Report

For Israel and Its Neighbors, Energy Finds Power Big Dreams

The race is on to develop gas fields in the eastern Mediterranean, but big energy finds fuel strife as often as peace.

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Israel and other countries ringing the eastern Mediterranean are trying to kick-start the development of their potentially vast energy reserves, but the push may bring fewer geopolitical gains than governments from Jerusalem to Cairo have been promising.

Big natural gas projects have been on hold in Israel, Lebanon, and Cyprus for more than a year, but the discovery this past summer of the massive Zohr gas field off Egypt has leaders from across the region dazzled by visions of energy grandeur.

Israeli Prime Minister Benjamin Netanyahu told the Knesset this week that developing Israel’s offshore gas fields is vital to the country’s security and survival. Leaders in Cyprus, prodded by U.S. Secretary of State John Kerry, see natural gas as a catalyst for unification of the divided island. Egypt is hoping its own big find will free it from the need to import any gas from Israel and make it energy self-sufficient again.

“That’s the ‘Zohr effect,’ and it’s driving interest across the region,” said Mona Sukkarieh, co-founder of Middle East Strategic Perspectives, a Beirut-based energy consultancy.

In reality, though, the scramble for energy resources, especially in that part of the world, fuels as much friction as harmony. Cyprus and Turkey have almost come to blows over offshore energy reserves. Egypt and Israel are still fighting over natural gas that Cairo used to export to the Jewish state; Egypt has so far refused to pay a $1.8 billion arbitration settlement for ending energy exports. And the very prospect of importing gas from Israel has many Jordanians upset; one Jordanian lawmaker vowed to “return to riding on a donkey” before importing Israeli gas.

Further complicating the region’s efforts to tap its energy riches is an anemic gas market. Oil and natural gas prices are very low, which makes big-ticket developments less appealing. Depressed demand and abundant supply also cloud the picture for countries like Israel and Cyprus which hope to become big gas exporters.

“In the Mediterranean, we do it backwards — we start by tallying up all the possible geopolitical benefits and don’t think about the actual market. Who wants the gas? Is there demand?” said Brenda Shaffer, an expert on Mediterranean energy at Georgetown University.

In a bid to push through a controversial natural gas project off the Israeli coast, Netanyahu told Israeli lawmakers this week the project must be completed even though the country’s anti-trust officials tried to squelch the field a year ago due to competition concerns. The Israeli prime minister played up the geopolitical benefits that natural gas production and exports could bring the country, calling the project “essential for the future of Israel.” Exporting the gas to countries like Jordan and Egypt, he said, would bring both economic and security dividends.

“Of course, supplying gas to those countries adds another layer of stability that is in our interest even when it’s in their interest,” Netanyahu told the Economic Affairs Committee of the Knesset on Tuesday.

It’s an argument repeatedly brandished by U.S. diplomats, who talk of “peace pipelines,” or using energy ties to improve relations between states. Deputy Secretary of State Tony Blinken last month called the eastern Mediterranean “one of the brightest lights in the geopolitics of energy,” adding that energy production and trade in that part of the world is poised to become a “tool for cooperation, for stability, for security, and greater prosperity.”

Blinken and other top American officials believe big new gas discoveries could be particularly important for the future of Cyprus, which has been uneasily divided between Greece and Turkey for decades. Blinken said offshore energy finds have added fresh impetus to talks to reunify Cyprus. Kerry, during a visit to Cyprus earlier this month, said that by tapping offshore gas fields, the country could become a “regional energy and commercial hub.” That’s probably a bit of an exaggeration: The country’s offshore gas reserves are just a fraction of what has been found off the coast of Israel and Egypt.

And big discoveries of oil and natural gas seldom act as a peace lubricant. Instead, energy discoveries and the energy trade can often exacerbate long-standing tensions between neighbors, as has happened repeatedly between Russia and Ukraine, or Russia and the Baltic states. Turkey and Cyprus, like China and Vietnam, engaged in naval scrums last year due to disputes over offshore energy deposits. Iraq is at loggerheads with its own northern Kurdish region over oil reserves and exports.

“There’s no precedent for this notion of ‘peace pipelines,'” said Shaffer. “No dispute has ever been resolved due to the allure of the oil and gas trade.”

Indeed, though Netanyahu talked up the prospects of Israeli gas exports to Jordan and Egypt, the prospects for such deals, and regional harmony, are looking dim. Egypt has frozen talks on future purchases of Israeli gas due to a simmering commercial dispute over Egyptian gas exports to Israel, while Jordanian lawmakers — largely opposed to relying on Israeli energy — said there are no talks underway to buy Israeli gas.

Netanyahu also told lawmakers that turning Israel into an energy exporter would make it harder for other countries to economically isolate Israel. “The ability to export gas makes us more immune to international pressure. We don’t want to be vulnerable to boycotts,” he said.

Israel isn’t alone in its race to develop offshore fields. Despite a glut of natural gas around the world and low prices today, countries across the region are scrambling to exploit big energy discoveries. Egypt and Italian firm ENI are trying to accelerate development at the $10 billion offshore Zohr field and hope to use the gas to displace any future imports from Israel. The Egyptian discovery has fueled hopes in Cyprus that its waters may hold more natural gas than previously suspected, and leaders there still aspire to turn the island into a regional energy hub. Even Lebanon, whose potentially big offshore reserves have been stymied by political deadlock, could soon open the door to foreign investment after upcoming presidential elections, Sukkarieh said.

One reason for the continued optimism: Turkey. Ankara’s quest to diversify its energy imports could potentially act as an additional catalyst to eastern Mediterranean gas, including rapprochement with Israel and even with Cyprus.

Turkey, one of the biggest natural-gas users in Europe, has been looking to diversify its energy suppliers, since it gets almost 60 percent of its gas from Russia. And since late last month, when a Turkish fighter jet shot down a Russian bomber plane, tensions between Ankara and Moscow have escalated, with energy deals between the two countries now at risk.

Turkey’s energy trade with Iraqi Kurdistan in recent years has indeed cemented closer ties with Erbil, despite Ankara’s historic animosity to separatist Kurds. And Netanyahu said that Israel is engaged in talks with Turkey over the possibility of Israeli gas exports, though Ankara says Israel will have to end the embargo on Gaza before any deal can be reached.

Turkey’s energy thirst could even lead it to tend an olive branch over Cyprus, which for four decades has been partitioned between a Greek south and a Turkish-backed north. But talks to unify the island have made great progress, and a preliminary deal could be in the cards by next spring.

Now that Egypt seems to have its own plentiful sources of domestic gas, Cyprus is looking around for new customers, and Turkey is right next door.

“On paper, Turkey would be the most logical destination for Cypriot gas exports, but the politics are still very complicated,” Sukkarieh said.

Photo credit: JIM HOLLANDER/AFP/Getty Images

Keith Johnson is Foreign Policy’s global geoeconomics correspondent. @KFJ_FP

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