The Connection Between Egypt’s Natural Gas and Israeli Politics (I24News, 2 September 2015)

The announcement earlier this week that Egypt has huge offshore natural gas resources is a game changer that will have repercussions for Israel’s foreign policy as well as Israeli politics. Israel is no longer the potentially dominant natural gas exporter of the eastern Mediterranean. One of the consequences of this new reality is that the natural gas deal promoted by Prime Minister Netanyahu is unlikely to be approved any time soon. This delay will, in turn, further deteriorate the tense relationship between Netanyahu and his coalition partner, Aryeh Deri.
As Israel’s economy minister, Deri holds the key to approval of an agreement laboriously reached between the Israeli government and the US-Israeli consortium that owns the Tamar and Leviathan gas fields. By law, he is authorized to overrule the antitrust regulator if he considers that doing so is vital to the national interest.
The outgoing antitrust regulator, Prof. David Gilo, had ruled before resigning a couple of months ago that the consortium operating the Tamar and Leviathan fields constitutes a monopoly. To Netanyahu’s surprise, and shock, Deri has refused to overrule Gilo’s opinion.
Last week, Deri announced that even if the Knesset were to back the gas deal approved by the government, he would still not overrule Gilo’s opinion and would wait to hear from the next antitrust regulator what he has to say. Netanyahu, who thought Deri would have obliged after the Knesset vote, is livid.
The discovery of Egypt’s natural gas has both strengthened and weakened Netanyahu’s case. On the one hand, Netanyahu can reasonably argue that Israel’s procrastination and cumbersome decision making have turned off investors who now have every reason to go for Egypt’s larger reserves and straightforward line of command. On the other hand, one major justification for overruling the previous antitrust regulator has collapsed like a soufflé. The Foreign Ministry’s director-general, Dore Gold, recently explained to the Israeli cabinet that the antitrust regulator must be overruled so as to pre-empt Iran’s sale of natural gas to Israel’s strategic neighbors.
According to the Foreign Ministry, Iran is about to fill the void left by Egypt’s supposedly dried-out gas resources, by doubling its gas production and by selling to Jordan and even to Egypt itself. Hence the urgency of approving the deal so as to sell Israeli gas to needy neighbors. Now that Egypt is expected to become a huge natural gas producer, this argument no longer makes sense. Shortly after the Israeli cabinet was told that Egypt had run out of gas, Italy’s energy company ENI announced the discovery of a huge natural gas field in Egypt’s territorial waters (known as the “Zohr” field). According to ENI, this gas field is the largest ever discovered in the Mediterranean: with an estimated 30 trillion cubic feet of gas, it is nearly twice larger than Israel’s Leviathan.
The gas deal recently approved by the Israeli government (yet still on hold as long as Deri refuses to overrule the antitrust regulator) also sets prices that do not reflect the increased supply (and competition) that the Zohr gas field is expected to bring about. Deri, in other words, now has a more than reasonable argument to defy the prime minister. It is in his political interest to do so.
Deri ran the 2015 elections on a left-wing economic platform, claiming to be the only party addressing the needs of the underprivileged. Netanyahu, having called a snap election to rid himself of his ambitious finance minister Yair Lapid, was so eager to bring the Orthodox parties (including Deri’s) into his coalition that he gave in to all their demands. Now he has to put up with their economic agenda. Deri has no reason to be flexible. He knows that Netanyahu doesn’t have a coalition without him, and he hasn’t forgotten Netanyahu’s support for Eli Yishai – Deri’s archenemy who took nearly four Knesset seats away from him in the 2015 elections, yet didn’t pass the electoral threshold (to Netanyahu’s chagrin). Deri’s Shas party partially owes its electoral strength to a demagogic socialist rhetoric, and there is no reason for Deri to backtrack on this.
For Netanyahu, approving the gas deal is crucial because his contested leadership is at stake and so is Israel’s international credibility. Yet the prospects are getting slimmer by the day. As Netanyahu’s frantic effort to convince 13 Senate Democrats to vote against their president is doomed to fail, the looming debacle over the gas deal couldn’t come at a worse time. A double humiliation on Iran’s nuclear program and on Israel’s natural gas is likely to be politically unsustainable.

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