How Gaza went from desperately poor to even poorer – and why that’s important to the current war
The story we’re currently seeing unfolding in Israel and Gaza at present doesn’t seem to have much to do with economics. It’s about murders, terrorism and missile attacks.
But the economics lurks behind the scenes. It can’t explain all of what’s happening in the Middle East. It certainly can’t justify the horrendous attacks on Israel on 7 October – the worst massacre of Jewish people since the Holocaust.
Nor can it explain the intensity of the Israeli response, which has, according to Palestinian representatives, claimed more lives than were lost in the Hamas attack.
But, alongside religion, history, democracy – and the lack of it – economics is nonetheless an important part of the background story to the instability in this region.
Trustworthy data on the Palestinian Territories is hard to come by, but earlier today UNCTAD, the economic wing of the United Nations, published its annual stock-take of the Palestinian economy – perhaps the most reliable assessment of the situation on the ground. And that situation is stark.
It shows that as of last year, in other words before the recent attacks, the economy of Gaza was, by some measures, the most benighted in the world.
Gross domestic product per capita – the broadest measure of living standards – was a whopping 46% below its 1994 levels.
In other words, in the space of a generation, even as most other countries around the world saw their living standards rise sharply, Gaza’s people have become dramatically poorer.
What’s particularly striking when you look through the data is the divergence between Gaza and the West Bank, the other main part of the Palestinian Territories.
The two regions’ economies had roughly similar GDP per capita up until around 2007, when Hamas seized control of the Gaza Strip.
But look at what happened next. Economic growth in the West Bank meant that its economy is now considerably bigger and more prosperous than its 2007 levels.
The Gaza Strip, meanwhile, has seen its levels of prosperity crumple in a fashion rarely seen elsewhere in the world.
It’s a similar story if you look at unemployment rates in each of the regions: while they were relatively close up until 2007 (albeit that the Gaza jobless level was always a few percentage points above the West Bank level) in the post-Hamas period, the two lines have diverged dramatically.
The jobs market in the West Bank is (or was, as of 2022) tough. The jobs market in Gaza was hopeless.
Compare the Gaza Strip to other countries and you see just how much of an outlier it is.
While the unemployment rate in Israel is 3.5%, the comparable rate in the Palestinian Territories is 24% and the rate in the Gaza Strip is at 45%.
This is higher than any other country in the world – and note that the number is significantly higher for women and for young people.
There are plenty of explanations for this divergence. After Hamas took control of Gaza, Israel imposed a series of restrictions on the flow of people and trade in and out of the region.
The border is heavily policed. Entry and exit by air and sea is banned and there are only two crossing points towards the West Bank and East Jerusalem.
The majority of residents have been “locked in” for years, making it more like a prison than a fully functioning state.
Look at this chart of exports from Gaza and the West Bank and you get a sense of what this means in practice.
While the West Bank (and for that matter most other economies) have been able to grow their exports each year, as new businesses seek out opportunities to trade with Israel (the trade mostly goes to Israel), Gaza’s exports have essentially flatlined.
Of course, this does not cover the black market, but it’s the best picture we have available.
Israeli authorities say these restrictions are an essential part of policing Hamas and preventing terrorist activity. Trade is monitored and controlled to prevent weapons coming in and leaving.
That goes, too, even for items like fertiliser and steel tubes, since they could be used to make missiles. And they have more than half a point: Hamas social media accounts have gleefully boasted about how productive its home-made ammunition factories have been – despite these restrictions.
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Reality of Palestinians in Gaza City
These restrictions are not the only explanation for the collapse in Gaza’s economy: corruption is rife throughout the territory, with the upshot that much of what enters the country for the purpose of helping civilians is sometimes seized by Hamas leaders.
It is a sorry story, and the upshot is that Gaza has been a failing economy for many years, with levels of deprivation and poverty which have mounted to world-leading levels.
None of the above can explain, let alone justify, the attacks of October 7. In a parallel universe, Gaza could have been blessed with leadership which would turn the lines in the chart around – though that would also have been reliant on Israel lifting its various restrictions.
But numbers like these tend to make people feel desperate.
Gaza was already desperately poor before Hamas won its election and seized power. It has become significantly poorer, and significantly more desperate, in the years since.
The Donald Trump peace plan is nothing of the sort. It takes Russian demands and presents them as peace proposals, in what is effectively for Ukraine a surrender ultimatum.
If accepted, it would reward armed aggression. The principle, sacrosanct since the Second World War, for obvious and very good reasons, that even de facto borders cannot be changed by force, will have been trampled on at the behest of the leader of the free world.
The Kremlin will have imposed terms via negotiators on a country it has violated, and whose people its troops have butchered, massacred and raped. It is without doubt the biggest crisis in Trans-Atlantic relations since the war began, if not since the inception of NATO.
The question now is: are Europe’s leaders up to meeting the daunting challenges that will follow. On past form, we cannot be sure.
Vladimir Putin, President of Russia. Pic: Sputnik/Gavriil Grigorov via Reuters
The plan proposes the following:
• Land seized by Vladimir Putin’s unwarranted and unprovoked invasion would be ceded by Kyiv.
• Territory his forces have fought but failed to take with colossal loss of life will be thrown into the bargain for good measure.
• Ukraine will be barred from NATO, from having long-range weapons, from hosting foreign troops, from allowing foreign diplomatic planes to land, and its military neutered, reduced in size by more than half.
Donald Trump meeting Vladimir Putin in Alaska in August, File pic: Reuters
And most worryingly for Western leaders, the plan proposes NATO and Russia negotiate with America acting as mediator.
Lest we forget, America is meant to be the strongest partner in NATO, not an outside arbitrator. In one clause, Mr Trump’s lack of commitment to the Western alliance is laid bare in chilling clarity.
And even for all that, the plan will not bring peace. Mr Putin has made it abundantly clear he wants all of Ukraine.
He has a proven track record of retiring, rallying his forces, then returning for more. Reward a bully as they say, and he will only come back for more. Why wouldn’t he, if he is handed the fortress cities of Donetsk and a clear run over open tank country to Kyiv in a few years?
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US draft Russia peace plan
Since the beginning of Trump’s presidency, Europe has tried to keep the maverick president onside when his true sympathies have repeatedly reverted to Moscow.
It has been a demeaning and sycophantic spectacle, NATO’s secretary general stooping even to calling the US president ‘Daddy’. And it hasn’t worked. It may have made matters worse.
A choir sing in front of an apartment building destroyed in a Russian missile strike in Ternopil, Ukraine. Pic: Reuters
The parade of world leaders trooping through Sharm el-Sheikh, Egypt, lavishing praise on his Gaza ceasefire plan, only encouraged him to believe he is capable of solving the world’s most complex conflicts with the minimum of effort.
The Gaza plan is mired in deepening difficulty, and it never came near addressing the underlying causes of the war.
Read more:
Ukraine war latest: Putin welcomes peace plan
Trump’s 28-point Ukraine peace plan in full
Most importantly, principles the West has held inviolable for eight decades cannot be torn up for the sake of a quick and uncertain peace.
With a partner as unreliable, the challenge to Europe cannot be clearer.
In the words of one former Baltic foreign minister: “There is a glaringly obvious message for Europe in the 28-point plan: This is the end of the end.
“We have been told repeatedly and unambiguously that Ukraine’s security, and therefore Europe’s security, will be Europe’s responsibility. And now it is. Entirely.”
If Europe does not step up to the plate and guarantee Ukraine’s security in the face of this American betrayal, we could all pay the consequences.
World
Ukraine and Europe cannot reject Trump’s plan – they will play for time and hope he can still be persuaded to desert the Kremlin
“Terrible”, “weird”, “peculiar” and “baffling” – some of the adjectives being levelled by observers at the Donald Trump administration’s peace plan for Ukraine.
The 28-point proposal was cooked up between Trump negotiator Steve Witkoff and Kremlin official Kirill Dmitriev without European and Ukrainian involvement.
It effectively dresses up Russian demands as a peace proposal. Demands first made by Russia at the high watermark of its invasion in 2022, before defeats forced it to retreat from much of Ukraine.
Ukraine war latest: Kyiv receives US peace plan
(l-r) Kirill Dmitriev and special envoy Steve Witkoff in St Petersburg in April 2025. Pic: Kremlin Pool Photo/AP
Its proposals are non-starters for Ukrainians.
It would hand over the rest of Donbas, territory they have spent almost four years and lost tens of thousands of men defending.
Analysts estimate at the current rate of advance, it would take Russia four more years to take the land it is proposing simply to give them instead.
It proposes more than halving the size of the Ukrainian military and depriving them of some of their most effective long-range weapons.
And it would bar any foreign forces acting as peacekeepers in Ukraine after any peace deal is done.
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Is Moscow back in Washington’s good books?
The plan comes at an excruciating time for the Ukrainians.
They are being pounded with devastating drone attacks, killing dozens in the last few nights alone.
They are on the verge of losing a key stronghold city, Pokrovsk.
And Volodymyr Zelenskyy is embroiled in the gravest political crisis since the war began, with key officials facing damaging corruption allegations.
Read more from Sky News:
Witkoff’s ‘secret’ plan to end war
Navy could react to laser incident
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Ukrainian support for peace plan ‘very much in doubt’
The suspicion is Mr Witkoff and Mr Dmitriev conspired together to choose this moment to put even more pressure on the Ukrainian president.
Perversely, though, it may help him.
There has been universal condemnation and outrage in Kyiv at the Witkoff-Dmitriev plan. Rivals have little choice but to rally around the wartime Ukrainian leader as he faces such unreasonable demands.
The genesis of this plan is unclear.
Was it born from Donald Trump’s overinflated belief in his peacemaking abilities? His overrated Gaza ceasefire plan attracted lavish praise from world leaders, but now seems mired in deepening difficulty.
The fear is Mr Trump’s team are finding ways to allow him to walk away from this conflict altogether, blaming Ukrainian intransigence for the failure of his diplomacy.
Mr Trump has already ended financial support for Ukraine, acting as an arms dealer instead, selling weapons to Europe to pass on to the invaded democracy.
If he were to take away military intelligence support too, Ukraine would be blind to the kind of attacks that in recent days have killed scores of civilians.
Europe and Ukraine cannot reject the plan entirely and risk alienating Mr Trump.
They will play for time and hope against all the evidence he can still be persuaded to desert the Kremlin and put pressure on Vladimir Putin to end the war, rather than force Ukraine to surrender instead.
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