The Pandemic Depression
The Global Economy Will Never Be the Same
In October 2014, Israel struck a $15 billion gas deal with Jordan—it would export 1.6 trillion cubic feet of gas for the next 15 years, starting in 2017, from one of its two newly discovered oil fields in the Mediterranean. This deal was the latest in a string of negotiations that Israel has made in the region. The previous one, in January 2013, was signed with a Palestinian company—a $1.2 billion contract for 168 billion cubic feet of gas over 20 years. Both of these agreements, shepherded by the U.S. State Department, will ostensibly renew economic, and potentially political, cooperation between Israel and Arab states—Egypt has also expressed interest in tapping the mammoth reserves. As a result, Israel’s gas is being called a “lifeline for peace” in the Middle East. But the energy negotiations, conducted behind closed doors and with little public support, may do little to bring actual peace.
Israel’s new gas fields—Tamar and Leviathan—were discovered by Houston-based Noble Energy in 2009 and 2010. The discoveries came at just the right time. Israel had almost depleted its domestic reservoirs, and in 2012, it lost its supply of cheap gas from Egypt—which had previously provided more than 40 percent of Israel’s domestic consumption—after the Muslim Brotherhood–led government turned off the taps. The energy trade between Israel and Egypt, long seen by Egyptians as extortive and politically unpalatable, had led to a wave of attacks on the pipeline where it originates in the Sinai village of El-Arish. Mohamed Morsi, president at the time, hoped that he could ease domestic opposition by simply shutting off the line.
Morsi’s decision signaled to Israel the need to reevaluate its energy policy—namely, boosting energy security and reducing its dependency on neighboring countries. The nine trillion cubic feet of gas from Tamar and the 17 trillion cubic feet from Leviathan enables the country to meet domestic demand until 2050 and become a major gas exporter in the region.
Jordan was also impacted by the bombings in El-Arish, which hit, perhaps inadvertently, a portion of the pipeline that directs gas to the Hashemite Kingdom. For a country lacking in indigenous resources—close to 80 percent of its gas came from Egypt—the loss was destabilizing, especially since Egypt never resumed its deliveries. As a result, Jordan has had to turn to costly alternatives, such as importing liquid fuel and diesel from Iraq.
In response, Jordan’s Council of Ministers passed a resolution in 2012 to construct a natural gas import terminal in Aqaba, a port city in south Jordan. This terminal, which has a life span of ten years, would buy the government the time to explore alternative sources of domestic supply, such as shale oil, nuclear power, and renewable energy. Officials involved in the deal claimed that by investing approximately $65 million in this infrastructure, Jordan would cut close to $500 million per year from its raised energy bill.
As Mohammad Hamed, Jordan’s energy minister, declared, the greatest possible benefit of this terminal was that it would give “independence to the country in the energy field,” since it enabled Jordan to access the global liquefied natural gas (LNG) market, as opposed to depending solely on regional pipeline gas. By the end of 2013, Jordan had completed extensive negotiations with Shell and signed an agreement for a five-year supply, with the first gas delivery to arrive in the summer of 2015.
But only a few months after closing the Shell deal, Jordan announced unexpectedly that it would buy 1.6 trillion cubic feet of gas from Israel, an amount many times more than what it had purchased from Shell. The choice seems to make economic sense: pipeline gas, whether from Israel or Egypt, is bound to be cheaper than imported LNG, which involves costly processing and transport. But the agreement was widely protested by the Jordanian people, who are opposed to any degree of normalization with Israel while the Palestinian territories remain occupied.
To sell the deal to the public, Hamed portrayed it as a needed step toward energy security. “Jordan should not be captive to a single source of natural gas,” he stated. “Buying gas from Noble Energy neither poses a threat to Jordan nor puts the national economy at the mercy of any state.” Despite the government’s claims, though, the figures paint an entirely different picture: during its most productive period, Egypt supplied Jordan with approximately 250 million cubic feet of gas per day. The current deal suggests that Israel could supply Jordan with 290 million cubic feet per day. In other words, under this arrangement, Israel is poised to become Jordan’s primary energy supplier. While the LNG terminal could have been a credible path toward achieving energy independence, or at the very least, bought the government the time to seek alternative sources, its true purpose is now clear: it is little more than a buffer to tide Jordan over until gas from Israel arrives. And alarmingly, Jordan seems to have overlooked the fact that the deal, however preferable economically, has pegged the country’s energy security to the unpredictability of Arab-Israeli relations. (As a note, I worked with the consulting firm that advised the Ministry of Energy on the LNG project)
Perhaps in light of these sensitivities, Israeli and Jordanian officials tried to negotiate and sign the gas deals surreptitiously. More than a year before the October 2014 announcement, the Jordanian media had begun to suspect that their government was in secret talks with Israel about importing natural gas. But the Ministry of Energy and Mineral Resources issued a statement in February 2013 calling the allegations “baseless.” Even though the statement confirmed that Jordan’s Arab Potash Company was engaged in talks with “its counterpart in Israel” via an American firm, former Minister of Energy Alaa Batayneh dismissed the role of the government, attempting to portray the negotiations as purely commercial.
In reality, however, the deal was a product of sustained diplomatic efforts led by the U.S. government. Amos Hochstein, a high-level energy official for the U.S. State Department, allegedly made a total of 14 trips to the region to lay the groundwork for negotiations between Israel and Jordan’s Arab Potash. As the Israeli media reported, he was aided in this effort by former Israeli President Shimon Peres.
After months of talks, the agreements were signed in February 2014 between the U.S.-based Noble and the two Jordanian companies, Arab Potash and Jordan Bromine, effectively paving the way for state-level collaboration. The private “commercial” agreement, which precipitated the wider talks, was essentially a test case used by the Jordanian government to assess the public’s willingness to allow energy trade normalization with Israel. Since there was negligible public protest after this initial announcement (there was also not much publicity), less than eight months after the private deal was signed, the significantly larger gas deal was announced between Jordan’s state-owned National Electric Power Company and the two investors in Leviathan, Noble and Israel’s Delek. Since then, there has been a more coordinated public effort to annul the deal.
A LOPSIDED DEAL
At the same time Israel was negotiating with Jordan, it was working on an energy agreement with Palestinian companies. In January 2013, the Palestine Power Generation Company signed a $1.2 billion contract for 168 billion cubic feet 4.75 billion cubic meters of gas over 20 years. This deal, again touted by the U.S. State Department as a conduit to peace, appears even more misguided than the Jordanian agreement.
Palestinians have sought to explore their own gas reserves—two fields known as the Gaza Marine—for more than a decade and a half. Discovered by British Gas, these fields total 1.4 trillion cubic feet of gas and are located less than 20 kilometers off the coast of Gaza. (These reserves are indisputably within Palestinian territories according to the Gaza-Jericho Agreement signed with Israel in 1994.) The late Palestinian President Yasir Arafat called them a “gift from God to our people.”
According to documents by the British government, before Hamas’ takeover of the Gaza Strip in 2007, Israel demanded that Palestine sell its gas from the Gaza Marine at roughly one-third to one-half of its market value, making it difficult to attract international oil and gas firms willing to invest in these reserves at such a low return. Unable to attract investment for its own reserves, and with little freedom to pursue alternatives, Palestine was pushed to turn to Israeli imports.
The U.S. State Department’s attempts to facilitate gas imports from Israel into the Palestinian territories fail to address these underlying power imbalances—which create the need for the gas imports in the first place—and further entrench Israel’s control of the Palestinian territories and its resources. The new deal also undermines the Palestinians’ effort to end the Israeli occupation through alternative means, such as the Boycott, Divestment, and Sanctions initiative, which is gaining popular support, even from Israelis and American Jews. By effectively normalizing energy relations with Israel, Arab leaders and the U.S. State Department offset any gains made by the movement.
Finally, the deal takes away an important diplomatic card long held by the Arab world: the Arab Peace Initiative (API). Put forward by Saudi Arabia in 2002 during a summit of the Arab League, the initiative proposes normalization of relations with the Arab nations if Israel withdraws from the occupied territories to pre-1967 lines and recognizes Palestinian statehood. Although it is not a perfect solution, the API is still regarded as a possible mechanism for ending Israel’s occupation of the Palestinian territories. Yet under the gas deals, Israel is now reaping the benefits of the API—trade normalization—without having made any concessions.
It is misguided to believe that a gas deal between Israel and Palestinian energy companies, as well as with other Arab states such as Jordan, can bring about peace. In the absence of an accompanying political effort to deal with Israel’s treatment of the Palestinians, the imbalanced energy deals promoted by the U.S. State Department effectively perpetuate the status quo. By signing such agreements in secret, against the will of their citizens, the Jordanian and Palestinian leadership undermine their national interests for ostensible stability. The timing of the gas deals seemed particularly insensitive—announced after Israel’s military operation against Hamas in the summer of 2014 that killed over 2,000 people, most of them Gazan civilians. Rewarding Israel with lucrative energy agreements seems to send a signal that it can behave with impunity. In other words, “gas for peace” seems to do the opposite of promoting long-term peace.