Assessing the Economic Implications of a Gaza Stabilization Force and Transitional Governance

The interplay between stabilization forces, transitional governance, and economic recovery in conflict zones has become a critical focal point for investors and policymakers. As geopolitical tensions reshape global energy and investment landscapes, the Gaza Strip-long a flashpoint of instability-offers a stark case study. This analysis examines how a proposed U.S.-backed stabilization force and transitional governance framework could mitigate geopolitical risks while unlocking-or complicating-emerging market opportunities in one of the world's most fragile regions.

Geopolitical Risks and Energy Transition: A Double-Edged Sword

Geopolitical risks have historically accelerated energy transitions by pushing nations to reduce reliance on imported fossil fuels. A 2025 study in the Carbon Balance and Management journal highlights that countries with higher energy transition performance respond more dynamically to geopolitical uncertainties, often pivoting toward renewables. However, strong governance systems can paradoxically slow such transitions by entrenching existing energy regimes, particularly in economies with weak trade openness or growth according to the study. This duality underscores the complexity of balancing stability and innovation in conflict zones.

In Gaza, where energy infrastructure has been repeatedly disrupted by conflict, the absence of a stable governance framework has stifled both traditional and renewable energy development. The U.S. proposal for an international stabilization force, authorized until 2027, aims to create a security vacuum-free environment for reconstruction. Yet, geopolitical divisions-particularly between the U.S. and Russia/China-threaten to derail the initiative. These nations oppose the proposed "Board of Peace," a transitional authority that bypasses the Palestinian Authority, raising questions about the force's legitimacy and long-term viability.

Transitional Governance and the World Bank's Role

The World Bank's 2020–2025 strategy for fragile, conflict-affected, and violence-affected (FCV) regions emphasizes transitional governance as a cornerstone of economic recovery. By strengthening institutions and public infrastructure, the Bank aims to catalyze private-sector investment. In fiscal year 2024 alone, the International Finance Corporation (IFC) allocated $7 billion to FCV regions, while the Multilateral Investment Guarantee Agency (MIGA) provided $945 million in guarantees for projects in countries like the DRC, Ethiopia, and Ukraine.

Gaza's case, however, presents unique challenges. Despite the UN Security Council's 2025 endorsement of a stabilization force, the region's economic outlook remains dire. Commercial exports have halted since October 2023, and unemployment in the West Bank and Gaza reached 51.2% in Q3 2024. The Palestinian Authority (PA) faces a $1.3 billion financing gap, relying on bank loans and donor aid to sustain operations. While the IFC and MIGA have prioritized FCV investments, Gaza's political fragmentation and lack of a clear governance pathway hinder capital inflows.

Investment Opportunities and the Path to Recovery

For investors, the Gaza stabilization force and transitional governance framework represent both risks and opportunities. The U.S. plan envisions a demilitarized Gaza Strip, with Egypt and Israel coordinating security as the Israel Defense Forces withdraw. This could create a window for infrastructure rebuilding, particularly in energy, agriculture, and ICT. The Palestinian Investment Promotion and Industrial Estates Agency (IPIEA) has already flagged renewable energy and battery storage as priority sectors, though outdated 2G communications infrastructure remains a barrier.

However, geopolitical tensions and donor fatigue pose significant hurdles. The PA's reliance on foreign aid-$680 million in 2024 from the EU, World Bank, and Arab states-highlights the fragility of funding streams. Meanwhile, Hamas's rejection of the U.S. plan and Israeli opposition to Palestinian statehood further complicate long-term stability. Investors must weigh these risks against the potential for high-impact, low-competition markets in post-conflict reconstruction.

Conclusion: Balancing Risk and Resilience

The Gaza stabilization force and transitional governance initiative exemplify the delicate balance between geopolitical risk mitigation and economic opportunity. While the U.S. and its allies see a path to security and development, resistance from Russia, China, and regional actors underscores the fragility of international consensus. For investors, the key lies in aligning with multilateral institutions like the IFC and MIGA, which provide risk-mitigation tools such as political risk insurance and guarantees.

As the Global Risks 2025 report warns, state-based armed conflict and geoeconomic confrontation remain top threats. Yet, in FCV regions, stabilization efforts-when paired with robust governance frameworks-can transform volatility into opportunity. The Gaza case, though fraught with challenges, offers a blueprint for how strategic investments in security, infrastructure, and institutional capacity might pave the way for a more resilient global economy.