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TURKEY-ISRAEL: Energy Cooperation Prospects Boosted by Israeli Apology

Bottom Line: A deal in the works for a Israel-Turkey pipeline that would transport Levant Basin gas to Turkey under the Mediterranean comes one step closer to realization with an official apology from Israel to Turkey, engineered by Obama.

Analysis: As we noted in February, Israel has proposed the construction of a pipeline under the Mediterranean Sea to southern Turkey to market its gas to Western Europe. Turkish officials have conceded that the Israeli proposal has been officially made, but have responded publicly by saying that “we have a policy regarding Israel, and the claims that Turkey leans towards this idea is not true”.  However, this idea is difficult to sell to the Turkish public. May 2010 saw nine Turks killed by Israeli forces when they boarded a Turkish ship that was attempting to break the Gaza blockade. The Turkish prime minister dramatically walked out of the Davos Economic Forum in January this year because the Israeli president was there. This was for public consumption in Turkey.

This pipeline would mean an alternative gas supply for Europe, to deal a blow to Russian hegemony. For the Western partners in Israel’s massive Leviathan field, piping gas to Turkey will be much more lucrative than the other options, particularly an option to export to China.

Turkey-Israel Energy Corridor

We should consider this project green-lighted now. Last week, on the tarmac at Tel Aviv airport, Barack Obama called Turkish Prime Minister Recep Tayyip Erdogan and handed the phone to Israeli Prime Minister Benjamin Netanyahu. What he elicited was a formal apology from Netanyahu that the Erdogan could pass along to the Turkish public. This is unprecedented for Israel—and all Turkey needs to make this project fly in the face of domestic opposition.

Recommendation: Keep your eye on the partners in Israel’s Leviathan Basin—particularly on Noble Energy Inc. These partners will be the main beneficiaries of this pipeline to Turkey and further afield to European markets. (For more on Noble Energy, check out Dan Dicker’s analysis from last week).




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