Inside Intelligence: Peace Through Energy & Iranian Negotiations

Security Risk Rankings

This week we are introducing our new security risk ranking system designed to provide investors and potential investors with a continual look at the changing security dynamics around the world. Each week we will focus on a different region, with comparative risk rankings based on various dynamics, including threats to personnel and operations, militant activity, kidnappings, border security and political stability.
 

The PA and Israel: Forging Peace Through Energy?

Bottom Line: A long-running plan to develop discoveries made off the Gaza Strip by UK-based BG Group appear to be languishing in a sea of false hope.

Analysis: In 1999, the Palestinian Authority (PA) awarded BG Group a 25-year exploration license for the entire offshore sector of Gaza Strip. Only a year later, BG discovered two fields here-Marine 1 and 2-with an estimated 1.4 trillion cubic feet of gas in place. This estimate could actually turn out to be a bit shy of the much more promising potential unveiled by major Israeli discoveries in the Levant Basin, with the offshore Leviathan and Tamar gas fields. BG holds a 60% stake in the field, with partner Consolidated Contractors International Co. of Greece holding 30% and the PA holding 10%. So far, so good-but holding up development here is the tricky necessity of obtaining a permit from the Israelis. For now, the $1 billion project is dead in the water while everyone-including BG, Washington and the Palestinian Authority-wait for this geopolitical drama to play out. The PA seems to think they are only weeks-if not days-away from the issuance of Israeli permits for development. If the permits come through soon, we could be looking at first production in 2017-but that is a very big "if". The PA is optimistic, however. After all, even Israeli Prime Minister Benjamin Netanyahu has paid a great deal of lip service to this project, prodded in the back by Washington to do so. The larger plan is called the "Economic Initiative for Palestine"-a $4 billion project launched by US Secretary of State John Kerry. The plan was unveiled in part in September, and hopes to open up massive projects in eight sectors with the support of foreign investors and lenders. Beyond the Gaza Marine gas project, it also includes mining potash in the Dead Sea and boosting "Holy Land" tourism.

If the Gaza gas plan is allowed to proceed, its advocates say it would transform the Palestinian economy-which stays afloat only because of foreign aid--and lay the foundation for a final peace agreement with Israel. The Gaza Marine fields could have enough gas-at the current estimate-to provide the Palestinians for up to 12 years. The best way to get it to the Palestinians would be to pipe it onshore by linking it up with Israel's existing infrastructure, which includes a gas processing plant outside the southern Israeli port of Ashdod.

The Gaza Marine is economically feasible-but not politically. BG itself came to this conclusion in March 2012, announcing it would sell part of its concession there. The company only changed its mind because Tony Blair convinced it to try to make headway with the Israelis once more. But it hasn't just been security and politics putting up roadblocks. The Israelis were demanding that the gas be brought onshore, on Israeli territory, and then sold to Israel at below market prices. Nor are the Israelis the only political kink in this chain. In 1999, when BG made the discoveries, Ehud Barack was sitting in the Israeli prime minister's chair, and he relinquished Israel's claim to the field and plans for development, including the construction of a pipeline to an Israeli refinery, got underway. Then, however, we saw Hamas step in and take control of Gaza in 2007 and all deals were off. Later that year, Israel's sole supplier of gas, Yam Thetis, won an appeal in the Israeli Supreme Court to ban the government from signing a deal with BG without a tender. There has been no real progress since.

Recommendation: All of these projects require the Israelis to remove obstacles that have become entrenched, such as border and security controls-as well as the overall inaccessibility of Palestinian companies to what is known as "Area C", where Israel has its biggest, contentious "settlement blocs". Our assessment is that while we do seem to be moving closer to developing the Gaza Marine, we're not there yet-certainly not days or weeks away from Israeli permits to develop this. Violence is on the rise in the West Bank, so removing Israeli security controls will be tough. And it's about to get tougher: Israeli Foreign Minister Avigdor Lieberman has just returned to government after being acquitted of corruption charges, and he is bent on derailing peace negotiations with the Palestinians, and much of this peace is being built on the back of energy.

When Iran Negotiations Aren't About Iran

Bottom Line: What is important to understand about negotiations with Iran over its nuclear program is that is has less to do with nuclear issues than it does with the back-room diplomatic dance that has Israel, Saudi Arabia and France doing everything in their power to derail Washington's plans.

Analysis: The overriding sentiment of the P5+1 (US, UK, France, Russia and China, plus Germany) nuclear talks with Iran is that the P5+1 itself isn't ready to negotiate with Iran until they negotiate amongst themselves. At this point, Iran is barely involved in the talks, while various diplomats shuttle back and forth trying to out-maneuver each other. The French are keen to keep the money flowing from Saudi Arabia and Qatar, whose agendas with respect to Iran are aligned with Israel's, which has plenty of influence in Paris as well. At this point it is not Iran that is jeopardizing progress for another round of talks in Geneva next week-but France, Israel and Saudi Arabia. The Western mainstream media would have us believe that Washington and Paris are actually staging a very clever game of good-cop, bad-cop to force Tehran into more concessions, but this is far from the reality. The reality is that we have some very influential forces, particularly in France, who have largely sidelined President Hollande in this affair.

Here are some key figures you should be aware of who are in part controlling the diplomatic gaming over Iran.

1)    Meyer Habib, a member of French parliament with an Israeli passport who also used to serve as a spokesman for Israel's right-wing Likud in France and reportedly a close confidante of Israeli Prime Minister Benjamin Netanyahu
2)    French Foreign Minister Laurent Fabius, who, in tandem with Habib, is attempting to derail the talks in Geneva because of security concerns for Israel

Habib and Fabius are doing Israel's bidding here, passing messages back and forth from Tel Aviv to Paris. Those messages have contained threats, too, such as an Israeli attack on Iran's nuclear facilities if the Geneva deal went through. This was a message passed from Habib to Fabius.

What makes it particularly difficult for Iranian President Hassan Rouhani is that his ability to negotiate is challenged by the fact that he has enemies inside Iran-in the form of the hardline Revolutionary Guards Corps.--who also wish to derail these talks. For this reason, details of any potential deal were to be kept secret to give Rouhani more leverage in the negotiations from an internal perspective. What Habib and Fabius succeeded in doing was revealing those secret aspects of the deal and their intention was specifically to make it difficult for Rouhani to negotiate by provoking his Iranian rivals.

The Saudis (as well as the French) are already reeling from Washington's decision not to launch airstrikes on Syria, and the French are keen to keep the Saudis happy. At stake are massive military contracts and nuclear power plants (in countries not friendly to Iran) and other energy deals.

Recommendation: Even though Rouhani is ready to negotiate, which is a first for Iran, the geopolitical game will make it very difficult to see this through at the Geneva talks. Even Washington, in the form of John Kerry, is letting Israel, France and Saudi Arabia win this round by blaming the failure of the last round on Iran. But the deal on the table was a good one, while it lasted. The compromise was that Iran would be allowed to keep building its Arak reactor during the six months of an interim agreement but would also be able to test it using dummy fuel rods and regular water. It was the first breakthrough we have seen on this issue, but the compromise has been compromised. France-run by Saudi/Qatari money and Israeli influence-has all but destroyed the deal, and the level of Israeli influence in Washington is making it difficult to provide a counterbalance to the diplomatic gaming. However, if the talks in Geneva on 22 November fail again, this isn't over. If the Obama administration is willing to see this through, which would mean reining certain forces in its own house, France certainly does not have the power to stop it from happening, interfere as it might. We're still waiting for this decisive signal from Washington, though.