On Thursday 26 April Egypt annulled a contract it had signed in 2005 with Israel to supply it with natural gas. The gas deal was the largest trade deal between the two former foes
On Thursday 26 April Egypt annulled a contract it had signed in 2005 with Israel to supply it with natural gas. The gas deal was the largest trade deal between the two former foes, yet has always caused large controversy in Egypt despite the peace treaty signed between the two countries in 1979. Several anti-Israeli political factions had incessantly demanded that the deal should be called off, while others criticised the long-term 20-year deal by which Israel was given Egyptian gas at an exceedingly preferential price. Egypt supplies roughly 40 percent of Israel’s gas supplies.
The gas pipeline, which carries the gas to Israel and which also supplies Jordan, traverses Egypt’s Sinai Peninsula. It has been bombed 14 times since the 25 January 2011 Revolution, allegedly by Bedouin militants and Hamas supporters.
The deal was recently annulled on the pretext that the Israeli side was way behind in payments it owed Egypt.
Unmet financial obligations
Many analysts in Egypt see the annulment of the gas deal as a political move that aims at scoring points with the public, given the rampant anti-Israeli sentiment and the sympathy of the majority of Egyptians with the Palestinian cause. For its part, the Egyptian government, and to some extent Israel as well, insists that the decision is essentially a commercial one since Egypt has not been paid its dues for some five months.
Some leading Israeli politicians described the annulment as a major breach of the 1979 peace agreement, but the Israeli Prime Minister’s Office and Egypt’s ruling military leadership both described the move as “commercial” rather than “political” and said it was rooted in a dispute over interrupted supplies and payments, and that the matter was being handled by arbitration.
The Egyptian GASCO announced it had stopped providing gas to the East Mediterranean Company as the latter had failed to meet its financial obligations according to the contract, and the Egyptian Natural Gas Holding Company said the contract has been irrevocably terminated owing to the failure of the buyer to pay for several successive months.
“Egypt is ready to resume gas exports to Israel but at a new price, after scrapping the long-term contract,” said International Cooperation Minister, Fayza Abul-Naga. “And Israel had been notified five times that it was not meeting its financial obligations under the old contract,” she added.
Political dimension
Discontinuing gas exports to Israel, according to economic expert Mukhtar al-Sharif, is in the first place an economic decision. But, he added, it is bound to have a political dimension as well, since both countries continue to issue hostile statements that may even threaten to bring to an end their the diplomatic relations. Each party, however, will undoubtedly endeavour to make the utmost benefit of any new contract. Egypt’s legal stance, Sharif noted, is sound since the agreement was based upon a contract between two trade companies. It can be annulled if any of the two parties breach any condition, which has been already been done by Israel.
In Sharif’s opinion, the reason cited by Egypt to halt exports lacks conviction, since Israel is too politically-savvy to make such a mistake. Israel says it will resort to international arbitration, but there is an opportunity, Sharif says, that the problem would be resolved through diplomatic channels.
Judge Ahmed Kishk who is member of State court cases authority, said that the two States may not take each other to court since the annulled contract was not between the governments but between trade companies on both sides. Moreover, the contract does not stipulate international arbitration.
Major revisions
The Israeli government sought to downplay the issue as a threat to the 1979 peace treaty but, in Cairo it is clear that pressure is growing for, at the very least, major revisions in Egypt’s favour.
The discovery of subsea fields, primarily off Israeli shores, where reserves of up to 30 trillion cubic feet of gas have been found may tip the balance, and may work to turn Israel in the future from an importer of gas into an exporter that may well supply neighbouring countries with much needed fuel.
WATANI International
6 May 2012