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Monday, April 23, 2012

Backgrounder: The Israeli-Egyptian gas agreement

Is Egypt's refusal to provide natural gas to Israel a violation of Camp David, as some (including me) said initially, or is it just a business dispute, as Israel is spinning it now?

Here's some background from the book "The Political Economy of Transitions to Peace: A Comparative Perspective" by Galia Press-Barnathan:
This problematic interaction between the Egyptian government and the broader public was also evident in the case of the agreement to supply Israel with natural gas, as mentioned earlier. In 2000, the Israeli govermnent decided to allow the national electric company to negotiate with local and foreign suppliers of natural gas. One of the main contestants for this project was a private company called EMG, which was owned by both a senior Egyptian businessman, Hussein Salem, and a prominent Israeli, Yossi Mimen. Israel's agreement with EMG was for the company to supply natural gas to Israel for a period of up to twenty years, the total value of the purchases forecast to be about $3 billion. This agreement faced opposition in both Israel and Egypt.

In Israel, opposition reflected the classic realist concerns regarding the creation of a dangerous dependence on energy supply from a potentially unreliable or adversarial source. Opponents argued that it was doubtful that the Egyptian government would be willing to vouch for the continued supply of natural gas to Israel if political circumstances became difficult. Furthermore, should the supply of gas be disrupted, the damage to Israel would be very high because, unlike oil, gas cannot be stored in reserves.

In stark contrast to the public debate in Israel regarding the gas deal with Egypt, Egyptian government officials consistently denied foreign reports that such a deal was being negotiated. The Egyptian public knew nothing about the negotiations with Israel, which had been going on for several years. The strategic decision to sell natural gas to Israel was made by President Mubarak, who appreciated the lucrative economic dividend that would result from such a deal. Egypt had significant natural gas reserves and wanted to find buyers. However, the only promising market in the region was that of Israel. Once again, economic logic triumphed. While the treaty was conveniently signed by the private gas company, Israel made an effort to upgrade this economic interaction by calling for an official state-level agreement in which the Egyptian government would ensure a continuous supply of gas. Eventually, the Egyptians agreed to sign a vague memorandum of understanding. When the agreement was finally signed, in July 2005, Israeli journalists attending the ceremony reported the great unease that surrounded the event on the Egyptian side. This unease and complex maneuvering was already apparent in 2002, against the backdrop of the second intifada and severe criticism within Egypt of Israeli policy. President Mubarak announced that he would suspend all nondiplomatic relations with Israel. However, this announcement was not expected to hinder the completion of the gas deal with Israel. The government refused to sever all trade ties in practice because there was a real economic stake involved. This stood in sharp contrast to the public mood at the time. Chambers of commerce and trade organizations repeatedly issued statements of a boycott against Israel, but the government was unwilling to intervene. The head of the import sector at the Cairo Chamber of Commerce, Moustafa Zaki, concluded at the time, "It is up to the people. The government will not interfere. Consumers can refuse to purchase Israeli goods. That's the best we can hope for."
More details from IPS from 2005:
According to the agreement signed by Egyptian Minister of Petroleum Sameh Fahmy and Israeli Minister of Infrastructure Binyamin Ben-Eliezer at a ceremony Jun. 30, also attended by Egyptian Prime Minister Ahmed Nazif, Egypt will supply Israel with the gas for 15 years, by way of a maritime pipeline to the southern Israeli town of Ashkelon.

The deal - expected to generate between two billion and three billion U.S. dollars a year in revenue - is to be cemented by a second, final pact, expected in August. The pipeline is slated to begin delivering gas late in 2006.

Although the deal comes at a time of popular anger over Israeli policies, many financial analysts agree that - from a strictly economic standpoint - the move was a practical one. "Economically, it makes good sense," said Nashwa Saleh, head of research at Cairo-based investment house HC Brokerage. "We have more natural gas than we can consume locally - it's smart to export."

Recent estimates have put Egypt's gas reserves as high as three trillion cubic meters.

Talks between Eastern Mediterranean Gas, a private firm jointly owned by an Egyptian businessman and the Israeli Merhav Group, and the state-run Israel Electric Corporation, which intends to buy the gas, have been ongoing since 2001. But an agreement was delayed several times due to ongoing Israeli-Palestinian violence, which made it politically awkward for Cairo to commit to the sale. Meanwhile, given the political sensitivities involved, authorities remained tight-lipped about the discussions.

So while the agreement was technically between a private Egyptian corporation and a state-run Israeli energy company, it was part of a state-level agreement to supply gas - but it was not from Camp David.