Ariel Sharon, Israel's front-running
candidate for prime minister, isn't thrilled about it. And many
Egyptians don't like the idea either.
But despite objections on both sides
of the border, Egypt has agreed to start supplying Israel with natural
gas next year, a deal totaling $3 billion that will continue until at
In the end, the decision between the
often bitterly estranged neighbors was based "on purely
commercial considerations, taking into account the price of the
product, its quality and its availability," said Yaakov Razon,
director general of the state-owned Israel Electric Corporation.
The long-term sales contract will
forge the first strong economic bond between the two countries,
although Egypt has been a minor supplier of oil to Israel for two
decades. It is an arrangement that diplomats in both countries hope
will under gird regional peace efforts with new financial and security
"This is very, very important to
cementing peace, to widening the circle of mutual interests, so that
war will be considered impossible," said an Israeli Foreign
Negotiated between two state- owned
companies at a time of strained diplomatic ties, the deal will
instantly quadruple the volume of Israeli-Egyptian trade and represent
Israel's first big import pact with a Middle Eastern energy producer.
The agreement marks the first natural
gas purchase of any kind for Israel, and the first major gas sale for
Egypt, which sits on some of the world's largest natural gas deposits.
So sensitive is the issue
politically, though, that neither President Hosni Mubarak of Egypt nor
Prime Minister Ehud Barak of Israel has publicly embraced the new
energy partnership — though Mr. Barak did say, in response to a
question, that he favored diversified energy sources.
The decision was announced a week
ago, when the Israel Electric Corporation said it planned to award the
contract to an Egyptian consortium to supply natural gas to some of
its biggest power plants.
Israel's semiautonomous electricity
monopoly was praised and attacked for resisting intense political
pressure from the Israeli right and from a local company that sought
preferential treatment in the bidding process for its own newly
discovered offshore reserves.
By all accounts the gas is a bargain.
The Egyptians, whose huge Nile Delta gas fields greatly exceed
domestic needs, underbid their Israeli-based rivals by about a third,
industry sources said.
Officials in both companies said
technical issues still under negotiation should be resolved within
three months and Egyptian gas should start flowing through a new
offshore pipeline by the end of next year.
Pumped in through the port of
Ashkelon, the Egyptian gas should initially satisfy about 15 percent
of Israel's electric power needs. Eager to diversify supplies and
maintain competition, the Israeli electricity company is now taking
bids for gas from reserves off Israel and the Gaza Strip for a second,
slightly smaller 10-year contract.
During the next decade Israel's
natural gas demands are expected to at least triple, leading to
expectations of further long-term contracts for Egyptian, Israeli and
even Palestinian gas.
For weeks before the long-scheduled
contract decision, newspaper and radio advertisements urged the state
power company to spurn "Arab" gas and opt instead for
exclusive reliance on "blue and white" Israeli fuel.
Egyptian companies, with official
encouragement, are cutting back on Israeli imports as a show of
support for the Palestinians, Israelis were reminded. "Mubarak
could turn off the faucet as part of the Arab boycott he declared
against Israel," a radio commercial warned. "And despite
this we are still contemplating buying gas from Egypt and binding the
country to economic and strategic dependence on Egypt."
Two days before the deal was
announced, Mr. Sharon weighed in, saying he also thought Israel should
depend exclusively on its own domestic gas supplies. As the minister
in Israel's last Likud government with responsibility for energy
policies, Mr. Sharon raised similar objections to dependence on
But the head of an Israeli company
with a minority share in the Egyptian venture shrugged off Mr.
Sharon's comments, saying he was certain that no future Israeli
government would undo a binding commercial contract. "Imagine how
this would be interpreted," said Yossi Maimon, president of the
Merhav Group. "What would happen to the financial and commercial
standing of Israel?"
To the surprise of many, Mr. Sharon
publicly recanted. "Yossi Maimon is right," he said after
the announcement by the Israel Electric Corporation. "The I.E.C.
has a board of directors that has taken a decision, and I do not
intend to interfere with it."
The gas deal has also confronted
widespread disapproval in Egypt, where there is intense popular
opposition to trade and cultural ties with Israel. Egypt withdrew its
ambassador from Israel in the fall as a protest against the Israeli
military response to violent Palestinian demonstrations in the Gaza
Strip and the West Bank.
Last week's decision was expected for
some time in industry circles in both countries. So confident were the
Egyptians that Israel would become their first major gas customer that
two years ago an Italian-Egyptian consortium began building a $150
million pipeline to the border. Their ultimate goal was to stretch the
pipeline offshore all the way to Turkey.
But energy-hungry Israel was the
financially essential first stop. The $100 billion Israeli economy was
a large enough market to justify the expenditure by itself, even if
further- flung contracts failed to materialize.
For economic and environmental
reasons the Israeli electricity company decided a decade ago that it
needed to fuel at least some of its power plants with natural gas.
Egypt's mammoth gas fields, the largest in the Mediterranean basin,
were by far the cheapest potential supplier.
Earlier negotiations between Egypt
and Israel foundered as relations chilled during Benjamin Netanyahu's
term as prime minister, with President Mubarak' S ministers and Mr.
Sharon, who controlled Israeli energy policy as minister of
infrastructures, appearing equally unwilling to strike a deal.
But the election of Mr. Bark's
center-left coalition in May 1999 removed the major political obstacle
to the contract.
The new gas deal is 10 times the size
of Israel's million-barrels-a- year oil contract with Egypt. And
supply interruptions in a gas pipeline to electric power plants would
be far more disruptive than cancellations of oil tanker shipments,
note some Israeli foreign policy specialists who otherwise favor
expanded business ties with Egypt.
"One should draw a distinction
between trade with Egypt and dependence on Egyptian gas," said
Dore Gold, a former Israeli ambassador to the United Nations and an
adviser to the Sharon campaign. "What's done is done, but states
usually prefer to strengthen their own energy independence
Mr. Gold still favors reliance on
multiple gas suppliers but holds out hope that the gas contract and
the $300 million it will earn Egypt each year will encourage further
economic and diplomatic cooperation.
Yet because Cairo's gas revenues go
directly to the national treasury, the economic benefits may not be
visible to ordinary Egyptians, an Israeli diplomat cautioned.
"This alone won't warm up the cold peace," she said.
Source: The New York Times Company