ISRAEL-GAZA BORDER — At first glance, everything seems peaceful and serene. I’m standing at the northern tip of the Gaza Strip, the point where the barrier between Israel and Gaza ends as it descends gradually into the sea. And nothing separates the sands of Israel’s Zikim beach from the northernmost beach in Gaza.

Two Palestinian fishermen row their raft into the sea, hoping to catch some fish to sell and bring home a few shekels. Today, the rest of Gaza beach is empty. On weekends, it is packed with people seeking recreation and relaxation.

The northernmost homes of the al-Shati refugee camp, a few kilometers south, are visible in the distance. This is the home of Hamas Prime Minister Ismail Haniyeh. Further south are the Gaza beach hotels, generally empty except for the foreign journalists who stay from time to time.

This single position where I’m taking in the view is one of the biggest headaches for the Israeli security forces. Those fishermen could, theoretically, row out to sea towards the imaginary border inside the water and easily swim to the Israeli side in a matter of seconds.

This hasn’t happened. For now, Hamas has no interest in launching a terrorist attack from Gaza or initiating military confrontations.

But Egypt’s exhaustive crackdown on Hamas, and on its smuggling tunnels running into the Sinai, is giving rise to fears that the Islamist group may attempt to escalate tensions with Israel, in a bid to force Egypt to open the Sinai border for commerce and trade.

That’s why in recent weeks it has been the Israelis, of all people, who have attempted to dissuade Cairo from enforcing a hermetic blockade on the Gaza Strip. Squeezing Gaza too tight will likely cause upheaval in the region, which will result in a new round of violence between Israel and Hamas.

For most Gazans, though, the closing of the tunnels has translated into a new reality in which, while most products are still available, they are much more expensive than before Egypt made its move.

A city underground

During the years of Israel’s tight blockade on Gaza, from 2007 to 2010, hundreds of tunnels were dug out, very close together, along the narrow strip of land that forms the border between Egypt and Gaza.

The spokesperson for the Egyptian Border Police reported last week that the Egyptians have closed 1,055 tunnels since January 2011, 794 of them in the nine months since January 2013.

The tunnels were one of the Hamas government’s primary projects. The industry employed up to 40,000 people, and provided nearly 40% of the government’s budget. The tunnels were of varying lengths and widths, but the majority shared a purpose – to smuggle in all types of merchandise, from missiles and military equipment to snacks and cigarettes. Subverting the Israeli blockade, the industry proved highly profitable, too, for private entrepreneurs.

Hamas monitored the tunnels closely and heavily taxed the tunnel owners. Each entrepreneur would pay taxes to the Rafah Municipality for a license to begin digging. Once the tunnel was dug, taxes were charged on all products brought through it, but the goods were still cheaper than anything flowing legitimately through the Kerem Shalom crossing with Israel.

A seven shekel ($2) pack of cigarettes from Egypt, for example, would sell for 10 shekels (almost $3) in the Gaza shops; the tunnel owner made two shekels and Hamas one shekel per smuggled pack.

The system worked for everyone: The tunnel owners earned their commission, residents of Gaza enjoyed exceptionally cheap products, and Hamas benefited from the tens of millions of dollars in taxes that it accumulated each month.

The first stage of the Egyptian war against the tunnels began when the Muslim Brotherhood was still in control. After 16 Egyptian police officers were killed near the Rafah border in August 2012, Cairo realized that terrorists affiliated with Al-Qaeda were using the tunnels to receive military equipment from Gaza and were smuggling people through the tunnels to facilitate fighting.

This was the trigger for Egyptian military action. Approximately half of the tunnels were closed down. But the most dramatic shift began in late June 2013, several days before the widespread protests against Morsi led to his ouster. The army took advantage of the Brotherhood’s weakness and launched a massive operation along the Rafah border, shutting down 90% of the tunnels there.

The financial implications for Gaza and the Hamas treasury were immediate and the situation has not improved since. “For six years, we grew accustomed to buying everything, and cheap,” a Gaza resident told me. “Gasoline was only three shekels per liter. Cigarettes cost ten and milk was sold for four shekels. Now, it’s not that we’re lacking anything. Trucks constantly enter Gaza via Kerem Shalom. But the prices have more than doubled.”

The Coordinating Office for Government Activities in the Territories, understanding the potential for escalated violence in Gaza as a result of the lack of merchandise, has lately allowed over 430 trucks to bring products into Gaza via Kerem Shalom on a daily basis.

But according to the Gaza resident, the problem is cost, not availability. “People earn the same salaries as before, if they work at all. But the prices have skyrocketed. People cannot afford to buy gasoline for eight shekels per liter or cigarettes for 25 shekels. The Gaza markets are suffering a recession, and this is holiday season,” he said, referring to Eid al-Adha, the Feast of the Sacrifice, which begins next Tuesday.

Hamas is also hurting. “Just picture the situation: Nearly all the men in Gaza smoke. But the taxes collected on smuggled cigarettes from Egypt are gone,” a Gaza vendor said. “Half a million liters of fuel were transported through the tunnels daily and each liter contributed 1.5 shekels to the Hamas treasury. They paid thousands of dollars in taxes for each car that was brought in through the tunnels. The same was true for construction materials, snacks, everything.”

The lack of income has impacted Hamas government salaries. Hamas withheld last month’s wages in order to save the money for Eid al-Adha. The government apparently plans on granting a 1,000 shekel bonus to each of its 50,000 employees for the holiday.

What does Hamas do now?

“Hamas now has nothing to offer the Palestinian community in Gaza,” said a Palestinian analyst, who asked to remain anonymous. “Let’s look a few years ahead. According to the UN, by 2020 there will not be a single drop of water in the Gaza Strip that is fit for human consumption. What can Hamas do about that? Very little.

“But even today, the financial situation in the Gaza Strip is deteriorating rapidly. The government’s income has declined — because of the tunnels, but also because of a decrease in outside contributions. The money that the Muslim Brotherhood once raised for Hamas from its members in Egypt has dried up. Unemployment rates among the younger generation in Gaza have never been higher and the majority of university graduates cannot find work. What kind of future can Hamas offer these thousands of young adults who cannot afford to buy a house or even to get married?”

Hamas, this analyst said, is facing “one of the most severe economic and political crises in its history — because of the events throughout the Middle East. Its mother-movement in Egypt has once again been outlawed and now operates underground. Its ally in Sudan, Omar al-Bashir, has his own local Intifada to deal with due to the rising costs of fuel. The movement has been pushed to the sidelines of the civil war in Syria and the Muslim Brotherhood is no longer a central player even in Jordan, where protests against the royal family have tapered out.”

Hamas’s only supporters, he said, “are Qatar and Turkey, while all other Arab countries including Egypt, the UAE, Saudi Arabia, Kuwait and Bahrain oppose them. There isn’t even anyone left to mediate between Hamas and Fatah, if Gaza decides to take the [internal Palestinian] reconciliation route.”

This analyst believes that while there is a possibility of escalated violence against Israel, its unlikely. “It’s not on their agenda, despite the financial crisis. One faction, led by Haniyeh, claims that the current circumstances in the region leave Hamas with no choice but to reconcile with Fatah. A second group argues that Hamas must show no signs of weakness at this time and must hang tough until circumstances change for the better. A third group advocates reconciliation, but only in six months’ time, once the negotiations between the PA and Israel come to an end. At that point, they believe that Abu Mazen [PA Chairman Mahmoud Abbas] will have no choice but to accept that the talks with Israel failed, which will weaken him politically. They want to reconcile from a position of strength.”

For now, Hamas leaders are waiting to see if Egypt will change its policies towards Gaza. These leaders cannot even leave the Strip; Cairo has forbidden them from crossing through the Rafah border terminal.

At the same time, Hamas is constantly building up its military forces in case its leaders do choose the escalation route. It has set up a training camp for members of its military wing, not far from Gaza’s northwestern border, on the ruins of the Dugit settlement. The camp is named Askelan — a reference to Ashkelon, further up the coast in Israel.

A tall watchtower constructed at the camp is clearly visible from Israeli territory. From this elevated vantage point, Hamas activists observe activity on the Israeli side of the border. Since the last major flare-up in November 2012, they’ve been watching relative quiet. There are no guarantees that it will last.