International Crisis Group / April 14, 2022
Spikes in prices of grain and fuel, with uncertain political reverberations, are the Ukraine war’s primary effect to date on Middle Eastern and North African countries. But diplomatic and military developments are important, too, as Crisis Group experts explain in this look around the region.[…]
As Palestine is inextricably linked to the Israeli economy, any repercussions of the Ukraine crisis for Israel will inevitably be felt in economic conditions in the occupied Palestinian territories. Trade with Israel accounts for between 70 and 80 per cent of all the territories’ imports and exports, and Israel mediates Palestinian access to the global economy. Any shortages or price rises that result from the crisis in Israel will thus also affect the Palestinian economy. These effects occur against the backdrop of the worst fiscal crisis the Palestinian Authority (PA) has faced since its creation in 1994, which will limit its ability to take mitigating measures to protect the most vulnerable in the West Bank. The Hamas government in Gaza will likewise be strapped, compounding an economic crisis caused by the Israeli siege and a series of devastating wars.
Hardest hit will be food security. Shortages of wheat and maize will drive up food prices. Palestine imported $10.98 million in wheat in 2020: $5.61 million from Israel, which came mostly from Ukraine and Russia, $3.57 million directly from Russia and $1.8 million directly from Ukraine. The Hamas-run Ministry of National Economy in Gaza has stated it will not allow traders to raise prices, claiming that Gaza has stockpiles of basic commodities for the next three months; but Gaza’s traders say they have already experienced shortages that have forced some of them out of business. The West Bank has seen an increase in the cost of basic foods, like poultry, following a 60 per cent hike in the cost of fodder, compared to the global increase, which stands at 14 per cent. The discrepancy arises from the fact that Israel levies import taxes on the 90 per cent of Palestine’s fodder that the PA buys in Russia and Ukraine. Retail prices for cooking and heating gas have also gone up by 6 per cent.
The crisis is bound to push Palestine down the priority list for donor governments, international institutions and global media. Donors may divert aid flows to ease conditions in Ukraine – creating a major challenge for the Palestinian economy, which is largely dependent on external assistance. As a side note, the swift and comprehensive international response to the Russian invasion, along with the extensive and critical media coverage, has deepened cynicism among Palestinians and their leaders about what they see as Western double standards. The PA has assumed a “positive neutral” stance. PA officials have publicly stated that, as a country under occupation, Palestine cannot afford to take sides in a conflict that does not directly affect it. The PA is financially and politically dependent on Ukraine’s Western allies but also on Russia’s humanitarian aid, so picking sides could bring negative repercussions. For its part, Hamas has taken no official position on the conflict beyond calling for an end to the fighting and highlighting what it sees as the decline of U.S. hegemony in global affairs, as well as international double standards and self-interested actions on the part of the three Western permanent members of the UN Security Council.
The PA is unlikely to experience major political fallout from the crisis, which will merely exacerbate public anger at an already unpopular and ineffective leadership. The PA security forces are mostly capable, with Israeli help, of suppressing public unrest. Absent a viable alternative to the PA, neither Israel nor its international supporters will allow it to collapse. Despite widespread cynicism among Arab audiences over Western double standards in their widely diverging approaches to the Russian invasion and Israel’s occupation, international stakeholders in the Israel-Palestine conflict are unlikely to shift either their outlook or their strategy toward it.
Economically, Israel is largely gas-independent thanks to its large Mediterranean gas fields and is even considering sending liquefied natural gas to Europe, though the volume would be limited. Yet it faces rising prices for flour, as it imports half its wheat from Russia and another 30 per cent from Ukraine. Russia is also Israel’s main supplier of coal for electricity generation; buying coal from other sources will raise the cost.
Israel has tried to play both sides in this conflict: strategically aligned with the West but staying mostly neutral on Russia’s Ukraine invasion. It has been careful not to alienate Moscow for fear that doing so could limit its freedom to attack Iranian assets in Syria, which it has done regularly for years through airstrikes targeting weapons shipments and facilities aimed at preventing further Iranian entrenchment in Syria and arming Hizbollah in Lebanon, and out of concern for Jews in Ukraine and Russia. Israel is also keen to protect its ties to Russian Jewish oligarchs with investments in Israel. Building on this ambivalence, Prime Minister Naftali Bennett refrained from publicly condemning Russia, though his foreign minister, Yair Lapid, who as a ruling coalition partner is expected to take over as premier in August 2023, did denounce the invasion and called the massacre in Bucha a war crime. Bennett has put himself forward as mediator, so far with little concrete result, though arguably he is earning himself credit as a world statesman.
While Israel voted to condemn the Russian invasion at the UN General Assembly and joined the bloc of countries that suspended Russia from the Human Rights Council, it did not follow the West in imposing sanctions. It has refused to provide anything other than humanitarian aid to Ukraine. It faced U.S. criticism for this approach and President Zelenskyy expressed his displeasure with Israel’s refusal to impose sanctions or supply arms when he addressed the Knesset via Zoom on 20 March. It also came to light that Israel refused to sell Ukraine the Pegasus spyware the latter had requested in 2019, for fear that it would be used against Russia and thus damage Israel’s relationship with the Kremlin. This news was noteworthy, as Israel had previously provided the spyware (now blacklisted by the U.S.) to foreign governments that used it to repress dissent.[…]