Since Hamas took control of Gaza, Egypt’s stance has been clear: no recognition of its government and no cooperation, regardless of the back-and-forth accusations between rival factions. The Israeli blockade was imposed, and Egypt refused to engage, keeping the Rafah crossing—the only gateway for Gaza’s residents—shut except for occasional exceptions. That is the complex and polarised political reality.
On the economic front, the situation has taken on an abnormal trajectory, distorting market dynamics and basic supply-and-demand principles for goods that either do not exist or are deliberately prevented from reaching the besieged territory.
First, demand for tunnel transportation skyrocketed, with fees for smuggling just 10 kilograms of goods reaching $100 at times. A parallel economy emerged, resembling an extreme version of the black market. As a result, prices soared to absurd levels, with goods costing several times more than their Egyptian counterparts just metres across the border.
More recently, following the Israeli assault on the Freedom Flotilla in international waters off Gaza’s coast and the subsequent global outrage, there has been a noticeable decline in tunnel trade. Egypt’s decision to open Rafah ‘until further notice’ has significantly reduced demand for smuggling services. Orders from Gaza to middlemen who coordinate tunnel transportation have dwindled, forcing some tunnel workers out of business due to the lack of goods.
Transport fees through the tunnels have also plummeted, with many tunnel operators shifting their focus to specific commodities, such as construction materials and fuel. The cost of smuggling a 40kg sack has dropped to just $25, down from a staggering $300. This steady decline has unfolded over three years, reaching the current low.
This is an extraordinary case of supply and demand distortion, driven by an abnormal economic model imposed on a population whose only ‘crime’ was voting for Hamas in the last legislative elections.
The second economic anomaly is the way residents on the Egyptian side of the border have benefited from these erratic political decisions. When the crossing is completely shut, profit margins soar as all goods must pass through the tunnels. This has given rise to a new and equally unnatural economy, built around the underground trade—creating jobs, requiring suppliers, and sustaining a unique business cycle.
Conversely, in the current scenario, where the crossing is open indefinitely to Palestinians, traditional trade (outside the tunnels) has boomed, leading to a significant increase in transaction volume. On the surface, this is a logical and positive development. However, profit margins dictate who truly benefits. The Palestinian consumer, deprived of most essentials and accustomed to paying exorbitant tunnel prices, is willing to pay almost any amount for goods in Egypt—because, no matter how high, it is still cheaper than Gaza’s tunnel-inflated rates. Yet, even at these ‘cheaper’ prices, they are still paying far more than normal. And so, in this warped economic reality, everyone profits.
This article is originally published by AlBorsa in Arabic and later AI-translated by South Push.