IV. GAZA’S TUNNEL-BASED ECONOMY
by Nicolas Pelham
This essay is adapted from “Gaza’s Tunnel Phenomenon: The Unintended Dynamics of Israel’s Siege,” which first appeared in the Journal of Palestine Studies in 2012, and has been updated by the author to reflect developments in the time since its publication. The full version of the 2012 essay can be found on the website of the Institute for Palestine Studies, www.palestine-studies.org.
Until very recently, visitors approaching the Rafah border crossing from Gaza to Egypt could be forgiven for thinking they had stepped back in time to the 1948 Nakba.1 On the southern reaches of the town, the horizon was interrupted by hundreds of white tents flapping in the wind. The tents sheltered the mouths of hundreds of tunnels, which since 2007 have played a critical role in providing a lifeline for Gazans hit by a punishing siege.
Beneath the awnings, thousands of workers shoveled heavy materials for Gaza’s reconstruction. Front-end loaders plowed through the sands, loading juggernauts with gravel and enveloping the entire zone in dust clouds. Tanker trucks filled with gasoline from underground reservoirs; customs officials weighed trucks and issued the tax vouchers required to exit.
The ground that Israel leveled in 2004 to create a barren corridor separating Gaza from Egypt was abuzz with activity on and under the surface, as Gazans operated a tunnel complex that became the driver of Gaza’s economy and the mainstay of its governing Palestinian Islamist movement, Hamas.
THE FIRST WALL, THE FIRST TUNNEL
For millennia, Rafah—which sits today where Gaza meets Egypt—was the first stopping place for merchants crossing the desert from Africa to Asia. Israel’s establishment in 1948 did not sever the tie, for Gaza was administered by Egypt until Israel’s 1967 occupation. Even after, Bedouins crossed the border unimpeded, continuing to mingle and marry. Only in 1981, when Egypt and Israel demarcated their frontier along Gaza’s southern edge as part of their recent peace treaty, did separation really set in.
No sooner had the agreement’s implementation divided Rafah between Israel and Egypt than Bedouin clans straddling the ten-mile border began burrowing underneath, particularly at the midpoint where the earth is softest. To avoid detection, Gazans dug their tunnels from the basements of their houses to a depth of about fifty feet, headed south for a few hundred feet, and then resurfaced on the Egyptian side of the border, often in a relative’s house, grove, or chicken coop.
Israel’s first recorded discovery of a tunnel was in 1983. By the end of that decade, tunnel operators were importing such basics as processed cheese, subsidized in Egypt and taxed in Israel, and probably some contraband as well, including drugs, gold, and weapons.
Israel’s “soft quarantining” of Gaza—the steadily tightening restrictions on the movement of persons and goods into Israel—began with the Oslo peace process and in preparation for the establishment in the Strip of the Palestinian Authority in 1994. After Oslo’s signing, Israel built a barrier around Gaza.
Though access continued through Israel’s terminals, periodic closures led Gazans to seek alternatives. When the Al-Aqsa Intifada broke out in September 2000, protesters took the perimeter barrier as one of their first targets.2 But by June 2001, Israel had replaced it with a higher, grimmer, more impenetrable upgrade. Frequent lockdowns at Israel’s terminals and the destruction of Gaza’s seaport and airport in 2001, coupled with the militarization of the intifada, intensified the drive for outlets south.
Hence the expansion and upgrading of the tunnels, which for the first time served as safety valves for wholesalers to alleviate the quarantine’s artificially created shortages.
ISRAEL’S BLOCKADE, 2006
Given their quest for weapons and the need for funds to finance operations during the Intifada, Palestinian political factions operated the longest and deepest tunnels. The cash-strapped PA sought to co-opt clans along the border, where tunneling was easiest. This fusion of security and business interests, of militia activity and private entrepreneurship, was to become a hallmark of future development.
Successive Israeli military operations aimed at defeating the Second Intifada and widening the buffer zone between Gaza and Egypt. Israel also targeted the tunnels. In the lead-up to implementing its unilateral Gaza withdrawal plan, Israel razed some 1,500 Palestinian homes within a 325-foot-wide cordon sanitaire (the Philadelphi corridor) between Rafah and the border, and reinforced it with a twenty-three-foot-high wall. Egypt’s Mubarak regime largely acquiesced in the wall’s construction, hoping it would protect his realm from a spillover of the Intifada and the suicide bombing that was threatening lucrative Egyptian tourist resorts along the Sinai Peninsula’s riviera on the Red Sea. In addition, Egypt feared that Israel’s withdrawal would leave it with responsibility for Gaza’s 1.7 million inhabitants and disconnect the territory from the West Bank, thereby ending Arab aspirations for an integral Palestinian state.
In January 2006, four months after Israel completed its Gaza pullout, Hamas won the Palestinian legislative elections. Israel responded by systematically tightening its borders. On March 12, 2006, while Hamas was in negotiations to form a unity government, Israel closed Erez terminal to Gazan laborers in Israel, who once constituted 70 percent of Gaza’s workforce. In June 2006, when the Israeli soldier Gilad Shalit was captured by Palestinian militants (and spirited away by tunnel), Israel shut down the Karni terminal, Gaza’s primary crossing for goods (already closed for half of the previous six months). Israel also prevented the use of the Rafah terminal for passenger traffic and severely restricted access for the European monitoring mission there.
Israel’s array of restrictions on trade, coupled with the need to mitigate the threat of punitive Israeli air strikes targeting the tunnel zone, quickly spurred Palestinians to develop deeper and longer tunnels spanning the width of the Israeli-bulldozed buffer and less vulnerable to sabotage. The tunnel network continued to grow, and infrastructure improved. Even so, the tunnels were ill-prepared for the surge in traffic generated by the near-hermetic seal imposed on Gaza by Israel and Egypt when, in June 2007, Hamas seized control of the Strip, disbanded Fatah’s forces, and chased out its leaders.
INDUSTRIAL-SCALE BURROWING, 2007
Hamas’s summer 2007 military takeover of the Strip marked a turning point for the tunnel trade. The siege, already in place, was tightened. Egypt shut the Rafah terminal. Israel designated Gaza “a hostile entity” and, following a salvo of rocket fire on its border areas in November 2007, severed fuel imports and cut food supplies by half. In January 2008, after rockets were fired at Sderot, Israel announced a total blockade on fuel, banning all but seven categories of humanitarian supplies. As gasoline supplies dried up, Gazans abandoned cars on the roadside and bought donkeys.
Under Israeli blockade at sea and a combined Egyptian-Israeli siege on land, Gaza’s humanitarian crisis threatened Hamas’s rule. As the siege intensified, employment in Gazan manufacturing plummeted from 35,000 to 860 by mid-2008, and Gaza’s gross domestic product fell by a third in real terms from its 2005 levels (compared to a 42 percent increase in the West Bank over the same period).
Finding access above ground barred, the Islamist movement oversaw a program of industrial-scale burrowing underground. With each tunnel costing $80,000 to $200,000 to build, mosques and charitable networks offered small investment plans with unrealistically high rates of return, promoting a pyramid scheme that ended in disaster. Preachers extolled commercial tunnel ventures as “resistance” activity and hailed workers killed on the job as “martyrs.” The National Security Forces (NSF)—a PA force reconstituted by Hamas primarily with ’Izz Al-Din Al-Qassam Brigades (IQB) personnel, but also including several hundred (Fatah) PA defectors—guarded the border, occasionally exchanging fire with the Egyptian army, while the Hamas government oversaw construction activity. Simultaneously, the Hamas-run Rafah municipality upgraded the electricity grid to power hundreds of hoists, kept Gaza’s fire service on standby, and on several occasions extinguished fires in tunnels used to pump fuel. As Mahmud Zahar, a Hamas Gaza leader, explained, “No electricity, no water, no food came from outside. That’s why we had to build the tunnels.”
Larger private investors, including Hamas members who raised capital through their mosque networks, partnered with families straddling the border. Lawyers drafted contracts for cooperatives to build and operate commercial tunnels. The contracts detailed the number of partners (generally four to fifteen), the value of the respective shares, and the mechanism for distributing shareholder profits.
Fully operational, a tunnel could generate the cost of its construction in a month. A typical partnership encompassed a cross-section of Gazan society, including, for example, a porter at the Rafah land crossing, a security officer in the former PA administration, agricultural workers, university graduates, nongovernmental organization (NGO) employees, and diggers. Investors could quickly recover their outlay.
With each tunnel jointly run by a partnership on each side of the border, Gazan and Egyptian owners generally split earnings equally. The area of tunnel operations doubled to five miles, extending along the border from the Rafah terminal west to Tel Zagreb near the coast. So congested were some parts of the border that diggers had to burrow tunnels one on top of the other, using Google Earth to map routes and make sure they stayed on course.
Teams of six laborers working round the clock in two twelve-hour shifts could dig an average of thirty to fifty feet a day. Once functional, tunnels were constantly upgraded to speed deliveries. Over time, they were fitted with internal lighting, intercoms, and generators to maintain operations during frequent power cuts. The tunnels’ rough-hewn edges were smoothed to reduce damage to imports.
From enterprises primarily geared to weapons smuggling, the tunnels rapidly turned into what one trader described as “the lungs through which Gaza breathes.” By the eve of Operation Cast Lead in December 2008, their number had grown to at least five hundred from a few dozen mainly factional tunnels in mid-2005; tunnel trade revenue increased from an average of $30 million/year in 2005 to $36 million/month. The PA made ongoing salary payments to some 75,000 PA employees, including some whom they had ordered to stop work. These payments sustained the government’s liquidity and purchasing power, and mitigated to some extent the sharp contraction of the Gaza economy that had resulted from the international boycott of Hamas.
“Legalized” by Hamas on the Gaza side of the border, the tunnels remained clandestine on Egypt’s side. Thus, while in Gaza the tunnel mouths were moved from the basements of private homes to the open terrain fronting the Philadelphi corridor, in Egypt the tunnels extended deep inside Egyptian territory. Up to three-quarters of a standard half-mile tunnel was on Egypt’s side. And while the tunnel mouths, protected from the elements by white canvas, were open on the Gaza side, in Egypt they remained concealed.
REGULATING A TUNNEL ECONOMY
When Hamas seized the Strip from Fatah in June 2007, its military wing, the IQB, appropriated the Fatah-run tunnels. From the outset, there was a de facto distinction between the factional tunnels, used for military and operational purposes and off-limits to government inspectors and customs authorities, and the privately owned tunnels, which were Gaza’s primary source of imports.
Once in control of the commercial tunnels, the Hamas government set about formalizing the smuggling economy through regulation. In the wake of Operation Cast Lead, the Interior Ministry established the Tunnel Affairs Commission (TAC) to act as the regulatory authority for commercial activities. Among its first acts was to issue a list of blacklisted imports, including weapons, alcohol, and tramadol, a painkiller widely used in Gaza. In response to public concern at a rising toll of tunnel casualties, particularly of child workers, the TAC issued guidelines intended to ensure safe working conditions. Over time, it fenced off the site and stationed some three hundred black-clad internal-security personnel at entry points to spot-check the documentation of persons entering and leaving the zone. Tunnel openings were patrolled on motorbike.
Violations were punished. In 2009-10, for instance, the TAC closed at least five tunnels for smuggling tramadol and two for nonpayment of cigarette taxes. It destroyed an additional fifty non-operational tunnels to prevent their use as safe houses or conduits to and from Egypt by “wanted” individuals. “We used to earn thousands smuggling small shipments of hand guns, grenades, bullets, and TNT,” said a tunnel operator who first entered the business at the end of the Second Intifada, “but it is no longer worth the risk to be prosecuted by Hamas.”
The TAC introduced a tunnel-licensing system to prevent construction in areas deemed of national security (particularly near border fortifications where outside observation was feared, or in areas reserved for factional tunneling) and to regulate oversupply. Investors seeking clearance to build a new tunnel were required to provide proof of land ownership or notarized proof of authorization of the right to use the land. The TAC also intervened to arbitrate disputes between merchants and tunnel operators, and monitored the market for instances of sharp inflation or evidence of hoarding and price-fixing, particularly of fuel.
In a further sign of formalization, the TAC introduced an increasingly comprehensive customs regime, providing Hamas with a new revenue base that partially compensated for the Ramallah-based PA’s monopoly on customs revenues collected at Israel’s ports. Haulers weighed their trucks on an electronic weigh station buried in the sand near the entrance to the tunnel zone, obtained chits for their cargoes at an adjoining hut, and upon exit presented the receipts to guards. In September 2008, the Rafah municipality introduced administrative fees, charging tunnel operators a one-time license fee of NIS 10,000 ($2,850)/tunnel and NIS 3,000 for connection to the electricity grid. Evaders were liable to tunnel closure and arrest, deferrable with a NIS 1,000 bail. Further charges were levied on heavily Egyptian-subsidized gasoline and diesel (about NIS 0.5/liter in Egypt), cooking gas (NIS 30/canister), cigarettes (NIS 3/pack), and generators. In addition, Gaza authorities levied a 14.5 percent value-added tax on all goods.
Hamas’s regulatory efforts did not go unchallenged, particularly after it taxed what had been a tax-free enterprise. Families and clans in the border area protested interference in their activities. In late November 2007, armed clashes erupted between Hamas government forces and members of the Al-Sha’ir family in Rafah after Hamas destroyed two of its tunnels. But for the most part, the rapidly expanding business opportunities available under Hamas rule trumped lingering resentments. With demand far exceeding supply, tunnel operators earned $50 for ferrying a hundred-pound sack through the tunnels.
A decade earlier, all but 1 percent of Gaza’s total imports came from, or via, Israel. By the eve of Operation Cast Lead, the ratio had nearly reversed. Although the tunnels were often rudimentary, the trade cycle was generally faster than through Israeli terminals, and less laden with customs red tape. Normal deliveries arrived within three to five days of placing an order—faster than pre-takeover orders from Israel. Operators responded rapidly to demand. When Israel reduced gas supplies, smuggled canisters quickly surfaced on the market. Vaccines from Egypt entered Gaza following reports of disease sweeping chicken farms. Ahead of holidays, traders imported toys, live sheep, and fresh beef from Egypt.
Both Egypt and Israel had mixed reactions to the tunnel operations. For Israel, the reorientation of Gaza’s trade to Egypt tempered the international outcry over the blockade and widened the divide between Gaza and the West Bank. For Egypt, smuggling offered copious opportunities for bribes (at both the local and national levels) from a hitherto unprofitable region. Yet both countries also saw tunnel growth as a security threat they could scarcely monitor, let alone control. In an effort to interrupt the traffic, Israel repeatedly deployed drones and manned aircraft to bomb Gaza’s tunnels, while Egypt stepped up tunnel detection and demolition. Tunnel owners responded by improving their design and digging to depths of over twenty-five meters.
EGYPT’S COUNTERMEASURES
Israel’s repeated attacks on Gaza culminated in the devastating Operation Cast Lead of winter 2008-9. Although Hamas’s detractors in Gaza claimed the tunnels served as an escape hatch for some senior Hamas officials during the war, aerial bombardment of the Rafah border severely damaged the network, resulting in a temporary suspension of commercial traffic. Meanwhile, the land, air, and sea blockade remained fully in force.
As part of the internationally brokered cease-fire, Israel secured U.S. agreement to act against the smuggling routes supplying Gaza. Separately, Egypt committed to build (under U.S. military supervision) an eighty-foot-deep underground steel barrier along its border with Gaza aimed at blocking the tunnels within a year. By the end of 2010, it claimed to have sabotaged some six hundred tunnels by various means, including plugging entrances with solid waste, sand, or explosives, and flooding passages with sewage. Use of teargas and other crowd-control techniques inside the tunnels resulted in several deaths.
“The war marked a turning point in how Egypt’s security dealt with us,” remarked one tunnel operator. “In the past, they would look the other way when a lorry stopped to unload at a tunnel mouth, but since May 2009 they . . . raid the homes, sheds, farms, and shops of our Sinai suppliers.”
But Egypt’s countermeasures never quite matched its policy statements. From the start, Egypt cited logistical problems, such as difficulties hammering steel plates more than fourteen feet deep in stony ground. Tunnel operators cut through completed segments with blowtorches, nullifying the multimillion-dollar project for the cost of a few thousand dollars. Reluctance to forgo the bribes accruing from smuggling further compromised official resolve. Egyptian security forces often targeted the shallowest and most easily detected tunnels, leaving the more developed and profitable ones untouched. Tellingly, construction slowed where tunnel activity was most concentrated. Hamas’s success in mounting a solidarity network to condemn the Mubarak regime for enforcing the siege further eroded Egypt’s political will. Frustrated, the U.S. Congress suspended technical support for the underground steel barrier in mid-2011.
Motivated by family and clan unification, as well as economic benefits, Bedouin and Palestinians on Egypt’s side of the border also resisted Egypt’s security measures. “We’re Palestinians working for the sake of Palestine,” said a tunnel laborer in Egyptian Rafah. To foil Egyptian security, Bedouin operators sometimes tapped into well-armed clan defense committees versed in Sinai’s topography from centuries of roaming. There were sporadic reports of clashes between Bedouin irregulars and Egyptian forces seizing contraband.
THE TUNNEL EXPANSION AND GAZA’S ECONOMIC RECOVERY, 2009
Meanwhile, the cease-fire at the end of Operation Cast Lead enabled Hamas to undertake repairs on the partially destroyed tunnels and to oversee a major overhaul of the complex, even reducing taxes to stimulate the work. Fear of Egyptian detection prompted operators to extend their tunnels to a length of one mile and to deepen them to up to 130 feet below ground. Operators reinforced tunnels first with wooden planks, then cement blocks and metal to allow sufficient widening for raw materials to pass through without risking tunnel collapse. Rope ladders flung down the shafts were replaced by electric elevators, while the thirteen-foot-long sledges (shahata) pulled by winches were replaced by carts running on rails, much as in coal mines.
Within two years, capacity had increased tenfold. By late 2010, large commercial tunnels were estimated to be shifting up to 170 metric tons of raw materials each per day. The number of tunnels transporting livestock rose from three in 2008 to at least thirty in mid-2010. There was also less loss and damage, since the longer tunnels were harder for Egypt’s security to find, and conditions inside the tunnels had substantially improved. Economies of scale and diversified sources of supply lowered costs. By the summer of 2011, 60 percent of traders reported that prices had fallen to equal or below the pre-siege level for goods from Israel.
For example, a liter of fuel (initially sold in sand-riddled plastic soda bottles) cost four times more than in Israel in 2008; by 2009 fuel (pumped through three-quarter-inch pipes at a rate of 20,000 liters/hour) sold at a quarter of Israel’s price. By mid-2011, prices for Turkish cement (Gazans snubbed Egypt’s lower-quality products) had plummeted from $1,500/ton at the height of the closures in mid-2008 to the pre-siege price of $100. The cost of shipping a fifty-kilo sack of goods fell from $50 to $5. “There are at least 1,500 underground tunnels now,” said an owner. “Most are bigger and better than ever before, and all of them are open for business. The result is more competition, more price wars, and less work for everyone.”
Demand grew as capacity improved and prices fell to within a range average Gazans could afford. Between 2008 and 2010, traders of household goods reported a 60 percent rise in their import of goods via the tunnels. By mid-2010, Gaza’s retailers reported that shortages resulting from Israeli restrictions had been reduced “to a reasonable extent or more.” Wholesalers rapidly replenished their empty warehouses. By mid-2009, cars—hitherto cut into three and welded together in Gaza—were arriving whole, first dragged through the tunnels by bulldozers and then driven through expanded tunnels. To satisfy demand, tunnel operators tapped into contraband, particularly of cars, arriving from Libya after Qaddafi’s retreat from Cyrenaica left his arms depots and ports open for looting.
Expansion also facilitated the import of inputs and raw materials, precipitating what has been perhaps the tunnels’ greatest achievement: kick-starting Gaza’s postwar reconstruction while donors remained on the sidelines. While world leaders promised billions at showcase conferences in Sharm Al-Sheikh’s luxury hotels, but failed to persuade Israel to lift its ban on construction materials, the tunnels enabled Gazans to rebuild their enclave themselves.
Gaza morphed into a construction site. Roadsides were piled high with building materials from Egypt. UN Habitat estimated that, based on the materials allowed in by Israel, it would take eighty years to rebuild the six thousand housing units destroyed in Operation Cast Lead and accommodate the growth in population over five years of closure; tunnel flows reduced that lagtime to a more manageable five. Indeed, so rapid was the pace of construction that by mid-2012 real estate agents reported that they were struggling to locate prospective buyers for the new apartments.
It was not only Gaza’s housing stock that began to recover. Farmers resorted to tunnel imports to circumvent Israel’s ban on seeds, pesticides, irrigation pipes, and basic agricultural tools such as hoes and buckets. The increased affordability of inputs helped factories resume operations: Hamas officials claimed that by October 2011, half the fourteen hundred factories destroyed during Operation Cast Lead were back in production. A food-processing plant resumed operations after items banned by Israel—including preservatives, plastic wrapping and packaging made in Egypt, and spare parts—arrived from Switzerland via tunnel.
All told, the tunnel expansion precipitated a recovery that rapidly reversed much of Gaza’s earlier decline. From 2005 to 2009, Gaza’s per capita GDP contracted by 39 percent in real terms, with the tunnels providing at best limited relief. After Operation Cast Lead, the tunnels facilitated what a September 2011 World Bank report described as “exceptionally high growth,” notching 28 percent in the first half of 2011. Unemployment dropped from 45 percent before Operation Cast Lead to 32 percent by mid-2011. Rafah’s markets bristled with shoppers and café-goers late into the night, its backstreet ATMs distributing $100 bills.
THE LIMITS OF A TUNNEL-BASED ECONOMY
Even as the World Bank was touting Gaza’s exceptional growth, however, the structural flaws impeding Gaza’s full-fledged reconstruction persisted. With few exports capable of generating sustainable growth, Gaza’s consumption was capped. By 2010, the markets were saturated, with improved supply lines outstripping demand, while wages fell sharply, not least due to increased use of cheaper Egyptian labor. Intense competition pushed tunnel earnings and prices down even faster. With supply already exceeding demand, Israel’s June 2010 decision to lift its ban on the import of commercial goods (following the international outcry over the Mavi Marmara aid-flotilla incident) triggered a market glut. Retailers hitherto limited to imports via the tunnels revived their former ties with Israeli counterparts.
By the end of 2010, operations at over half of Gaza’s commercial tunnels had reportedly been suspended. Those that survived launched efficiency drives, reducing operating hours and cutting labor so as to remain commercially viable. Increasingly, tunnel activity narrowed to goods that were competitive because Israel either heavily taxed alternatives, such as fuel, or banned them. The latter included most raw materials, all items defined as “dual use” (e.g., construction materials, machinery, chemicals, and spare parts), and almost all export goods. “Israel’s blacklist is the smugglers’ green list,” commented a prominent Gaza businessman who imports Egyptian cacti for his nursery through the tunnels.
By spring 2012, signs that the economy had reached the ceiling achievable through the tunnel conduits were increasingly visible. According to figures from the Palestinian Central Bureau of Statistics for the first quarter of 2012, unemployment had begun to climb, and the previous high rates of growth had fallen back sharply. Despite Egypt’s acquiescence to increased passage through the Rafah terminal, most of Gaza’s 240,000 refugee youth had never left the enclave, and 51 percent of them remained unemployed. Continued restrictions by the Egyptian authorities on the entry of tanker trucks bound for Gaza into the Sinai Peninsula left the enclave in darkness for much of the night. Israeli warships cruised on the horizon, a visible reminder of the three-mile limit Israel imposed on Gaza’s seas. The claustrophobic feeling of being trapped by land, air, and sea had not disappeared.
Initially in the wake of Mubarak’s 2011 ouster, the tunnel economy enjoyed a boom. As the internal-security apparatus took flight, Egypt’s remaining impediments disappeared. Tunnel mouths placed deep inside Egyptian territory resurfaced close to the border, in the process taking an obvious toll on Egyptian Rafah’s housing stock, where gaping cracks appeared even in recent construction. Construction on the underground steel barrier was formally halted. Tunnel owners reported next to no impounding of materials, only token destruction of tunnel mouths, and a marked decrease in demands for bribes. Many Egyptian operators who had been sentenced in absentia and who had paid hefty bribes to avoid arrest were granted amnesty. Heightened domestic opposition in Egypt to the ongoing Gaza blockade and increased activity by Bedouin armed groups offered tunnel traffickers additional protection.
In deference to Cairo, Hamas had from the start banned the use of commercial tunnels for passenger traffic, but reversed this policy after the Mubarak regime fell. Meanwhile, the new Egyptian authorities, with much fanfare, eased the restrictions on passage through the Rafah terminal. However, with restrictions still in place, the tunnels offered a viable fast track that circumvented much of the red tape of the overland crossing. To sidestep the Egyptian restriction limiting each traveler to a single case, passengers traveling through the terminal could plastic-wrap their bags on the Gaza side of the border, send their excess luggage via a tunnel courier, and find it waiting for them on arrival in Egypt. To regulate passenger traffic, the TAC introduced a system of prior coordination that took two days rather than the two months required for applications to cross via the Rafah terminal. At the tunnel mouth, a Hamas policeman speedily processed passengers on arrival in Gaza, providing visitors with a chit which they would hand back when leaving.
Moreover, while the Rafah crossing closed at five p.m. (later extended to eight p.m.), the tunnels operated around the clock. Male applicants ages fifteen to forty, some 35 percent of whom were generally barred entry to Egypt on security grounds, benefited in particular, but all kinds of travelers, from Pakistani academics and Palestinian workers fleeing Libya to families on holiday, used the tunnel.
Students studying at Sinai’s sole university in El Arish qualified for a special tariff, allowing them to return home for weekends with their families without the Egyptian red tape of the border crossing, and without forfeiting their visas. There was even a tunnel for VIPs with a carpet running along its length. Costs for the six-hundred-yard crossing, which previously reached hundreds of dollars, fell to NIS 100 ($30).
Relaxed controls also served to alleviate the ban on exports, the other grueling aspect of the siege. These included scrap metal (smelted in Sinai and re-imported as steel rods for construction and possibly military use), dapple racing horses (which all but disappeared from Gaza due to high Egyptian demand), ammunition (which spiked in demand during Egypt’s 2011 revolution), and surplus produce—watermelons, apples, and eggs—resulting from Gaza’s drive for food self-sufficiency. That said, Egypt’s lower labor costs and purchasing power rendered most Gaza produce uncompetitive, and Gaza’s manufacturing base, traditionally geared to the Israeli and West Bank markets, was slow to adapt to Egyptian needs. Egypt-bound traffic comprised mainly re-exports of goods from Israel for which there was Egyptian demand, including heavily taxed items such as shoes, hair gel, and mobile phones.
Yet the political unrest following Mubarak’s ouster in February 2011 destabilized the tunnel economy as well. Led by Hamas leaders, Gazans looked to Egypt’s new Islamist leadership to dismantle the siege structures and open the crossing to overland goods traffic. Certainly, initial euphoria at the prospect of a new laissez-faire era in Egyptian–Gaza relations dimmed as Egypt’s ruling military council, the Supreme Council of the Armed Forces (SCAF), consolidated its hold. In a sign of renewed leverage over Gaza, and reflecting a desire to cut their subsidy bill, the Egyptian authorities blocked tanker trucks en route to Gaza hauling heavily subsidized Egyptian gasoline. Although some fuel continued to trickle through the tunnels, the enclave again experienced outages of up to eighteen hours per day, as in the harshest days of the siege. The shortages not only rendered life uncomfortable, they deprived it of the dynamo to power more reconstruction. Inside Gaza, the Hamas government faced widespread charges of hubris for wildly overestimating the early benefits accruing from the Arab awakening.
SHIFTING POWER IN GAZAN SOCIETY
Seven years of Hamas rule over Gaza and sponsorship of the tunnel trade brought changes to the Strip whose impact could be felt at a popular level. Public infrastructure—including the parliament and other government buildings, police stations, and mosques—had been leveled or severely damaged in Israel’s Operation Cast Lead bombardment. The Hamas government, armed with the proceeds from import taxes and an expanded tunnel infrastructure capable of transporting heavy goods and machinery, repaired and upgraded infrastructure. Hamas also widened the Salah Al-Din Road (the Rafah–Gaza City highway) to accommodate increased traffic from the south, and, in Gaza City itself, began beautifying prominent landmarks, sodding sandy areas, dredging the port, installing traffic lights, and rebuilding its coastal riviera to the south, which officials claimed would one day rival Tel Aviv’s.
In an economy blighted by unemployment resulting from Israel’s ban on Gazan workers, the bombardment of its manufacturing base, and the closure of export markets (above and beyond a significant slowdown in donor-funded development projects), the tunnels emerged as Gaza’s largest nongovernmental employer. The tunnel industry attracted construction workers once employed in Israel from across the Gaza Strip. For a time, tunnel workers were the best paid in Gaza: in 2008, the average daily wage was $75, five times Gaza’s median wage, according to official Palestinian figures, and more than West Bank Palestinians earned building Israel’s Jewish settlements. The tunnel trade was also the largest overall employer of youth. School dropouts scrounging NIS 20/day as street peddlers earned ten times that much in the tunnels. Although market saturation and recourse to Egyptian labor later depressed daily wages to more like NIS 80, even this was quadruple a farmhand’s wage. With each fully functioning tunnel employing twenty to thirty people, by 2010 the tunnel industry was estimated to employ some 5,000 tunnel owners and 25,000 workers, supporting about 150,000 dependents, or 10 percent of Gaza’s population.
Such was the turnaround in the local economy that Gaza City had a surfeit of new hotels, restaurants, and beach cafés, which attracted not only the new moneyed elite the tunnels had fostered, but also exiles returning to the Strip (sometimes via tunnels), and even visitors from northern Sinai. Gaza’s new luxury hotel, Al-Mashtal, optimistically bought cocktail glasses, while visiting businessmen from the West Bank complained that the latest-model sports cars and Hummers could be seen on Gaza’s streets long before they surfaced in Ramallah. Real estate brokers said the multiplier effect of the increased spending power spurred a threefold increase in real estate prices.
Nonetheless, Gaza’s macroeconomic growth figures disguised wide disparities in the distribution of the new wealth. In geographical terms, prosperity followed the new employment opportunities: the north languished, while the south boomed. Gaza’s traditional mercantile elite, which had developed ties with Israeli and Western European suppliers, found its status and influence in Gaza increasingly sapped by a new generation of smugglers tapping into ancient informal trade routes that extended southward into Sudan, and who quickly diversified their supply sources to include Egyptian, Chinese, and Turkish suppliers. And while yesterday’s commercial elite excelled in foreign languages acquired through travel and education, the new bourgeoisie of smugglers was less educated but had the benefit of cross-border clan connections and the backing of Gaza’s Islamist rulers. Thus, the tunnels became a key driver of upward mobility and social change, empowering previously marginalized groups and spawning a class of nouveaux riches.
Further encroaching on traditional business elites, tunnel owners used their financial clout to diversify upstream into retail, developing their own networks of agents to increase their market hold. Spared the cost of tunnel fees and privy to market information gained from hauling goods, they undercut retail prices, prioritized their own goods over wholesaler deliveries, and even distributed their own catalogues direct to consumers. On occasion they flooded the market to suppress prices and push wholesalers to the point of collapse. “No matter what we do, we cannot compete with the tunnel owners. They have decreased our income by 70 percent at least,” complained Ala’ Abu Halima, a long-standing Gaza merchant specializing in agricultural inputs.
Western-backed NGOs and the United Nations, whose required funding criteria barred them from purchasing smuggled goods and therefore stymied their reconstruction efforts, vociferously campaigned to end Israel’s siege. UN officials noted the paradox whereby U.S.-led financial restrictions, which prohibited the United Nations from accessing tunnel supplies, gave their supposed target, Hamas, a distinct advantage. Refugee families turned increasingly to Hamas rather than depend on the United Nations Relief and Works Agency (UNRWA), the organization charged with sheltering them (and three-quarters of the Strip’s population). UN Special Coordinator for the Middle East Peace Process Robert Serry, fearing that the international community was hemorrhaging influence, complained in a May 2010 briefing to the Security Council that “the flourishing illegitimate tunnel trade permits smugglers and militants to control commerce,” while “international agencies and local contractors who wish to procure goods entering through legitimate crossings too often stand idle due to the Israeli closure.”
BUSINESS AND POLITICS
Armed with resources to govern from the tunnel proceeds, Hamas transformed itself from a non-state actor with a social and charitable network, underground movement, and guerrilla force into a governing authority with a well-equipped internal security force, bureaucracy, and economy. The commercial tunnels and the Sinai population’s growing economic dependence on trade with Gaza gave Hamas the soft power to project its influence into the Sinai Peninsula, even as the factional tunnels enabled its military wing to augment this “soft” influence by exercising its own leverage there.
Yet the tunnel economy has also tarnished Hamas’s reputation for transparency, accountability, and financial propriety. The Hamas authorities were widely criticized from the outset for making tunnel licenses conditional on appointing its members to the boards of tunnel cooperatives, often on preferential terms. The government’s decision to wash its hands of the pyramid scheme for tunnel investment mentioned above, which had been endorsed by prominent Hamas preachers and had left numerous investors bereft of their savings, marked the first major dent in its domestic credibility. Thereafter, Islamist and secular opponents alike adopted the discourse of corruption that Hamas had hitherto used to undermine Fatah. A Salafi jihadi from Gaza’s Middle Areas expressed it thus:
Before entering government, Hamas acolytes focused on religious sermons and memorizing the Quran. Now they are most interested in money, tunnel business, and fraud. Hamas used to talk about paradise, but now they think about buying land, cars, and apartments. After the evening prayers, they would go to study, now the Imam looks at ways to make money. Before they prayed in the mosque, now they pray at home.
Hamas’s lack of transparency about its use of its tunnel earnings compounds suspicions. While Hamas officials said local revenues comprised half the government’s $750 million annual budget for 2011, local businessmen calculated the earnings to be higher, raising questions about where the funds go and why there are repeated shortfalls in monthly civil-service salary payments. A similarly cavalier approach to child labor and tunnel fatalities damaged the movement’s standing with human-rights groups, despite government assurances dating back to 2008 that it was considering curbs. During a police patrol that the author was permitted to accompany in December 2011, nothing was done to impede the use of children in the tunnels, where, as in Victorian coal mines, they are prized for their nimble bodies. At least 160 workers have been killed in the commercial tunnels, according to Hamas officials.
The tunnels had been a mixed bag for Hamas. While its detractors praise—albeit begrudgingly—its success in reducing the impact of Israel’s stranglehold, perceptions of corruption inside the organization have intensified. During the renewed fuel shortages of spring 2012, there were widespread allegations that Hamas leaders received uninterrupted electricity and that gasoline stations continued to operate for the exclusive use of Hamas members. True or not, they fed a growing mood of recrimination that Hamas had profited from the siege.
AN END OF THE TUNNELS?
The peaks and troughs of Gaza’s tunnel economy came to an abrupt halt in July 2013, with Egypt’s overthrow of Morsi and launch of its Sinai operation. Three years of exponential growth and even tentative development shifted into reverse. Construction ground to a halt; Hamas lost its revenue base, and Gaza its strategic safety valve from Israeli pressure.
Having geared its economy to the tunnels, Hamas struggled to finance its rule. Bereft of much of the $1 million per day it had earned in tunnel dues, in August 2013 the government put its 46,000-strong army and bureaucracy on half pay, and in early 2014 delayed paying even that, sparking rare public sector protests. Initially it sought to increase taxes on the trickle of goods that still managed to cross. Cigarette taxes tripled in a week; cement prices quadrupled. It also feared that the increased hardship could provoke rising discontent. Instead of the promised free-trade zone with Egypt, Gaza faced a buffer zone, or cordon sanitaire. Without fuel, Gaza’s power plant shut down, increasing blackouts to some sixteen hours per day. In places, the sewage system collapsed, spilling into the street. In parallel with their disruption of passenger flows underground, Egypt’s security forces closed the Rafah terminal. Claustrophobic Gaza was an open-air prison again.
At a time of such radical oscillations in the region, predicting scenarios is a hazardous exercise. But unlike previous shocks to the tunnel economy, which Hamas always managed to subvert, this latest assault felt terminal. Fearing potential unrest, Hamas’s siege mentality revived. Only months after their triumphal tours feted on the shoulders of the faithful of the region’s leading mosques, Hamas’s leaders prepared for lockdown again. Despairing of their politicians finding an exit and determined to buck the region-wide Islamist downfall, the military wing flexed its muscles. The first Islamist movement to take power on the Mediterranean spoke increasingly of making a last stand. Its forces erected night-time checkpoints in the center of Gaza City, closed news agencies, and detained a widening circle of suspected opponents. The head of a newly opened Egyptian community association in Gaza City was hauled in for questioning. The Qassam Brigades staged military parades, firing guns into the air, and giving the Muslim Brotherhood’s four finger salute.
Struggling to survive without the tunnels, Hamas considered its political options. Its overtures to Egypt rebuffed by the new anti-Islamist military leadership, it toyed with greater dependency on Israel. Its finance minister committed to introduce a tax on imports from Israel— in effect promoting double taxation, since Israel already collected taxes on goods crossing into Gaza to fund President Abbas’s Palestinian Authority. Construction materials began to sporadically flow again from Israel into Gaza. For the first time ever, 400 truckloads passed over its Kerem Shalom crossing in day. “If demand grows, we’re ready to step in,” said an Israeli army officer.
But Israel’s professed altruism had its limits. Seeking to buttress Abdel Fattah al-Sisi’s regime and join his Jordanian, Saudi, and Emirati alliance, the Netanyahu government increasingly adopted their zero-tolerance approach to the Brotherhood and its offshoots. Following Morsi’s overthrow and the replacement of Ehud Barak with Moshe Yaalon as Netanyahu’s defense minister, Israel reneged on upholding the terms of the cease-fire agreement with Hamas that the Egyptian president had helped broker in November 2012, which had provided for the phased opening of Gaza’s crossings with Israel. It reduced the fishing limits agreed in the 2012 truce. And although trade rose, it remained severely restricted. Israel continued to prevent the passage of raw materials for commercial use, and, after announcing its discovery of a tunnel from Gaza into Israel that seemed to be for military use, halted supplies to donor projects as well. With tunnel traffic all but terminated from Egypt, Gaza’s development, other than a Qatari-financed road project, largely ground to a halt.
Their exit routes blocked by Egypt and Israel, Hamas turned as a last political resort to President Abbas’s Palestinian Authority, from which it had split in 2007. Fitful earlier attempts at reconciliation with Abbas’s government in the West Bank had largely petered out. But with Abbas weakened by his the failure of his strategy to negotiate a two-state settlement with Israel, and Hamas weakened by its inability to meet the needs of the population in Gaza, desperation drove both to seal a deal and form a united government.
Mistrust continued to hinder the deal. Both feared subversion, and suspected the other of using the agreement to secure a foothold in their territory. In addition, Israel strongly opposed the government. In apparent breach of their understanding, Abbas refused to finance the civil servants Hamas had recruited to run Gaza and seemed almost allergic to returning to Gaza at the helm of a united government. Facing further attrition, Hamas’s military wing increasingly despaired of its politicians’ plans to rescue them, and resorted to arms in July 2014.
By this point, Hamas’s commercial tunnels were dysfunctional. But Hamas put unemployed laborers to work digging military-grade tunnels, in an attempt to burrow into Israel’s unilaterally-declared buffer zone and on into Israel. After six weeks of fighting, Israel declared it had destroyed this military network as well. At the same time, negotiators in Cairo, urged by Europe and the United States, discussed the resumption of formal trade and traffic in and out Gaza for the first time since 2005.
In the decade-plus of Gaza’s isolation and the growth of the tunnel network into a regional force, the tunnels had sustained an economy that prevented Gaza’s collapse, but they also fueled unrest, fostering the Bedouin uprising in the Sinai that threatens to destabilize Egypt and regional jihadi militancy. Within Gaza, they eroded central authority through bribery and corruption. They served as a homemade engine of Gaza’s reintegration into a region, but did not equip Gaza with the tools required to rebuild and sustain a productive society.
To this end, all parties—Egypt, Israel, Gaza, the Palestinian Authority, and the UN—saw the benefit of a reformalization of Gaza’s economic relations Gaza’s tunnels had always been a stopgap, a temporary fix to allow the enclave to more or less survive after its post-disengagement abandonment. In the process of uprooting them, Israel and Egypt had brought great hardships to Gaza’s its population. Twenty-five percent of its nearly 1.8 million have been left homeless, thousands of houses have been destroyed, and perhaps ten thousand people wounded. But if the conflict would finally result in Gaza’s escape from a blockade and re-entry into the formal economy, parents wondered whether their children might yet reap the benefit.
Nicolas Pelham is a writer on Arab affairs for The Economist and The New York Review of Books. He is the author of A New Muslim Order (I. B. Tauris, 2008) and coauthor of A History of the Middle East (Penguin, 2004), and has reported extensively on Gaza.
1 For more on the Nakba, see the Glossary, page 304.
2 The Al-Aqsa Intifada is also known as the Second Intifada. For more information on the Intifadas, see the Glossary, page 304.