Yet the political unrest following Mubarak’s ouster in February 2011 destabilized the tunnel economy as well. Led by Hamas leaders, Gazans looked to Egypt’s new Islamist leadership to dismantle the siege structures and open the crossing to overland goods traffic. Certainly, initial euphoria at the prospect of a new laissez-faire era in Egyptian–Gaza relations dimmed as Egypt’s ruling military council, the Supreme Council of the Armed Forces (SCAF), consolidated its hold. In a sign of renewed leverage over Gaza, and reflecting a desire to cut their subsidy bill, the Egyptian authorities blocked tanker trucks en route to Gaza hauling heavily subsidized Egyptian gasoline. Although some fuel continued to trickle through the tunnels, the enclave again experienced outages of up to eighteen hours per day, as in the harshest days of the siege. The shortages not only rendered life uncomfortable, they deprived it of the dynamo to power more reconstruction. Inside Gaza, the Hamas government faced widespread charges of hubris for wildly overestimating the early benefits accruing from the Arab awakening.
SHIFTING POWER IN GAZAN SOCIETY
Seven years of Hamas rule over Gaza and sponsorship of the tunnel trade brought changes to the Strip whose impact could be felt at a popular level. Public infrastructure—including the parliament and other government buildings, police stations, and mosques—had been leveled or severely damaged in Israel’s Operation Cast Lead bombardment. The Hamas government, armed with the proceeds from import taxes and an expanded tunnel infrastructure capable of transporting heavy goods and machinery, repaired and upgraded infrastructure. Hamas also widened the Salah Al-Din Road (the Rafah–Gaza City highway) to accommodate increased traffic from the south, and, in Gaza City itself, began beautifying prominent landmarks, sodding sandy areas, dredging the port, installing traffic lights, and rebuilding its coastal riviera to the south, which officials claimed would one day rival Tel Aviv’s.
In an economy blighted by unemployment resulting from Israel’s ban on Gazan workers, the bombardment of its manufacturing base, and the closure of export markets (above and beyond a significant slowdown in donor-funded development projects), the tunnels emerged as Gaza’s largest nongovernmental employer. The tunnel industry attracted construction workers once employed in Israel from across the Gaza Strip. For a time, tunnel workers were the best paid in Gaza: in 2008, the average daily wage was $75, five times Gaza’s median wage, according to official Palestinian figures, and more than West Bank Palestinians earned building Israel’s Jewish settlements. The tunnel trade was also the largest overall employer of youth. School dropouts scrounging NIS 20/day as street peddlers earned ten times that much in the tunnels. Although market saturation and recourse to Egyptian labor later depressed daily wages to more like NIS 80, even this was quadruple a farmhand’s wage. With each fully functioning tunnel employing twenty to thirty people, by 2010 the tunnel industry was estimated to employ some 5,000 tunnel owners and 25,000 workers, supporting about 150,000 dependents, or 10 percent of Gaza’s population.
Such was the turnaround in the local economy that Gaza City had a surfeit of new hotels, restaurants, and beach cafés, which attracted not only the new moneyed elite the tunnels had fostered, but also exiles returning to the Strip (sometimes via tunnels), and even visitors from northern Sinai. Gaza’s new luxury hotel, Al-Mashtal, optimistically bought cocktail glasses, while visiting businessmen from the West Bank complained that the latest-model sports cars and Hummers could be seen on Gaza’s streets long before they surfaced in Ramallah. Real estate brokers said the multiplier effect of the increased spending power spurred a threefold increase in real estate prices.
Nonetheless, Gaza’s macroeconomic growth figures disguised wide disparities in the distribution of the new wealth. In geographical terms, prosperity followed the new employment opportunities: the north languished, while the south boomed. Gaza’s traditional mercantile elite, which had developed ties with Israeli and Western European suppliers, found its status and influence in Gaza increasingly sapped by a new generation of smugglers tapping into ancient informal trade routes that extended southward into Sudan, and who quickly diversified their supply sources to include Egyptian, Chinese, and Turkish suppliers. And while yesterday’s commercial elite excelled in foreign languages acquired through travel and education, the new bourgeoisie of smugglers was less educated but had the benefit of cross-border clan connections and the backing of Gaza’s Islamist rulers. Thus, the tunnels became a key driver of upward mobility and social change, empowering previously marginalized groups and spawning a class of nouveaux riches.
Further encroaching on traditional business elites, tunnel owners used their financial clout to diversify upstream into retail, developing their own networks of agents to increase their market hold. Spared the cost of tunnel fees and privy to market information gained from hauling goods, they undercut retail prices, prioritized their own goods over wholesaler deliveries, and even distributed their own catalogues direct to consumers. On occasion they flooded the market to suppress prices and push wholesalers to the point of collapse. “No matter what we do, we cannot compete with the tunnel owners. They have decreased our income by 70 percent at least,” complained Ala’ Abu Halima, a long-standing Gaza merchant specializing in agricultural inputs.
Western-backed NGOs and the United Nations, whose required funding criteria barred them from purchasing smuggled goods and therefore stymied their reconstruction efforts, vociferously campaigned to end Israel’s siege. UN officials noted the paradox whereby U.S.-led financial restrictions, which prohibited the United Nations from accessing tunnel supplies, gave their supposed target, Hamas, a distinct advantage. Refugee families turned increasingly to Hamas rather than depend on the United Nations Relief and Works Agency (UNRWA), the organization charged with sheltering them (and three-quarters of the Strip’s population). UN Special Coordinator for the Middle East Peace Process Robert Serry, fearing that the international community was hemorrhaging influence, complained in a May 2010 briefing to the Security Council that “the flourishing illegitimate tunnel trade permits smugglers and militants to control commerce,” while “international agencies and local contractors who wish to procure goods entering through legitimate crossings too often stand idle due to the Israeli closure.”
BUSINESS AND POLITICS
Armed with resources to govern from the tunnel proceeds, Hamas transformed itself from a non-state actor with a social and charitable network, underground movement, and guerrilla force into a governing authority with a well-equipped internal security force, bureaucracy, and economy. The commercial tunnels and the Sinai population’s growing economic dependence on trade with Gaza gave Hamas the soft power to project its influence into the Sinai Peninsula, even as the factional tunnels enabled its military wing to augment this “soft” influence by exercising its own leverage there.
Yet the tunnel economy has also tarnished Hamas’s reputation for transparency, accountability, and financial propriety. The Hamas authorities were widely criticized from the outset for making tunnel licenses conditional on appointing its members to the boards of tunnel cooperatives, often on preferential terms. The government’s decision to wash its hands of the pyramid scheme for tunnel investment mentioned above, which had been endorsed by prominent Hamas preachers and had left numerous investors bereft of their savings, marked the first major dent in its domestic credibility. Thereafter, Islamist and secular opponents alike adopted the discourse of corruption that Hamas had hitherto used to undermine Fatah. A Salafi jihadi from Gaza’s Middle Areas expressed it thus:
Before entering government, Hamas acolytes focused on religious sermons and memorizing the Quran. Now they are most interested in money, tunnel business, and fraud. Hamas used to talk about paradise, but now they think about buying land, cars, and apartments. After the evening prayers, they would go to study, now the Imam looks at ways to make money. Before they prayed in the mosque, now they pray at home.
Hamas’s lack of transparency about its use of its tunnel earnings compounds suspicions. While Hamas officials said local revenues comprised half the government’s $750 million annual budget for 2011, local businessmen calculated the earnings to be higher, raising questions about where the funds go and why there are repeated shortfalls in monthly civil-service salary payments. A similarly cavalier approach to child labor and tunnel fatalities damaged the movement’s standing with human-rights groups, despite government assurances dating back to 2008 that it was considering curbs. During a police patrol that the author was permitted to accompany in December 2011, nothing was done to impede the use of children in the tunnels, where, as in Victorian coal mines, they are prized for their nimble bodies. At least 160 workers have been killed in the commercial tunnels, according to Hamas officials.
The tunnels had been a mixed bag for Hamas. While its detractors praise—albeit begrudgingly—its success in reducing the impact of Israel’s stranglehold, perceptions of corruption inside the organization have intensified. During the renewed fuel shortages of spring 2012, there were widespread allegations that Hamas leaders received uninterrupted electricity and that gasoline stations continued to operate for the exclusive use of Hamas members. True or not, they fed a growing mood of recrimination that Hamas had profited from the siege.
AN END OF THE TUNNELS?
The peaks and troughs of Gaza’s tunnel economy came to an abrupt halt in July 2013, with Egypt’s overthrow of Morsi and launch of its Sinai operation. Three years of exponential growth and even tentative development shifted into reverse. Construction ground to a halt; Hamas lost its revenue base, and Gaza its strategic safety valve from Israeli pressure.
Having geared its economy to the tunnels, Hamas struggled to finance its rule. Bereft of much of the $1 million per day it had earned in tunnel dues, in August 2013 the government put its 46,000-strong army and bureaucracy on half pay, and in early 2014 delayed paying even that, sparking rare public sector protests. Initially it sought to increase taxes on the trickle of goods that still managed to cross. Cigarette taxes tripled in a week; cement prices quadrupled. It also feared that the increased hardship could provoke rising discontent. Instead of the promised free-trade zone with Egypt, Gaza faced a buffer zone, or cordon sanitaire. Without fuel, Gaza’s power plant shut down, increasing blackouts to some sixteen hours per day. In places, the sewage system collapsed, spilling into the street. In parallel with their disruption of passenger flows underground, Egypt’s security forces closed the Rafah terminal. Claustrophobic Gaza was an open-air prison again.
At a time of such radical oscillations in the region, predicting scenarios is a hazardous exercise. But unlike previous shocks to the tunnel economy, which Hamas always managed to subvert, this latest assault felt terminal. Fearing potential unrest, Hamas’s siege mentality revived. Only months after their triumphal tours feted on the shoulders of the faithful of the region’s leading mosques, Hamas’s leaders prepared for lockdown again. Despairing of their politicians finding an exit and determined to buck the region-wide Islamist downfall, the military wing flexed its muscles. The first Islamist movement to take power on the Mediterranean spoke increasingly of making a last stand. Its forces erected night-time checkpoints in the center of Gaza City, closed news agencies, and detained a widening circle of suspected opponents. The head of a newly opened Egyptian community association in Gaza City was hauled in for questioning. The Qassam Brigades staged military parades, firing guns into the air, and giving the Muslim Brotherhood’s four finger salute.
Struggling to survive without the tunnels, Hamas considered its political options. Its overtures to Egypt rebuffed by the new anti-Islamist military leadership, it toyed with greater dependency on Israel. Its finance minister committed to introduce a tax on imports from Israel— in effect promoting double taxation, since Israel already collected taxes on goods crossing into Gaza to fund President Abbas’s Palestinian Authority. Construction materials began to sporadically flow again from Israel into Gaza. For the first time ever, 400 truckloads passed over its Kerem Shalom crossing in day. “If demand grows, we’re ready to step in,” said an Israeli army officer.
But Israel’s professed altruism had its limits. Seeking to buttress Abdel Fattah al-Sisi’s regime and join his Jordanian, Saudi, and Emirati alliance, the Netanyahu government increasingly adopted their zero-tolerance approach to the Brotherhood and its offshoots. Following Morsi’s overthrow and the replacement of Ehud Barak with Moshe Yaalon as Netanyahu’s defense minister, Israel reneged on upholding the terms of the cease-fire agreement with Hamas that the Egyptian president had helped broker in November 2012, which had provided for the phased opening of Gaza’s crossings with Israel. It reduced the fishing limits agreed in the 2012 truce. And although trade rose, it remained severely restricted. Israel continued to prevent the passage of raw materials for commercial use, and, after announcing its discovery of a tunnel from Gaza into Israel that seemed to be for military use, halted supplies to donor projects as well. With tunnel traffic all but terminated from Egypt, Gaza’s development, other than a Qatari-financed road project, largely ground to a halt.
Their exit routes blocked by Egypt and Israel, Hamas turned as a last political resort to President Abbas’s Palestinian Authority, from which it had split in 2007. Fitful earlier attempts at reconciliation with Abbas’s government in the West Bank had largely petered out. But with Abbas weakened by his the failure of his strategy to negotiate a two-state settlement with Israel, and Hamas weakened by its inability to meet the needs of the population in Gaza, desperation drove both to seal a deal and form a united government.
Mistrust continued to hinder the deal. Both feared subversion, and suspected the other of using the agreement to secure a foothold in their territory. In addition, Israel strongly opposed the government. In apparent breach of their understanding, Abbas refused to finance the civil servants Hamas had recruited to run Gaza and seemed almost allergic to returning to Gaza at the helm of a united government. Facing further attrition, Hamas’s military wing increasingly despaired of its politicians’ plans to rescue them, and resorted to arms in July 2014.
By this point, Hamas’s commercial tunnels were dysfunctional. But Hamas put unemployed laborers to work digging military-grade tunnels, in an attempt to burrow into Israel’s unilaterally-declared buffer zone and on into Israel. After six weeks of fighting, Israel declared it had destroyed this military network as well. At the same time, negotiators in Cairo, urged by Europe and the United States, discussed the resumption of formal trade and traffic in and out Gaza for the first time since 2005.
In the decade-plus of Gaza’s isolation and the growth of the tunnel network into a regional force, the tunnels had sustained an economy that prevented Gaza’s collapse, but they also fueled unrest, fostering the Bedouin uprising in the Sinai that threatens to destabilize Egypt and regional jihadi militancy. Within Gaza, they eroded central authority through bribery and corruption. They served as a homemade engine of Gaza’s reintegration into a region, but did not equip Gaza with the tools required to rebuild and sustain a productive society.
To this end, all parties—Egypt, Israel, Gaza, the Palestinian Authority, and the UN—saw the benefit of a reformalization of Gaza’s economic relations Gaza’s tunnels had always been a stopgap, a temporary fix to allow the enclave to more or less survive after its post-disengagement abandonment. In the process of uprooting them, Israel and Egypt had brought great hardships to Gaza’s its population. Twenty-five percent of its nearly 1.8 million have been left homeless, thousands of houses have been destroyed, and perhaps ten thousand people wounded. But if the conflict would finally result in Gaza’s escape from a blockade and re-entry into the formal economy, parents wondered whether their children might yet reap the benefit.
Nicolas Pelham is a writer on Arab affairs for The Economist and The New York Review of Books. He is the author of A New Muslim Order (I. B. Tauris, 2008) and coauthor of A History of the Middle East (Penguin, 2004), and has reported extensively on Gaza.
1 For more on the Nakba, see the Glossary, page 304.
2 The Al-Aqsa Intifada is also known as the Second Intifada. For more information on the Intifadas, see the Glossary, page 304.
V. PALESTINIAN DEMOGRAPHICS
The following statistical table is taken from the Palestinian Central Bureau of Statistics, which is administered by the Palestinian Authority. It represents the projected head count in 2013. The figures used in this book are based on projected increases for 2014. Though the rate of growth has slowed over the last few years, the populations of both Gaza and the West Bank are expanding faster than the global average growth rate of 1.14 percent.
Total Population: 4,420,549
West Bank: 2,719,112
Gaza: 1,701,437
Rate of annual population increase: 2.94 percent/year
West Bank: 2.62 percent/year
Gaza: 3.44 percent/year
Percentage of (0–14)-year-olds: 40.1
West Bank: 38.0
Gaza: 43.4
Percentage of (15–29)-year-olds: 29.9
