Why It Rains: Hamas holding “Israeli” gas reserves hostage

British Gas’ logo, the company that signed an agreement to sell Gazan gas to the international market.

An unexpected energy windfall on Israel’s doorstep promises to resolve Israel’s energy security concerns for years to come. Unfortunately for Israek, it is the Palestinian Authority that controls the licensing of these reserves. So, as Operation Summer Rains washes away the administrative and political structures in the occupied territories, has Israel decided to use Hamas as an excuse to dismantle the PA and seize its energy assets?

After the Iranian Revolution cut-off energy supplies in 1979, and the loss of Sinai’s oil in 1982, Israel became dependent on expensive, long-distance energy imports. Towards the end of the 1990s, in an attempt to alleviate concerns over its energy security and reduce its dependency on imported oil, Israel decided to place a greater emphasis on natural gas. The architect of Israel’s energy strategy at the time was Netanyahu’s Minister of National Infrastructure, Ariel Sharon.

After Netanyahu’s election defeat in 1999, Ehud Barak sought to take advantage of improved relations with Egypt to import some of Israel’s gas from the Nile Delta [1]. There was, however, political resistance to the deal from within both countries and, when relations with Egypt began to deteriorate with the start of the 2nd Intifada and Sharon’s subsequent rise to power, the $3 billion deal was put on the back-burner. However, the possibility of avoiding dependence on such a politically contentious source arose in 2000 when several energy companies, including British Gas (BG), announced the discovery of “significant deposits” of natural gas off the Israeli coast [2].

Estimated at 100 billion cubic meters of proven reserves, these discoveries potentially offer enough gas to meet Israel’s goal of supplying 25% of its energy needs for more than 20 years - even without further imports [3]. The discovery has also raised realistic expectations of locating oil deposits beneath the gas fields.

Unfortunately for Israel, 60% of these reserves are in waters controlled by the Palestinian Authority, which has signed a 25-year contract with British Gas for further exploration in the area. Since this discovery, Israel has proceeded with the development of its reserves with the US-Israeli company Yam Tethys, but has been faced with an obvious dilemma over the Palestinian deposits [4]. Keen to secure the gas for its domestic market but unwilling to submit its sensitive energy supplies (and their profits) into the hands of the Palestinians, Israel has for the past 6 years pursued a policy of non-commitment, stalling and obstruction.

Despite early endorsement of the British Gas plan to develop the PA reserves for the Israeli market, the intensification of tensions during the Intifada allowed Sharon to veto the Gaza deal on security grounds. With the exploitation of the Palestinian reserves halted and the Egyptian deal put on hold, Israel has used the Yam Tethys supply as a stopgap. However, as its hungry economy quickly bought up these reserves and prices began to rise Israel needed to act to guarantee its future supplies. After years of on-off negotiations between the two reluctant trade partners, in July 2005, Israel signed a 15-year contract for Egyptian gas [5].

However, following the signing of the deal it was revealed that - impatient with Israeli intransigence - Egypt, British Gas and the Palestinian Authority had also been secretly negotiating a deal to sidestep the problematic Israeli market. Within a month, the three parties announced their plan to extract Gazan gas, transport it to Egypt in an Egyptian controlled pipeline, and then ship it on in liquefied form to the international market [6].

The possibility that Israel could be permanently excluded from such a tempting energy windfall on their doorstep, and that the main beneficiaries would be Egypt and the Palestinians, has since prompted Olmert to reverse Sharon’s veto and reopen negotiations with BG over the supply of Gazan gas to Israel. Despite the ongoing international isolation of Hamas, the BG deal was high on the agenda during Olmert’s recent meeting with British Chancellor Gordon Brown [6].

Despite BG’s commitments to Egypt and the PA, the company has announced that it is willing to enter into a deal with Israel. Within Israel, political legitimacy for the reversal has come from increasing criticisms of high prices caused by Egypt’s effective monopoly of Israeli gas supply. Also, according to Haaretz, Israel is confident that it has enough “influence” to persuade Egypt to back out of the Gazan deal, with “senior government sources” asserting that: “The gas off Gaza will come to Israel in the end.” [6].

Until last week, Israel’s confidence did not make any sense. The security situation that provoked Sharon’s original veto of Gazan gas had not improved and it seems inconceivable that Israel would allow the PA, let alone Hamas, to reap the benefits of the Gazan gas fields. BG has made it clear that its Gazan gas will be developed soon, whether Israel likes it or not, but if Hamas is not to be the partner, then who is?

The arrival of “Summer Rains” gives us a sour answer. If the ongoing attacks on Gaza succeed in destroying the Palestinian Authority as a viable political entity, all commercial contracts with the Authority, such as that with British Gas, will become worthless and will have to be renegotiated with the Israeli government. Perhaps the most valuable “hostage” that Hamas has in the current crisis then is not the 19-year old Israeli soldier, but the Palestinian gas reserves that Israel claims as its own, and may go to extreme lengths to rescue.

Jake Bower is the pseudonym of a postgraduate historian in the UK who specialises in the strategic and tactical framework behind American foreign interventions. The above article was edited from a wider analysis of the regional and global dynamics of the new “great game” for control of energy resources and transit infrastructure.

Related Links

  • BY TOPIC: Israel invades Gaza (27 June 2006)

    1. New York Times. 2001. Business Is Business: $3 Billion Israeli-Egyptian Gas Deal. Saudia-Online. (accessed July 4, 2006).
    2. Even, Shmuel. 2001. Israeli Natural Gas: The Economic and Strategic Significance. Jaffee Center for Strategic Studies. (accessed June 22, 2006).
    3. Research & Markets. 2000. The New East Mediterranean Oil and Gas Play - Production, Politics and Pipelines. Research & Markets. (accessed June 21, 2006).
    4. MondayMorning. 2006. Oil and Gas Talks in Cairo in November. (accessed June 22, 2006).
    5. Mena Report. 2006. Natural Gas Supply to Israel - British Gas Back to the Forefront. (accessed May 15, 2006).
    6. Kedmi, Sharon. 2006. British Gas Expected to Resume Talks on Gaza Coast Reserves, Haaretz. (accessed June 22, 2006).