Critics claim the 60-40 decision was pushed through the Cabinet without the necessary parliamentary approval, but they lost when they challenged the Cabinet decision in the Supreme Court. While public debate rages over how the money should be spent, economists warn of the potential inflationary impact of injecting billions of shekels annually into the Israeli economy. Stanley Fischer, the former head of the Bank of Israel (who is reported to be in line for the No. 2 position at the U.S. Federal Reserve), has warned that Israel must avoid “the Dutch disease” by not allowing the money to flow too rapidly into the economy. This was the mistake the Netherlands made in the 1960s when it discovered gas. Revenue from gas exports pushed the Dutch guilder so high that the country’s other exports became too expensive to compete in international markets.
Then there’s the more positive example of Norway, which exports 87 percent of its gas and invests every dollar earned not in current projects but in a sovereign fund to benefit future generations. Today, with about $750 billion in assets, the country of 5 million people—fewer than Israel—has what is considered the largest sovereign fund in the world, which will fund the country long after its gas and oil reserves run dry. Investment of Israel’s gas export earnings in a similar sovereign fund could prevent the shekel from becoming too strong and hurting Israel’s other exports.
Israel has established a sovereign fund to invest abroad, and gas-related contributions are expected to begin in 2017. Bank Leumi’s chief economist Gil Bufman, however, is concerned that capital is already flowing into the economy faster than it is going out and would like to see the government build up the fund now. But with so many competing demands for investment at home—in the military, in national infrastructure, and in social welfare, it is unlikely this will occur. It is even possible the $1 billion to $2 billion per annum cash windfall could be spent before it is earned.
* * *
Israel can’t earn money from its gas bonanza unless it finds a way to export it, and all its options present myriad obstacles. “In oil and gas terminology,” says Henderson, “the gas, which is hard to get to and hard to get out, is called ‘trapped gas.’ I have also heard gas in the eastern Mediterranean referred to as being ‘diplomatically trapped.’ ”
Surrounded by hostile or unfriendly Arab nations, Israel is in a particularly tough position: It cannot export gas-generated power simply by transmitting the electricity through its neighbors’ power grids. One alternative is through pipelines.
With a large economy and a growing demand for energy, Turkey would be a natural pipeline terminus and would provide access to Europe, another major market. Several Turkish energy companies, seeking alternatives to expensive Russian gas, have expressed interest in acquiring rights to future production from the Leviathan field. However, Turkey’s current frayed political relations with Israel cloud prospects for an Israel-Turkey pipeline. In addition, Russia, a major exporter of natural gas to both Turkey and Europe, is wary of possible Israeli competition.
Another possible customer that could be reached by a long, albeit expensive, pipeline is Greece, which would give Israel another entry point to Europe. Greek Prime Minister Antonis Samaras’ state visit to Jerusalem in October, which included discussions of energy infrastructure projects with both countries’ environment ministers, signaled significant improvement in the prospects for joint Israel-Greece cooperation. But even if cash-strapped Greece were able to raise the money for its share of investment, a Greco-Israel pipeline could enrage Turkey.
A more practical pipeline destination is Jordan, and Noble Energy sources say they are looking in this direction. “Jordan is in the most immediate need and would be the first client” for Israel, said Oded Eran, a former Israeli ambassador to Jordan, commenting on negotiations last summer. Although more far-reaching proposals are under consideration, he noted that a pipeline connecting existing pipeline facilities on the Israeli shore of the Dead Sea to the Jordanian side could be completed “relatively quickly” and would “have great symbolic value both for Noble and Israel.”
Interestingly, another country in need of Israel’s gas is Egypt. Although Egypt has larger reserves than Israel, domestic demand, currently subsidized by the government, is high. Such a transaction, however, is unlikely given Egypt’s internal political situation, although discussions about the possibility of changing the direction of the Sinai pipeline are underway.
Israel will need to diversify distribution. Another option is to convert natural gas into liquefied natural gas (LNG) and ship it by specially built tankers that can travel long distances. LNG is more flexible than pipelines and expands the constellation of potential markets, but tankers require construction of large, hugely expensive facilities ($5 billion and up, depending on size). An LNG terminal in Eilat would allow tankers to reach Europe and even more lucrative markets in Asia through the Red Sea. But there are risks: Terrorists could attack the tankers and enemy warships could seal the narrow Straits of Tiran. Passage through the Suez Canal, though technically protected by treaty, could be tricky if Egypt chooses not to cooperate. Another option is for Israel to liquefy its gas in Egypt, which has LNG plants with excess capacity, but this, too, may not be possible politically.
* * *
The Tamar platform, a massive structure weighing 34,000 tons and almost as high as the Eiffel Tower, is a sitting duck for Israel’s enemies. Iran, Syria, and Hezbollah have warned that Israel’s gas industry could be a strategic target. In response, the Tamar rig bristles with secret warning and defense systems, and the Israeli navy routinely patrols nearby, armed with anti-rocket defenses. In October, the navy ordered three domestically built fast-attack boats, and in December it ordered two German frigates to strengthen its presence. These are just the first concrete manifestations of a host of new security ramifications that come with being an energy-wealthy Middle Eastern nation.
Disputes over gas reserves have become de rigueur in the eastern Mediterranean. Although most of Israel’s known reserves sit within its maritime borders, Lebanon, with whom Israel is technically at war, claims a maritime border encroaching on Israel’s exclusive economic zone. Hezbollah leader Sayyed Hassan Nasrallah has warned Israel that Lebanon has the right to retaliate against Israel over gas and oil interests. Syria and the Palestinian Authority have put forward their own claims to some of the gas. Meanwhile, Turkey and Cyprus, still bitter over their 1974 war over northern Cyprus, are also arguing about gas ownership. And hovering darkly over it all is Turkey, which also wants a slice of the pie.
Israel’s “new visibility” to other regional energy players raises the potential for conflict on numerous fronts, says David Wurmser, a Washington political risk consultant and one-time adviser to former Vice President Dick Cheney. The situation is “complex” and “extremely dangerous,” says Wurmser.
Pinchas Avivi, director of strategic planning in Israel’s foreign ministry, would like nothing more than a Lebanese equivalent of the Tamar platform, funneling gas and money to Lebanon. “Then they would need stability as much as we do,” he says. “Economy is the first and most important means of diplomacy today. When everybody has gas, everybody will have the same interest to keep the arena calm. I can see many more possibilities of cooperation than danger.”
The gas reserves also dramatically shake up Israel’s foreign policy. In addition to adding new layers to its relationships with Russia, Turkey, Egypt, and other countries in the region, Israel’s position as a gas exporter could transform relations with its closest ally, the United States. On Dec. 19, the U.S. Senate Energy and Natural Resources Committee passed a bill to foster U.S.-Israeli collaboration in developing gas reserves. But this could change once gas exports are flowing. “Guestimates are that Israel will bring in $100 billion for the 20-year lifetime of the Tamar field alone,” says the Washington Institute’s Henderson. “This is big money, and it is likely to lead to a re-examination of the U.S.-Israel economic relationship.” What is the possible result of this re-examination? “If Israel is making a lot of money from its natural gas and times are hard in the United States, then there will be some who will question the need for the U.S. to continue to be generous in terms of economic and military aid to Israel.”
Additional reporting by George Johnson.
This article originally appeared in Moment magazine’s January/February issue. Moment magazine is an independent bimonthly of politics, culture, and religion, co-founded by Nobel Prize laureate Elie Wiesel. For more go to momentmag.com.
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