The Palestinian economy in the occupied West Bank is teetering toward collapse as Israeli restrictions on movement, revenue transfers, and land access systematically dismantle the conditions necessary for Palestinian self-determination, according to a new report from the International Crisis Group.
The report, based on interviews with Palestinian business leaders, mayors, and government officials, documents how Israeli policies are crippling the economy and fueling instability among the roughly 3.4 million Palestinians living under long-term military occupation. "The economic conditions necessary for any Palestinian future other than permanent subjugation are being dismantled," the report states, suggesting Israeli policies reflect "a concerted effort to advance Israel's own declared goal of extending its control and preventing a Palestinian state from emerging."
Devastating Impact on Workers and Businesses
The financial crisis has struck Palestinian companies, households, and the internationally backed Palestinian Authority, which administers cities and towns in the West Bank. After Hamas' Oct. 7, 2023, attack, Israel revoked work permits for most of the nearly 200,000 Palestinians who had previously worked in Israel. Officials cited security concerns, but the move deprived the Palestinian economy of nearly $400 million a month, or almost one-fourth of its overall economic output.
The West Bank now faces roughly 30% unemployment, and the economy has contracted substantially since the start of the Israel-Hamas war. Private companies have experienced an estimated 50% decline in business since before the conflict, reflecting tightened movement controls, disrupted supply chains, and heightened uncertainty. Many businesses are struggling to pay workers, contractors, and suppliers.
Structural Barriers Deepening the Crisis
Throughout decades of military occupation, 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 while facing restrictions on land and trade. "Palestinian society survives, but in a state of grinding immiseration," the report warns. "Absent remedies, the result will likely be a loss of hope and a growing risk of instability and greater violence."
The Palestinian Authority sits at the heart of the crisis as the occupied West Bank's largest employer and service provider. Government agencies have borrowed heavily to stay afloat as public sector workers go unpaid and infrastructure such as roads and water lines crumble. The inability to fund public services is keeping patients out of hospitals and children out of school.
Revenue Withholding Strangling Public Services
Most of the Palestinian Authority'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 hard-line ministers in Israeli 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, 1 year ago.
Joost Hiltermann, 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. 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.
Why This Matters:
The systematic dismantling of the West Bank's economy represents not just an immediate humanitarian crisis, but a structural assault on Palestinian self-determination under international law. When a military occupying power withholds tax revenue it collects on behalf of occupied populations, denies workers access to employment, and restricts movement to the point of economic collapse, it creates conditions that make any future Palestinian autonomy nearly impossible. The crisis affects every aspect of Palestinian life: children unable to attend school, patients denied hospital care, workers unpaid for months, and businesses shuttering. The report's findings suggest these are not incidental hardships but the predictable outcomes of policies designed to prevent Palestinian statehood. With public institutions crumbling and hope diminishing, the risk of instability and violence grows, threatening not only Palestinians living under occupation but regional stability more broadly.