Escalating

Ramallah, occupied West Bank – The Palestinian economy is undergoing a severe downturn, driven by Israel’s continued assault on Gaza, intensified restrictions on movement and trade in the occupied West Bank, and a sharp decline in both domestic and external financial resources.

As the Palestinian government struggles to manage an escalating fiscal crisis, official data and expert assessments warn that the economy is approaching a critical threshold – one that threatens the continuity of state institutions and their ability to meet even basic obligations.

A joint report by the Palestinian Central Bureau of Statistics (PCBS) and the Palestine Monetary Authority (PMA), published in the Palestinian Economic Monitor for 2025, found that the economy remained mired in deep recession throughout the year.

According to the report, gross domestic product (GDP) in Gaza contracted by 84 percent in 2025 compared with 2023, while GDP in the occupied West Bank declined by 13 percent over the period. Overall GDP levels remain far below their pre-war baseline, underscoring the fragility of any potential recovery and the economy’s inability to regain productive capacity under current conditions.

The report documented a near-total collapse of economic activity in Gaza, alongside sharp contractions across most sectors in the West Bank, despite a modest improvement compared with 2024. It also recorded a decline in trade volumes to and from Palestine compared with 2023, while unemployment in Gaza exceeded 77 percent during 2025.

Withheld revenues and mounting debt

Palestinian Economy Minister Mohammed al-Amour said Israeli authorities are withholding approximately $4.5bn in Palestinian clearance revenues, describing the move as a form of “collective punishment” that has severely undermined the Palestinian Authority’s (PA’s) ability to function.

“The total accumulated public debt reached $14.6bn by the end of November 2025, representing 106 percent of the 2024 gross domestic product,” al-Amour told Al Jazeera.

The minister said the debt includes $4.5bn owed to the International Monetary Fund, $3.4bn to the Palestinian banking sector, $2.5bn in salary arrears to public employees, $1.6bn owed to the private sector, $1.4bn in external debt, and $1.2bn in other financial obligations.

“These pressures have had a direct impact on the overall performance of the public budget,” al-Amour said, contributing to a widening deficit and sharply reduced capacity to cover operational spending and essential commitments.

All of that has led al-Amour to conclude that the Palestinian economy is undergoing “its most difficult period” since the establishment of the PA in 1994.

Official estimates show GDP contracted by 29 percent in the second quarter of 2025, compared with 2023, while GDP per capita fell by 32 percent over the period. These figures align with a recent report by the United Nations Conference on Trade and Development (UNCTAD), which concluded that the Palestinian economy has regressed to levels last seen 22 years ago.

In response, al-Amour said the government was implementing an “urgent package of measures”.

“The government is rolling out a series of actions that include strengthening the social protection system, supporting citizens’ resilience in Area C [of the West Bank], and backing small and medium-sized enterprises and productive sectors, particularly industry and agriculture,” al-Amour said.

Official data show a sharp drop across nearly all economic activities. Construction contracted by 41 percent, while both industry and agriculture declined by 29 percent each. Wholesale and retail trade fell by 24 percent.

The tourism sector has been among the hardest hit. Following the start of Israel’s genocidal war on Gaza in October 2023, the Ministry of Tourism reported daily losses exceeding $2m, as inbound tourism nearly collapsed. By the end of 2024, cumulative losses were estimated at approximately $1bn.

The Palestinian Economic Policy Research Institute (MAS), citing PCBS data, reported an 84.2 percent drop in hotel occupancy in the West Bank during the first half of 2024 compared with the same period a year earlier. Losses in accommodation and food services alone amounted to roughly $326m.

Despite the downturn, al-Amour said the Ministry of Economy is focusing on sustaining the private sector, substituting Israeli imports across seven key sectors, developing the digital and green economies, and improving the business environment. He noted that about 2,500 new companies continue to be registered each year.

Tourism collapsing

Samir Hazbun, a lecturer at al-Quds University and board member of the Palestinian Federation of Chambers of Commerce and Industry, said repeated crises have hollowed out the economy.

“Over the past five years, all economic sectors have entered successive crises, starting with the COVID-19 pandemic and followed by the war on Gaza,” Hazbun said. “Tourism, one of the most important sectors, has been especially affected, exhausting the local economy and weakening its ability to recover.”

Hazbun said preliminary estimates indicate tourism has suffered direct losses exceeding $1bn, alongside extensive indirect losses resulting from the paralysis of hotels, souvenir shops, travel agencies, tour guides and street vendors.

He added that hotel investments alone are estimated at $550m, with no financial returns for owners, forcing many workers out of the sector due to the absence of job security and safety nets.

Economic expert Haitham Daraghmeh described Palestinian debt as “accumulated debt that increases monthly”, owed to banks, suppliers, contractors, and the telecommunications and health sectors.

“The withholding of clearance revenues is no longer a temporary financial crisis; it has become a factor of complete economic paralysis,” he said.

With external aid frozen and domestic revenues at historic lows, Daraghmeh warned that the government was “no longer able to cover salaries or operational costs”.

“The government is operating like an ATM, with no real capacity for investment or economic stimulus,” Daraghmeh added.

Economic warnings

Daraghmeh said World Bank reports warn that continued failure to pay salaries and meet obligations could trigger comprehensive economic collapse. While some countries, including France and Saudi Arabia, have pledged support, he said none of that assistance has materialised.

He outlined three possible scenarios; the most likely is a continued gradual decline, driven by ongoing revenue withholding and shrinking resources. The second involves international intervention to prevent total collapse, particularly at a decisive political moment. The third scenario could see a conditional breakthrough, tied to European demands for financial reform, anticorruption measures, curriculum changes and elections.

Taken together, the data and expert assessments suggest the Palestinian economy is approaching a dangerous tipping point. Analysts warn that without an end to revenue withholding, renewed international financial support, and a shift in the political context, the economy risks sliding from prolonged crisis into outright collapse.

The question facing Palestinian officials and economists alike is how long the system can endure under siege-like conditions – and whether political and economic shifts will arrive in time to halt what many now describe as a slow and deliberate economic unravelling.

Russian forces have struck Ukraine’s southern Black Sea port of Odesa, damaging port facilities and a ship, the region’s governor says.

The attack late on Monday followed another at the weekend when Moscow carried out a sustained barrage of drones and missile attacks on the wider area around Odesa, which is home to ports crucial to Ukraine’s overseas trade and fuel imports. They followed Russian threats to cut “Ukraine off from the sea”.

The escalation in Russia’s assault on Odesa, Ukraine’s biggest port city, has unfolded as Washington steps up diplomatic efforts to bring an end to the war. Ukrainian officials met members of a US delegation on Friday in Florida while US envoys held talks with Russian representatives on Saturday.

“The situation in the Odesa region is harsh due to Russian strikes on port infrastructure and logistics,” Ukrainian President Volodymyr Zelenskyy told reporters in Kyiv on Monday. “Russia is once again trying to restrict Ukraine’s access to the sea and block our coastal regions.”

What happened in the latest Russian attack on Odesa?

On Tuesday, the head of the Odesa Regional Military Administration, Oleh Kiper, said Russian strikes overnight had damaged a civilian cargo vessel and a warehouse in a district of Odesa while the roof of a two-storey residential building had caught fire.

Meanwhile, strikes on Saturday on the port of Pivdennyi near Odesa damaged storage reservoirs, Ukrainian Deputy Prime Minister Oleksii Kuleba said. Those came just one day after a ballistic missile strike, also in Pivdennyi, had killed eight people and wounded at least 30.

These are just the latest strikes in an escalation of hostilities in the area over the past few weeks.

Last week, Russia launched one of its largest aerial assaults of the war on the Black Sea region, damaging energy infrastructure and causing a power outage in Odesa, leaving hundreds of thousands of residents without electricity for several days.

Russia’s Ministry of Defence did not immediately comment on the strikes, but the Kremlin has previously described Ukraine’s economic infrastructure as a “legitimate military objective” during the nearly four-year war.

On the Telegram messaging app, Kuleba said on Friday that Russian forces were targeting power infrastructure and a bridge over the Dniester River near the village of Mayaky, southwest of Pivdennyi, which was struck five times in 24 hours.

That bridge links parts of the region separated by waterways and serves as the primary westbound route to border crossings with Moldova. It is currently out of operation. Kuleba said the route normally carries about 40 percent of Ukraine’s fuel supplies.

Why is Russia targeting Odesa?

“The focus of the war may have shifted towards Odesa,” Kuleba said, warning that the “crazy” attacks could intensify as Russia tries to weaken Ukraine’s economy.

Russian President Vladimir Putin has previously said Moscow wants to restrict Ukraine’s Black Sea access in retaliation for Kyiv’s recent drone attacks on Russia’s sanctions-evading “shadow fleet” of vessels, which carry a variety of commodities.

Ukraine said those vessels are used to illegally export sanctioned oil, which provides Russia with its main source of revenue for financing its full-scale invasion of its neighbour.

How important is the port of Odesa to Ukraine?

Odesa’s port has long been central to Ukraine’s economy. Called a “pearl by the sea”, Odesa is Ukraine’s third most populous city after Kyiv and Kharkiv.

Black Sea ports – including Odesa and two others close by, Pivdennyi and Chornomorsk – and Mykolaiv to the east handled more than 70 percent of Ukraine’s exports before the war.

But Odesa’s role as a trading hub has grown in recent years as ports in the Zaporizhia, Kherson and Mykolaiv regions have been occupied by Russia.

Since the war began in February 2022, Ukraine has continued to rank among the world’s top five exporters of wheat and corn – largely through Odesa.

By targeting Odesa’s shipping facilities with missiles and drones, Ukrainian officials said, Putin aims to destroy Ukrainian trade and business infrastructure.

Zelenskyy, who has previously accused Russia of “sowing chaos” on the people of Odesa, said: “Everyone must see that without pressure on Russia, they have no intention of genuinely ending their aggression.”

What would it mean for Ukraine if Odesa were destroyed?

If the port of Odesa were badly damaged, the economic impact for Ukraine would be severe. The city and its surrounding areas would suffer major job losses in the shipping and logistics industries, seriously squeezing local incomes. Meanwhile, port-dependent businesses would falter and investment would fall away.

Nationally, Ukraine’s export capacity would be hit hard. As a key gateway for grain and other commodities, disruptions there would raise transport costs, slow shipments and reduce export volumes, choking foreign currency earnings and piling pressure on the hryvnia, Ukraine’s currency.

Elsewhere, farmers would suffer from lower prices for their produce as well as storage bottlenecks with knock-on effects across rural economies. The government would also lose customs revenue just as reconstruction costs would rise, weakening the country’s overall economic resilience.

What other acts of maritime warfare have Ukraine and Russia engaged in during the war?

Over the past six months, maritime warfare between Ukraine and Russia has intensified. Both sides have targeted naval and commercial assets across the Black Sea and beyond.

Ukrainian forces have increasingly used underwater drones and unmanned surface vessels to strike ships tied to Russia’s shadow fleet.

Several shadow fleet tankers, including the Kairos and Virat, were hit by Ukrainian naval drones in the Black Sea near Turkish waters in late November.

Kyiv has expanded its reach elsewhere, claiming drone strikes in the Mediterranean on December 19 on the Qendil, a Russian-linked tanker, marking an expansion in Kyiv’s maritime operations.

At the same time, Russian forces have ramped up attacks on commercial targets, including a Turkish-flagged ship carrying trucks and other freight near Odesa with drone attacks on December 13.

These actions reflect a shift towards what is referred to as “asymmetric naval warfare”, in which drones and improvised systems play a growing role in disrupting each side’s economic and military support networks at sea, experts said.