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Gaza conflict: Can economic isolation ever be reversed?

August 4, 2014 -- Updated 0216 GMT (1016 HKT)
STORY HIGHLIGHTS
  • Blockade has brought Gaza economy to its knees
  • Tunnels have been used to smuggle up to 200 tons of goods a day into Gaza in recent years
  • Escalation of conflict in recent weeks could be sign of Hamas desperation, says Middle East strategist David Butter

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(CNN) -- The horrific loss of life from the three week conflict in Gaza can never be valued -- but the economic fallout from war is also devastating the local population.

In the case of Gaza, a seven year air and sea blockage imposed by Israel since Hamas came to power has isolated its economy.

The blockade has limited supplies of concrete and basic construction materials as well as medical supplies and food stuffs.

According to the World Bank, half of Gaza's 1.8 million residents live in poverty and one out of every three workers is unemployed.

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As Gaza's official economy has contracted, the shadow economy -- also known as the tunnel economy -- blossomed.

Underground tunnels were built by Gazans to circumvent the blockade allowing goods to be illegally smuggled from Egypt.

But the tunnels have also been used by Hamas to bring in weapons and launch attacks on Israel.

CNN's John Defterios sat down Middle East strategist David Butter to ask what could reverse the isolation of the Gaza economy.

He started by asking how the situation has changed over the last six to 12 months.

David Butter (DB): What's changed in the last year is the closure of the tunnels by the Egyptian government

This was handling up to 200 tons of trade every day. Fuel was running through, cars (too). It was a thriving (entryway) for bringing things in and of course Hamas was collecting a lot of revenue from customs and licenses on these tunnels.

John Defterios (JD): What are the conditions on the ground for Palestinians today with the tunnels shut and before the strikes?

DB: About half of the Gaza population receive humanitarian support from the UN. There's also salaries coming in from the Palestinian Authority to its members of the civil service -- there's about 70,000 of those.

But without that trade coming in through the Rafah crossing from Egypt, the situation is becoming increasingly more subdued and desperate for the people on the ground.

JD: Grinding poverty and the desire by Hamas to strike at Israel. Would you say there is a direct link?

DB: Well, I think the timing of this escalation is linked to a number of things. Obviously we have the breakdown of the peace process. We have the reconciliation if you like, the unity government between Hamas and Fatah.

But certainly from the Hamas point of view, the desperation they were in may have driven them to risk getting involved in this escalation on the assumption that a major crisis would result in a major reappraisal of the entire economic situation.

Read: Answering Egypt's economic riddle

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