In an interview with Ahram Online, Mohamed Fouad, an economist, member of the Egyptian Prime Minister’s Macroeconomic Advisory Committee, and former parliamentarian, explained that the fallout is now rippling across regional trade routes, global shipping lanes, and investor sentiment.
At the same time, mounting international sanctions and divestment campaigns targeting Israel, ranging from arms export suspensions to sovereign fund exclusions, are beginning to reshape its fiscal outlook, defence supply chains, and foreign investment climate.
Fouad warns that without coordinated recovery mechanisms and meaningful accountability, the region risks long-term economic destabilization.
Ahram Online: What have been the most significant economic consequences of two years of war and destruction in Gaza, for both the local economy and the broader regional markets?
Mohamed Fouad: By the end of 2024, the Palestinian economy will have suffered a near-total collapse. Gaza’s GDP has fallen to just 13 percent of its 2022 level, while the West Bank’s GDP has contracted by 17 percent, bringing per capita income back to levels last seen in 2008. Overall, real GDP across the occupied Palestinian territories (OPT) has declined by 26 percent.
Meanwhile, Unemployment in Gaza surged to 69 percent–80 percent; cross-border West Bank employment in Israel fell by 86 percent within a quarter after Oct-2023, when the Israeli aggression on Gaza.
World Bank, the United Nations (UN), and the European Union (EU) Rapid Damage and Needs Assessment (RDNA) estimates that recovery and reconstruction needs will amount to $53 billion over a decade. In addition, Red Sea insecurity rerouted vessels away from the Suez Canal, lifting ton-miles and freight costs, and cutting Suez Canal revenues (Egypt’s losses amount to $800 million per month, with $7 billion lost in 2024).
AO: How has the genocide in Gaza affected key sectors, such as agriculture, trade, infrastructure, and employment within the Strip, and what ripple effects are visible in neighbouring economies?
MF: For agriculture: the Food and Agriculture Organization of the United Nations (FAO) reports a collapse of the agrifood system, noting that cropland, greenhouses, wells and fisheries have been devastated, with local food production “ground to a halt.” Independent assessments indicate 80 percent of cropland is damaged or inaccessible.
Regarding infrastructure and services, RDNA incurs multibillion-dollar losses in health, education, commerce, industry, and social protection. Moreover, utilities and transport networks are heavily degraded.
Concerning the employment and trade; joblessness in Gaza rate ranges between 70 percent and 80 percent; border closures and internal fragmentation neuter merchandise trade.
At the regional and global levels, the conflict has caused a revenue shock to the Suez Canal due to detours through the Red Sea. This, along with broader foreign exchange (FX) and fiscal second-round effects, has a significant impact on neighbouring countries, particularly Egypt. Furthermore, there is an increase in vessel demand and freight volatility globally, which is expected to cause lagged inflationary effects.
AO: Can you quantify the long-term economic damage to Gaza’s human capital and productive capacity, and implications for recovery?
MF: According to the RDNA, the scale of destruction in Gaza requires an estimated $53 billion over a decade to restore core services and infrastructure, with $20 billion needed in the first three years. The impact on human capital is equally severe: Prolonged school and university closures, widespread displacement. Additionally, the collapse of the healthcare system is expected to have long-term consequences.
Data from the World Bank and the International Labour Organization (ILO) suggest that multi-year effects due to extended jobless spells and skill erosion. Quantified sectoral losses include $6.3 billion in health and $3.2 billion in education. Given the breadth of destruction, encompassing housing, hospitals, utilities, and roads, as well as the collapse of the private sector base, complete reconstitution of productive capacity is projected to take more than a decade, even under optimal access and security conditions. Agriculture alone requires $7.4 billion in rehabilitation, according to recent field estimates.
AO: Several countries and institutions have announced sanctions or divestment targeting Israel. From an economic standpoint, how impactful have these actions been so far?
MF: Targeted arms-export suspensions and reviews have begun to take shape, with the Netherlands maintaining its suspension of F-35 parts exports pending a rights-risk review. At the same time, Spain has repeatedly halted or cancelled arms deals. Although the direct macroeconomic impact remains modest, supply-chain friction and reputational risk are becoming increasingly significant for defence programs.
On the financial front, sovereign-wealth and institutional divestment actions have gained traction. Norway’s $2 trillion fund has excluded multiple Israeli companies on ethical grounds, resulting in a headline impact of a low single billion in portfolio value. However, the broader signal effects on compliance and ESG screening are more pronounced.
Market-wide effects continue to be driven primarily by war-related fundamentals rather than sanctions. Rating downgrades by Fitch and Moody’s, along with wider fiscal deficits estimated at approximately 6.9 percent of GDP in 2024, and heightened investment volatility, reflect the economic strain caused by conflict-related risks and spending.
In a nutshell, sanctions or divestment to date have been incremental, with soft-power and legal-risk consequences more visible than hard macroeconomic contraction; primary drags on Israel’s macroeconomy come from security expenditure, mobilisation, and uncertainty.
AO: To what extent have global supply chains, FDI flows, or bilateral trade with Israel been disrupted or recalibrated due to sanctions and international pressure?
MF: The primary constraint on global supply chains has been Red Sea insecurity rather than formal sanctions. This has led to longer transit times and higher shipping costs, reshaping liner schedules, and pushing global vessel demand up by three percent and container-ship demand by 12 percent by mid-2024.
Foreign direct investment (FDI) and capital flows into Israel have also been affected. Israel’s economic growth slowed to 1 percent in 2024, accompanied by ratings downgrades and widening fiscal deficits. While FDI has declined, it has not collapsed, mainly due to the resilience of the tech sector despite higher risk premiums.
Bilateral trade between the European Union and Israel remains broadly intact. However, legal and compliance costs have increased for corporations operating across these markets.
AO: Looking ahead, what economic tools or policy mechanisms could both support Gaza reconstruction and impose meaningful accountability beyond symbolism?
Establishing a multi-donor reconstruction fund managed by neutral agencies, such as the World Bank and the United Nations, with transparent disbursements tied to verified humanitarian access, is a critical step toward recovery. In parallel, launching cash-for-work recovery programs can help restore livelihoods quickly and prevent long-term dependency. Rehabilitating essential sectors, including energy, water, and housing, should be pursued through public-private partnerships backed by donor guarantees.
Short link: