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Egyptian-Israeli Natural Gas Agreement Now Officially Over

On 22 April Mohamed Shoeb, Egyptian Natural Gas Holding Company head said that his company unilaterally abrogated its contract to ship natural gas to Israel because of contractual obligations violations.

Populist evidence from Egypt indicates that the natural gas agreement was deeply unpopular in the world’s most populous Arab state, and since 2011, the pipeline supplying gas from Egypt to both Israel and Jordan has been attacked 14 times.

This is a potentially a major political game changer in the Middle East, overturning more than 30 years of relatively quiescent Egyptian-Israeli relations. The natural gas sales were Israel’s major economic benefit from the 1978 peace agreement between the two countries, despite the natural gas agreement being implemented only in 2005.

Under the 2005 contract, the Cairo-based East Mediterranean Gas Co. sold 1.7 billion cubic meters of natural gas at a rate of $1.50 per million British thermal units, (BTUs), which Egyptian nationalists charge was grossly underpaid.

But the roots of the dispute, like so many Middle Eastern issues, have antecedents far older and deeper than the current confrontation.

The tenuous peace established by the September 1978 Camp David accords came a mere five years after the last Arab War against Israel. The West was all in favour of pursuing peace between the Israelis and the Palestinians, especially as in the immediate aftermath of the conflict an Arab oil embargo against the West tripled oil prices, focusing Western interest on the region as never before.

If the Camp David agreements were an optimistic beacon in 1978, they were buffeted by three other subsequent events that rocked the Muslim world the following year, of which the West paid attention to only two.

In February, massive demonstrations overthrew the Shah of Iran.

In December 1979 the USSR invaded Afghanisan.

But a significant event also occurred in Saudi Arabia the month before the Soviet Afghan invasion, when on 20 November, several hundred Saudi Sunni radicals under Juhaiman ibn Muhammad ibn Saif al Utaiba captured Mecca’s Great Mosque complex taking hundreds of pilgrims hostage, forcing the Saudi monarchy to turn to the West. French paratroopers, operating under special dispensation to enter the Holy City, recovered the complex after a nearly two-week siege.

Sixty-seven captured militants were eventually beheaded for the uprising, which greatly impressed Osama Bin Laden, who called the insurgents “true Muslims.”

The end result of the insurrection was to drive a thoroughly frightened Saudi monarchy firmly into the arms of its fundamentalist state-supported Wahabbi clergy, where it remains to this day, espousing Sunni Islam’s most austere ideology, which in part motivated the 9/11 Saudi Arabian hijackers.

So, what does this have to do with Egyptian-Israeli gas contracts?

Simple – the optimism of the 1978 Camp David accords were followed a year later by tumultuous events in the Arab/Muslim world whose implications are slowly working themselves out in the second decade of the 21st century, but who shared a commonality of awakening Muslim awareness, which increasingly took as part of its focus grievances against the West and its unconditional support for Israel.

And one of the major grievances became traditional Western support for decades of corrupt secularist Arab regimes, from Tunisia through Libya and Egypt to Syria, which is crumbling as the “Arab street” finds it incipient voice. Inchoate as it currently is, an element that the Magreb’s new “democrats” must take increasing cognizance of is that agreements with Israel reached earlier are to be at best reviewed, or (for Jerusalem) at worst, terminated, as Arab “people power” rises.

One of the casualties of this review is the Egyptian-Israeli natural gas agreement, putting the 2005 Egyptian $500 million East Mediterranean Gas Company Ltd. (EMG) pipeline, which supplied 40 percent of Israel’s natural gas through an underwater pipeline from the Egyptian city of El Arish on the northern Mediterranean coast to the Israeli port of Ashkelon, apparently under threat of permanent closure. The East Mediterranean Gas Company Ltd. was established in 2000 and is jointly owned /by Egyptian General Petroleum Corp., which owns 68.4 percent of the venture, and its 170 million cubic feet of gas per day of exports and met nearly half of Israel’s natural gas needs until the Arab Spring swept northern Africa a year ago.

Worse may be to follow – former Egyptian Oil Minister Sameh Fahmy, who held his post under former President Hosni Mubarak from 1999 to 2011, is standing trial alongside six other officials on charges of squandering public funds related to the sale of natural gas to Israel, with prosecutors arguing that since 2005 the Egyptian government has suffered losses of over $714 million.

In his defense, Fahmy's lawyers have told the court that providing Israel with cut-price natural gas was an initiative of ousted President Mubarak and their client was only responsible for implementing the arrangement, not its investigator.

Tel Aviv has certainly taken notice – on 22 April Israel Finance Minister Yuval Steinitz said that the Egyptian announcement was of "great concern," commenting, "This is a dangerous precedent that overshadows the peace agreements and the peaceful atmosphere between Israel and Egypt."

In the volatile atmosphere of the Middle East, truer words have not recently been spoken.
But, there may be yet a chance to salvage an arrangement of sorts. On 23 April Egypt’s International Cooperation Minister Fayza Abul Naga said that regarding the canceled contract the Egyptian government had no objections to concluding “a new contract with new conditions and a new price."

How much is peace worth, for either country?

Nationalism doesn’t pay bills or provide electricity.

By. John C.K. Daly of Oilprice.com

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Leave a comment
  • concerned citezen on May 08 2012 said:
    Mr. Daly,
    I respect your points made above, i feel that you have left out some important information that many in the public sector choose to ignore.
    1. while israel has got cheap gas (on paper) form egypt, this has been more or less subsidized by money from the US equalling much more than the loss of $714 million you mention in your article.
    2. your reference to the islamic revolution and its roots in "Juhaiman ibn Muhammad's" failed attempt at revolution is tenious at best, as such "Juhaiman" never had any real backing in the kingdom and is regarded as a disgruntuled cheiftan more than an islamic hero.
    3. If you look at the islamic push in eygpt going on at the moment with "islamic brotherhood" taking control of the councel i am convinced that while they raise a lot of banners it is only for the masses. unfortunately it works and in the end egypt need the money and they will renegotiate at a different price. the US will end up paying the difference in another way.

    the root of the problem will remain unsolved and people will continue to complain while isreal goes on with its new settlements and palestanians are kicked out of their homes...

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