For those who depend on it, the consequences are clear. "God forbid if UNRWA collapses," says Sanaa Sarhal, referring to the United Nations Relief and Works Agency for Palestine Refugees in the Near East.

"There will be riots and violence," she predicts. "The collapse of UNRWA ... will cause great damage."

But Sarhal is not in Gaza, where conflict is currently raging. The 43-year-old lives in the Beddawi Camp in northern Lebanon, first set up in 1955 to provide shelter to Palestinians fleeing war and violence. But should UNRWA be forced to reduce its services to Palestinians because of allegations against its staff in Gaza, the impact will also be felt here.

In January, the Israeli government informed UNRWA that 12 of its around 13,000 staff in the Gaza Strip had likely participated in the October 7 attack on Israel by the militant Hamas group. As a result, UNRWA fired the staff and is conducting an investigation. Media outlets that saw the relevant Israeli dossier, including the Associated Press, The Guardian, CNN and The Washington Post, all noted that the Israeli allegations could not be independently verified. 

Still, as a consequence of the allegations, 16 countries — including some of UNRWA's biggest donors, such as Germany, the United States and the European Union — halted funding for the UN agency, which survives on voluntary donations from UN member states.

Since then, the focus has mostly been on how UNRWA's funding crisis might affect the already precarious humanitarian situation in Gaza. Around 40% of UNRWA's budget is spent on the enclave's nearly 2 million residents. The rest is spent in other countries with significant Palestinian populations: Lebanon, Jordan, Syria, as well as in the occupied West Bank. 

'Unofficial substitute for the state'

UNRWA "is best understood as an unofficial substitute for the [social welfare] state" for Palestinians, who don't otherwise have one, explained Daniel Forti, an expert on the UN at the Brussels-based think tank International Crisis Group in a briefing this month. "It provides primary and secondary education, along with food aid, health care and relief services — in some cases stepping in for host countries that do not extend national health care services or offer education to Palestinian refugees."

"Apart from this, UNRWA also has an important symbolic value for Palestinians who see the agency as one of the last assurances of the international community for a just and durable solution," a spokesperson from the agency told DW in an email.

This is also why UNRWA has often been described as politically controversial, even prior to Israel's October 7 accusations. "Much of Israel's political class rejects UNRWA precisely because of its symbolic value to the Palestinians," Forti continued. "They argue that any entity that stands for the preservation of the Palestinians' right of return directly threatens the Israeli state's existence."

 

Problems to start next month

It has been estimated that UNRWA, which does not have a strategic reserve for emergencies, might start to feel the impact of funding shortages at the end of March. 

"There will be a kind of hierarchy as to how drastic [UNRWA's] collapse might be in terms of consequences," says Jorgen Jensehaugen, a senior researcher at Norway's Peace Research Institute Oslo. "It would be Gaza first, then Lebanon and Syria second, then the West Bank and then Jordan."

"The impact will be most keenly felt in Lebanon, which is already on an economic precipice," confirmed Joost Hiltermann, head of the Middle East and North Africa program at the International Crisis Group. "The Lebanese state lacks the capacity to deal with the additional burden of caring for Palestinian refugees. The same is true for Syria. By comparison, Jordan does have that capacity."

In Lebanon, infrastructure in long-standing Palestinian refugee camps, which the Lebanese state tends not to have much control over anyway, would just collapse, Jensehaugen told DW.

"So no schools, no healthcare, no social benefits for those in need. Add that to the context of a collapsing state, and it has ramifications outside the camps as well because people will need to go elsewhere to get, well, anything. That would put an extreme strain on local society. Besides demonstrations or riots in the camps, you might also get more people joining criminal gangs or militant organizations, just for the salary." 

In Jordan, the situation is slightly better, as the state could potentially replace some of UNRWA's services. However because of the sensitivities around UNRWA, Jordanian leadership may be unwilling, analysts argue. Jordan, like other Arab nations, has no desire to be seen as supporting attacks on the Palestinian cause.

UNRWA: Agency for stability

The economic impact will differ from country to country, Hiltermann agreed. "But, given the highly volatile environment for refugees there, the political impact is likely to be worst in the West Bank. There is a reason why the Israeli military would like UNRWA to remain fully funded," he warned.

When Jensehaugen and fellow researchers were interviewing donor countries for a 2022 study on the topic of UNRWA's funding struggles, the agency has long run a deficit, they found "the so-called stability argument" to have been a key motivator for donor contributions. 

"In other words, funding UNRWA is a cheap way of securing stability in the region because it means that hundreds of thousands of children get educated," Jensehaugen explained, noting that poverty and lack of education are proven drivers of extremism and crime.

"So there's a really huge paradox now with constraining funding for UNRWA," Jensehaugen continued. "The potential for instability is so clear and donors already know it can get worse."

For example, observers say that European governments are well aware that if UNRWA fails, they could see a new wave of irregular migration from Lebanon and Jordan.

"UNRWA's collapse would be dangerous for local stability in each location," the Crisis Group's Hiltermann confirms. "But if it links up with an ongoing war in Gaza, or even the mass expulsion of Palestinians from Gaza into Egypt, which would prompt an escalation of attacks by Israel's enemies in the region, then all bets are off."

Edited by: Jon Shelton