On October 9, it was announced that Israel and Hamas reached an agreement on the terms of a first phase of a ceasefire deal intended to end the long-running conflict in Gaza. As part of the agreement and in exchange for the release of almost 2,000 Palestinian detainees, Hamas freed the last 20 living Israeli hostages. Hamas has also started to hand over the remains of almost 30 hostages that died in captivity, but at the time of writing, not all bodies have been returned to Israel.
In the first of three withdrawal stages, Israeli forces retreated to a pre-defined ‘yellow line’ within Gaza that currently leaves them in control of roughly 53% of the Gaza Strip. The Rafah Border Crossing between Egypt and Gaza, which was supposed to reopen as part of the first peace deal phase, remains closed until further notice, with the Israeli authorities claiming that the full reopening will depend on the successful return of all the deceased hostages.
Each side has since accused the other of violating the terms of the ceasefire deal that went into effect at 12:00 local time on October 10. The Israeli military launched a series of airstrikes on alleged Hamas targets in Gaza in response to the claimed ceasefire violations, reportedly killing more than 100 Palestinians.
At the time of writing, it is not yet clear when the next phase of the 20-point Gaza peace proposal presented by U.S. President Donald Trump in September would begin. Negotiations over the second phase of the deal are only expected to start once all parties have agreed on the successful completion of the first phase. Even if the current ceasefire continues to hold despite recent flare-ups in violence, solutions to several challenges that could quickly re-ignite the conflict still need to be negotiated. Likely points of contention in future negotiations include the de-militarization of the Gaza Strip, the complete disarmament of Hamas, and the implementation of a post-war administration in the Gaza Strip.
Three potential scenarios for the security situation in the Middle East
Scenario 1: Breakdown of ceasefire with potential of wider regional conflict
The intermittent flare-ups of violence in parts of the Gaza Strip since the ceasefire went into effect on October 10 indicate that, in the short-term, the risk of the ceasefire deal breaking down will remain high as tensions between Israel and Hamas continue to simmer.
A return to an all-out conflict between both sides would lead to a significant deterioration of the security environment in and around the Gaza Strip. The fighting could also spill over into a wider regional conflict, potentially drawing in nearby countries such as Lebanon or Iran.
Previous cross-border missile strikes the Israeli military has traded with Hezbollah in Lebanon, the Houthis in Yemen, or the Iranian Armed Forces have repeatedly disrupted logistics and business operations in affected areas since the conflict in Gaza began. If the fighting in Gaza resumes at full force, the risk of intermittent operational impacts far beyond the Gaza Strip would spike and remain elevated unless a subsequent peace deal could be reached.
A continuation of the fighting would also put further strain on Israel’s economic and diplomatic relations with countries outside of the Middle East. In September, the European Commission proposed the suspension of some trade-related provisions in the Association Agreement with Israel amid mounting political pressure to end the conflict in Gaza.
Criticism in the United States, one of Israel’s most important allies, was also rising as the humanitarian situation in Gaza deteriorated. A resumption of conflict would likely worsen an already tense diplomatic situation between Israel and its western allies, with negative knock-on impacts on global trade.
Scenario 2: Continued heightened tension in the region with potential to escalate
Even if the Israeli Defense Forces and Hamas can de-escalate the current cycle of retaliatory action, the security situation in the region is likely to remain in a state of heightened tension until the next phases of the peace proposal can be agreed on.
One week after the ceasefire went into effect, Israeli officials announced that the Rafah border crossing between Gaza and Egypt, which was supposed to fully reopen as part of the first phase of the peace proposal, will remain closed until further notice following alleged violations of the ceasefire agreement by Hamas.
In late September, Israel also closed the Allenby Bridge crossing (also known as King Hussein Bridge) between the West Bank and Jordan indefinitely. While it reportedly reopened for passenger traffic a few days later, it remains unclear if freight trucks have since been allowed to pass through the crossing, the only official entry point between the West Bank and Jordan, and the only entrance into the West Bank that avoids Israeli territory.
Less than one month after the Gaza ceasefire went into effect, Israel threatened to intensify its military campaign against Hezbollah in Lebanon. It accuses the Lebanese government of failing to disarm the militant group and secure its southern border with Israel, terms of a ceasefire deal reached last November. Despite the deal, Israel has maintained troops in five areas of southern Lebanon and has fired strikes on alleged Hezbollah targets within the country.
Even such intermittent missile strikes could disrupt air and ocean freight movement in and out of the region with little to no notice if regional tensions spike again in the coming months as peace negotiations are set to tackle more controversial aspects of the future of control over Gaza.
The tense situation also threatens to undo positive developments in the Red Sea, where the last Houthi attack on a merchant vessel was recorded in late September. Shipping traffic through the Suez Canal, which links the Red Sea and the Mediterranean Sea, had dropped after the Houthis began targeting vessels in solidarity with Palestinians in Gaza.
As the security situation in the region began to show signs of stabilization, more than 200 vessels reportedly returned to using the route through the Suez Canal in October, the biggest monthly return rate since the beginning of the crisis.
After the Gaza ceasefire was announced, Egyptian officials also held discussions with 20 major shipping carriers to further increase vessel traffic through the canal. However, the Houthis have since threatened to resume vessel strikes if the ceasefire does not hold, which could quickly reverse any trends in increased shipping traffic through the area.
Scenario 3: De-escalation and permanent ceasefire in Gaza
If a breakdown of the current ceasefire is avoided in the coming months and negotiations for the next phases of the peace deal are successful, a return to the security situation prior to the Hamas attack on Israel on October 7, 2023, is likely in the long-term.
Once the military operations in the Gaza Strip come to an end, the business environment in the wider Middle East is likely to stabilize. A permanent ceasefire would allow businesses located in and around military zones to restart full operations, while infrastructure and civilians currently needed to sustain the war effort would be able to return to their pre-war civilian activities, increasing productivity and easing local labor shortages.
A full cessation of hostilities would also enable logistics operators to restart or ramp up operations in Israel and other regions of the Middle East. Air and ocean freight have faced intermittent disruptions throughout the conflict due to military strikes on or near transport hubs such as the Ben Gurion International Airport in Israel or the seaports of Hodeidah, Ras Isa and Salif in Yemen.
The Houthis, a militant group in Yemen, have also tied the end of their attacks on merchant vessels in the Red Sea to a permanent ceasefire in Gaza. A lasting peace is expected to encourage the return of more shipping traffic through the Suez Canal, lowering transport times and overall shipping costs on routes in the Middle East and beyond.
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