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The Highest Cost of West Bank Annexation Will Be Economic

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Yesha council roadside billboard against annexation per the Trump plan
Yesha council roadside billboard against annexation per the Trump planCredit: Emil Salman

If you need any further evidence that Benjamin Netanyahu has lost his strategic mojo, you need look no further than his annexation machination. In stunning contrast to his traditional statecraft, which was cautious and conservative if often cynical, Bibi seems to be careering into a process that offers Israel nothing but downside risks.

How big those risks are is hard to assess at this point, if for no other reason than the public has been kept in the dark about what is going to be annexed, when, and under what conditions.

It’s fair to assume that a lot of those risks are not as terrible as the most alarmist anti-annexationists have warned. The window of opportunity opened not just because Donald Trump still occupies the White House, but because the world is distracted by the coronavirus crisis. By the time Trump is out of office and the pandemic is behind us, annexation will have been a fait accompli.

There will be a lot of angry protests and whether any country breaks relations or, in the case of the Gulf states, forswears cooperation with Israel against Iran, remains to be seen. The Palestinian cause simply doesn’t carry the weight it once did. Likely only the sustained violence of a third intifada, which doesn’t seem to be in the offing, might put Israel under massive pressure by strained diplomatic ties and the loss of foreign investment and exports.

But there is a very clear economic price to annexation, even in the most peaceful scenario.

Netanyahu seems to be angling for annexation-lite, that is annexation of a very limited area of the West Bank, even less than the 30% than Trump peace plan envisions. But once a process starts, there’s no way of knowing where it will end. The old, pragmatic Netanyahu would never have touched it.

In the worst-case scenario, annexation-lite sparks a third intifada. The PA collapses, the army moves into Palestinian cities and towns that had been under PA control, and Israel winds up in control of all the West Bank, not just the bit it just annexed. If formal annexation doesn’t ensue, effective annexation will. 

The odds of this happening I believe are small, but if it did happen the economic costs would be horrendous. A study by the NGO Commanders for Israel’s Security estimates that a third intifada would cost the Israeli economy between $11 billion and $22.5 billion annually, over the next two or three years.

Even without violence, any annexation could lead to the quiet collapse of the Palestinian Authority, which seems like a more likely economic risk.

Like any other government, the PA is responsible for schools, health care, the police and fills infrastructure. Thanks to an inflated payroll and a shrunken private sector, it’s also the West Bank’s biggest employer. That’s been a useful arrangement for Israel, which has washed its hands of responsibility for the Palestinians’ day-to-day lives.

The PA’s raison d’etre as the foundation of a future Palestinian state died with the death of the Oslo process, and its standing among Palestinians has been eroded by corruption, inefficiency, the split with Hamas and an aging, out-of-touch leadership. The failed attempt to stage an anti-annexation rally on Monday shows just how far the PA has fallen.

The PA has already taken the first steps to dismantle itself by refusing to accept tax money due it from Israel.  That’s in protest against annexation, to show Israel what burdens it will be taking on if there’s no PA there to provide services and act as a buffer between Israelis and Palestinians.

The morning after annexation

Now imagine the morning after annexation. Unloved, ineffective and holding the wrong end of a salami that Israel is slicing away at, the PA collapses. It might happen by declaration or simply out of inertia. It may get a push by a second coronavirus wave that creates such a deep economic and health crisis that PA institutions are simply overwhelmed.

Suddenly Israel finds itself not just a military occupier but the one responsible for the welfare of 2.9 million more people, who are on average poorer and more in need of services and subsidies than the average Israeli. If Israel then opts to annex more or all of the West Bank, it will have to make them, if not citizens, at least permanent residents, entitling them to the same social benefits as other Israelis.

This is no small financial undertaking. The PA’s budget is about $5 billion annually, of which its revenues from taxes and foreign assistance are far short of covering. If Israel governs the West Bank, the bill will be even bigger and the revenues to cover it will be less.

The Commanders for Israel’s Security put the non-military costs at $18.2 billion a year. That figure is probably exaggerated, but even if it is inflated by a few tens of percent, bear in mind that Israel’s total budget last year was about $140 billion. Foreign assistance for the PA, which is expected to reach $640 million in 2020, would disappear. After all, it’s one thing for countries to support the PA; it’s another to subsidize Israel’s occupation.

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