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The Israel-Palestine Conundrum: Domestic Denouement

The recent 11-day ‘conflict’ which started on May 6th, 2021 between Israel and Palestine invoked international rallies in support of the latter. At the same time however, many heads of states were busy juggling with the cards of foreign policy, national interest, and diplomacy in choosing their sides. There are multiple ways of approaching the dispute between the two belligerents. The recent 11-day ‘conflict’ sprung up several intellectual debates amongst scholars through the lens of history, politics, humanitarianism, international law and economics. While discussing these myriad perspectives is beyond the scope of the article, the economic cost of such a devastating ‘conflict’ will be analysed, from the perspective of both the states. The second article of this two part series will analyse the role of key international players, situating the ‘conflict’ in the context of international law after having looked at domestic consequences of the ‘conflict’ in this one.   

The costs to Israel

The impact of Israel’s involvement in Palestine manifests itself through several different channels. Israel has a much stronger economy as compared to Palestine). After a successful vaccination drive, Israel is set to resume regular economic activity. The country’s credit score remains “AA-” according to S&P Global Ratings. The economic impact of Israeli activities in Palestine is not trivial. As it is, Israel’s public debt rose to 73% of its GDP due to COVID. With the huge cost of war and foreign aid that Israel continues to receive from the United States, the public debt is only expected to increase further. According to estimates by an Israeli newspaper, Calcalist, every Iron Dome missile cost Israel about $80,000 to $90,000. When put in perspective of 3,200 Palestinain rockets intercepted by Israel, this cost adds up to a hefty sum. This is excluding the cost of all the air strikes, maintenance of ground personnel, surveillance, etcetera. All of these factored-in, raises the Israeli security budget by about 1% of their GDP. Despite this astounding amount being spent on one ‘conflict’, some Israeli scholars believe that the direct economic costs of Israel’s engagement in Palestine aren’t too high.

However, it is misleading to judge the economic impact of this only in terms of security spending. The political instability caused due to this conflict, internationally and domestically, adds to the many costs. The recent news of the ‘anti-Netanyahu coalition’ being formed in addition to the general environment of uncertainty worries current and potential investors. They start to associate a higher risk with their investments in Israel, thus demanding higher returns. This might not always be favourable for the Israelis. Moreover, one cannot forget the devastating impact of the COVID induced recessions on the economy. Additionally, these contests have led to a large fractionalisation between the Arabs and the Jews in the country. This feeling of animosity and mistrust pummels the level of human capital, ringing the death knell for Israeli economic growth and recovery.

Alongside this, with either side developing more advanced missile technology, it will become more dangerous for the other side not just strategically but also economically. This is because on one hand, building a defence against an enhanced missile will be very expensive and on the other hand the lack of a defence system will compromise security and disrupt everything including the economy. 

There are innumerable studies that try to estimate the costs of the Israel-Palestine hostilities on the Israeli economy and show what it could be, had the situation been resolved. One study mentions that Israel’s GDP per capita was lowered by $2,003 per annum (in 2005 US$) due to the Second Intifada. Another study states that its GDP would have been a whopping 26% higher at minimum, if not for the tensions. According to RAND International, the best outcome for both Israeli and Palestinian economies would be a ‘Two State-Solution’. If not that, even a coordinated or uncoordinated unilateral withdrawal from Palestine wouldn’t be as painful as the current situation let alone a violent uprising. Therefore, it is clear that for the Israeli economy, the direct costs incurred due to its affray with Palestine might not be significant, but the mammoth opportunity cost cannot be ignored.

The costs to Palestine

Israeli officials are often found saying that Palestinian aggression has costed Israeli lives. However, it is important to look at the figures to understand the scale of lives lost in such circumstances. Through a very robust analysis over the years, Statista shows that the human cost for the Palestinians is far more than that for the Israelis. The United Nations Office for the Coordination of Humanitarian Affairs estimates that between the period 2008-2021, about 5,870 Palestinians have died while about 123,481 have been injured. Proportionally, 262 Israelis have died while about 5,693 were injured. These figures include the fatalities and casualties from the 11-day ‘conflict’ too. The New York Times in talking about the strategy of Prime Minister Benjamin Netanyahu stated the status quo is one “that leaves the Palestinians divided between Gaza and the West Bank, steadily weaker, and stateless.” It can thus be reasonably argued that it is an exaggeration on the part of Israel to state that the Israel-Palestine ‘conflict’ was equally devastating on both ends.

The United Nations approximated that 800,000 people in Gaza do not have regular access to clean piped water and in the recent bombings, 50% of the water network was damaged. Access to electricity has been reduced to 5 hours a day. More appalling is the state of hospitals. All 13 hospitals in Gaza are overwhelmed with flooding victims from the ‘conflict’ and are facing shortage with respect to supplies. The World Health Organization’s spokeswoman Margaret Harris called for immediate access for health supplies as well as personnel into the region. She reckons that the closures are the biggest problem. She is referring to the blockade that Palestine faces, from Israel as well as Egypt, which bans travels and restricts the movements of essential goods such as electricity and water alongside curbing Palestinians’ freedom to move. A report by Human Rights Watch estimates that about a staggering 80% of Palestinians live on humanitarian aid.

Collated from various ministries, Reuters reports that 16,800 housing units have been damaged in the recent violence, making 1,800 of those uninhabitable and a 1,000 fully destroyed. Furthermore, the bombardments are estimated to have caused $40 million to factories and industries, $22 million to the energy sector and $27 million to the agricultural sector in damages.

In order to compensate for these costs, the UN along with NGOs announced a flash appeal for $95 million. It states, “This appeal outlines the immediate humanitarian and early recovery responses for the coming 3 months, requesting $US 95 million to address the needs of 1.1 million Palestinians, in the areas of protection, health, water and sanitation, education, and food security.”

These statistics reveal that the growth of an already impoverished state will now not only be curbed but is also dire. While the humanitarian cost is already high, the economic cost is, to put it euphemistically, ravaging. Here’s why. Access to essential goods such as water, electricity and homes has been destroyed, restricted access to, or irreversibly damaged. Sectors such as agriculture, energy, and many other factories and industries have been reduced to rubble. Homes have been pummelled. There are restrictions in access to raw materials, personnel for aid, basic goods and services; even if they are removed, for the time being, they will be reimposed by the economies surrounding the territory, making economic recovery harder. Taking all of this, paints a bleak picture of the Palestinian economy and the living standards of its ‘citizens’. With accessibility to the building blocks of any economy itself questioned, damaged or in a state of perpetual conflict, how can there be hopes of long-term growth?

Not only have basic resources been adversely impacted, but also important sectors such as agriculture and energy. These provide employment and subsequently, income to the Palestinians. With this also perished, the territory which is in an already precarious state, will only breed more negativity. The opportunity cost of reconstruction is simply too enormous for hopes to return to normalcy. Another immeasurable cost is that of trauma and mental health inflicted upon children and citizens of all ages. It is so vast, it cascades to substantially reduce the little hopes of a somewhat sustained economic recovery for Palestine. While we are secure in our nationality, territory, economic opportunities and basic survival, the same cannot be said for Palestinians. In times like this, it becomes imperative to step into the shoes of the innocent victims of these ‘conflicts’ to really understand the severity that strikes unannounced on this land.


Apart from the economic costs of this strife incurred by both sides, recently the diplomatic tide also does not appear to be in Israel’s approbation. While most states appeared to be condemning the cross-border violence and holding Israel accountable to varying degrees, the United States seemed to maintain its strong position in concurrence with Israel. More often than not, these alarming economic downsides to the conflicts are dismissed as a paranoid economists’ concern or overshadowed by prioritizing national interest and security. Additionally, it must be carefully considered how the economic costs of the ‘conflict’ can be channeled towards welfare and development.

This really raises the question of the ethics of such a conflict. By no means is any Israeli ‘retaliation’ done under the fear of mutually assured destruction, owing to the unequivocal power asymmetry between the two belligerents. Therefore, the very basis of this ‘conflict’ is called to question. Can this be viewed as some way of spreading Israeli propaganda through oppression, under the banner of national interests? One needs to think long and hard about this.

This article was co-authored by Deepanshu Singal and Tejaswini Vondivillu. They are 3rd-year undergraduate students at Ashoka University, pursuing their major in Philosophy, Politics and Economics with a minor in International Relations. 

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