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Egypt resumes natural gas flow to Israel

The flow from Egypt was halted in early February after pipeline sabotage by unknown militants. Officials in Israel breathe a sigh of relief, although concerns remain for the future of the arrangement.

March 17, 2011|By Batsheva Sobelman, Los Angeles Times

Reporting from Jerusalem — Egypt resumed natural gas shipments to Israel on Wednesday for the first time since the fall of former President Hosni Mubarak.

But many here remain worried about the long-term prospects for the $2.5-billion export deal, which when signed in 2005 was touted as an indication of warming bilateral relations, but could soon turn into an uncomfortable diplomatic dispute with Egypt's new government.

The flow of natural gas from Egypt was halted in early February after the pipeline in the northern part of the Sinai peninsula was sabotaged by unknown militants. The line serves Israel as well as Jordan and Syria, among Arab clients.

Officials in Israel, which gets 40% of its natural gas supply from Egypt, breathed a sigh of relief Wednesday, particularly since the resumption of shipments had been repeatedly delayed during the last month.

Still, amid hints from Egyptian officials that the contract may eventually be renegotiated — or terminated — Israel is considering contingency plans to cover possible shortfalls.

Amr Moussa, the Arab League secretary-general now vying for the Egyptian presidency, suggested this month that he would reassess the terms of the Israeli gas deal if he were elected.

Others have predicted that Egypt may try to reduce the amount of gas it exports to Israel because of its own domestic energy needs and shaky security conditions in Sinai.

A few opposition activists have called for the shipments to be scrapped entirely, saying the Mubarak regime cut a sweetheart deal with Israel and Egypt should not be trading with a country that some still view as an enemy, despite a 1979 peace treaty.

As Egyptians struggle to form a new government, the Israel gas deal has become a political lightning rod.

"The deal was done by the old regime, associated with corruption and a more pro-Israeli line than desirable," said economist Paul Rivlin, a senior research fellow at the Moshe Dayan Center for Middle Eastern and African Studies at Tel Aviv University.

The deal was always unpopular with many Egyptians, who complained that Mubarak sold the public short by selling gas to Israel at a lower price than Israel pays for gas from privately operated companies in its own country. Lawsuits to challenge the deal were unsuccessful.

As it attempts to maintain cordial ties with Egypt, analysts say, Israel must tread carefully to maintain both its energy supply and diplomatic relations.

Some think Israel should simply agree to pay more for natural gas from Egypt. That, they say, might appease Egyptian critics and give the transitional government political cover in the event it is apprehensive about appearing too close to Israel.

"The dominant dimension is the economic one, not the political one," said Rifat Azam, an international business law expert at the Herzliya-based Interdisciplinary Center. "But they are using the political dimension to appease the public."

He said he believed the deal would survive because it remains in both nations' interest.

If Egypt moved to cancel the deal, Israel might have a legal case, but pressing such a lawsuit would be likely to further sour relations between the neighboring countries. Israel's primary concern is maintaining the landmark 1979 peace treaty, which has resulted in a quiet southern border for decades.

"Legal recourse is an option but not the right one for this delicate situation," Azam said.

Israeli officials may ultimately turn to the United States for diplomatic assistance, said Shmulik Bachar, an expert on modern Egypt at the Institute for Policy and Strategy at the Interdisciplinary Center.

"Discretion is the best approach with Egypt," he said. "This must be done diplomatically — and intelligently."

Meanwhile, Israel is preparing for the possibility that the supply from Egypt may never fully return.

Israel produces about 40% of its electricity from natural gas it gets from two sources: Egypt and its own privately owned southern field, which is approaching depletion. Additional large-scale supplies have been found off Israel's northern shores in recent years and production could be expedited.

Nonetheless, a permanent suspension of the Egyptian supply would prove costly and inconvenient. The five-week halt has cost Israel about $67 million, in part because more expensive oil and coal have been used to produce electricity, according to Israeli media reports. If the situation became permanent, electricity prices could rise 20%, Israeli electric company officials have estimated.

Worse than such losses, some say, would be the negative political message sent if Egypt canceled the contract. Rivlin warned such a step might be a "a sign of worse to come."

Sobelman is a news assistant in The Times' Jerusalem bureau. Times staff writer Edmund Sanders contributed to this report.

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