Arab Spring Roils Israel's Energy Imports - and Israel

Israel's political relations, always tense, with Egypt, the Palestinian Authority and Lebanon have deteriorated since the Egyptian government of Hosni Mubarak was overthrown in February by a popular uprising.

One of Israel's greatest benefits from the Camp David Accords was its ability to import Egyptian natural gas through Egypt's $500 million East Mediterranean Gas Company Ltd. (EMG) pipeline.

On 30 July Egyptian officials said that militants destroyed the EMG pipeline terminal in al-Shulaq, roughly 10 miles from Egypt's border with the Gaza Strip, the last terminal before the pipeline submerges under the Mediterranean on its way to Israel.

The assault on al-Shulaq is the third attack on the EMG pipeline since the beginning of July and the fifth since the 18-day uprising that toppled Mubarak in February. The 12 July attack halted all further shipments, leaving al-Shulaq empty at the time of the attack. Egyptian authorities have accused an extremist Islamic Bedouin group for the al-Shulaq blast in northern Sinai.
 
The ongoing assaults against the pipeline and the subsequent disruption of natural gas supplies have had an impact in Israel, where Israel Electric Corp. announced recently that as a result of natural gas supply disruptions and the consequent need to transition to using alternative fuels, primarily diesel, to produce electricity, the company needs $876 million – $1 billion in immediate government financial assistance.

EMG is a joint company established in 2000 and jointly owned by Egyptian General Petroleum Corporation? (EGPC) owning 68.4 percent, the private Israeli company Merhav a 25 percent share and the Ampal-American Israel Corp. having the remaining 6.6 percent. EMG received the right to export natural gas from Egypt to Israel and beyond to Jordan and Syria via underwater pipelines from Al 'Arish to Ashkelon, under agreements to provide the Israel Electric Corp. 170 million cubic feet of gas per day. Supplies began in the second half of 2007 but the arrangement was never popular with the Egyptian people.
 
The Egyptian-Israeli natural gas agreements allowed for Israeli entities to purchase up to 7 billion cubic meters of Egyptian gas annually, making Israel one of Egypt's most important natural gas export markets. While Israel’s price for Egyptian gas is relatively low, as regional transport costs to nearby Israel are relatively minor and that Egyptian gas had to be price-competitive with Israeli natural gas domestic production, the arrangement was nevertheless quite profitable for the Egyptian treasury.

But the low Israeli prices aroused public resentment in Egypt, where many believed that Israel was receiving natural gas at an artificially low cost far below its actual worth.

Nor are Israel's problems with Egyptian natural gas imports its sole energy problem, as tensions are rising with its northern neighbor Lebanon over extensive Mediterranean natural gas offshore fields and their maritime delineation. Earlier this month, According to Israeli Foreign Minister Avigdor Lieberman said that Tel Aviv will shortly seek a UN opinion on its Mediterranean maritime borders with Lebanon, telling the Israeli media, "We will soon be presenting the United Nations headquarters in New York with our position on our maritime borders. We have already concluded an agreement on this issue with Cyprus... Lebanon, under pressure from Hezbollah, is looking for friction, but we will not give up any part of what is rightfully ours."
 
The two biggest known offshore natural gas fields surveyed so far, Tamar and Leviathan, lie off Israel's northern city of Haifa, which between them hold an estimated 278 billion cubic meters of natural gas.
 
Lebanon has warned Israel against taking "unilateral steps" on its maritime borders, with Lebanese President Michel Suleiman cautioning the Israeli government against taking unilateral actions of "the kind that Israel commonly makes in violation of international law."
 
Even more ominously for the Israeli government, last week Lebanon’s Cabinet approved a Memorandum of Understanding with arch-enemy Iran, between Lebanon's Energy and Water Resources Ministry and Iran's Petroleum Ministry for closer energy cooperation, which Lebanon's Hezbollah-affiliated Al-Manar television station valued at $50 million.
 
All in all it adds up to a grim picture for the government of Israeli Prime Minister Benjamin Netanyahu, which has apparently failed in understanding the implications of the Arab Spring, sweeping across the Middle East from Morocco to Syria since the beginning of the year. The populations of these nations have made efforts to remove their dictatorial leaders and replace them with governments more in tune with the sentiments of their people.
 
Particularly in the case of Egypt, this will likely mean a government containing a significant element of the Islamic brotherhood, and the overall complexion of the new Egyptian government is less likely to be as accommodating to Israel. The Nets and Yahoo administration has yet to grasp the fact that the cumulative effect of Israel's harsh policies towards Gaza, the West Bank, Lebanon and its May 2009 assault on the Mavi Marmara, a Turkish vessel in an unarmed aid flotilla attempting to deliver humanitarian assistance to Gaza, where IDF commandos killed eight unarmed Turks and an American citizen, have had a massively negative impact on Middle Eastern public opinions in countries where citizens, now by despotic regimes, remained quiescent before. To use a Middle Eastern metaphor, the genie is now out of the bottle, however much the Israeli government might wish to stuff it back in.
 
For better or for worse, Arab public opinion, assisted by access to the Internet and television broadcasts by such companies as al-Jazeera and Iran's Press TV, regard Israel as obdurate and obstinate, but Netanyahu's current difficulties pale before upcoming events in September, where it seems likely that the Palestinians will seek United Nations recognition of a unilateral declaration of statehood. Despite the Netanyahu administration’s fervent belief that Israel's political and domestic policies can be separated, the reality is now that the Chinese wall between them is crumbling rapidly.
 
If Netanyahu wants to keep the lights on in Tel Aviv, as distressing he may find it, now is the time to show some political leadership and begin to negotiate with his neighbors. On 30 July, 150,000 Israelis took to the streets in 10 cities across Israel to protest the high cost of living in what Israel’s Globes business newspaper called "the mother of all demonstrations," as part of the population’s struggle against the nation’s housing shortages and the burden of indirect taxes. It looks like breezes from the Arab Spring are wafting into Jerusalem, except this time they are wearing yarmulkes. The Israeli Prime Minister ought to listen.

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