Report warns Israeli restrictions pushing Palestinian economy in West Bank to collapse

RAMALLAH, West Bank — The economy in the West Bank is teetering toward collapse as Israel maintains a web of restrictions that limit opportunities for Palestinians, according to a new report from a leading conflict tracker.

The International Crisis Group said that Israeli measures restricting movement, withholding revenue and taking land are not only crippling the Palestinian economy but also fueling deep instability.

“The economic conditions necessary for any Palestinian future other than permanent subjugation are being dismantled,” it said.

The report, based on interviews with Palestinian business leaders, mayors and government officials, detailed the financial crisis afflicting companies, households and the internationally backed Palestinian Authority, which administers some cities and towns in the West Bank.

It said Israeli policies suggested a concerted effort to “advance Israel’s own declared goal of extending its control and preventing a Palestinian state from emerging.”

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Israel took control of the West Bank from Jordan during the Six Day War in 1967. In the decades since, waves of terror attacks against Israelis drew the imposition of tight security measures across the territory, and the Palestinian economy has been hobbled by checkpoints and military gates that curtail movement of people and goods.

Households and businesses have relied heavily on jobs and imports tied to Israel, and faced restrictions on land and trade. The roughly 3.4 million Palestinians living in the West Bank today face roughly 30 percent unemployment and have seen their economy contract substantially since the Hamas terror group’s October 7, 2023, attack on Israel from the Gaza Strip that sparked the subsequent multifront war.

In the wake of the Hamas onslaught, Israel revoked work permits for most of the nearly 200,000 Palestinians who had worked there previously. The move, for which Israeli officials cited security motivations, deprived the Palestinian economy of nearly $400 million a month, or almost one-fourth of its overall economic output.

Many businesses today are struggling to pay workers, contractors and suppliers, with private companies seeing an estimated 50% decline in business since before the war, “reflecting tightened movement controls, disrupted supply chains and heightened uncertainty,” according to the ICG report.

“Palestinian society survives, but in a state of grinding immiseration. Absent remedies, the result will likely be a loss of hope and a growing risk of instability and greater violence,” it said.

As the West Bank’s largest employer and service provider, the Palestinian Authority is at the heart of the crisis. Government agencies have borrowed heavily to stay afloat as public sector workers go unpaid and infrastructure like roads and water lines crumbles. The inability to fund public services is keeping patients out of hospitals and kids out of school.

Most of the PA’s money comes from taxes collected on goods entering the West Bank through Israeli ports, because Palestinians do not control their own borders. But under far-right ministers in Prime Minister Benjamin Netanyahu’s government, Israel has withheld billions of dollars in owed tax revenue and unilaterally imposed deductions on the funds. No transfers have been made since May 2025.

Since 2019, Israel has deducted amounts from tax revenues that are equivalent to the PA’s payments to security prisoners held by Israel and the families of those who carry out terror attacks targeting Israelis. Ramallah insisted that it halted that policy last year.

Beginning in November 2023, following the Hamas-led October 7, 2023, attack and outbreak of the war in Gaza, Israel has transferred only partial funds, also deducting sums the PA had allocated to Gaza (including salaries for former PA employees and services such as electricity and water). The PA said at the time that it would refuse to accept partial transfers.

According to a statement from the Finance Ministry, the remaining funds — beyond those allocated to Gaza — “have been frozen for about a year due to the minister’s policy not to transfer funds to the Palestinian Authority in light of its actions against the State of Israel in the international arena and its support for incitement to terrorism.”

Far-right finance minister Bezalel Smotrich has also repeatedly vowed to try and collapse the Palestinian Authority and prevent a Palestinian state.

Joost Hiltermann, the International Crisis Group’s special adviser for the Middle East and North Africa, said the world’s focus on more than two years of war in Gaza had drawn attention away from the West Bank, but that changes taking place now could have arguably wider consequences for Palestinians’ future aspirations.

Hiltermann, who wrote the report, said Israeli officials, who exert considerable control over many of the policies in question, did not agree to be interviewed. But he noted disagreements within Netanyahu’s government, with settler leaders and security officials often clashing on how to manage the Palestinian economy.

“The security establishment doesn’t want the Palestinian Authority or economy to collapse because they would have to assume the burden of governing the territory in full after essentially destroying it,” he said.