Egypt and Israel: Quiet Beneficiaries of the Energy Crisis

The global energy crisis began in October 2021 with the backdrop of resurgent demand from the re-opening of economies following the Covid-19 pandemic. In 2021, China’s post-Covid recovery led to a demand for gas that is said to have risen by 8.4 percent. Gas imports are set to increase by 20 percent to satisfy this demand, resulting in less gas available for import to many European countries from gulf countries, such as Qatar, who could not ramp up natural gas supplies to Europe, as they were committed to their long-term contracts with Asian countries.

The other major event that undoubtedly catalyzed the energy crisis was the Russian invasion of Ukraine. Russia supplied around 40 percent of the European Union’s gas consumption by pipeline, and the 75 percent cut to supply has significantly affected European countries which have relied on Russian gas for years. Russia started to reduce its supply of gas in 2021 on the pretext of maintenance to its major gas pipelines into Europe. This accelerated in the early part of 2022, when gas flow reduced by about 40 percent through the Nord Stream 1 pipeline, one of the major conduits of gas from Russia to Europe. By July of this year, the flow of gas through Nord Stream 1 was reduced to 20 percent of its capacity. On Sept. 30, a series of under-water explosions damaged both Nord stream 1 and 2 pipelines, most likely the result of sabotage. The union has not published its findings, but many suspect Russia to be the culprit.

Amidst this chaos, two unexpected beneficiaries have been Egypt and Israel. The benefits have not only been economic but also political. Egypt, following the major discovery of offshore gas in 2015 by the Italian company ENI in the Zohr gas field, has been investing in its scope for exportation through the development of its gas liquefaction capacity. Liquefied natural gas has become a major method of transporting gas where piping gas is not possible. According to reports, Egypt now ranks in the top ten countries in the world with gas exporting capacity. Part of this success is due to its links with Israel through the Arab Gas Pipeline, which is used by Israel to export piped gas to Egypt for liquefaction and then is re-exported.

Israel has become a significant gas exporter in recent years. It relies on its two major gas fields, Tamar and Leviathan, both offshore fields off its coast. Leviathan, which was discovered in 2010, has the capacity to supply Israel’s domestic needs for the next 40 years. Tamar gained significance around the same time. Most recently, in 2022, 60 billion cubic meters of gas was discovered in the Olympus Area, also in the Mediterranean. By some estimates, Israel, which currently exports 10 million cubic meters a year, has the capacity to more than double this in the coming years by investing further. 

For both countries, the rising price of gas and their export capacity have provided much needed hard currency to support their economies. Egypt’s economy has been severely impacted by rising commodity prices, particularly wheat, which is a mainstay for its population’s bread consumption. At the same time, sanctions on Russia have affected Egypt’s tourism industry, which relies on Russian tourists. In Israel’s case, a recent report published by the Ministry of Energy showed Israel’s profits from natural gas increased by almost 50 percent. Eleven percent of royalties from revenues from natural gas go directly to the treasury to fund state expenditure. Beyond this, Israel set up its own sovereign wealth fund, The Israeli Citizens’ Fund, to benefit from the increase in gas production; it raises its revenues from taxing excess profits. After a disappointing start, the fund, according to the Israeli Tax Authorities, was expected to collect between 300-$500 million dollars a year over the next decade. This turned out to be very conservative given that it raised 500 million dollars in less than three months in 2022. This fund will be invested for future generations, in line with how other sovereign wealth funds operate around the world. 

Beyond economics, the two countries’ geopolitical situations have also benefited. The European Union signed a trilateral Memorandum of Understanding between Egypt, Israel and itself in June 2022 to increase the export of Israeli gas. What has surprised many has been the union’s silence on the values it has held so dear for many years. Both Egypt and Israel have been targeted for various humanitarian issues – the Egyptian military regime’s treatment of dissenters is well documented. Moreover, the union has been historically vocal about Israel’s settlements and occupation of Palestinian territories and. It has been widely noted that the memorandum signed was the first in which the union failed to mention the Palestinian territories. A question was raised on the matter in the union’s parliament to the European Commission on the subject. A response on July 28, 2022 to the question, given by the Vice-President of the commission, Borrell Fontelles, stated that as this is a non-binding agreement, no territorial clause was deemed necessary. And while the union recommitted to abiding by United Nations Security Council resolution 2334, which calls for its member states to distinguish between the territory of the State of Israel and the territories occupied since 1967, the omission in this instance is unusual. There is no doubt that energy politics has certainly provided a fair wind for both Egypt and Israel.