The Battle over Israel’s Newfound Riches - Parts III & IV

Friday, September 28, 2012 |  Elizabeth Blade

These are the final two parts of a four-part series on Israel's difficulties in developing its new-found natural resources. If you have not done so already, we recommend first reading The Battle over Israel’s Newfound Riches - Part I and The Battle over Israel’s Newfound Riches - Part II

Israeli officials' fears over Russian involvement in the Jewish state's booming natural gas and oil industry are not unfounded.

Russian natural gas giant Gazprom is facing serious allegations of anti-trust behavior with the European Commission investigating whether the company has been unfairly exploiting its dominant status, harming the free flow of gas to the EU. One example of such misconduct occurred in winter 2008-2009 when Russia cut off all gas supply to Ukraine amid disputes over transit fees and gas costs. The move left several EU member states with no energy in the midst of a bitter cold snap, prompting European leaders to reconsider their dependency on Russia’s energy and look for alternative suppliers.

Nevertheless, their attempts didn’t bear fruit, as Russia geared up the construction of the so-called Nord Stream, a pipeline that enters directly into Germany, making energy-starving Europe dependent on Gazprom even more.

Now that Jerusalem is mulling over exports that could meet Europe’s demand for the next 18 years, Russia fears loosening its grip over the European market and prefers to cooperate with the Jewish state to block Europe from all directions.

But, according to some Russian experts, these allegations are not backed by facts. Citing a number of leading analysts specializing in the field of Russia’s energy resources and politics, the Russian analytical website says Israel’s discoveries cannot challenge Russia.

“It’s too early to talk about Israel’s export potential,” said the website’s report, “the project is at its initial stages of exploration, meaning that the figures [Israel is currently declaring] will probably change [once the production begins]. Additionally, given Israel’s desire to put an end to its dependency on imported energy, Tel Aviv is most likely to consume most of its gas domestically, leaving insignificant amounts for export,” it summed up.

At the same time, the experts conceded that had Gazprom acquired access to Israel’s fields, it would boost cooperation between the two countries. Maryasis agreed, stressing that “ties between Jerusalem and Moscow are already excellent but they could be taken to a whole new level if such project was implemented”.

Indeed, tight economic relations could pave a way to stronger strategic cooperation with the two countries joining forces in the face of common challenges, namely radical Islam and Turkey’s neo-Ottoman ambitions. “Ankara has always tried to position itself as an energy hub, provoking the discontent of Moscow. Israeli-Russian gas project – if it does take place – will pump gas to Cyprus, then Greece and Europe, bypassing Turkey and marginalizing its importance,” added the expert.

Israel is also said to benefit from such an alliance. As the two countries jointly developing resources off Israel’s shores, belligerents, who have been trying to sabotage Israel’s drilling rigs, will now have to think twice before an assault that could provoke Russia’s ire. Additionally, the project might also help Moscow to diversify its clients by using Israeli gas and redirecting it to Middle Eastern or Asian markets (like the one in Japan, currently facing serious shortages following the Fukushima nuclear disaster).

Yet, Gazprom’s accession to the Israeli market won’t be easy. “Given the fact that there are elements inside Israel that lobby to block Gazprom’s entrance, Russia will have to come up with solid suggestions that would buy the concession of Jerusalem,” said Zvi Magen, a pundit specializing in Russia’s foreign policy at the Institute of National Security Studies (INSS), charging that Moscow would try to sweet talk Jerusalem into a political alliance.

Some go so far as to suggest that in exchange for gaining access to Israel’s fields, Moscow would be willing to scrap its ties with Iran. However, Idan meets this assumption with skepticism. “If we assume that they’ll deliver Iran in exchange for control of gas supplies to the Israeli market, I believe this is mistaken. This isn’t in Russia’s interests…” he said. “Over the years… we’ve been trying to convince them that it’s in their best interest to keep Iran from going nuclear…[but] they have no problem with a nuclear Iran, and they use this issue as a bargaining chip whenever they want something from the West,” he concluded.

Addressing the issue of whether he would prefer to let US companies enter the Israeli market instead of Gazprom, Idan said the former option was more optimal. “If you examine the actions of American companies over the years, I would definitely choose them over Gazprom, given the choice. Noble Energy specializes in exploration and drilling, not in laying pipelines...” he added.

But whoever is set to enter this market will face a series of significant challenges. According to Washington Institute, a think tank dedicated to advancing a balanced and realistic understanding of American interests in the Middle East, Israel (and its partners, whoever those might be) will have to resolve a number of diplomatic disputes that threaten its gas exploration ambitions.

“Some reserves are likely to be found near or astride maritime borders. Although Israel has reached agreement with Cyprus on such issues, its maritime boundary disagreement with Lebanon is unlikely to be resolved soon. Additionally, Israel is under international pressure to allow exploitation of a small offshore Palestinian gas field, Gaza Marine, but does not want the revenues to benefit the local Hamas administration. And Turkey, which regards parts of the Cyprus Exclusive Economic Zone (EEZ) as its own, has signaled its opposition to any Israeli-Cypriot cooperation,” the report stated.

The security issue is also on the agenda. No matter how Israel is going to export its energy, be it through a pipeline (going via the hostile Turkey or the economically crippled Greece) or a floating LNG plant (the size of several aircraft carriers), these facilities will be difficult to protect, forcing the Jewish state to spend millions of dollars on various security measures. Yet, despite challenges, Israel’s gas exploration project may serve as a linking element bridging between the Jewish state and its Arab neighbors.  

Last month, Israel’s Minister of National Infrastructure Uzi Landau said Israel was willing to export some of the country’s natural gas to the Palestinian Authority and Jordan, which is currently looking to import comparatively expensive LNG from Qatar, in a bid to improve relations between the neighbors.

Whether Israel’s gas will ever reach foreign markets and the exact size of the country’s alleged reserves are still very much an open question. Experts warn that discoveries make sense only if they are converted to production capacity, so any potential partner, including Russia, will need to watch the related developments closely.

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