How the international community funds the Hamas war machine

Hamas exploits its power to plunder the international resources delivered into Gaza, which it uses to sustain its dictatorship.

By Natan Galula, JNS

On Nov. 29, 2024, three Palestinians, a woman and two children, were crushed to death while waiting in line outside a bakery in central Gaza.

The images of thousands of Palestinians huddled against each other, pressing inwards for a bag of pita bread, with young girls on camera desperately gasping for air, made headline news all over the world.

Humanitarian organizations said that people in Gaza were on the “brink of famine.”

Ajith Sunghay, the head of the U.N. Human Rights Office in the Palestinian territories, said, “The breakdown of public order and safety is exacerbating the situation with rampant looting and fighting over scarce resources.”

He added that “prices of the meager commodities that are available have skyrocketed.”

The agency running the United Nations’ World Food Programme warned in early December that the “humanitarian response in Gaza is nearing collapse. For over 50 days almost no food has reached North Gaza.”

Similar warnings were proclaimed in the past. In March, the Food Security Analysis Unit, which works under the U.N.’s Food and Agriculture Organization, released a report that stated, “Famine is now projected and imminent in the North Gaza and Gaza Governorates and is expected to become manifest during the projection period from mid-March 2024 to May 2024.”

But the projected famine never came to pass.

According to Eyal Ofer—a former government adviser, frequent guest commentator on Israeli media outlets and an expert on “Hamas economics”—shortages of food in Gaza are not due to a lack of foreign aid.

Ever since the November 2023 hostage agreement between Jerusalem and Hamas, Israel has opened at least five crossings into the Gaza Strip, enabling the entry of thousands of aid trucks per month into the Palestinian enclave, Ofer told JNS over the phone on Thursday.

The bakery scenes “were completely orchestrated by Hamas,” he said. “Every bakery in the Gaza Strip produces tens of thousands of bags of pita bread per day, and yet the bakery distributes only 300 bags per hour.”

The rest, he said, is “smuggled” to Hamas-controlled markets. Instead of selling a bag of pita bread for three shekels ($0.82)—the typical price at the bakeries—it sells for 50 or 60 shekels (~$16) due to artificially induced scarcity.

“Hamas intentionally created a situation of scarcity,” Ofer stressed. “The wheat is sent into Gaza for free in the form of international aid. Even the cooking gas used by the bakeries, I believe, is supplied by the World Food Programme. This is how the typical bag of pita bread sells in the Gaza Strip for [the cheap price of] three shekels [82 cents], even before the war.”

When the war broke out, he explained, “Hamas took over the bags of wheat and hoarded them in its own warehouses or in UNRWA warehouses, which are de facto run by Hamas.”

If a 55-pound bag cost $14 before the war, during the war prices rose typically to $70 or $80, in rare cases even reaching $400, he said. Today, Ofer added, they sell for about $30, depending on the location within Gaza.

Extorting the bakeries

After Israel took measures to stop Hamas from getting the wheat, the terrorist group readjusted its method of operation and took over the bakeries, said Ofer.

There are a dozen large industrial bakeries that operate throughout the Strip—four in the north and eight in the center and south—with several smaller “tabuns” (outdoor stoves for baking) used in poorer communities, he explained.

“A bakery that produces 30,000 bags a day that are ready in the morning has no problem distributing them to 30,000 people [throughout the day],” he noted.

However, because Hamas is so embedded in the population and controls it by force, the terrorist organization can compel the bakeries to sell only a small portion of their production at the regular price and smuggle the rest to the markets.

“You have to think about this in purely economic terms. The monopolies [in the markets] hoard the supply, even let some of the food rot, so they can create artificially high demand and thus cut higher profits than if they sold everything for lower prices,” he told JNS.

“This is how you got photos on CNN of large groups of people pushing each other all the way to the small hatch in the bakery’s front or back doors for one bag of pita bread for three shekels.”

Ofer emphasized that those who argue Hamas is able to ensure its rule thanks to the humanitarian aid are wrong. Hamas already rules Gaza, he noted, which is why it controls pricing there.

“You will not find anywhere Hamas members who are distributing food to civilians. Hamas establishes its rule not by controlling the food, but by the fact that it is the most powerful organization in Gaza, that controls all of the economic activity under its rule. People are reversing cause and effect,” he said.

Plundering aid

The bakery incident is a prime example of the “circular nature” of Hamas’s rule, said Ofer: It exploits its power to plunder the international resources delivered into Gaza, which it uses to sustain its dictatorship.

“In 2017, the World Bank formulated a report that stated that the only way to help Gaza’s civilians is to topple Hamas, which takes most of the money transferred into Gaza,” said Haim Ramon, a long-time Knesset member (1983-2009) and former vice prime minister, speaking to JNS on Friday.

“I always said that I am not responsible for the Palestinians, but the only way to increase their welfare is to topple Hamas,” said Ramon. “According to the Shin Bet [Israel Security Agency], about one third of all dollars that enter the Gaza Strip, be it in the form of money or goods, goes to Hamas,” he added.

Ramon was one of the chief advocates of Israel’s 2005 unilateral withdrawal from Gaza, which involved the evacuation of some 8,000 Jewish residents and a full withdrawal of the military.

He noted that the Jewish state has indeed mostly disengaged from the Gaza Strip, but is still its main supplier of electricity, and handles the entry of foreign aid.

“But this is largely unimportant. If [Gaza] did not have a terrorist government and would cooperate with us to improve the lives of its citizens, we could have turned Gaza into, if not exactly Singapore, a much more humane place,” he said.

UNRWA and Hamas

Einat Wilf, a former Israeli parliamentarian from the Independence and Labor parties, political scientist and the author of several books on the Israeli-Palestinian conflict, spoke to JNS on Friday about the role in Gaza of the United Nations Relief and Works Agency for Palestine Refugees in the Near East.

In no other conflict or place in the world, she said, “can you find a situation where an external body assumes the responsibility to finance all the daily needs of the [local people] in a way that absolves them of any responsibility for themselves.”

While UNRWA takes care of the welfare of Palestinians, Hamas can keep arming itself and bolster its military capabilities, concentrating all of its efforts on the next massacre of Jews, she added.

“They face no [economic] consequences if in every round of fighting they can go back to square one,” she stressed, referring to the funds that keep flowing into Gaza regardless of whether Hamas decides to resort to violence or pursue peace.

UNRWA is a U.N. agency formed in 1949 in the aftermath of Israel’s War of Independence. Unlike any other group of displaced persons supported by the United Nations, all the descendants of Palestinians displaced as a result of the war are registered by UNRWA as refugees.

As stated on its website, UNRWA’s purpose is to “carry out direct relief and works programs for Palestine refugees.” Its mandate is “to respond to the needs of more than 5.6 million” Palestinians in “areas of education, health, protection, relief and social services, microfinance and camp improvement.”

The agency’s funding amounted to total pledges of $1.46 billion in 2023, with the United States, Germany, the European Union and France as its top contributors. Its headquarters are located in Gaza and Amman, Jordan.

Two weeks after Hamas launched the deadliest single-day attack in Israel’s history on Oct. 7, 2023, senior Hamas official Mousa Abu Marzouk was asked why his organization had not built bomb shelters for civilians if it could construct 300 miles of underground tunnels for its fighters.

Marzouk replied that the tunnels were built to protect Hamas fighters, while protecting the 75% of Gaza residents who are listed as refugees is “the responsibility of the United Nations.”

What he was saying, Wilf elaborated, “was that ‘we’ [Hamas] concentrate on massacring Jews while ‘you’ [the world] fund the things that should have been under our care, had we been expected to take care of them.”

The former Knesset member pointed to a poster found in a refugee camp near Bethlehem that read: “UNRWA services are our right until the Return.”

The so-called Palestinian “right of return” calls for the resettling of millions of descendants of Arabs who lived in the British Mandate of Palestine before 1948 in current-day Israel.

“You could not sum up the Palestinian relation to UNRWA better than this one sentence,” Wilf stated. “Essentially it means that the British, German or Australian taxpayer will fund the livelihood of Palestinians until the day the Jewish state ceases to exist.”

Fueling the warmongers

“Gaza has no economic problem,” Wilf continued. “It sits on beautiful, white sand beaches … and is situated on attractive trading routes. Its land is also effective for agriculture. The problem [in Gaza] is political. Politics have turned Gaza into a war machine. Gaza doesn’t really need outside help. Its people need to decide if they prefer investing in themselves, rather than destroying what the Jews have built.”

She went on to say that the world needs to stop financing the Palestinians. If UNRWA ceases to exist, Wilf stressed, nothing significant will change on the ground. UNRWA workers are Palestinian, “not European employees as most people imagine,” she said, noting that Gaza will have the same workers with the same set of skills; the only thing that will change is that they will have to start paying their own bills.

“This may be a radical idea,” Wilf continued sarcastically, “but if they run their own economy, collect taxes like any other country, pay their own salaries [and deal with real-life challenges], they will not have the time to build hundreds of kilometers of tunnels and plot Oct. 7s.”

Foreign supplies that regularly enter Gaza serve as the basis of its current economy, from which Hamas collects its salaries and continues its terrorist activities, she said.

“The one thing that Israel should not have compromised on [in the Iron Swords war] was the issue of foreign aid,” she added.

“Even if America threatened to withhold weapons from us, we should have remained resolute. As far as I’m concerned, we didn’t have to strike one house in Gaza, but declare instead: nothing goes in, until the hostages come out.”

The former lawmaker noted that the world’s message to the Gazans after the war concludes will have profound consequences. If Palestinians understand that the “destruction in Gaza is what happens when you insist on holding onto your stupid ideology of destroying Israel,” she noted, then things can change for the better.

But if the message is that “the destruction is horrible, Jews are bad, let’s hurry up and reconstruct everything,” then things will continue as they were.

“The war is the result of [Gaza’s outside funding]. The message is: You concentrate on ‘from the river to the sea’ and we will take care of everything else.”

The mafia in Gaza

Eyal Ofer has been following the funding methods of Hamas and other terrorist organizations for years, collecting data and writing about his findings.

He told JNS that Hamas’s financial conduct has not changed in a significant way over the years. If before the war it extorted 25% from luxury car dealers, today in the midst of war it extorts money from wheat merchants.

“Hamas is present everywhere in the Gaza Strip: the police, humanitarian associations, actors in the private and public sectors, the contractors’ union—Hamas is networked within and across Gaza. You can’t just vacuum Hamas out, it is everywhere,” he said.

In a tweet that went viral on Sunday, he wrote that “Hamas operates like a mafia and a clan-based enterprise: one brother is in the military wing, another in the police force, they ensure the sister works for UNRWA, a noncombat-profile cousin becomes a driver for an aid organization, an uncle gets a government position, another cousin is a ‘journalist’ for Al Jazeera, and the grandmother is added to the list of welfare recipients.”

The claim that Iran provides 70% of Hamas’s funding is “nonsense,” he wrote. “In extreme cases, Iran provides 5-10% of Hamas’s funding. The vast majority of Hamas’s funding comes from its ability to funnel money that the world sends to the Palestinian Authority (and other Gaza charitable causes) and Gaza for its own purposes.”

As an example, he attached a document from the P.A.’s Municipal Development and Lending Fund (MDLF), a semi-governmental urban development fund, highlighting the receipt of some $3 million from the government of Belgium in 2023 for a project named, “Promotion of Green Services and Climate Action in Local Governance—Green Gaza.”

“What are the chances that Hamas’s regime in Gaza will manage to place its members or their relatives among the beneficiaries of this Belgian grant? In my opinion: 100%. … Multiply this story by 200, and you’ll see how Hamas is funded,” Ofer said.

The money-laundering scheme

Ofer further explained that Hamas’s chief financial problem is not raising money inside Gaza, but transferring its accumulated cash out of the region.

The primary currency in the Gaza Strip is the Israeli shekel. During the war, Hamas acquired a monopoly on cash in Gaza, with local banks largely unserviceable. Ofer told JNS that it is impossible to assess how much cash Hamas currently holds.

“Hundreds of millions, maybe even one to two billion shekels. It extracts money from the population by force, which is how it continues to pay salaries to its operatives [and recruit new fighters], but also how it established itself as the monopoly on the supply of money,” he said.

“Many Gazans today receive direct donations from abroad, transferred via Western Union, the banks, cryptocurrencies like USD Coin, Vodafone Cash Wallet [a mobile app], GoFundMe, monthly stipends from the P.A., U.N. humanitarian agencies such as UNICEF. All these transfers are deposited in bank accounts, and their holders need to convert them into cash—whether the deposit is in dollars or shekels. Who do they go to for cash? Hamas.”

The Islamist organization developed an entire industry of non-banking ATMs, Ofer explained. The Gazans transfer to Hamas their dollars or shekels and Hamas provides them with cash, though with “unbelievably” high fees, he said.

“The fees started at 15% and have reached more than 30% in areas with greater scarcity,” he added. “This is how Hamas manages to launder money to unknown accounts.”

Ofer could not say with certainty that all money changers in Gaza are Hamas operatives, but noted that it is hard to imagine a regular person moving about in the Gaza Strip with hundreds of thousands of shekels in cash without fear.

The broken Gaza fallacy

In 1850, French economist Frédéric Bastiat published an essay titled “That Which Is Seen, and That Which Is Not Seen.”

In it, he described what became known in the field of economics as the “broken window fallacy.”

The conceptual framework notes that while it is seen that a child breaking a shopkeeper’s window, for example, will provide the glazier with work to repair the window, what is not seen is the aggregate growth of the economy through alternative work had the window not been broken (such as the shopkeeper purchasing a new pair of shoes).

The Palestinian case may demonstrate a similar fallacy. That which is seen is the reconstruction of Gaza after every war, believing that this helps the Palestinians.

That which is unseen is letting the Palestinians deal with the consequences of war alone, having to choose whether to abandon their ideological battle against Israel or continue on their path to destruction.

“The Palestinians know that after every round of fighting, the round of reconstruction begins,” Ofer said, adding that this causes perverse economic incentives.

“If the Qataris come in and propose rebuilding a city that was destroyed in the previous war and was now destroyed again, a private contractor has two jobs, not one. The Hamas government cuts its share from the contractor, the residents who received contributions and everyone else in the chain of rehabilitation,” he noted.

According to Ofer, many of the regular economic metrics that economists use, such as GDP, are irrelevant in the case of Gaza, because a huge section of its economy is nonproductive.

“There is no question that Gaza, in great percentages, is a charity-based economy. A private sector emerges out of these donations, but the nucleus of the economy, maybe 40% to 50%, is based on external donations that fund Gaza’s welfare [programs] and the public sector,” he told JNS.

Ofer added that Israel lacks “political wisdom. Instead of disengaging from Gaza, we keep opening more and more crossings into the Strip in the hope that the world will see us as enlightened rulers. At the start of the war, all aid came through the Rafah Crossing border with Egypt. Israel should have stated: That’s it Gaza, from now on, you work with Egypt. You are not our problem anymore.”

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