed with an odd job here and there, like street cleaning for a daily wage of 50 Israeli new shekels (NIS), about $15. Not only is work scarce in the occupied territory, but Israeli-imposed economic restrictions in place from before the war—like withholding Palestinian tax revenues—have strangled the West Bank’s job market.
In the first year of the war, a survey conducted by the International Labour Organization found that over 50 percent of West Bank employees had their hours decreased, more than 60 percent had their incomes reduced, and 65 percent of businesses slashed their workforce.
The lack of available jobs in the West Bank together with legal options to work in Israel cut off means more workers are potentially endangering their lives just to earn a living.
“We take the risk to cross into Israel and work in whatever way we can to support our families,” Rauf said. “But many are paying a heavy price because they’re getting injured, shot at, or falling off a fence as they cross over.”
The result of near-record-breaking unemployment is a doubling of the West Bank’s poverty rate after one year of war, according to Palestinian economist Naser Abdelkarim, who said one-third of families there are now living in poverty.
“The source of cash to the Palestinian economy, especially the West Bank, was the wages from Palestinian laborers in Israel,” Abdelkarim told Foreign Policy.
While significant, job losses are only one factor in the equation driving the West Bank economy’s decline.
Even before the Israel-Hamas war, Israel withheld tax revenue that was meant for the West Bank. Since 2019, as punishment for payments made to the families of Palestinian prisoners and Palestinians killed by Israeli forces, Israel has withheld almost NIS 8 billion (around $2.3 billion) in tax revenue owed to the Palestinian Authority (PA), the West Bank’s governing body. (As part of the Oslo Accords—the interim peace agreement signed in the 1990s between Israel and the Palestine Liberation Organization—Israel’s Finance Ministry collects tax revenue on the PA’s behalf and transfers the funds monthly.)
And following Oct. 7, 2023, when Hamas attacked Israel, Israel’s cabinet decided to withhold additional tax revenue specifically used to pay the salaries of the PA’s public-sector employees in Gaza, arguing the money could end up in Hamas’s hands. Hamas runs the Gaza Strip, while the PA largely manages the payroll of ministerial employees in social affairs, health, and education.
In protest, the PA refused to accept any of the remaining tax revenue transfers from Israel. So in January 2024, Israel decided to place the Gaza funds in a Norwegian-based trust that would be released with Israeli Finance Minister Bezalel Smotrich’s permission. The system worked until May 2024, when Norway recognized a Palestinian state, angering Smotrich, who then ended the deal. Despite several payments since the deal ended, tax revenue has nevertheless been withheld for the last four months.
Even when some of the money was being transferred, the government could only pay around 50 percent to 70 percent of salaries. Without the money owed, the PA is forced to borrow from banks to pay wages.
“That’s why the public debt has increased to almost $13 billion, which is more than 130 percent of Palestine’s GDP,” Abdelkarim said.
Further exacerbating the economic crisis, Smotrich ordered in June the cancellation of the protection waiver for Israeli banks conducting business with the PA’s financial institutions, hours after the United Kingdom, Australia, Canada, New Zealand, and Norway jointly imposed sanctions on Smotrich. Issued annually, this indemnity protects Israeli banks from possible legal actions if the PA is accused of financing terrorism. Without it, these Israeli banks are likely to cut ties with their Palestinian counterparts, causing a cash economy and black market to emerge.
While the Palestine Monetary Authority acts like a central bank, it’s unable to print its own money and relies heavily on its connections with Israeli banks. Severing the financial link between the West Bank and Israel will disrupt trade in the occupied territory and isolate Palestinian banks from the global financial system. Smotrich’s decision won’t go into effect until November, when the waiver is due to be renewed.
“If Israeli banks cut correspondent relations with Palestinian banks, the economy would be unable to import energy and food, pay for services, or even cover public sector salaries,” Ihab Maharmeh, a researcher at the Arab Centre for Research and Policy Studies in Doha, wrote in an email to Foreign Policy.
Compounding Palestine’s monetary problems is an excess of Israeli shekels in the Palestinian market. As part of the Oslo Accords, the Paris Protocol on Economic Relations, signed in 1994, established customs, trade, and tax relations between Israel and the PA, and mandated the Israeli shekel as the currency to be used in the occupied territories.
With this protocol, Israel accepts a transfer of shekels from Palestinian banks to corresponding Israeli banks capped at NIS 18 billion annually. However, in the last decade, the Palestinian market has acquired a surplus of this money.
“The excess came from the fact that the Palestinian economy has grown 10 times since 1995,” Raja Khalidi, director general of the Palestine Economic Policy Research Institute, said. “But also because there are different flows that are coming into the economy today than there were in 1995, like money flowing from Arab Israelis and Palestinian workers.”
“The shekels are not in circulation in the economy, so they end up in the banks,” Abdelkarim said. “The banks now don’t accept huge deposits, and that’s why Palestinians find it difficult to cover their checks and to do transfers, because of the limitations on the deposits. Also, banks find it difficult to finance trade exports from Israel because they simply don’t have enough balance in their accounts.”
With the war, Israel’s military has intensified its raids on currency exchange centers in the West Bank. Claiming these raids are necessary to prevent the funding of terror, Israel’s army has seized millions since October 2023 from these money changers. (The Biden administration said in 2023 that it believed Palestinian banks were adhering to global anti-money-laundering and countering financing of terrorism standards.)
Palestinian laborers and West Bank enterprises are deeply dependent on these centers for processing deferred checks, sending payments, and receiving money from abroad, Maharmeh explained, which has become especially vital given the myriad of financial restrictions Israel has imposed on Palestinian banks.
“These shops are essential because they circulate U.S. dollars and Jordanian dinars, the preferred savings currencies over the Israeli shekel, and their disruption creates severe cash shortages that make daily transactions increasingly difficult,” Maharmeh wrote. “Restricting these shops amounts to targeting everyday life itself, turning a basic necessity for survival into yet another tool to pressure Palestinians toward migration.”
As the West Bank’s economic trajectory plummets, there’s likely little that can be done to prevent a total collapse.
“At the technical level, the Palestinian politic cannot do anything, except budget cuts and increasing revenue,” Abdelkarim said, emphasizing these methods have either already been employed by slashing salaries, or can’t be enforced, as with raising taxes on an increasingly impoverished population.
Therefore, the experts interviewed argue the only solution to Palestine’s persistent financial crisis is political: meaning ending Israeli occupation and establishing Palestinian sovereignty, as opposed to having a leadership intertwined with Israel’s economy.
“We can’t expect the Palestinian economy and the Palestinian people to regain at least part of their wealth, income, and capacity to spend, to live, at least decently, without the core political conditions,” Abdelkarim said. From his perspective, this means first ending the war in Gaza and allowing the movement of goods into the besieged enclave—and then negotiating a peaceful solution to end the decades of violence between Palestine and Israel.
For Rauf, and many other Palestinian workers like him, any solution, though, doesn’t seem on the horizon or even close.
“The situation seems hopeless and endless, especially with the current Israeli government. … I don’t see them allowing Palestinian workers back into Israel,” Rauf said. That sentiment rings true as Israel’s government is now implementing plans to replace Palestinian workers with hundreds of thousands of migrant laborers.
“Things aren’t going to change, and instead there is kind of a desperation,” Rauf said.
And that desperation could manifest in climbing a wall and risking arrest, just to earn your daily bread.
The post Israel Is Orchestrating an Economic Collapse in the West Bank appeared first on Foreign Policy.
