On Saturday, the militant and terrorist group Hamas attacked Israel. They massacred hundreds of innocent people. And Israel retaliated with its own airstrikes which, in turn, has killed many people including civilians. It’s an incredibly sad time for the region and the world and we hope it comes to an end soon.

But how did we get to this? And what have been the economic implications of this long-standing war? In today’s Finshots, we try and explain this century-old conflict. Remember, we’re not geopolitical experts but we’ll try and condense it as best as we can. So brace yourself.

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The Story

In 1917, a 67-word letter changed the face of the Palestinian region forever.

It was authored by Britain's then foreign secretary Arthur Balfour, who made a significant pledge within it—“the establishment in Palestine of a national home for the Jewish people”. Essentially, Britain pledged to aid Jews fleeing persecution from various parts of Europe. The commitment was to assist them in settling in Palestine.

But wait…how could Britain enforce such a diktat?

Well, the British had colonised the Palestinian territory. And they had complete command over everything. But the 94% Arab population who lived in Palestine were livid. They felt their land was being snatched away from them by force. The ill-will began to fester and the first conflicts between Arabs and Jews began.

Fast forward to 1947 and Britain relinquished control of the territory. It was time for the United Nations to step in and do something. It said: “There will be two states — Palestine and Israel. And Jerusalem will be treated as an international city.”

Sounds reasonable?

But, no. The Arabs were unhappy because a larger section of the land was allotted to the Jews. A war broke out. And by the end of it, Israel controlled even more territory. Egypt came to control a region called Gaza. And Jordan occupied another area called the West Bank.

And of course, it didn’t end there. In 1967, another Arab-Israeli war broke out and Israel managed to stamp its authority over Gaza and the West Bank too. Palestine had all but disappeared.

The Palestinian people saw this as an illegal occupation. Some resorted to diplomacy. Others resorted to violent methods. In the 1980s, one violent group began dominating the headlines — Hamas. They began waging a proxy war against Israel and its people. Meanwhile several countries were trying to broker a peace deal between Israel and Palestine to end the needless conflict.

In the 1990s Israel finally bowed down to international pressure. They ceded a tiny bit of control over the West Bank and Gaza to an interim Palestinian government. But that didn’t really stop intermittent conflicts — the Arabs still wanted what they claimed was their land. And when Hamas took control of Gaza in 2006, Israel tightened the screws further. They blocked Gaza from the world. They closed land, sea and air routes. And 2 million people found themselves living in an area of 365 square kilometres without free movement.

As a consequence, Gaza’s economy collapsed. When the United Nations Conference on Trade and Development (UNCTAD) crunched the numbers a couple of years ago, the results were shocking. Gaza had the world’s highest unemployment rate. And more than 50% of its population lived below the poverty line. While it contributed to 31% of the Palestinian economy in 2006, that dropped to just 18% in 2018. From a purely economic perspective, Gaza suffered losses anywhere to the tune of $8–16 billion in the period between 2007 and 2018.

And this brings us to today.

In the past few years, most people in the West have had one suggestion to solve this problem — economic peace.

For instance, UNCTAD says there are massive oil and natural gas fields in the region. It’s all in disputed territory so no one can touch it. And the estimate is that this could be a shareable opportunity worth US$524 billion.

Meanwhile the US has been trying to broker a deal between Israel and several Arab nations. In 2020, they did something that no one thought possible. It got 4 countries together — UAE, Bahrain, Morocco, and Sudan — and got them to sign a deal with Israel. It was called the Abraham Accords. Brokered by the Trump Administration, these accords catered to each Muslim nation's interests: the UAE acquired advanced US weapons, Bahrain gained support against Iran, Sudan was removed from the US 'state-sponsored terrorism' list with a World Bank aid, and Morocco received US recognition over the disputed Western Sahara.

In return, all these countries promised to establish normal trade relations with Israel. The US believed that this would benefit everyone creating new jobs and economic prosperity. Especially for Israel. Some estimates pegged that its GDP would rise by over 2%. In fact, the US has also been trying to rope in major Middle Eastern players like Saudi Arabia. There were whispers that the US was enticing the country with assistance for a nuclear programme. However, amidst these developments, Palestine's concerns seemed to have been sidelined, with neither the region nor its populace appearing in any significant discussions.

They continued to remain in the backdrop until the brutal attacks last weekend.

Now that we’ve sort of summed this up, we have to also ask — will this war have a spillover effect on the world?

Well, we don’t know yet. Israel and Palestine aren’t really oil producers. But oil prices have already headed north. Some say it's because of Iran, considering the fact that many believe the country supported Hamas’ attacks. And if they choose to enter the fray formally, it could be a problem. Not only does the country produce oil, but, it’s also in proximity to the Strait of Hormuz — 37% of all sea-based oil exports moves through this passage. Who’s to say that the militants in the region won’t target this too for leverage? If it does, oil prices could be in for a shock.

For now, one can only hope that better sense prevails in the region, that the war ends soon, and innocent civilians are spared the horror and atrocities of the mindless attacks.

Until then…

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