The Politics of Oil

Energy independence for Israel is a double-edged sword. While the country wants to rely less on suppliers from the Middle East, autarchy might come at the price of a reduced American commitment in the Middle East.

The political developments in Egypt jeopardize important infrastructure that connects the North-African country with Israel, to which Egypt supplies two billion cubic meters of gas per year. The pipe is subject to a constant threat of terrorist attacks, and lately also to popular skepticism. Egyptian voters take issue with the discounts that Egypt offers Israel for gas deliveries.

But actually, providing a discount for gas supplied through pipelines is the norm. Around 300 million US Dollars have been invested into the pipeline, and granting a long-term contract with a discount on the market price is meant to bundle both supplier and consumer together. Yet, as usually happens during electoral times, the contract has been misinterpreted and used for the game of populism. On top of this, the pipe has been attacked again and is currently not operative.

It therefore seems likely that Israel will change its supply strategy in the coming years. A move away from Egyptian gas supplies may increase its degree of isolation from the region and may lead to an even deeper integration with the international market. Israel has proven to be very flexible in terms of energy strategy in the last decade, and the recent events in the Middle East do not represent the first time when the country had to face abrupt changes in the prospects of the energy market. Until the Islamic Revolution of 1979, Israel’s top oil supplier was Iran. The deal was a blunt calculation by the Shah of Teheran: Israel and Iran were the cornerstones of America’s influence in the region. But when the revolution toppled the Shah, trade was halted and Israel had to look for different suppliers. Today, its oil is sourced through the open market from countries such as Russia, Mexico, Colombia, and Angola.