Citizens International

Israel has Egypt over a barrel

By David Hearst


Lop-sided natural resource deals Egypt signed with Israel under Mubarak have cost the country billions and left the people struggling with daily shortages. Now Sisi’s ascendancy to Egypt’s presidency clears the way for more.

It took the US Central Intelligence Agency 60 years to admit its involvement in the 1953 overthrow of Mohammad Mossadeq, Iran’s first democratically elected prime minister. The circumstances around the overthrow of Egypt’s first democratically elected president, Mohamed Morsi, may not take as long to come to light, regardless who is behind it.

Mossadeq sealed his fate when he re-nationalised Iran’s oil production, which had been under the control of the Anglo-Persian Oil Company, later to become BP. Morsi’s enemy was gas, and he proved to be a major obstacle to a lucrative deal with Israel – which nobody will be surprised to learn – is about to take place now he has been removed.

Clayton Swisher of Al Jazeera’s investigative unit has spent five months delving into the corrupt sale of Egyptian gas to Israel. His report Egypt’s Lost Power, to be broadcast on Monday night, reveals that Egypt has lost a staggering amount of money – $11 bn, with debts and legal liabilities of another $20bn – selling gas at rock-bottom prices to Israel, Spain and Jordan.

In contrast, Hussein Salem, the Egyptian who was central to the deal and the founder of the Egyptian-Israeli company, East Mediterranean Gas (EMG), has amassed a staggering fortune.

Sameh Fahmi, who worked initially for Salem before becoming the minister of Petroleum between 1999 and 2011, was arrested soon after the January 25 revolution. In June 2012, under the Morsi government, both he and Salem were sentenced to 15 years over the Israeli gas deal.

Salem was arrested at one of his homes in Madrid but never extradited. Both sentences were overturned last year and a retrial is pending.

The scam was simple. EMG bought the gas for $1.50 per million British thermal unit (mmBTU)  – though they raised it to $3 later – and then sold it onto the Israeli Electric Company for $4 per mmBTU. This was at a time when Germany was paying $8-$10 per mmBTU and Japan around $12.

Salem, an Egyptian intelligence agent in the 1960s, chose partners for the deal in Israeli intelligence. Salem’s EMG partner was the former Israeli agent Yossi Maiman. A senior director of his company, Shabtai Shavit, who was a former Mossad director ,convinced the then prime minister Ariel Sharon to sign the deal. At the time, Yediot Aharnoth described Salem as the “number one man” of the normalisation process between the two states.

The export of gas to Israel under Hosni Mubarak was only stopped by the 2011 Egyptian revolution. Israel had by this time discovered so much gas in the Eastern Mediterranean that it was looking to Egypt not as a source of gas, but as a means of liquefying its gas and exporting it to the international markets.

With as much as 26 trn cubic feet of gas in the Leviathan field and 10 trn in the Tamar field, Israel has more than enough gas to satisfy its domestic needs and needs to sell it. Furthermore, with the price of gas set to drop in a few years’ time, Israel needs to sell it now.

Meanwhile, consumer demand for gas in Egypt rose beyond its capacity to produce it. This made Egypt unable to fulfil its commitment to foreign companies to export its gas, and looking to ways in which it could import gas.

Israel’s plan was for Egypt’s two LNG terminals to liquefy Israel’s gas and the Suez Canal would ensure passage out to the lucrative Asian markets. Morsi was a major obstacle not only to the import of Israeli gas, but also to the use of Egypt’s LNG plants and Suez Canal to export it to world markets.

Swisher has got two remarkably frank interviews. Edward Walker, the former US Ambassador to Egypt says out loud what few of his former State Department colleagues today would dare to admit.

“The Muslim Brotherhood has a pretty solid reputation for not being highly sympathetic to the West, and particularly not to the United States. So it was not really in our interest to see them succeed.”

He goes on to say why the newly installed President Abdel Fatah al-Sisi is so appealing. “[Sisi] is attractive because he is not Morsi….our concern is to maintain and sustain the relationship between Egypt and Israel.”

The second is from Simon Henderson of the Washington Institute for Near East Affairs. He said that the change of government in Egypt has meant that Israel can reconsider the option of converting some of its gas into LNG. Under Morsi, there was no confidence that Egypt would allow such shipments through the Suez Canal.

Henderson puts it bluntly: “The Egyptian public can make a calculation that its happier to have electricity 24 hours a day because they deal with Israel in getting natural gas, or they would prefer to be in the dark for some hours a day as a matter of principle.”

When he came to power, did Morsi have a better option? The answer is yes. Qatar had agreed to supply between 18-24 cargoes of LNG to the customers of the two companies exporting gas from Egypt. Egypt had no capacity to turn LNG back into natural gas, so a floating terminal would be provided for this. The companies who ran the two LNG terminals in turn would supply an extra 500 mn cubic feet of domestically produced gas to the Egyptian market. Qatar agreed to supply the first five cargoes for free, giving Egypt a much needed respite and lowering the price of gas canisters in the country.

Reuters quoted experts saying that nothing can match the favourable swap deal Qatar gave Egypt.

After the military coup on 3 July, Egyptian officials, who accepted the fifth free cargo in September, claimed they could not agree a price with Qatar. But at the time it was hailed as a game saver – except of course by Israel and the US. They also cancelled a contract to build a gasification plant that would allow Egypt to import LNG. This decision was clearly a political one. Washington Post said at the time that the break with Qatar would contribute to scorching summers and would come back to haunt the regime later.

So there we have it. Accept gas from Israel, even though your own reserves are many times greater, or sweat it out in the dark. Accept too, that your country is now dependent and a supplicant. Accept that as a result of these deals your country is riven with gas debt – from the foreign companies that run the two now idle LNG terminals. To give you some idea of the scale of the debt, Spanish energy firm Union Fenosa is suing Egypt for $6 bn, a sum equivalent to nearly half of its foreign reserves. The Economist reports that Britain’s BG Group may follow suit.

Accept too, that it will be through these private companies, who literally have Egypt over a barrel, that Israeli gas will be imported. Last month, Union Fenosa signed an agreement of intent to buy 2.5 trn cubic feet from the Tamar field over 15 years. No wonder Israel and the US are so happy with Morsi’s overthrow.

Yosef Paritzky, the former Israeli energy minister says it out loud: “With the return of Sisi and the return of order I think we see now the [Arab] Spring, we really do.”

But what about Egyptians, who in July will suffer power cuts in the stifling summer heat due to the gas shortage? What about all the other impacts that the gas shortage will have in Egypt, such as the production of fertiliser? Will Egyptians be so pleased to learn they have lost $11 bn and have liabilities of another $20 bn, and that as a result Egypt, Jordan and the Palestinian Authority will become dependent on Israel for its gas?

More than one factor lies behind the ouster of Morsi. He lost control of the army, if ever had it in the first place; he lost popularity, and the Muslim Brotherhood failed to maintain the unity of the revolutionary camp. No one knows to what extent these under the counter gas deals proved to be a determining factor in Morsi’s overthrow, but they provide a financial incentive for regime change.

– David Hearst is editor-in-chief of Middle East Eye. He was chief foreign leader writer of The Guardian, former Associate Foreign Editor, European Editor, Moscow Bureau Chief, European Correspondent, and Ireland Correspondent. He joined The Guardian, from The Scotsman, where he was education correspondent. 

Photo credit: An Egyptian protester holds a sign reading in Arabic “Gas is for the Egyptian people not for Israel’’ in front of riot policemen outside parliament in Cairo on January 23, 2012 (AFP)