Egypt’s BP gas deal is step one of a US-UK driven scheme to stave off energy crises afflicting the West’s favourite regional tyrants
This week, Egypt signed a landmark $12bn deal with British Petroleum (BP) to develop the country’s offshore natural gas resources. The West Nile Delta project aims to bring the gas onshore for domestic consumption within two years, with a view to help solve the country’s ongoing energy crisis.
But the BP deal, which also includes another British firm, BG Group, and RWE Dea owned by a Russian billionaire, is only one of many currently in play across the region involving Israel. Former British Prime Minister Tony Blair, currently Middle East envoy on behalf of the Quartet (US, UK, EU, Russia), is deeply involved.
Official sources throw light on the role Palestinian gas resources play in an internationally backed scheme to facilitate Israeli exports to neighbouring Arab regimes. They confirm that the latest Egyptian deal is part of a wider strategy to use Gaza’s gas to mollify Arab public opinion and consolidate Arab energy dependence on Israel.
Opening up the Mediterranean
Since army chief General Abdel Fattah al-Sisi took power in November 2013, about $2.9bn of foreign investment has gone into Egypt for energy production and exploration. Earlier this year, energy ministry officials confirmed that three new oil and gas deals worth billions of dollars were being negotiated.
But missing from media coverage of Egypt’s deal with BP is its centrality to a wider architecture of import and export deals, with Israel at their centre.
On 8 November 2014, the heads of state of Egypt, Greece and Cyprus were in Cairo for talks on fighting terrorism, and exploiting eastern Mediterranean oil and gas reserves. The meeting resulted in the three leaders signing an agreement on regional cooperation, particularly in terms of bringing the region’s energy resources to European markets.
Sources present at the meeting confirmed that it was a precursor to future tripartite discussions involving Israel, and that the goal was to sideline Turkish efforts to access deposits claimed by Cyprus.
The Israel export agenda
But the new deal just announced is not solely about developing Egypt’s domestic gas reserves. It is also about Egypt importing from “third parties”.
“BG Egypt is working closely with the government of Egypt and our partners to enable the increase of third party gas supply into the country, a reflection of our appreciation of the country’s need for energy,” said a BG Group spokesperson. “These agreements will enable the development and delivery of additional gas volumes to Egypt’s domestic gas market, through the utilisation of BG Egypt’s and our upstream partners’ onshore and offshore infrastructure.”
That third party is Israel. In June last year, BG Group signed a non-binding letter of intent with Noble Energy and Delek to send 7 billion cubic metres of gas from Israel’s Leviathan field to BG plants in northern Egypt over a period of 15 years.
Shortly prior to doing so, according to a senior source in the Egyptian government, a delegation of Israeli government officials had visited Cairo in early 2014 to confirm the gas export proposition with their Egyptian counterparts.
Around the same time BG signed its letter of intent with the Israeli energy consortium, Israel launched its military incursion into Gaza, Operation Protective Edge. Even as Israel resumed air strikes against Hamas after the predictable failure of an Egyptian-brokered “ceasefire”, Israeli and Egyptian officials were in secret talks over the sale of $60 billion worth of Israeli gas to Egypt.
The focus of these deals was not just about meeting domestic demand in Egypt, but to provide Israel an avenue to export to global markets. David Shrem, a Tel Aviv-based portfolio manager at Sphera Funds Management Ltd described the deals as “the first significant ones for regional export… From these LNG plants in Egypt, Israeli gas can reach European and Asian markets.”
Since then, the Egyptian government source said, officials from the Egyptian oil ministry have had several meetings in London with representatives of Noble, the Texas oil firm, and Delek Group, based in Tel Aviv, to negotiate the proposal to export Israel’s gas to Egypt. Last week, before the announcement of the BP deal, Noble and Delek officials were in London meeting with BG representatives to affirm their commitment to export Israeli gas to Egypt’s Damietta and Idku liquefaction plants.
Much of the pressure for the deal is coming from both the European Union and the US, despite concerns in Egypt that a deal with Israel could raise potential security issues, as well as popular opposition to Israel due to the occupation of Palestine.
Amos Hochstein, the State Department’s special envoy on energy affairs, as well as European Commission energy chief Guenther Oettinger, have confirmed their role in encouraging or brokering gas export deals between Israel, Egypt, Jordan, Cyprus - and potentially Turkey.
An official document from Tony Blair’s Office of the Quartet Representative shows that Gaza’s gas is intended to play an integral role in the Mediterranean gas export architecture.
Titled “The Palestinian Dimension of the Regional Energy Landscape”, the document comprises a series of slides presented by Blair’s energy advisor, Ariel Ezrahi, at the International Oil and Gas Conference in Israel, on 20 November 2014.
The presentation flags up offshore gas resources in the Gaza Marine as having the potential to “transform the Palestinian energy sector and boost the economy”, but adds that “additional hydrocarbon resources may be explored in the future”.
Yet it also suggests that Gaza Marine gas should be exported to foreign markets, with Palestine importing the energy it requires for domestic electricity requirements from Israel and Egypt.
The electric grid, the document says, should be upgraded not just for better distribution internally, but also to establish “interconnecting regional grids,” which will for Gaza involve “increasing electricity imports from Israel and Egypt”. The West Bank will become dependent on “electricity from Israel and Jordan,” while gas for the “Palestinian power sector” can come from a “Leviathan deal with the Jenin Power Plant”.
As for the development of the Gaza Marine, this should be for the purpose of “gas sales”, rather than domestic consumption, but the document does not elaborate about which export markets are envisaged. But it does mention: “Israeli gas deals with Jordan (NEPCO, Potash & Bromine), Egypt (BG, Union Fenosa, Dolphinus) for Tamar and Leviathan fields.”
In the document, this matrix of energy relations is described as creating “opportunities for synergies between Palestinians, Israelis and other regional actors,” yet in fact their impact would be to fundamentally increase Palestinian dependence for its energy security on Israel and its allies.
The real issue here is the desire to integrate Palestinian gas into Israel’s export deals, to legitimise them before a hostile Arab public. “It would be wise for Israel to at least consider the contribution of the Palestinian dimension to these deals,” Ezrahi told Ha'aretz. “I think it’s a mistake for Israel to rush into regional agreements without at least considering the Palestinian dimension and how it can contribute to Israeli interests.”
Israel, backed by its allies in the West, wants to use the Palestinians “as an asset as they strive to join the regional power grid, and as a bridge to the Arab world,” by selling Palestinian “gas to various markets,” or promoting a deal with the corporations developing Israel’s “Tamar and Leviathan [fields] that will allow for the sale of cheap gas to the [Palestinian] Authority.”
The Quartet document contradicts Tony Blair’s denial last summer of reports that he is advising Egypt’s President Sisi on a comprehensive economic plan for the country. It shows that Egypt’s energy relationship with Israel and Gaza features heavily in Blair’s vision for the region, and for Egypt’s ability to solve its economic crisis.
Blair’s Egyptian consultancy arrangement was, according to sources familiar with it, part of a taskforce financed by the UAE, Kuwait and Saudi Arabia. Leaks of recordings of conversations between senior Egyptian government officials appear to corroborate accusations that Blair is working deep inside Sisi’s regime, on condition that his involvement be characterised as “unofficial”.
The plan is not designed to benefit Palestinians. As journalist David Cronin reports, Blair’s overall blueprint for the economic modernisation of Palestine actually entails the “corporate capture” of the territories by transnational firms like Goldman Sachs, Coca Cola and Microsoft, working in cahoots with a corrupt pro-Israel Palestinian business elite. The arrangement would establish “special economic zones” permitting the “ruthless exploitation” of Palestinian labour in sweatshop-style conditions, and the “theft of agricultural land”.
Blair’s vision of “peace” in the Middle East is premised on subjugation: the consolidation of Israel’s control of Palestine by converting the territories into a colony by capitalist proxy.
The 2014 conference in Israel where Blair’s energy adviser, Ariel Ezrahi presented this scheme was organised by an obscure British company, Universal Oil and Gas (UOG). UOG is extremely close to the British government.
According to UOG’s post-conference report, the event was sponsored by, apart from Israel’s Ministry of Economy, the British government’s department for UK Trade and Investment, Conservative Friends of Israel, Denmark’s Ministry of Higher Education and Science, and the Texas-Israel Chamber of Commerce. UOG’s business development manager is Cordelia Evans, deputy chairman of London Conservative Future, the youth wing of the Conservative Party.
In early June 2014, three days before Israel began pummeling Gaza into rubble, UOG’s CEO, Michael Beagelman, and his son, COO Joshua Beagelman, were in Ramallah, in the West Bank of Palestine, to celebrate the Queen’s Birthday Celebrations courtesy of the British government. “After a successful trip engaging with Palestinian officials,” a UOG announcement said at the time, “UOG 2014 will feature oil and gas opportunities in the Palestinian Territories.”
In 2011, Deputy Prime Minister Nick Clegg attended a “business breakfast” fundraising event for the well-known health services charity, Jewish Care, co-organised by Michael Beagelman.
The chair of the UOG 2014 conference was Dr. Harold Vinegar, the former chief scientist at Royal Dutch Shell and currently chief scientist for several Israeli energy companies, including Israel Energy Initiatives (IEI), Afek Israel Oil & Gas and Genie Oil & Gas. Afek is a subsidiary of the Genie, a US firm on whose board sits former US Vice President Dick Cheney, News International owner Rupert Murdoch, and global financier Lord Jacob Rothschild. Genie is currently drilling for oil in the Golan Heights.
Another key delegate was Vice Admiral Eliezer Marom, former Israeli Navy chief, who took part in Operation Cast Lead in Gaza in 2008, as well as in the 2010 Gaza flotilla raid, where Israeli Navy officers killed nine Turkish civilians and injured scores of others.
Marom is currently senior director at Seagull Maritime Security, a private Israeli defence contractor staffed by former Israeli military and intelligence officers. Its board is chaired by Ami Ayalon, former head of Israel’s domestic security service, the Shin Bet, and the company is intimately networked with active Israeli military intelligence connections.
Marom’s firm was contracted in 2013 by Sisi to provide security for vessels passing through the Suez Canal in Egypt, which currently carries about 2.5 percent of world oil output, and 7.5 percent of world trade. Seagull also has licenses to operate in the Red Sea and ports in Jordan, UAE and Oman.
Sisi’s alliance with Israel through a private contractor to secure the Suez, is crucial to US strategic interests. A secret 2009 State Department cable on the $1.3bn in US military aid to the Mubarak regime explained the “tangible benefits to our mil-mil relationship” as follows: “Egypt remains at peace with Israel, and the US military enjoys priority access to the Suez canal and Egyptian airspace.”
Staving off crisis
There is a growing urgency to these efforts to negotiate successful agreements that could facilitate a functioning Eastern Mediterranean gas import-export infrastructure.
The unexpected toppling of Hosni Mubarak after decades of US-backed authoritarian rule was not simply a consequence of grievances stoked by political repression. Those grievances were inflamed in the context of a perfect storm of economic, environmental and energy crises.
A major background factor is resource stress. Egypt peaked in oil production in 1996. Since then, as production has plummeted, so have state oil revenues, and in turn the capacity to sustain domestic fuel and food subsidies. As a quarter of Egyptians spend half their incomes on food, the doubling of global wheat prices and the reduction in domestic subsidies became unbearable. In the run up to 2011, millions of Egyptians could not afford to buy bread. Similar conditions prevailed elsewhere in the region, propelling the prolonged mass street protests.
Morsi’s regime was unable to ameliorate these intractable structural issues. Neither has Sisi’s effort to restore military rule.
The junta is between a rock and a hard place. In order to avoid further outbreaks of popular unrest, Sisi’s regime is compelled to maintain high subsidies. But these are straining state coffers, as well as aggravating periodic gas and electricity shortages due to rocketing domestic demand.
The regime must find a way to meet that domestic demand while still exporting enough gas to sustain state revenues sufficient to keep the economy afloat, and attracting foreign investment in the process. Israel’s gas exports to Egypt are essential to help it meet all these goals.
This fundamental challenge of transitioning from post-oil economies to ones that can survive in an age of far more expensive unconventional energy forms is unfolding across the region.
Jordan, for instance, imports 96% of its energy needs at the price of $7.1bn a year, 20 percent of its GDP. Domestic energy initiatives involving nuclear and oil shale have fallen flat, not just due to management problems, but due to astronomical costs. Turkey, similarly, peaked in oil production in 1991, and now imports nearly all its oil and gas. Cyprus also imports most of its energy, but has recently discovered significant offshore gas resources that it hopes to capitalize on for domestic consumption and export. Greece imports nearly all its gas from Russia.
Within Israel itself, ongoing incompetence in the energy sector continues to generate political crises.
In 2012, before Israel launched Operation Pillar of Defence in Gaza, Israel faced an ongoing energy crisis due to surging demand in the summer and electricity price hikes, leading to rolling blackouts. In 2013, the energy blackouts continued, with electricity prices rising 47 percent, causing “chaos” in the country.
The problem is that unconventional oil and gas is not cheap to produce, but drilling rates to achieve sufficient production levels are so high that the ensuing gas glut pushes market prices low - frequently, too low to sustain profitability, as the US shale industry is increasingly experiencing.
As the cost of producing energy soars, the Quartet sees Eastern Mediterranean gas resources dominated by allies Israel and Cyprus, as critical to its regional allies meeting burgeoning energy demand and sustaining revenues. Otherwise, they cannot stave off the risk of domestic unrest.
In an increasingly fraught geopolitical context, the drive to solidify Arab, Asian and European energy dependence on Israel is also about deflecting Russia’s expanding regional influence - or at least, limiting within a framework of Western control.
The Hamas problem
The biggest obstacle in all this is Hamas. For both the Quartet and Israel, Hamas cannot be dealt with. As confirmed a year before Operation Cast Lead by incumbent Israeli Defence Minister Moshe Yaalon, the only conceivable way to access Gaza’s resources (and thereby use the Palestinian issue as a way to legitimise deals with Arab regimes) is “military action to uproot Hamas”.
Since then, though, Israel’s repeated efforts to do so have succeeded only in destroying civilian life and infrastructure while strengthening Hamas’ hold on Gaza.
Blair appears to be painfully aware that Israel’s preference for military solutions is not producing the desired result.
Last month, as Egyptian and Israeli officials were flying around having meetings with their respective oil company representatives, Blair visited Gaza and demanded that Hamas clarify whether it is part of a “broader Islamist movement with regional designs”, or if it would accept a long-term peace alongside Israel. The terms of such peace, judging by Blair’s economic blueprint for the territories, would be to accept the status of an informal ‘colony by capitalist proxy’ under Israeli dominance, legitimised internationally with the stamp of sovereign statehood.
As if to incentivise Hamas, Blair also called for a “radical change of approach” from Israel to lift trade restrictions “so that Gaza can truly be opened up to the outside world, and so that the Gaza people have the freedom of movement and goods and services that Gaza and its economy requires.” He also called on Egypt to play a lead role in brokering negotiations over Gaza’s future.
The shift in approach closely follows the EU general court’s ruling last year ordering the removal of Hamas from the EU terrorism blacklist. The EU is currently appealing the decision.
As negotiations over regional gas deals have accelerated in recent years, so have secret US and EU official backchannel talks with Hamas leaders in Jordan, Egypt and Qatar. According to one senior US diplomatic official, the ongoing talks are about trying to get Hamas to “toe the line” with Israeli demands, and “meet the criteria set forth by the Quartet” as a condition of official recognition.
There can be no doubt that military action remains an option if Quartet members conclude that Hamas is unlikely to “toe the line” far enough - and in time to ward off regional instabilities triggered by local energy and economic challenges.
The broad contours of the Quartet’s regional vision for a new Israel-centred energy architecture were alluded to last December, in a report published by the US Army War College’s Strategic Studies Institute. The study, authored by British Ministry of Defence consultants, warned that extensive US military involvement “may prove essential in managing possible future conflict” in case of “an eruption of natural resource conflict in the East Mediterranean,” due to the huge gas discoveries.
- Nafeez Ahmed PhD, is an investigative journalist, international security scholar and bestselling author who tracks what he calls the 'crisis of civilization.' He is a winner of the Project Censored Award for Outstanding Investigative Journalism for his Guardian reporting on the intersection of global ecological, energy and economic crises with regional geopolitics and conflicts. He has also written for The Independent, Sydney Morning Herald, The Age, The Scotsman, Foreign Policy, The Atlantic, Quartz, Prospect, New Statesman, Le Monde diplomatique, New Internationalist. His work on the root causes and covert operations linked to international terrorism officially contributed to the 9/11 Commission and the 7/7 Coroner’s Inquest.
The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Eye.
Photo: Blair’s economic blueprint for peace would see Gaza accept the status of an informal ‘colony by capitalist proxy’ under Israeli dominance