CAIRO / JERUSALEM // The Egyptian government's abrupt announcement on Sunday that it was ending its natural gas supply to Israel has left many analysts and businessmen wondering whether the decision was politics or business.
Government officials on both sides tried to play down the decision yesterday, pointing to violations of contracts on either side of East Mediterranean Gas Company, the intermediary that manages the Egypt-Israel pipeline.
"We don't see this cut-off of the gas as something that is born out of political developments," said the Israeli prime minister, Benjamin Netanyahu. "It's actually a business dispute between the Israeli company and the Egyptian company."
But the suddenness of the announcement added to fears that Egyptian-Israeli relations were on an increasingly downwards trajectory 14 months after a popular uprising forced President Hosni Mubarak to resign.
"In a nutshell, I think it's both political and commercial," said Magdy Nasrallah, a consultant to energy companies in Egypt and a professor in the department of petroleum and energy at the American University in Cairo. "Everybody has to realise that things in Egypt are changing very fast. We have serious economic problems and we're not going to keep subsidising Israel's gas needs."
Mr Nasrallah was referring to an issue that has riled Egyptians since the deal was struck in 2005: many believe Israel only pays a fraction of the market rate for natural gas bought from Egypt, while Egypt must import other types of fuel at market prices to keep up with domestic demand.
Why the price of gas to Israel might be low is a starting point for many conspiracy theories in Egypt, especially after last year's uprising. The truth is hidden in the murky negotiations surrounding the creation of East Mediterranean Gas Company, which was set up to buy gas from Egypt and sell it to Israel without the two countries ever having to sign a formal deal.
One of the founders of deal was Hussein Salem, a one-time confidante of Mubarak who is now accused of corruption and money laundering. Mr Salem fled Egypt in February last year, eight days before Mubarak was forced to resign. Spain last month agreed to extradite Mr Salem to Egypt to face the charges.
The Egyptian public prosecution alleged that Mr Salem siphoned off hundreds of millions by using his ties to Mubarak to buy gas at below-market prices in Egypt and selling it at a markup to Israel, even though Israel still paid below market value.
The gas deal with Israel has come under increased scrutiny over the last year, especially the price at which Israel buys the gas, which has not been revealed. The situation has been further complicated by the more than 14 bomb attacks by militants on the pipeline near Al Arish in Egypt's North Sinai. The flow of gas was diminished or stopped several times last year.
The signs pointed to Egypt suspending the contract with the aim of the government renegotiating with East Mediterranean Gas Company once the company paid the US$100 million (Dh367m) it owes, said retired Maj Gen Sameh Seif Al Yazal, a consultant to the Supreme Council of the Armed Forces (Scaf).
"[East Mediterreanean Gas] stopped paying its bills, so everything is on hold," he said. "Once they pay the money, the government will sit down with the company and explain that the previous price is not good enough any more."
Israeli officials have said the payments were halted because repeated attacks on the gas pipeline have all but cut off gas shipments for the past year.
There is some precedent to price negotiations. In December, Egypt renegotiated a contract with Jordan to raise the price at which it sells natural gas to about US$6 (Dh22) per million British Thermal Units (BTU) from $3.
Eytan Sheshinski, the former chair of an Israeli government committee set up to examine how to exploit new natural gas reserves off the coast, said that it was still unclear what had happened with the deal because each side was saying something different. But the dispute appeared like "a sort of negotiations, elbow-twisting between the two sides".
As of 2010, Israel was relying on the 2.1 billion cubic metres of gas imported from Egypt through East Mediterranean Gas Company for as much as 40 per cent of its energy needs.
Yubal Steinitz, Israel's finance minister, voiced a deeper concern about the decision to end the contract, which served to amplify tensions between the two countries. He said that Egypt's decision was a "dangerous precedent that clouds the peace agreement between Israel and Egypt".