Finding access above ground barred, the Islamist movement oversaw a program of industrial-scale burrowing underground. With each tunnel costing $80,000 to $200,000 to build, mosques and charitable networks offered small investment plans with unrealistically high rates of return, promoting a pyramid scheme that ended in disaster. Preachers extolled commercial tunnel ventures as “resistance” activity and hailed workers killed on the job as “martyrs.” The National Security Forces (NSF)—a PA force reconstituted by Hamas primarily with ’Izz Al-Din Al-Qassam Brigades (IQB) personnel, but also including several hundred (Fatah) PA defectors—guarded the border, occasionally exchanging fire with the Egyptian army, while the Hamas government oversaw construction activity. Simultaneously, the Hamas-run Rafah municipality upgraded the electricity grid to power hundreds of hoists, kept Gaza’s fire service on standby, and on several occasions extinguished fires in tunnels used to pump fuel. As Mahmud Zahar, a Hamas Gaza leader, explained, “No electricity, no water, no food came from outside. That’s why we had to build the tunnels.”
Larger private investors, including Hamas members who raised capital through their mosque networks, partnered with families straddling the border. Lawyers drafted contracts for cooperatives to build and operate commercial tunnels. The contracts detailed the number of partners (generally four to fifteen), the value of the respective shares, and the mechanism for distributing shareholder profits.
Fully operational, a tunnel could generate the cost of its construction in a month. A typical partnership encompassed a cross-section of Gazan society, including, for example, a porter at the Rafah land crossing, a security officer in the former PA administration, agricultural workers, university graduates, nongovernmental organization (NGO) employees, and diggers. Investors could quickly recover their outlay.
With each tunnel jointly run by a partnership on each side of the border, Gazan and Egyptian owners generally split earnings equally. The area of tunnel operations doubled to five miles, extending along the border from the Rafah terminal west to Tel Zagreb near the coast. So congested were some parts of the border that diggers had to burrow tunnels one on top of the other, using Google Earth to map routes and make sure they stayed on course.
Teams of six laborers working round the clock in two twelve-hour shifts could dig an average of thirty to fifty feet a day. Once functional, tunnels were constantly upgraded to speed deliveries. Over time, they were fitted with internal lighting, intercoms, and generators to maintain operations during frequent power cuts. The tunnels’ rough-hewn edges were smoothed to reduce damage to imports.
From enterprises primarily geared to weapons smuggling, the tunnels rapidly turned into what one trader described as “the lungs through which Gaza breathes.” By the eve of Operation Cast Lead in December 2008, their number had grown to at least five hundred from a few dozen mainly factional tunnels in mid-2005; tunnel trade revenue increased from an average of $30 million/year in 2005 to $36 million/month. The PA made ongoing salary payments to some 75,000 PA employees, including some whom they had ordered to stop work. These payments sustained the government’s liquidity and purchasing power, and mitigated to some extent the sharp contraction of the Gaza economy that had resulted from the international boycott of Hamas.
“Legalized” by Hamas on the Gaza side of the border, the tunnels remained clandestine on Egypt’s side. Thus, while in Gaza the tunnel mouths were moved from the basements of private homes to the open terrain fronting the Philadelphi corridor, in Egypt the tunnels extended deep inside Egyptian territory. Up to three-quarters of a standard half-mile tunnel was on Egypt’s side. And while the tunnel mouths, protected from the elements by white canvas, were open on the Gaza side, in Egypt they remained concealed.
REGULATING A TUNNEL ECONOMY
When Hamas seized the Strip from Fatah in June 2007, its military wing, the IQB, appropriated the Fatah-run tunnels. From the outset, there was a de facto distinction between the factional tunnels, used for military and operational purposes and off-limits to government inspectors and customs authorities, and the privately owned tunnels, which were Gaza’s primary source of imports.
Once in control of the commercial tunnels, the Hamas government set about formalizing the smuggling economy through regulation. In the wake of Operation Cast Lead, the Interior Ministry established the Tunnel Affairs Commission (TAC) to act as the regulatory authority for commercial activities. Among its first acts was to issue a list of blacklisted imports, including weapons, alcohol, and tramadol, a painkiller widely used in Gaza. In response to public concern at a rising toll of tunnel casualties, particularly of child workers, the TAC issued guidelines intended to ensure safe working conditions. Over time, it fenced off the site and stationed some three hundred black-clad internal-security personnel at entry points to spot-check the documentation of persons entering and leaving the zone. Tunnel openings were patrolled on motorbike.
Violations were punished. In 2009-10, for instance, the TAC closed at least five tunnels for smuggling tramadol and two for nonpayment of cigarette taxes. It destroyed an additional fifty non-operational tunnels to prevent their use as safe houses or conduits to and from Egypt by “wanted” individuals. “We used to earn thousands smuggling small shipments of hand guns, grenades, bullets, and TNT,” said a tunnel operator who first entered the business at the end of the Second Intifada, “but it is no longer worth the risk to be prosecuted by Hamas.”
The TAC introduced a tunnel-licensing system to prevent construction in areas deemed of national security (particularly near border fortifications where outside observation was feared, or in areas reserved for factional tunneling) and to regulate oversupply. Investors seeking clearance to build a new tunnel were required to provide proof of land ownership or notarized proof of authorization of the right to use the land. The TAC also intervened to arbitrate disputes between merchants and tunnel operators, and monitored the market for instances of sharp inflation or evidence of hoarding and price-fixing, particularly of fuel.
In a further sign of formalization, the TAC introduced an increasingly comprehensive customs regime, providing Hamas with a new revenue base that partially compensated for the Ramallah-based PA’s monopoly on customs revenues collected at Israel’s ports. Haulers weighed their trucks on an electronic weigh station buried in the sand near the entrance to the tunnel zone, obtained chits for their cargoes at an adjoining hut, and upon exit presented the receipts to guards. In September 2008, the Rafah municipality introduced administrative fees, charging tunnel operators a one-time license fee of NIS 10,000 ($2,850)/tunnel and NIS 3,000 for connection to the electricity grid. Evaders were liable to tunnel closure and arrest, deferrable with a NIS 1,000 bail. Further charges were levied on heavily Egyptian-subsidized gasoline and diesel (about NIS 0.5/liter in Egypt), cooking gas (NIS 30/canister), cigarettes (NIS 3/pack), and generators. In addition, Gaza authorities levied a 14.5 percent value-added tax on all goods.
Hamas’s regulatory efforts did not go unchallenged, particularly after it taxed what had been a tax-free enterprise. Families and clans in the border area protested interference in their activities. In late November 2007, armed clashes erupted between Hamas government forces and members of the Al-Sha’ir family in Rafah after Hamas destroyed two of its tunnels. But for the most part, the rapidly expanding business opportunities available under Hamas rule trumped lingering resentments. With demand far exceeding supply, tunnel operators earned $50 for ferrying a hundred-pound sack through the tunnels.
A decade earlier, all but 1 percent of Gaza’s total imports came from, or via, Israel. By the eve of Operation Cast Lead, the ratio had nearly reversed. Although the tunnels were often rudimentary, the trade cycle was generally faster than through Israeli terminals, and less laden with customs red tape. Normal deliveries arrived within three to five days of placing an order—faster than pre-takeover orders from Israel. Operators responded rapidly to demand. When Israel reduced gas supplies, smuggled canisters quickly surfaced on the market. Vaccines from Egypt entered Gaza following reports of disease sweeping chicken farms. Ahead of holidays, traders imported toys, live sheep, and fresh beef from Egypt.
Both Egypt and Israel had mixed reactions to the tunnel operations. For Israel, the reorientation of Gaza’s trade to Egypt tempered the international outcry over the blockade and widened the divide between Gaza and the West Bank. For Egypt, smuggling offered copious opportunities for bribes (at both the local and national levels) from a hitherto unprofitable region. Yet both countries also saw tunnel growth as a security threat they could scarcely monitor, let alone control. In an effort to interrupt the traffic, Israel repeatedly deployed drones and manned aircraft to bomb Gaza’s tunnels, while Egypt stepped up tunnel detection and demolition. Tunnel owners responded by improving their design and digging to depths of over twenty-five meters.
EGYPT’S COUNTERMEASURES
Israel’s repeated attacks on Gaza culminated in the devastating Operation Cast Lead of winter 2008-9. Although Hamas’s detractors in Gaza claimed the tunnels served as an escape hatch for some senior Hamas officials during the war, aerial bombardment of the Rafah border severely damaged the network, resulting in a temporary suspension of commercial traffic. Meanwhile, the land, air, and sea blockade remained fully in force.
As part of the internationally brokered cease-fire, Israel secured U.S. agreement to act against the smuggling routes supplying Gaza. Separately, Egypt committed to build (under U.S. military supervision) an eighty-foot-deep underground steel barrier along its border with Gaza aimed at blocking the tunnels within a year. By the end of 2010, it claimed to have sabotaged some six hundred tunnels by various means, including plugging entrances with solid waste, sand, or explosives, and flooding passages with sewage. Use of teargas and other crowd-control techniques inside the tunnels resulted in several deaths.
“The war marked a turning point in how Egypt’s security dealt with us,” remarked one tunnel operator. “In the past, they would look the other way when a lorry stopped to unload at a tunnel mouth, but since May 2009 they . . . raid the homes, sheds, farms, and shops of our Sinai suppliers.”
But Egypt’s countermeasures never quite matched its policy statements. From the start, Egypt cited logistical problems, such as difficulties hammering steel plates more than fourteen feet deep in stony ground. Tunnel operators cut through completed segments with blowtorches, nullifying the multimillion-dollar project for the cost of a few thousand dollars. Reluctance to forgo the bribes accruing from smuggling further compromised official resolve. Egyptian security forces often targeted the shallowest and most easily detected tunnels, leaving the more developed and profitable ones untouched. Tellingly, construction slowed where tunnel activity was most concentrated. Hamas’s success in mounting a solidarity network to condemn the Mubarak regime for enforcing the siege further eroded Egypt’s political will. Frustrated, the U.S. Congress suspended technical support for the underground steel barrier in mid-2011.
Motivated by family and clan unification, as well as economic benefits, Bedouin and Palestinians on Egypt’s side of the border also resisted Egypt’s security measures. “We’re Palestinians working for the sake of Palestine,” said a tunnel laborer in Egyptian Rafah. To foil Egyptian security, Bedouin operators sometimes tapped into well-armed clan defense committees versed in Sinai’s topography from centuries of roaming. There were sporadic reports of clashes between Bedouin irregulars and Egyptian forces seizing contraband.
THE TUNNEL EXPANSION AND GAZA’S ECONOMIC RECOVERY, 2009
Meanwhile, the cease-fire at the end of Operation Cast Lead enabled Hamas to undertake repairs on the partially destroyed tunnels and to oversee a major overhaul of the complex, even reducing taxes to stimulate the work. Fear of Egyptian detection prompted operators to extend their tunnels to a length of one mile and to deepen them to up to 130 feet below ground. Operators reinforced tunnels first with wooden planks, then cement blocks and metal to allow sufficient widening for raw materials to pass through without risking tunnel collapse. Rope ladders flung down the shafts were replaced by electric elevators, while the thirteen-foot-long sledges (shahata) pulled by winches were replaced by carts running on rails, much as in coal mines.
Within two years, capacity had increased tenfold. By late 2010, large commercial tunnels were estimated to be shifting up to 170 metric tons of raw materials each per day. The number of tunnels transporting livestock rose from three in 2008 to at least thirty in mid-2010. There was also less loss and damage, since the longer tunnels were harder for Egypt’s security to find, and conditions inside the tunnels had substantially improved. Economies of scale and diversified sources of supply lowered costs. By the summer of 2011, 60 percent of traders reported that prices had fallen to equal or below the pre-siege level for goods from Israel.
For example, a liter of fuel (initially sold in sand-riddled plastic soda bottles) cost four times more than in Israel in 2008; by 2009 fuel (pumped through three-quarter-inch pipes at a rate of 20,000 liters/hour) sold at a quarter of Israel’s price. By mid-2011, prices for Turkish cement (Gazans snubbed Egypt’s lower-quality products) had plummeted from $1,500/ton at the height of the closures in mid-2008 to the pre-siege price of $100. The cost of shipping a fifty-kilo sack of goods fell from $50 to $5. “There are at least 1,500 underground tunnels now,” said an owner. “Most are bigger and better than ever before, and all of them are open for business. The result is more competition, more price wars, and less work for everyone.”
Demand grew as capacity improved and prices fell to within a range average Gazans could afford. Between 2008 and 2010, traders of household goods reported a 60 percent rise in their import of goods via the tunnels. By mid-2010, Gaza’s retailers reported that shortages resulting from Israeli restrictions had been reduced “to a reasonable extent or more.” Wholesalers rapidly replenished their empty warehouses. By mid-2009, cars—hitherto cut into three and welded together in Gaza—were arriving whole, first dragged through the tunnels by bulldozers and then driven through expanded tunnels. To satisfy demand, tunnel operators tapped into contraband, particularly of cars, arriving from Libya after Qaddafi’s retreat from Cyrenaica left his arms depots and ports open for looting.
Expansion also facilitated the import of inputs and raw materials, precipitating what has been perhaps the tunnels’ greatest achievement: kick-starting Gaza’s postwar reconstruction while donors remained on the sidelines. While world leaders promised billions at showcase conferences in Sharm Al-Sheikh’s luxury hotels, but failed to persuade Israel to lift its ban on construction materials, the tunnels enabled Gazans to rebuild their enclave themselves.
Gaza morphed into a construction site. Roadsides were piled high with building materials from Egypt. UN Habitat estimated that, based on the materials allowed in by Israel, it would take eighty years to rebuild the six thousand housing units destroyed in Operation Cast Lead and accommodate the growth in population over five years of closure; tunnel flows reduced that lagtime to a more manageable five. Indeed, so rapid was the pace of construction that by mid-2012 real estate agents reported that they were struggling to locate prospective buyers for the new apartments.
It was not only Gaza’s housing stock that began to recover. Farmers resorted to tunnel imports to circumvent Israel’s ban on seeds, pesticides, irrigation pipes, and basic agricultural tools such as hoes and buckets. The increased affordability of inputs helped factories resume operations: Hamas officials claimed that by October 2011, half the fourteen hundred factories destroyed during Operation Cast Lead were back in production. A food-processing plant resumed operations after items banned by Israel—including preservatives, plastic wrapping and packaging made in Egypt, and spare parts—arrived from Switzerland via tunnel.
All told, the tunnel expansion precipitated a recovery that rapidly reversed much of Gaza’s earlier decline. From 2005 to 2009, Gaza’s per capita GDP contracted by 39 percent in real terms, with the tunnels providing at best limited relief. After Operation Cast Lead, the tunnels facilitated what a September 2011 World Bank report described as “exceptionally high growth,” notching 28 percent in the first half of 2011. Unemployment dropped from 45 percent before Operation Cast Lead to 32 percent by mid-2011. Rafah’s markets bristled with shoppers and café-goers late into the night, its backstreet ATMs distributing $100 bills.
THE LIMITS OF A TUNNEL-BASED ECONOMY
Even as the World Bank was touting Gaza’s exceptional growth, however, the structural flaws impeding Gaza’s full-fledged reconstruction persisted. With few exports capable of generating sustainable growth, Gaza’s consumption was capped. By 2010, the markets were saturated, with improved supply lines outstripping demand, while wages fell sharply, not least due to increased use of cheaper Egyptian labor. Intense competition pushed tunnel earnings and prices down even faster. With supply already exceeding demand, Israel’s June 2010 decision to lift its ban on the import of commercial goods (following the international outcry over the Mavi Marmara aid-flotilla incident) triggered a market glut. Retailers hitherto limited to imports via the tunnels revived their former ties with Israeli counterparts.
By the end of 2010, operations at over half of Gaza’s commercial tunnels had reportedly been suspended. Those that survived launched efficiency drives, reducing operating hours and cutting labor so as to remain commercially viable. Increasingly, tunnel activity narrowed to goods that were competitive because Israel either heavily taxed alternatives, such as fuel, or banned them. The latter included most raw materials, all items defined as “dual use” (e.g., construction materials, machinery, chemicals, and spare parts), and almost all export goods. “Israel’s blacklist is the smugglers’ green list,” commented a prominent Gaza businessman who imports Egyptian cacti for his nursery through the tunnels.
By spring 2012, signs that the economy had reached the ceiling achievable through the tunnel conduits were increasingly visible. According to figures from the Palestinian Central Bureau of Statistics for the first quarter of 2012, unemployment had begun to climb, and the previous high rates of growth had fallen back sharply. Despite Egypt’s acquiescence to increased passage through the Rafah terminal, most of Gaza’s 240,000 refugee youth had never left the enclave, and 51 percent of them remained unemployed. Continued restrictions by the Egyptian authorities on the entry of tanker trucks bound for Gaza into the Sinai Peninsula left the enclave in darkness for much of the night. Israeli warships cruised on the horizon, a visible reminder of the three-mile limit Israel imposed on Gaza’s seas. The claustrophobic feeling of being trapped by land, air, and sea had not disappeared.
Initially in the wake of Mubarak’s 2011 ouster, the tunnel economy enjoyed a boom. As the internal-security apparatus took flight, Egypt’s remaining impediments disappeared. Tunnel mouths placed deep inside Egyptian territory resurfaced close to the border, in the process taking an obvious toll on Egyptian Rafah’s housing stock, where gaping cracks appeared even in recent construction. Construction on the underground steel barrier was formally halted. Tunnel owners reported next to no impounding of materials, only token destruction of tunnel mouths, and a marked decrease in demands for bribes. Many Egyptian operators who had been sentenced in absentia and who had paid hefty bribes to avoid arrest were granted amnesty. Heightened domestic opposition in Egypt to the ongoing Gaza blockade and increased activity by Bedouin armed groups offered tunnel traffickers additional protection.
In deference to Cairo, Hamas had from the start banned the use of commercial tunnels for passenger traffic, but reversed this policy after the Mubarak regime fell. Meanwhile, the new Egyptian authorities, with much fanfare, eased the restrictions on passage through the Rafah terminal. However, with restrictions still in place, the tunnels offered a viable fast track that circumvented much of the red tape of the overland crossing. To sidestep the Egyptian restriction limiting each traveler to a single case, passengers traveling through the terminal could plastic-wrap their bags on the Gaza side of the border, send their excess luggage via a tunnel courier, and find it waiting for them on arrival in Egypt. To regulate passenger traffic, the TAC introduced a system of prior coordination that took two days rather than the two months required for applications to cross via the Rafah terminal. At the tunnel mouth, a Hamas policeman speedily processed passengers on arrival in Gaza, providing visitors with a chit which they would hand back when leaving.
Moreover, while the Rafah crossing closed at five p.m. (later extended to eight p.m.), the tunnels operated around the clock. Male applicants ages fifteen to forty, some 35 percent of whom were generally barred entry to Egypt on security grounds, benefited in particular, but all kinds of travelers, from Pakistani academics and Palestinian workers fleeing Libya to families on holiday, used the tunnel.
Students studying at Sinai’s sole university in El Arish qualified for a special tariff, allowing them to return home for weekends with their families without the Egyptian red tape of the border crossing, and without forfeiting their visas. There was even a tunnel for VIPs with a carpet running along its length. Costs for the six-hundred-yard crossing, which previously reached hundreds of dollars, fell to NIS 100 ($30).
Relaxed controls also served to alleviate the ban on exports, the other grueling aspect of the siege. These included scrap metal (smelted in Sinai and re-imported as steel rods for construction and possibly military use), dapple racing horses (which all but disappeared from Gaza due to high Egyptian demand), ammunition (which spiked in demand during Egypt’s 2011 revolution), and surplus produce—watermelons, apples, and eggs—resulting from Gaza’s drive for food self-sufficiency. That said, Egypt’s lower labor costs and purchasing power rendered most Gaza produce uncompetitive, and Gaza’s manufacturing base, traditionally geared to the Israeli and West Bank markets, was slow to adapt to Egyptian needs. Egypt-bound traffic comprised mainly re-exports of goods from Israel for which there was Egyptian demand, including heavily taxed items such as shoes, hair gel, and mobile phones.
