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A dispute over electricity could make an already tense Israeli border worse

An Israeli military officer inspects a supply shipment into Gaza.
Source: Israel Defense Forces
An Israeli military officer inspects a supply shipment into Gaza.

At the end of this month, Gaza and its nearly two million residents may lose their electricity, boosting the likelihood of more violence between Palestinians and Israel.

In late April, the Palestinian Authority decided it would no longer pay the bill for Gaza's most reliable source of power, to the Israel Electric Company. The Authority, which governs the Palestinians living in the West Bank, cut off payments in an effort to undermine rival Palestinian group Hamas, which governs Gaza.

Gaza gets power from three sources: Israel, electric lines from Egypt which are unreliable and are currently out of service, and a power plant within Gaza that has run out of fuel.

The power situation is already a source of great tension in the strip, which is squeezed between Israel, Egypt and the Mediterranean. Gaza already experiences rolling black-outs with power on for four hours, then off for 12.

Professor Mohammed Alashi, a professor of finance at Islamic University in Gaza, said that if things get worse, normal life will come to a stop.

"At the very least, you won't be able to connect to the internet, you can't complete your job, you can't turn on your computer. Turning off the power is equal to turning off life" said Alashi, who nonetheless added that he doesn't believe Israel will flip off the switch. "Israel is not in the mood to make or receive any kind of skirmishes on the border."

Israeli artillery fire near the Israeli-Gaza border on July 25, 2014.
Ilia Yefimovich | Getty Images
Israeli artillery fire near the Israeli-Gaza border on July 25, 2014.

Since Hamas evicted the Palestinian Authority and took over the Gaza Strip in 2007, money shortages have been a recurring catalayst for Hamas' violence, leading Israel to respond and resulting in several rounds of intense fighting. The Palestinian Authority's decision to stop paying salaries in Gaza was one of the reasons Hamas began firing rockets at southern Israel in 2014, prompting a war that lasted almost seven weeks. Hamas lashed out at Israel in a bid to remain relevant among regular Gazans.

Professor Yousef Nasser, chair of economics at Birzeit University near Ramallah in the West Bank, agreed that Israel is likely to keep supplying power to Gaza despite the bills going unpaid in order to prevent an increased chance of new fighting.

"Israel does not want to be seen as an evil, hegemonic entity," Nasser said. "Second, Israel does not want to increase the pressure on an already explosive socio-economic situation."

The Palestinian Authority stopped paying the bills because, Nasser said, "they want to see the downfall of Hamas. By making the people suffer, they assume that it will encourage an uprising against Hamas."

Hamas is 'feeling pinched'

Despite Israel evacuating all settlements and troops from Gaza in 2005, the country is still heavily invested in what happens in the strip, because of Hamas' ability to fire rockets into southern Israel.

The economic activity that moves across the Israel-Gaza border is monitored by COGAT, or the Coordinator of Government Activities in the Territories. COGAT estimates that Hamas collects about $27 million a month taxing food, cement and other goods brought by truck from Israel into Gaza. Hamas also taxes goods that are smuggled into the strip through tunnels that run from the other side of Gaza where it borders in Egypt.

Israel estimates that Hamas is capable of paying its electric bills, but instead uses the money to fund its military wing, paying for missiles, guns and ammunition as well as tunnels that run underground into the Israeli side of the border.

An Iron Dome short-range missile defense system, positioned near the northern city of Haifa in Israel
Getty Images
An Iron Dome short-range missile defense system, positioned near the northern city of Haifa in Israel

Katherine Bauer, an analyst at The Washington Institute and a former official at the U.S. Treasury Department, said she believes that Hamas' ability to raise money has been weakened. "They've been pinched," she said. "The tunnel trade has been diminished by Egypt, and because of that Hamas has had problems paying salaries to members of the organization."

She also said Hamas has been hurt by a European decision to cut back fuel supplies to Gaza. The European Union took issue when Hamas was repeatedly caught siphoning off European fuel aid for military purposes and re-selling it to residents of Gaza at inflated prices in order to raise money for its armed wing.

An official from COGAT told CNBC that "every time there is a problem in Gaza, [Hamas turns] to Israel to start violence and distract their people from the problems they've caused. We understand this well."

At this point COGAT can't say whether Israel will cut the power to Gaza or not. Sources in the organization say it is likely that the decision will be made by Israel's Prime Minister Benjamin Netanyahu before the end of this month.