x Abu Dhabi, UAEWednesday 26 July 2017

Israel and Turkey restore ties with energy as a motivator

All that natural gas in the eastern Mediterranean is likely to change the dynamic between Israel and Turkey.

During President Barack Obama's final hour in Israel on March 22, he was able to broker an unlikely apology from Israeli Prime Minister Benjamin Netanyahu to his counterpart in Turkey, Recep Tayyip Erdogan.

Over the past several years, diplomatic relations soured between the two traditional allies over Israel's stubborn refusal to apologise for the deaths of eight Turkish activists and one Turkish-American aboard an aid convoy en route to the Gaza strip in 2010.

Analysts quickly pegged the apology to instability in Syria and even the Iranian nuclear crisis. But there is another possibility that could be fuelling this rapprochement: a potential stake in the lucrative export of Israeli natural gas.

After years of fruitless exploration in the eastern Mediterranean, in 2009 Israel discovered some of the largest offshore reserves of natural gas in the last decade. The exact size of the gasfields are unknown but they are rumoured to contain upwards of 150 years' worth of production.

According to Eytan Sheshinski, an economist at the Hebrew University and the head of an Israeli parliamentary fact-finding commission on the gas, Israel will have a sovereign wealth fund worth roughly $80 billion (Dh293.6 billion) by the year 2030. That amount corresponds only to the revenue from a super-profits tax levied on the sought-after resource.

Israel's Central Bank forecasts the natural gas will account for nearly a third of Israel's economic growth this year. That could soften the impact of Israel's growing international isolation.

Natural gas from one deepwater field started flowing on Saturday for internal consumption, prompting Israeli Energy Minister Sivan Shalom to declare Israel's economic independence for the first time in history.

But the real issue is how to export the gas to international markets, especially in Europe. Israel doesn't have many options: it could work out a deal with Cyprus and Greece for a pipeline; invest in expensive liquefaction units; or build a pipeline to Turkey, which, given its ideal location between Europe, the Middle East and Central Asia, increasingly views itself as an energy hub.

Due to the financial instability in Greece and its recent spread to Cyprus, the logical option for Israel is to cut a deal with Turkey.

Turkey also stands to benefit enormously from such a partnership. Amid an infrastructure boom, Turkish projects - including plans for a new $8 billion airport in Istanbul and a possible third bridge across the Bosporus - will demand a steady flow of cash.

With few European countries ready or able to invest, Turkey had looked towards the Gulf states for capital. But such investment would require share holding schemes that Turkish businesses aren't excited about. A pipeline supplying Europe with Israeli natural gas would make a natural solution for Turkey's unique interests.

Alon Liel, a former senior official at the Israeli embassy in Turkey, recently told me that the structures for an extensive gas pipeline deal between Turkey and Israel have been in place for some time. The only sticking point was the toxic political squabble seeping into the business climate between the two nations. His recommendation was simple: build a wall between politics and economics to facilitate the export of natural gas quickly.

Mr Netanyahu's surprise apology to Turkey appears to be guided by this recommendation more than a political calculation. The apology, for instance, came by private phone call. Furthermore, Turkey's demand for Israel to lift its blockade of Gaza doesn't appear remotely possible. Yet, the Israeli natural gas could yet change political realities.

This new factor in regional politics couldn't have come at a better time for Israel. Increasingly harsh rhetoric from the European Union concerning Israeli intransigence on the Palestinian issue and continued Israeli settlement construction could become meaningless given the likely deepening economic alliances.

It's no wonder that Israelis just elected one of the most right-wing governments in their history. The new government will have more Israeli settlers in positions of real power than any other before it. Israel is poised to speed up settlement activity backed by a flood of natural gas profits. Increasingly loud calls for a civil society boycott of Israel will come up against the energy interests of two of its main targets - Europe and especially Turkey.

In recent protests Israelis have demonstrated their agitation with the concentration of wealth in the hands of elites. Gas profits will certainly exacerbate these rifts.

With Mr Netanyahu's American-style neoliberal economic policies, the question remains: Will Israel seize on its natural gas profits and use the Norwegian model to expand a social safety net for its citizens? Or more troubling for Palestinians and the region, will Israel become drunk on its new-found regional economic power?

Mr Obama told an audience of Israeli youth in Jerusalem during his visit that "no wall is high enough" to guarantee Israel's long term security. When natural gas begins flowing, Israel could be in a financial position to test the president's thesis.

 

Joseph Dana is a journalist based in Ramallah

On Twitter: @ibnezra