Hamas Weakened, But Likely To Survive

BMI View: The Hamas movement governing the Gaza Strip in the Palestinian territories has limited options available to alleviate its current economic and diplomatic isolation. Although we expect Hamas to retain control of Gaza, the movement's weakness is likely to exacerbate its internal divisions. In the near term, Hamas' fiscal strains and Gaza's dire operating environment underpin our weak outlook for Palestinian economic activity in 2014.

The second half of 2013 has been a strenuous time for the Islamist Hamas movement, which has ruled the Gaza Strip in the Palestinian territories since 2007. Hamas began the year in a strong position, having enjoyed a string of political victories over the last months of 2012. Qatar's then-Emir Sheikh Hamad bin Khalifa Al Thani visited Gaza in October 2012 and pledged US$400mn in development aid, a move that seemed at the time to dispel Hamas' diplomatic isolation while offering a much-needed new source of funds. An eight-day conflict between Israel and Gaza the following month bolstered Hamas' popularity and legitimacy with Palestinians, both in its own territories and in the West Bank. The ceasefire deal ending the conflict was personally brokered by Egypt's then-President Mohammed Morsi, whose Muslim Brotherhood movement enjoyed relatively favourable relations with Hamas.

Morsi's Overthrow Leaves Gaza Blockaded

Ticking Up Again
West Bank and Gaza - Unemployment By Area, %

Hamas Weakened, But Likely To Survive

BMI View: The Hamas movement governing the Gaza Strip in the Palestinian territories has limited options available to alleviate its current economic and diplomatic isolation. Although we expect Hamas to retain control of Gaza, the movement's weakness is likely to exacerbate its internal divisions. In the near term, Hamas' fiscal strains and Gaza's dire operating environment underpin our weak outlook for Palestinian economic activity in 2014.

The second half of 2013 has been a strenuous time for the Islamist Hamas movement, which has ruled the Gaza Strip in the Palestinian territories since 2007. Hamas began the year in a strong position, having enjoyed a string of political victories over the last months of 2012. Qatar's then-Emir Sheikh Hamad bin Khalifa Al Thani visited Gaza in October 2012 and pledged US$400mn in development aid, a move that seemed at the time to dispel Hamas' diplomatic isolation while offering a much-needed new source of funds. An eight-day conflict between Israel and Gaza the following month bolstered Hamas' popularity and legitimacy with Palestinians, both in its own territories and in the West Bank. The ceasefire deal ending the conflict was personally brokered by Egypt's then-President Mohammed Morsi, whose Muslim Brotherhood movement enjoyed relatively favourable relations with Hamas.

Morsi's Overthrow Leaves Gaza Blockaded

However, Hamas' fortunes have since followed a steady downhill trajectory. Morsi's ouster in July 2013 by the Egyptian army has renewed and compounded Hamas' diplomatic and economic isolation (see 'Regional Implications Of Morsi's Fall', July 4). The new military-backed Egyptian government has closed most of the smuggling tunnels connecting Egypt to the Gaza Strip, severely disrupting imports of fuel and construction materials. Gaza's only power plant has been idle since November 1, resulting in daily blackouts of 12 to 18 hours. Pump stations have been left unable to operate, and raw sewage has repeatedly flooded streets in several areas of Gaza City. According to the UN agency for Palestinian refugees (Unrwa), the costs of rice and sugar have risen by 26% and 14% respectively since June 2013, while 19 out of 20 Unrwa-backed construction projects have ground to a halt.

Israel eased several restrictions on exports to Gaza as part of the November 2012 ceasefire agreement, briefly permitting shipments of gravel for private construction. Data from the UN Office for the Coordination of Humanitarian Affairs shows a monthly average of 5,658 truckloads of Israeli imports over the first ten months of 2013, up from 4,729 in the same period of 2012. However, imports are once again restricted, following the discovery in October 2013 of a tunnel built by Hamas militants from southern Gaza to Israel - allegedly using Israeli construction supplies.

Hamas, which relied on tax receipts from the tunnels for approximately 40% of its revenue (with construction constituting another important source), has been forced to delay wage payments for its 40,000 state employees. This has further disrupted economic activity: in a September 2013 survey by the Palestinian Centre for Policy and Survey Research (PCPSR), positive evaluations of conditions in the Gaza Strip dropped to 21%, compared to 36% in June and 29% for the West Bank (see 'Weak Growth Outlook Heading Into 2014', September 10). The unemployment rate in Gaza reached 32.5% in the third quarter of 2013 according to official data, the highest rate since Q410.

Ticking Up Again
West Bank and Gaza - Unemployment By Area, %

In Search Of Friends

Hamas has limited options available to thaw its diplomatic freeze, in our view. In Egypt, we expect the army and Defence Minister General Abdel Fattah el-Sisi to remain the key political protagonists for the foreseeable future. We see an increasing likelihood that el-Sisi will run in presidential elections in 2014, winning with a comfortable majority (see 'Momentum Builds For el-Sisi To Run As President', November 22). With the Egyptian army intent on maintaining close links with Israel and securing the Sinai Peninsula, smuggling tunnels along the Egypt-Gaza border risk remaining closed over the whole of 2014.

Qatar's relationship with Hamas has cooled since a leadership transition in June 2013 that saw Sheikh Tamim bin Hamad Al Thani, Sheikh Hamad's son, ascend to the Qatari throne (see 'New Ruler, Same Domestic Agenda', June 28). The new Emir has faced the need to rebalance Qatar's foreign policy, given mounting regional resentment from North African populations and suspicion from other GCC states. While Hamas' leaders have also tried to deepen links with Turkey, the movement is unpopular amongst Turkish Muslims, limiting Ankara's ability to provide support. In a September 2013 poll by Pew, 73% of Muslims in Turkey had an unfavourable opinion of Hamas, by far the highest proportion in the region.

At the same time, Hamas remains aloof from both Iran and Syria, previously its main regional allies. Damascus had long acted as a safe haven for senior Hamas officials, while Iran provided financial and military assistance to the movement. However, Hamas' leadership turned publicly against Syrian President Bashar al-Assad in February 2012, in turn precipitating a rift with Iran. With Iranian President Hassan Rouhani keen to achieve better ties with the West and a long-lasting international settlement on Iran's nuclear programme, Tehran's support for Hamas is unlikely to resume for now.

Hamas Faces Little Immediate Threats, But Internal Divisions Could Widen

Given the economy's dire state, Hamas' popularity amongst Palestinians has plummeted. Only 36% of respondents expressed a positive opinion of the Hamas-led government in Gaza in the September PCPSR - a proportion that is likely to have declined since. That said, domestic opposition remains limited, with the movement retaining an extensive and loyal security apparatus across the Strip. A protest group called Tamarod - organised on the model of its Egyptian and Tunisian counterparts - originally planned large demonstrations for November 11, but failed to gain momentum. Hamas faces little danger of being overthrown over the near term, in our view.

However, Hamas' current weakness is likely to exacerbate the movement's internal tensions, and could even precipitate an overt split between different factions. Hamas has long been divided internally and organisationally between moderates favouring a rapprochement with the West Bank's Palestinian Authority (including the main Hamas leader, Khaled Meshaal), and more radical elements concentrated within the Qassam Brigades, the party's military wing. Were militants to gain the upper hand, the movement could attempt to escalate violence against Israel - provoking another large-scale retaliatory attack. In the near term, Hamas' fiscal strains and Gaza's dire operating environment underpin our weak outlook for Palestinian economic activity in 2014 (see 'Weak Growth Outlook Heading Into 2014', September 10).

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